Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein reveals the mathematics of chance, from the ancient Greeks through the Middle Ages and to the modern era. Bernstein grants that probably every society had traders. Certainly, all civilizations from China and Sumer to the Aztecs had professional merchants. We were first truly capitalist culture. Bernstein places the origin of capitalism in the mathematics of chance.

For Ayn Rand, capitalism began with the recognition of individual rights in the Enlightenment. That identification of those rights rested on a largely implicit realization of the individual as such, which began in the Renaissance. We ascribe the idea of the Renaissance Man (l’uomo universale) accomplished in many pursuits to the polymath Leon Battisti Alberti (1404-1472). It was at the close of the Renaissance that Gerolmo Cardano (1501-1576) – physician, priest, astrologer, musician, mathematician, and gambler – first calculated the probabilities in games of dice. In the next century Pierre de Fermat (1601-1665) and Blaise Pascal (1623-1662) extended and expanded that study. In this book, Bernstein explains that these foundations made our culture special. Never before was it accepted that we can and should discover and control the future.

“The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature.” (pg 1 ppb)

“The Greeks believed that order is only to be found in the skies ... But the perfection of the heavens only served to highlight the disarray of life on earth.” (pg. 17)

“Up until the Renaissance, people perceived the future as little more than a matter of luck or the result of random variations and most of their decisions were driven by instinct. When the conditions of life are so closely linked to nature, not much is left to human control. As long as the demands of survival limit people to the basic functions of bearing children, growing crops, hunting, fishing, and providing shelter, they are simply unable to conceive of circumstances in which they might be able to influence the outcomes of their decisions. A penny saved is not a penny earned unless the future is something more than a black hole.” (page 18)

“But the real hero of the story, then, is not Cardano, but the times in which he lived. The opportunity to discover what he discovered had existed for thousands of years. And the Hindu-Arabic numbering system had arrived in Europe at least 300 years before Cardano wrote Liber de Ludo Aleae. The missing ingredients were the freedom of thought, the passion for experimentation, and the desire to control the future that were unleashed during the Renaissance.” (page 54)

I first reviewed this book in 2008 for the Objectivist Living discussion board. Over the years I alluded to it occasionally on that and other websites. My copy of the book has dozens of Post-its. Looking through the book again to write a review for my blog last year, I made still more notes. Perhaps it is my own ignorance, but hardly a page lacks an important statement.

Those facts, insights, observations, and assertions reflect more than shopping at a supermarket. After all, von Mises called his work "Human Action", not "People at the Grocer’s." The narrative draws on many allusions and examples from the American stock markets, Bernstein being the first editor of _The Journal of Portfolio Management_ and author of several books including "Capital Ideas: The Improbable Origin of Modern Wall Street." While an impassioned capitalist, he is not perfectly consistent in an Objectivist sense. Also, oddly enough, there is very little mathematics here and unfortunately a few gaffes. (Planets revolve about the Sun; they do not rotate, as said on page 138.) Nonetheless, this is an engaging and enlightening exploration of the history of risk and its importance to our society and culture.

As an aside, one of my favorite quotes comes from Thomas Caldecott Chubb, founder of the insurance company that prospered from the arithmetic of risk: “If there were no losses, there would be no premiums.”

Peter Lewyn Bernstein (January 22, 1919 – June 5, 2009) shared his passion for markets with Robert Heilbroner (The Worldly Philosophers) with whom he attended both primary and secondary school, as well as Harvard College. (Biography on Wikipedia.) Bernstein is also associated with the efficient market hypothesis which “asserts that one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.” (Wikipedia)

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