“He will not go far who knows from the first where he is going.” So spoke Napoleon as he launched his brilliant, tempestuous, and catastrophic career from Versaille via Moscow to St. Helena’s isle. A heroic spectacle for a man, perhaps, but a less inviting trajectory for a nation. Countries in their foreign affairs cannot afford to learn by doing, cannot easily earn the rewards of enterprise and experiment; they must have a good idea of where they are going or they may end up in catastrophe.
A central role of statecraft is managing and assigning risks. Politics is in a great degree a science of insurance. In the international realm, leaders of great peoples must act with caution, for there is no effective insurer of nations, no policies for Napoleonic, much less nuclear wars, wars. But in its domestic affairs the state must take equal care to balance insurance with risk. The individuals and businesses of a society cannot know too well where they are going- outcomes cannot be excessively preordained –or the economy will become too inflexible to prosper in a world of uncertainty. Individuals may feel secure under such a fail-safe system of comprehensive insurance (of income, jobs, equality, demand, health), but the entire society will suffer the grave and often irremediable risks of failure to adapt to change.
At the same time, too much risk and uncertainty in domestic affairs will destroy the feeling of faith in the future that is the foundation of capitalism. Indeed, in capitalist systems the desire for security has often been as important to enterprise as the spirit of adventure. The heroic efforts of enterprise often begin in the humble pursuit of safety. These two impulses lead on the one hand to saving and on the other to investment.
Perhaps the central secret of capitalist success is the ability to convert the search for security, embodied in savings, into the willingness to risk, embodied in enterprise. The financial markets enact this crucial alchemy, turning fear into growth, caution into creativity, timidity into entrepreneurship, and the desire to conserve into the desire to build and innovate.
From the new edition of Wealth and Poverty by George Gilder, chapter ten.
The essence of politics is the management of risk and security. The success of a capitalist system is dependent on the financial markets’ ability to manage these two factors. Allow too much risk and we have disturbing economic convulsions that can encourage political instability. Push for too much security and the economy grinds to a halt unable to afford the growing welfare state with its never ending guarantees.
Nobody said this was easy.