The title, admittedly, may be too optimistic. That starting a post off with a series of caveats be a good thing is questionable, but I’d rather be safe than sorry. First, it’s been some time since I’ve researched military history. Before economics, it was may preferred hobby, but a string of personal experiences turned me off that route. Second, I willingly admit that there are exceptions to the rule, and there always are. But, there is an interesting parallel between a successful military — as I perceive it — and markets. The agents of comparison are great military commanders and entrepreneurs, respectively.
I don’t exactly remember how I came to think about this topic. But, I wondered what the probability is that an ancient kingdom or army be paired with a “military genius.” At the time, those eligible to become “great commanders” were few and far between, usually narrowed to nobility. Oftentimes, the fates of different people were directly contingent on martial success. My studies of entrepreneurship suggest that the notion that some are genetically predisposed to be better at something as broad as predicting future state of affairs is hollow. I figure the same is generally true for military genius: that the father was a great commander doesn’t guarantee than the son will follow in the former’s footsteps. The next thing to assume is that there is some probability attached to each individuals’ potential to be a “military genius,” and that success may have much to do with dumb luck. It’d be grave folly for a nation to put its future in the hands of the miniscule probability that it will be saved by a great military leader.
A consistently successful military, therefore, has to institutionalize excellence. In armed forces where leadership was constrained to a small elite caste they accomplished this through institutionalized disciplining of soldiers. For example, the Roman army did well — on average, knowing how difficult it is to discount the periodic disastrous battles they’d fight — despite being led by men who weren’t necessarily chosen for their genius. During the Punic Wars, for example, it was customary for the two consuls of the senate to switch off command on a daily basis. Yet, save for certain debacles (Trebia, Trasimene, Cannae, et cetera), the Roman army did remarkably well. Failures were oftentimes substantial, but they were mostly the exception to the rule. The Roman army was simply well trained, well fed, well equipped, and well organized. The same is true for the various successful Greek armies. Changes in political hegemony were often caused not only by sudden appearances of game-changing leadership, but significant changes in the institutions of the military themselves.
As the opportunity to command was gradually opened to a broader set of the population, excellence was not just institutionalized through training and organization of the soldiers under the commander’s leadership, but also through the design of a process of selection that weeds out the good from the bad before reaching the battlefield. Thus, for example, the German Wehrmacht of the Second World War is generally commended for breeding a large number of able commanders. The same is true of the U.S. armed forces. Oftentimes, when one institution or the other fails it becomes obvious through performance. While I think some historians (slightly) overemphasize the consequences of Stalin’s purges during the late 1930s, it’s clear that the Red Army suffered from institutional failures. Within the time period of 1939–40, the Red Army went through a drastic reorganization from larger, more unwieldy mechanized corps into smaller units. The German invasion in June 1941 caught the Soviets in the middle of this reorganization, and the Russian military was torn to pieces. Even with the appearance of putatively talented commanders — e.g. Zhukov, Rokossovsky, and Konev — the Red Army fared poorly. Tellingly, though, it preformed quite well against other armies not known for institutionalized excellence: viz., the Japanese army in Mongolia, in 1939.
There are always exceptions to the rule. Hannibal, the great Carthaginian general who brought Rome to the brink of catastrophic defeat, commanded a relatively small army of soldiers of heterogeneous quality. Hannibal simply knew how to use this to his advantage, and he had sufficient elite troops to get the difficult parts of the job done. The probability of a great military genius arising may be small, but it still exists.
The parallel with markets is as follows. While from time to time there may be a truly gifted entrepreneur, most entrepreneurial action has a certain probability of success attached to it. For the sake of argument, we can assume that that probability is fairly low. How then can an economy grow if there is no guarantee that our resources will be used well? The market institutionalizes excellence. It disciplines those who preform badly by weeding them out, taking capital out of the hands of those who do poorly and putting it in the hands of those that preform well. We could rely on the possibility that somebody may come and do better than all the bad entrepreneurs combined, thus helping the economy progress, but this wouldn’t be a reasonable policy. Rather, society — intentionally or unintentionally — has designed a framework to help bring about positive results, even when the individual probability of success is low.
Historians often focus on the great figures of history: Alexander the Great, Hannibal, Caesar, Charles I (of Spain, V of Germany), et cetera. In the same way, those who look at economic history sometimes emphasize the role of important men: Cornelius Vanderbilt, John D. Rockefeller, Andrew Carnegie, et cetera. But, the most fascinating stories of great armies and great economies aren’t about particular historical figures, but rather about how humankind has created institutions that help bring about success in an environment burdened by the ubiquity of failure. Indeed, if we were to rely on great men alone, human civilization would more likely than not be a far cry from what it presently is.