Stories about the Olive, part III: Thales on Wall Street

thales

The olive, as we have seen, can be a blessing and a curse. The decades spent investing and waiting for the trees to mature can reward you with liquid gold, precious and civilising, or they can render you hostage to a protection racket. Uncertainty is heaped on uncertainty: the trees cannot be counted to produce a good harvest every year, and when they do, you have to join the queue with your neighbours for a slot at an olive press before they start to rot.

Where there is uncertainty, there is room for speculation, and in this unlikely but culturally rich nexus, the classicist meets the financial engineer.

In his Politics, Aristotle wrote what is believed to be the first description of a financial derivative. Describing a number of “methods that have brought success in business to certain individuals”,  he wrote of a scheme devised by the philosopher Thales of Miletus (c. 624-546 BC):

Thales, so the story goes, because of his poverty was taunted with the uselessness of philosophy; but from his knowledge of astronomy he had observed while it was still winter that there was going to be a large crop of olives, so he raised a small sum of money and paid round deposits for the whole of the olive-presses in Miletus and Chios, which he hired at a low rent as nobody was running him up; and when the season arrived, there was a sudden demand for a number of presses at the same time, and by letting them out on what terms he liked he realized a large sum of money, so proving that it is easy for philosophers to be rich if they choose, but this is not what they care about.

In other words, Thales made a small downpayment to secure the use of the presses when demand was low, and cashed in during peak season. He capitalised on his unique insight on the weather to corner the market in olive presses. Aristotle’s telling has the quality of an archetypal moral fable – “it is easy for philosophers to be rich if the choose, but this is not what they care about” – that readers can easily recognise in modern popular narratives of the financial crisis, like Michael Lewis’s The Big Short, the story of the oddball traders who saw the credit crunch coming.

The economy of Aristotle’s description does not allow us to determine whether Thales invented the future or the option, a technical distinction which would have made the difference between him losing his shirt or just his deposit, had he been proven wrong in his prediction. But that distinction is not essential to the story as it is told. Thales, the philosopher speculator, the first hedge fund manager, driven by the intellectual challenge rather than by the profit motive, may have invented the fruit of good or evil: an instrument for managing the risk of unpredictable harvests, or a tool for the enrichment of the ‘enlightened’ few at the expense of the many. A tale as old as the olive groves.

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Stories about the Olive, part III: Thales on Wall Street

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