#20:Finance, Technology, and Power

The development of finance has always coincided with the evolution of technology. While settlement, risk management, and fair pricing are also key functions of finance, in this column, I will focus on “funding” and “investment” because they contribute to value creation directly. After the Battle of Waterloo in 1815, the Rothschilds learned of the outcome of the battle before anyone else via their unique communications network of horse-drawn carriages and fast (for the time) ships, and with that information, they reaped huge profits on the London bond market. During the Industrial Revolution, it became possible to raise funds through well-developed securities markets. By investing funds raised through stocks in cutting-edge steelmaking technology, Andrew Carnegie, as a steel magnate, amassed the largest personal fortune of his time. In the 20th century, the advancement of computerization of financial systems (such as ones for bank accounting) and the development of international-remittance networks accelerated and globalized fund raising and investments. Moreover, advances in financial engineering led to the development of derivatives such as collateralized debt obligations (CDOs) and credit default swaps (CDSs), which enabled advanced risk diversification and brought enormous profits to fund managers. However, their complexity and specialization led to the “black box” nature of advanced financial products, which led to governance failures and even contributed to the global financial crisis.

Aiming to capture “rent” (excess profits), finance plays the role of connecting those who need money with those who have excess cash. Rent is the difference between one thing and another. Profits cannot be generated without such differentiation. Technological innovation achieves dramatic differentiation. Raised funds are invested in innovative technologies with the aim of achieving the highest possible return. For example, the Queen of Spain, Isabella I, who funded Columbus’s grand westward voyage, and venture capitalists investing in startups in Silicon Valley and Shenzhen are both betting on the potential for huge profits that will be generated by unique technological innovation. These investment cases have produced astonishing returns. Queen Isabella’s support for Columbus’s voyages enabled Spain to acquire vast territories in the Americas and amass enormous wealth by plundering the Aztec and Incan empires. In another example, Sun Microsystems co-founder Andy Bechtolsheim’s initial $100,000 investment in Google has since grown thousands of times in value.

The Renaissance was a time when humanism rose to power and new artistic culture flourished, while science, technology, and financial functions also developed. During the Renaissance, the Medici family amassed enormous wealth through banking. Unlike traditional merchants who specialized in their local area, they formed an international financial network, promoted the use of bills and credit transactions instead of cash, and implemented meticulous asset management through double-entry bookkeeping. Such financial innovation enabled the creation of sustainable rents. The Medici family enjoyed further prosperity by establishing strong relationships with the political world, which also led to their downfall. In particular, they made a huge loan to King Edward IV of England, who ultimately defaulted on the loan, and they subsequently slipped from their position of glory.

The inauguration of President Trump was attended by CEOs of Big Tech companies, including Meta’s Mark Zuckerberg, OpenAI’s Sam Altman, Amazon’s Jeff Bezos, and Google’s Sundar Pichai. YouTube, Meta (Facebook), and X (formerly Twitter) agreed to settle claims over their past handling of accounts of President Trump. NVIDIA will pay 15% of its Chinese sales of AI chips to the US government. The “AI Action Plan” announced by the Trump administration in July aims to achieve global dominance in AI by promoting AI development through deregulation, developing AI infrastructure, and promoting the spread of American AI technology to other countries. Clearly, Big Tech and the Trump administration appear to have a strong bond. Accelerating development of AI will also spur financial innovation, which will lead to more precise and faster fund management and investment decisions, creation of new financial services, and autonomous procurement and management of funds by AI agents.

In the TV drama “House of Cards,” the protagonist, Frank Underwood (played by Kevin Spacey), says, “Money is the Mc-mansion in Sarasota that starts falling apart after 10 years. Power is the old stone building that stands for centuries.” Money is raised and invested, and then it grows. Technological innovation can rapidly accelerate that growth. The residents of Silicon Valley create new value and gain wealth through groundbreaking ideas and cutting-edge technology. But do both technology and money have to bow to power inevitably? Or, as DeepMind founder and Nobel Prize-winning chemistry researcher Demis Hassabis believes, will AI technology eventually usher in an “age of radical abundance,” in which not only finance but even politics will be governed by algorithms?