The Physics of Wealth

"Freedom is good for design," and design doesn't always mean a designer.

As we continue this series on the constructal law, I’m happy to report that Parts One and Two have been translated into Turkish by Professor Umit Gunes (One and Two).
You may also be interested to learn of the Constructal Law Conference in Bucharest, Romania, happening in October.

Branching off from the mother theory, what might an economic corollary to the constructal law look like?

Here’s my attempt at a formulation:

For an economic system to persist in time (to prosper), its configuration must evolve such that it provides easier access to resources flowing to their highest valued uses.

Uh oh, wouldn’t that mean inequality?

Adrian Bejan is no egalitarian.

Remember that the young Romanian engineer had already been in the United States for over 20 years when Nikolai Ceauşescu got what was coming to him on Christmas Day in 1989. Despite the economic malaise of the ’70s, Bejan must have noticed the contrasts between his home country and the United States. When it came to the two systems, one flowed, and the other one didn’t.

The constructal law captures the broad tendency of social organizations to construct evolving flow systems that enable people and their goods to move more easily, more cheaply. This is not a human desire. It is physics.

Bejan now sees plenty of room for what he somewhat indelicately calls “hierarchy.” This is a term Bejan uses publicly when his preferred term, vascularization, is likely to go over people’s heads. Hierarchy to Bejan is unlike the command-and-control systems envisioned by any conducător. It is a law of organization and seldom makes room for “equity” in any egalitarian sense.

Equality of wealth may very well be an affront to the laws of organization. As Bejan quips: “Basketball is not communism.”

Just ask Stephan Curry. We’re not just talking about the money Curry makes. We’re talking about playing time and how frequently Curry gets the ball. Put another way, winning basketball teams must optimize the flow of balls into baskets. For such optimization, not all men are created equal.

There is only equality before the rules of the game.

Our new constructal law of economics dovetails nicely with a host of other ideas in bourgeois economics. The spontaneous order that Hayek pointed to—unplanned orders of tremendous complexity—may turn out to be “vascular” in Bejan’s sense. We can imagine someone buying pork chops at the supermarket. The price tag sends a tiny information signal to the buyer. Let’s say the buyer is willing to pay that price. The store manager gets a little revenue in exchange for the pork chops. The manager sends a signal (among other tiny signals) to the corporate office and to its distributors, who, in turn, send signals to suppliers/packers. They send signals to pig farmers, who send signals to traders at the Chicago Mercantile Exchange (CME Group).

These price signals flow like a river from a thousand tributaries and a million springs. In other words, price systems are vascular, and the system through which these signals flow is not a product of any person’s design. Rather, the system is an unplanned phenomenon involving numerous people cooperating for mutual advantage. At most, the system is governed by an ultra-simple rule: Prices must be free, and people must be free.

“Freedom,” Bejan says, “is good for design.”

Rigid governments lacking the ability to change are just one manifestation of the inevitable forms of resistance that obstruct flow. Instead of struggling under dictators or totalitarian governments, flow configurations evolve in one direction in time: to reduce the effect of friction and other brakes that inhibit their flow. Resistance is inevitable and unavoidable. It is why the world will never be a perfect place and why the most flow systems can accomplish is to keep getting better, that is, to be less and less imperfect. Thus the constructal law suggests the idea of progress, conveys the promise of hope: Given freedom, flow systems will generate better and better configurations to flow more easily. [Emphasis mine]

Remember that the next time you hear the term “free market fundamentalism.” Given freedom, systems will flow better. But what about mixed economies? Some might argue that top-down state interventions or wealth redistribution comport very well with constructal thinking. After all, really smart economists with a God' s-eye view can make things flow better, right?

Not so fast.

As a mechanical engineer, Bejan is interested in applying vascular designs to improve cooling systems and cars, but he doesn’t think constructal systems can be centrally designed, tweaked, or managed at the macroeconomic level. His reverence for the evolved nature of such systems is apparent when he writes:

Natural self-organization is even more widespread. It strikes closest to home in the form of connections, links and networks that constitute the societies that we know. These patterns are everywhere we look: transportation routes; urban growth and economics and business structures distributed in clear patterns all over the globe. Simpler, but equally fascinating structures, are exhibited by spatially distributed populations of other living systems, from domesticated and wild animals, to bacterial colonies.

