Editor’s Note: This Part II of a series. Before continuing, please read Part I, if you haven’t already.
Any society practices division of labour to some extent, and hence, needs some way to keep track of who is pulling their weight, and who is not. The fundamental idea is, of course, that someone who contributes to society’s well-being acquires some form of credit that gives him permission to ask society to do him some favour in turn. It is entirely conceivable that in some small societies – such as some close-knit families, or maybe some abbeys, all this bookkeeping on who owes whom how big a favour is done only mentally, without any form of written record or specific token. Usually, however, this keeping track of favours easily gets out of hand and becomes so confusing that societies soon start to rely on some sort of additional device – not for all processes, but at least for a considerable share of them. Let us for now call any such socially agreed upon way of keeping track "a currency". It is perfectly normal in any society to see multiple quite different currencies being in circulation simultaneously, from bank notes to invitations to a barbeque. This is important to note, for we normally associate only one concept with the term "currency": some sort of "formal money" (where we usually think of coins, or bank notes, etc.). Hence, it is sometimes necessary to remind ourselves that this might be overly narrow-minded.
The observation is that just about any culture at some point developed their own concept of such "money". While some see money as an "ingenious invention", it should quite likely rather be regarded as anthropomorphic, i.e. the emergence of "money" is pretty much inevitable in any but the smallest human societies. The reason is simple: (a) People trade. This is nothing but a very specific form of a mutual exchange of favours. But as people do this for a while, they soon find that (b) there are some items that are worth having even if one does not intend to consume them oneself, as they are generally highly desired, and hence can be used to trade them for other goods for personal consumption. Quite remarkably, the concept of acquiring a possession just because it may be useful to somebody else might not be only a human invention. (In , one finds a fairly amazing story of a tame fox.) Obviously, some of these prized goods will be more convenient to trade with than others, especially those that keep well, are easily transported, durable, easily partitioned, and assessed for quality (one might e.g. think of spices, or salt). These are a "more convenient money" than other, especially perishable, goods, and (c) hence gradually out-compete such "less convenient money".
In our society, money is understood as the main tool by which the market mechanism allows people to express preferences. If something which previously could not be traded for money becomes available by establishing a market, that means that market participants get a wider choice of options to weigh the desire to have very different things against one another, and "more choice" evidently cannot worsen one’s situation. Or can it? Compelling as this logic may seem at first, its naive application leads to some fascinatingly discomforting proposals, such as the idea of dealing with the shortage of organs for transplantation by establishing an open market for them . Something seems not quite right here – after all, according to this "logic of the market", it should also be possible to buy and sell one’s right to vote, shouldn’t it? Still, it is quite tricky to point the finger at the problem.
One important issue is that "everything works in both ways", so connecting a previously independent society to the market of western civilization may allow great rhetorics of "giving poor people more choice, access to a huge new range of options to use their money, plus a market for their products which did not exist before" – but there is another side to that. In a certain way, there is a physical analogy for the problem: Markets equilibriate, and so do conductors. If we make our environment more conductive, e.g. by humidifying air in a heated room in winter, that prevents the build-up of undesirable pockets of isolated charges, which can cause fairly extreme voltages, and give rise to unpleasant electrostatic shocks. So, linking parts of the environment with conductors to prevent excessive voltages seems to be a good idea. But would that also be the case if one connected the radiator to mains power? What are, after all, a few hundred volts in comparison to the tens of thousands of volts of static electricity sparks? Hmmm… good question, isn’t it? The big difference here is that build-ups of static electricity will only move tiny amounts of charge (hence energy), while the electric grid can push around a lot of charge. A key question is: how much does the pressure (price, voltage) decrease if we move a given quantity of the stuff (goods, charge) that feels it? So, connecting a previously isolated economy to a big market economy will create a situation where even minor fluctuations in the latter may have a devastating effect on the structure of the former. Ultimately, the big market economy will assimilate and hence destroy the formerly independent economy. (There is another interesting physical analog: if one connects two half-inflated air balloons of about the same size, then "equlibiration" will make the larger one grow at the expense of the smaller one. While tension due to surface curvature on the smaller balloon increases in the process (with 1/r), total surface area decreases (with r^2), so total force, hence over-pressure in the link piece, decreases (with r/A).)
The evidence for the power of the "big economy assimilates smaller economy" process is all around us. In itself, it is an interesting phenomenon and hence should be studied closely (rather than condemned, or praised). A crucial step is how the big economy’s money drives out the small economy’s money. Why is this process so relevant? With respect to resilience, a big "everything on the market" economy behaves very differently from the equivalent collage of small economies that would have coexisted in its place had they not been amalgamated. The latter situation might at first seem more prone to encounter isolated problems – but may in part have evolved strategies to deal with them, while the big economy is tougher to knock over, yet at the same time more brittle: If we have the option to economically balance large streams of energy, food, and water against one another, this may be very useful to deal with some sorts of local problems, e.g. to invest a bit more energy to increase the local food supply a bit, or vice versa. If, however, major collective effects occur, the system is prone to failing catastrophically, in particular due to the incredible gap between wealth generating capacity of energy resources and their present price. Do we seriously consider burning grain to produce a kilowatt-hour of electricity worth a few cents to run a modern dish-washer once a day, if the same amount of food per day could easily feed a person who would do quite a good job at washing the dishes, and a hundred other useful things as well in the remaining time? On an energy-conversion basis, human people may seem "inefficient" relative to some machines, but on a "job achieved" basis, people are extremely efficient due to the high "intelligence per watt expended" quotient. Hence, if some minor fuel shortage in the big market economy spills over into food, this can easily have devastating consequences.
Continue to Part III….
- "Every Boy’s Book of Knowledge", Editor: Charles Ray, Prion Books (2007) On page 260, there is the following anecdote in the article titled "Can the Fox be Tamed?":
"The cunning of the fox is proverbial, and it shows this in captivity as well as in the wild state. A fox which was kept in a yard was confined by a chain that allowed him a fair range for walking. One evening in the autumn a farm wagon, returning from the field with a load of corn, passed near the shelter of the fox, and an ear of corn dropped from the pile. The fox went out, took the corn, and carried it quickly back into his home. What he wanted with the corn no one could understand, but the next morning he was seen to come out of his shelter and nibble off some of the grains from the ear, scattering them about in view of the poultry which were in the yard. In due course, the chickens went up to the corn, and while they were eating it out sprang the fox and seized one of them, taking it back to his shelter, where he made a meal of it."
True story? Hard to tell, but this at least suggests that looking into the transaction planning abilities of some animals may be interesting.
- E.g.: Peter Oberender, Thomas Rudolf, University of Bayreuth, "Das belohnte Geschenk Monetäre Anreize auf dem Markt für Organtransplantate", German with English abstract, https://www.old.uni-bayreuth.de/departments/rw/lehrstuehle/vwl3/Workingpapers/WP_12-03.pdf