May 14, 2009

The Lever: Move the World

"Give me a long enough lever and a platform to stand on, I will move the earth"

When Archimedes discovered the power of the lever in the second century BCE humans had been using science and it's language, mathematics for tens of thousands of years. (Meanwhile, conceptions of God were much more recent ideas on the human memescape.) People had likely been using levers for quite some time as well but the gift Archimedes gave us, (one of many, many gifts he left for us) is the ability to calculate all the forces involved to create levers, fulcrums, pulleys, rigging, etc. to carry out the work that previously required many strong men!

Now, we use leverage and the concepts in areas beyond the strictly mechanical. In finance for example, the concept of leverage refers to the ability to attract and service debt as a growth strategy at certain phases of an entities life. Some might argue that leverage had substantial influence on the recent banking/lending crisis. We might try to understand what are the basic constituents of leverage in lending? 

In simplified form, the assets are the "weight" to be moved, liability is the "lever", equity is the "fulcrum" and cash is the force applied to one "end of the lever." Of course there are other ways to interpret the lever metaphor and finance. I suggest this one to show how the concept of lever is used in diverse situations.

Just this morning a radio commentator suggested that President Obama had leverage in dealing with Republicans and with Congress because of his popularity with the people. Political leverage is an even more abstract image for levers. What is the weight? The fulcrum? The lever?

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