Constructal economics goes a long way toward explaining why some people are stewards of many resources while others control few.

It might also explain some of the “long-tail” phenomena identified by writer and TED maven Chris Anderson. In The Long Tail, Anderson taught us that a larger population share lies within the “tail” of a probability distribution—more than we will find in a “normal” distribution. Now, the long tail describes the retailing strategy of selling many unique items with relatively small quantities sold of each—usually in addition to selling fewer popular items in large quantities.

As Bejan and Sylvie Lorente would say, “few large, many small.”

Companies as Canopies

In a mahogany rainforest, the canopy sucks up most of the available resources in sun and air. Mahogany roots suck up the water and mineral nutrients of the earth. Trees are nature’s “pumping stations,” taking the water from the ground into the air but keeping a lot of that water in their fibers. We get how vital these trees are to the rainforest ecosystem. Rainforests cover only about 7 percent of the Earth, yet they are home to half the world’s animal species. Despite gross resource inequalities between the trees and other rainforest flora and fauna—whether in sunlight, water, or nutrients—we think of mahogany trees as great stewards of the rainforest. Every other species depends on them, and they upon the other species. In a single tree, there is also gross inequality in the distribution of resources. The tree's trunk controls many more resources than a single stem or fluttering leaf. And yet, intuitively, we understand that this is the way the tree flows. 

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Economic ecosystems work the same way.

Imagine that a single company is a tree. The board of directors is like the major roots, while smaller investors are the minor roots. The investors enabled the company to grow when it was but a sapling. The executive team—especially the CEO—is like the trunk connected to the executive team. The executive team “holds up” the rest of the company, ensuring that the rest of the company gets what it needs (capital) to do its work. Middle management is like the limbs, branches, and boughs growing out from the trunk. Though they control fewer resources, the salespeople and front-line employees are responsible for bringing in resources in a point-to-area fashion at the periphery; they are like the stems and leaves (CO2 for photosynthesis). Turn almost any organizational chart upside down, and it looks like a tree. Of course, matters don’t end with the front-line employees. Companies, like trees, are open systems. These porous areas at the periphery are the familiar places we think of as points of exchange.

We should pause here to remember that this is a metaphor and shouldn’t be taken too far. Ultimately, the elemental unit of economics is and will always be the individual. Each person in the nexus of interactions faces his or her own set of incentives, choices, rules, and metarules. But it is striking how these elements self-organize in a tree-like fashion—even in companies like Chris Rufer’s Morning Star.

So, in the rainforest, animals are the trees’ customers: They get oxygen, food, and shelter out of the deal. The trees get carbon dioxide and soil nutrients—and they hoard it, just as they hoard most of the sunlight and water. But evolution ensures there aren’t many more efficient ways for the forest to function or distribute its resources. The same can be said for economic ecosystems. Companies and the very capable people who run them successfully are part of a wider ecosystem in which “gaps” in resource distribution are just as vital as they are to such distributions in nature. And, for both companies and trees, bigger is sometimes better when it comes to efficient use of resources. In business, they call this “economies of scale.”

What about outside the corporate organism? 

Sedans and SUVs don’t grow on trees. To create them, Ford needs raw materials to flow to its factory (a point) from the surrounding area. This involves multiple channels, including the lines of communication between the factory and suppliers—”Send us ten tons of steel and a million tires”—and the various transport routes (roads, train tracks, air transport routes) generated to ferry those materials to its factories, channels that are now strategically placed around the world to allow the company to increase efficiency.

No analogy is perfect but there are two important reasons to draw such parallels. 

First, we don't find equality anywhere when we look around at flow systems in nature. This isn’t the result of any Darwinian dog-eat-dog. It results from predictable patterns in which resources are distributed according to system flows. The CEO of a large, multi-national corporation might invite the envy or indignation of street protestors who object to something they neither understand nor ever had a hand in creating. The CEO can be a great steward of resources, both in capital and in human beings. (Though, admittedly, he can also be a rent-seeking whore who creates only paper profits through K-street kanoodling. I digress.) The CEO’s financial rewards should be tracked very closely to the extent of his or her stewardship. If a market system gives rise to the same flow architectures as the rest of nature, we have functional reasons to respect it.

