Re: Lyle's Laws

Peter C. McCluskey (
Sun, 5 Jan 1997 19:35:20 -0800 (Hal Finney) writes:
>You then form an infinite sum, adding each estimated future dividend
>multiplied by the discount rate appropriate for that distance in the
>future. This gives you the total discounted future return for the stock,
>and that, according to this model, would be the stock's value for you.
>Average this over all market participants and you get the stock price.
>Now consider how this model works as we approach an era where industrial
>production grows explosively, due to nanotech, or AI, or self-reproducing
>cheap robots, or some other breakthrough. This can cause returns from the
>stock to begin increasing at a rapid rate, even faster than the discount
>factor reduces them. The result could be that the infinite sum above
>diverges! The stock will in fact, today, have an infinite value to you.

This assumes the discount rate is unaffected by the explosive economic
growth. But what sane person would use a discount rate that is significantly
lower than the economic growth rate?

It makes no sense to pay more for a stock than it would cost to
create a similar new company. While there some assets that can't
be quickly duplicated (Bill Gates' brain, Nabisco's reputation, etc),
I don't see how they can explain why people would pay orders of
magnitude more for stock shares than it would cost to start a
similar company.

>Right now not many people would believe this reasoning. But as we
>approach a singularity era, and more and more people start to sense
>"great things just beyond the horizon", it will become more accepted that
>owning productive resources is going to be the ticket to future wealth
>beyond imagining. Stocks and other productive assets will become
>overwhelmingly attractive. We will see a sudden transition to a regime
>where everyone expends all other resources to buy stocks. The result
>would be a one-time transition, an explosion in stock prices.

>This would not be a conventional speculative bubble, where people invest
>just to get temporary gains from the ongoing price rises, but rather a

The majority of people who buy near the peak of a bubble think they
are long term investors buying at the start of a new era (usually with
rationalizations like those in Lyle's parody).

>I would expect the financial explosion to occur a few years to perhaps a
>few decades before the productivity explosion, depending on how farsighted

What would cause the value of labor to decline relative to capital
years before the cost of duplicating human-level intelligence is
What would cause the value of cash and cash-like assets to decline?
One of the reasons that these assets have value is the ability they
provide to quickly move one's assets into new (unanticapted) investments.
Since my intuition is that the period you are talking about will
produce enormous uncertainties about which companies will produce
or benefit from breakthroughs in nanotech or AI, I expect I will
value cash fairly highly.

Peter McCluskey |                        | "Don't blame me. I voted | | for Kodos." - Homer Simpson |     |