But it also reduces the costs of pursuing such strategies. In other words, liquidity unlocks the impatience gene. Investors whose judgement is wrong, but whose timing is right, can lock in immediate gains. Liquidity, too, can pollute the gene pool by allowing the impatient to prosper. Like information, liquidity can be too much of a good thing. 24 So we have pitchfork equilibrium: along one prong virtue, along the other vice. As in other social systems, these two financial equilibria have neurological roots and sociological branches. They yield, however, very different economic fruit. This dual-self world is structurally schizophrenic: financial innovation is both good and bad; information is both solution and problem; liquidity is both cure and curse; investors are both abstemious and addicts. 22  Chen (1995). 23  Bernholz (1997). 24  For example, Laibson (1997). BIS Review 114/2010  7  So which evolutionary gene is dominating finance in practice? Is bad money driving out good or the reverse? Is history repeating itself as the Yuan or the Ming dynasties? Patience in finance There is ample evidence, theoretical and empirical, of self-improving financial cycles. From the Medici banks in Italy in the 13th century to the joint stock banks of he 19th century to the explosion of capital market finance in the latter part of the 20th century. Today, China provides no better example of that self-improving cycle in motion. But can financial systems overshoot onto the impatient path, where too much liquidity and information unlock the impatience gene and its ugly progeny.
These dual equilibria make choosing the right pace and path of financial reform crucial. Some countries, like China, appear to be proceeding along the patient path. The choice is how to pace reform to prevent overshooting onto the impatient path. For countries which have already liberalised, the choice is how to promote patience while harnessing impatience. These are real public policy choices. Patience and impatience Patience, we are told, is a virtue. That has been the verdict of theologians, philosophers and authors for well over 700 years. Interestingly, it was also the verdict of the earliest economists. In his Theory of Moral Sentiments (1759), Adam Smith declares: “The qualities most useful to ourselves are, first of all, superior reasons and understanding, by which we are capable of discerning the remote consequences of all our actions; and, secondly, self-command, by which we are enabled to abstain from present pleasure or to endure present pain in order to obtain a greater pleasure in some future time”. BIS Review 114/2010  1  So for Smith, patience was both a distinctive and valuable human commodity. Subsequent research has shown he was right. Patience is peculiarly human. Our nearest evolutionary relatives, discount almost entirely outcomes more than one minute into the future. 1 It is not that animals are incapable of far-sighted behaviour – for example, squirrels collecting nuts or birds flying south for the winter. But these are not acts of spontaneous self-control, like saving or dieting. Rather, they are genetically pre-programmed.