*But, Max,* you might be wondering, *you have advocated self-managed systems with no management hierarchy elsewhere. What gives?* Indeed, I have argued for the decentralization of organizations, which amounts to the end of the formal CEO. My point is that given the traditional hierarchical firm—an evolved stage of organization—the CEO’s success or failure turns on stewardship. There are limits to executive stewardship. We will return to the emergence of organic holarchies another day.

Now, one may not like what nature produces, and one might live in the illusion that human beings can outdo nature. This is a typical utopian instinct, but if the constructal law is really a law of nature, it cannot simply be revised according to the whims of human designers. That is probably why designs that mirror nature to some extent outperform those that don’t. Any manufactured brain that outperforms a human brain might borrow what’s already so great about brains—i.e. harnessing self-organizing properties. Likewise, any man-made form of human social organization will never succeed if it focuses on engineering a better society. It will succeed if people can think of better rules. 

And Bejan, like Hayek, doesn’t think of atomized parts or centrally directed collectives. He sees that flow systems based on good rules are something in between—something that is not perfect but is likely to benefit any given person.

To wit:

This insight challenges the Darwinian concept of winners and losers. In time, some species do flourish and others wither away. … The constructal law teaches us to see all flow systems as components of a single organism, the entire globe, which evolves its design to enhance its flow. They are not competing against each other but working together. The idea of winners and losers might make sense if evolution were a zero-sum game with no direction in time. But because flows morph to increase flow access for the whole, the whole becomes the winner.

And so it is for richer and poorer. “The big need the small,” Bejan says, “just as surely as the small need the big.” Human ways of managing the flow of resources are extensions of human beings and are, therefore, just as important as in nature. Perhaps then, we should experience the same wonder and awe when we look at the New York City skyline as when we look at the Blue Ridge Mountains.

Second, corporations do not exist in isolation. They are, a la constructal theorist Sophie Lorente, the “few large” members of a wider ecosystem that includes many small, interconnected “stakeholders.” I hesitate to use that term, as the parasites of special interest politics have adulterated it, but former Whole Foods’ CEO John Mackey articulates the concept well:

Surrounding [Whole Foods’] central purpose are the various constituencies: customers, team members, suppliers, investors, and the community and environment. All are linked interdependently. Retail business provides a simple model to illustrate that management’s role is to hire good people, train them well, and do whatever it takes to have those team members flourish and be happy while they are at work. The team member’s job, at least at Whole Foods Market, is to satisfy and delight the customers. If we have happy customers, we will have a successful business and happy investors. Management helps the team members experience happiness, team members help the customers achieve happiness, the customers help the investors achieve happiness, and when some of the profits from the investors are reinvested in business you end up with a virtuous circle. I find myself continually astounded about how few business people understand these linkages.

Whole Foods Market is a wonderful example of a constructal phenomenon—a large interdependent organism whose raison d’etre is creating value for customers.

Intelligent Design?

It turns out the systems that flow best are usually not the ones that are designed or controlled but the ones that have evolved. Bejan’s engineering-design students are mimicking nature after all—not the other way around. This is not to say that we shouldn’t try intelligently to design artifacts, such as cooling systems or silicon wafers; Bejan is a mechanical engineering professor. Rather, it is to say that the insights of the constructal law should give us humility before those great and complex systems that evolve organically over time due to distributed processes. These structures are not objects of “intelligent design.” They are the products of spontaneous order.

In a Similar Vein

Playing with constructal logic allows for both lateral thinking and systems thinking. In other words, when you let a principle of system flow hang out in the background as you think about this or that, you save yourself a lot of time, energy, and trouble. Bejan’s principle is an organizing rule of nature. 

Even as I write this, I am involved in vascularization. I have taken many of these quotations from Bejan’s and Zane’s book Design in Nature. I have performed both a kind of synthesis and branching that will bring Bejan’s ideas not only to those interested in economics but hopefully to a wider audience.

The current of Bejan’s ideas is coursing through the veins of an infinitely complex information system out in the world and is destined to arrive in the higher centers of your brain.

Where will it branch from here?

If you missed them, you can read Parts One and Two.