In chapter 25 of Machiavelli’s Prince, we see the problem of fortune and the challenge it presents to a prince. In this instance, we are using fortune to refer to risk. The two are not exactly the same so one cannot use this in a strict analysis of Machiavelli’s meaning. Instead, I am going to apply Machiavelli in a less analytically robust way to make the terms interchangeable. The problem is not simply risk, as risk, but how one deals with it, respects, and understands it.
For Machiavelli, risk was closely associated with nature. The prince’s ability to control nature is related to his ability to control fortune.
So it happens with fortune, who shows her power where valour has not prepared to resist her, and thither she turns her forces where she knows that barriers and defences have not been raised to constrain her.
Most hedge fund managers work with a belief framework that if they have not conquered risk, they have at least built the barriers and defences to constrain it. They know that their derivatives, their algorithms, their personal brilliance and hard work will be enough to sustain their success and fortune.
In many ways, Machiavelli will be the most appealing of philosophers for hedge fund managers and investment house CEOs. His exhortations to audacity and bold action suit the worldview of partners and CEOs who make audacious risks and deals. They are making the big plays, staking fortunes, waging a titanic struggle for profit and glory. All the time, they are walking the tightrope between profit and loss, between winning and losing, between the market and their competitors.
In a sense, the deal, the profit, the bonus are emblematic of a youthful vigour infused in the system. Like the youthful vigour that fuels Hollywood, in a different way, youthful ambition is the essential force within Wall Street. The men pursuing the profits, the deals, and creating the margins, are acting with a self-belief so audacious that they cannot fail. Like Machiavelli’s prince, they will be able to control fortune (risk) through their ambition and willingness to push the boundaries for more.
I conclude therefore that, fortune being changeful and mankind steadfast in their ways, so long as the two are in agreement men are successful, but unsuccessful when they fall out. For my part I consider that it is better to be adventurous than cautious, because fortune is a woman, and if you wish to keep her under it is necessary to beat and ill-use her; and it is seen that she allows herself to be mastered by the adventurous rather than by those who go to work more coldly. She is, therefore, always, woman-like, a lover of young men, because they are less cautious, more violent, and with more audacity command her.
They know that fortunate favours the brave. They will take the risks, they will work harder, they will push the boundaries because such is the down payment to success in the global financial market. All of this and more is what they pledge to control fortune. Yet, this is the great fallacy and hidden danger within the wall street ethos.
What hedge fund managers and financial speculators forget is that fortune cannot be controlled. They forget, at their peril and ours, that fortune is closely related to nature. Risk, in the end, is natural phenomenon. Man cannot tame nature. The great delusion of modernity is that single belief that nature can be known and because it is known, it can be conquered. Instead of Machiavelli, they need to remember an earlier, classical, understanding of nature.
Horace describes the problem of risk so well naturam expellas furca, tamen usque recurret. (You may drive out Nature with a pitchfork, yet she still will hurry back.)
So what does this mean? It means that we have to remind ourselves of nature’s power. We need to respect nature. The financial hurricane that swept through America’s housing market was as powerful as the natural hurricane Katrina sweeping through Gulf Coast states. When we remind ourselves of nature, we do not become timid or complacent. Instead, it should turn us to look to perfect it and not looking for more. Interestingly enough, nature itself produces an unstoppable abundance, and in that, our human nature shares an affinity, seeking out more. Yet, it is in constraining our natural rights, our desire for more, that we can find our humanity and connect to something more than our appetite.
In these episodes, people have a choice. We can choose how we are to live and what we want to make. We can consider our future guided by Machiavelli, living in an eternal tension with fortune, striving after something illusory. Alternatively, we can live with the laws of nature, and nature’s god, to find a balance within what we do, its effect on us, and its effect on others.
What choice are you going to make today?