Providential Societies

Providential societies, as we might call them (with apologies to Ms. Bogan)—societies that no longer have the stomach for economic, social, cultural, or military risk—are analogous to investors who have lost their tolerance for market risk. It is an iron law of modern portfolio theory that rewards are, at least within reason, positively associated with the risks incurred. Investors can avoid risk quite easily: by, for example, putting all their money in Treasury bills. But this is the investment equivalent of sticking one's head in the sand and hoping to become invisible. Progress marches on, carrying along with it its handmaiden, inflation. Investors who own only Treasury bills become a little poorer every day in real terms. If those investors are unfortunate enough to have to pay taxes on their meager interest, their backward progress accelerates profoundly. Investors who cannot tolerate risk therefore die a little bit each day investment-wise, becoming slightly poorer than they were before, a process that leads inevitably to economic death; that is, to poverty.

Like risk-averse investors, societies that become unwilling to take risk also die a little bit each day, becoming a little poorer relative to societies that are more vigorous. It is essential, for example, that individuals be willing to take entrepreneurial risk—otherwise, new businesses will not be formed. But taking entrepreneurial risk means accepting the risk of personal failure and the risk ...

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