Malcolm Harris on Palo Alto, the “Town That Efficiency Built”

This week on The Maris Review, Malcolm Harris joins Maris Kreizman to discuss his new book, Palo Alto: A History of California, Capitalism, and the World, out now from Little Brown and Co.

Subscribe and download the episode, wherever you get your podcasts.

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On the beginnings of the Palo Alto System:

MK: Palo Alto is synonymous with Silicon Valley and the tech industry these days. But as you point out over and over again in the book, there was so much history that led us up to this point, starting with the fact that these companies are situated on stolen land.

MH: Yeah, I think that’s really where you have to start the story. So far histories of Silicon Valley, if they allude to this period, it’s in a sort of disconnected way, where that was something that happened back then, and this is something that happened later. And as a kid who grew up in California, that’s definitely how they teach the history. There’s the pre-Anglo period, and then there’s the Anglo period, and these are disconnected phenomena. And that’s just not the case.

MK: The idea that everything is so connected really hit home when you talked about efficiency, which I think is this really tech bro thing to talk about. But back in the day in Palo Alto, there was horse breeding and panning for gold that was meant to be done with efficiency. And then the worst example of this that you talk about in the book is the “efficiency” of the nuclear bomb.

MH: Yeah. California, in its Anglo-American period, really builds on this efficiency. And Palo Alto in particular is the town that efficiency built, starting with this horse stock farm where Leland Stanford and his crew tried to reinvent the horse. This is the first Palo Alto disruption. He has this plan where he’s gonna make every horse in America $100 more valuable through his horse breeding program. And he has some crazy successes in terms of transforming the horses, but obviously does not end up improving the value of every American horse by $100 in the way that he imagined. And this is sort of the formula for what we come to understand is Silicon Valley, and it’s called the Palo Alto System.

MK: Say more about the Palo Alto System. I think about all of the startups I’ve worked for where we are expected to have quick growth year over year until forever, and that’s the only definition of success.

MH: From the beginning, the Palo Alto System was really about optimizing a sense of potential. So the problem they were dealing with was looking at selling trotting horses—or really, trotting horse semen, which is how you make new trotting horses. And that’s the easier thing to sell rather than the horses themselves: the genetic material or the intellectual property, really. So already we’re talking about Silicon Valley, right?

But the problem with their plan was that it takes too long to figure out if a horse has, you know, winning seed. Because you’ve gotta wait till they get older, and then you’ve gotta wait till they have kids. And then you’ve gotta wait till the kids get older. Because in horseracing at the time, colts weren’t really tested. They waited till the horse was a couple years old to start training them to race, but the Palo Alto System involved training them to race basically as fast as possible, as young as possible, so they could get an optimized sense of potential.

And so this was really great for sales. It didn’t necessarily correlate, again, with horse value in the way that they imagined. This is a particular genetic ideology about how the quality of the horse is always implicit in the horse itself in its genes, and you’re just expressing it. Which is very convenient for your sales pitch if what you’re selling is the genetic material rather than the training, which is hard to reproduce offsite.

But that’s what they really invested in, was this training center, and that’s the beginning of Palo Alto as well as the Palo Alto system.

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On the skewed logic that’s dominated venture capital:

MH: Once you’ve got an economy that’s being driven by the need to find sinks for vast accumulated piles of capital, you’re no longer looking for the most stable, promising business necessarily. You need to find something that can absorb billions of dollars very quickly right now, and that can show that promise. Because if I say, oh, I wanna start a bookstore, I think that there’s a really good opportunity to sell some books, then I can’t absorb a hundred million dollars. There’s nothing I can do with that, right? I’d just have to give it back to the investor. That’s not how much it costs.

But if I say I’m going to revolutionize book reading for the entire world and I’m gonna spend millions and millions on something that’s supposed to lead to that happening, that at least is something they can bet millions of dollars on. A bookstore doesn’t help me if I have to find somewhere to put a hundred million dollars, whereas this plan for BookFlix [the Netflix of books, of course] might not be a very good idea at all.

It might be the worst idea in the world, but at least it can take a hundred million dollars. And if that’s one out of 20 of my bets, then I just have to show a one in 15 chance of doing great, then I’m set. That sort of logic has dominated venture capital. And crypto is really taking it to the nth degree where it’s just straight up a pyramid scheme.

And yet you have venerable venture capital firms just going all in. A thing where there’s just no there there. And for those of us who thought critically about it, it was very clear the whole time that there was no there there.

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Recommended Reading:

Stayed on Freedom by Dan Berger • Finding Time Again by Marcel Proust, translated by Ian Patterson

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Malcolm Harris is a freelance writer and the author of Kids These Days: The Making of Millennials and Shit is Fucked Up and Bullshit: History Since the End of History. He was born in Santa Cruz, CA and graduated from the University of Maryland. His new book is called Palo Alto: A History of California, Capitalism, and the World.