Illustration: Mattieu Marechal. Source: Wikimedia
A critical state is a concept from thermodynamics where something is ready for a phase change. Think of water turning to ice. When you look at a body of water that’s close to freezing, it looks just like normal cold water. But microscopically, the water molecules are quite different.
When water is close to freezing, it’s filled with tiny ice crystals – crystals so small that the water remains in liquid form. But this water is in a critical state. Any further cooling will cause these ice crystals to bond with one another, generating the lattice that we know (and love) as ice. The crystals that formed at this final point weren’t what caused the freezing. They were just the last straw. The real cause of the freezing was the criticality.
Photo: Gerd Altmann. Source: Pixabay
History is full of examples of critical states. Did the assassination of Archduke Ferdinand cause World War I? Or were the conflicts of the Great Powers already in motion, waiting for a spark to set them off? Did Rosa Parks start the civil rights movement when she refused to give up her seat? Or was the movement already running in the hearts and minds of black Americans? Did Lehman Brothers’ bankruptcy trigger the financial crisis? Or was the global financial system already in a critical state?
Systems and networks can make what individuals do relevant. Your children or parents or pets aren’t your full family, and individual stories are just a part of a much larger story. Nature’s imagination is bigger than our own.
The stock market is part of a much larger financial system. Stock prices reflect the residual growth of corporate profits, which themselves are only about 10% of our economy, which is itself less than a quarter of the global economy – made up of consumers, producers, companies, regulations, taxes, borrowing, and spending. And economic behavior is just a slice of human behavior – even if it is a very important slice. We can only see if we’re in a critical state by looking below the surface, at the micro-structures and internal networks of society.
The poet John Donne knew more than he realized: no one is an island. We’re all a part of the main.
Douglas R. Tengdin, CFA
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