Alternatives to Political SystemsEconomicsFinancial ManagementPeople Systems

Money Literacy – Part II

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 [1], 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 [2]. 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….

References:

  1. "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.

  2. 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

 

5 Comments

  1. Some time ago I read an article in The Danish site for Permaculture about so called bioregions, where each bioregion should trie to be fully self sufficient. They have made a plan called the Øresund Bioregion, which includes the Iceland of Copenhagen and the area around Malmø in Southern Sweden. This is my idea, it was not in the article, but what if we filled up the world with bioregions, and each bioregion had their own currency? So that people just traded their goods needed whithin their bioregion. This should end the power of multi national companies, and end the crazy transportation all across the world.

    The problem with dry air in winter is best solved with thick walls of massive wood or clay, that will store humidity through summer and autumn, and release this slowly during winter time. This is a central principle within “Baubiologie”. http://www.baubiologie.de + http://www.buildingbiology.net

  2. Oeyvind,

    three quick comments on bioregional self-sufficiency: First, it certainly would be a good idea if each region could provide all its essentials(!) within that region. But that does not mean that interregional trade would have to cease. Second, the crucial problem is that interregional trade once was a “backup system” to rely on should there be major regional trouble, such as a localized crop failure. We have pretty much made this safety net the primary system we now rely on. Maybe not a wise move. Third, much of the thinking that led us to the present structures comes from the “law of comparative advantage” (it’s interesting to note how an idea can be made more appealing by sticking the word “law” in front of it). We let the 3rd world produce our agricultural products, because they can do so at a lower cost – which comes from two effects.

    a) transport is perversely cheap. If one does the maths, one finds that, these days, an office worker commuting six kilometers to work for a 7-hour day each weekday in doing so destroys an amount of a high-quality energy carrier whose equivalent work content would amount to more than three days of bone-breaking hard physical labour. By “destroys” I am refering to the more than 2/3 of each liter of presently consumed oil for which we do not even discover a new source at the present rate of exploration. It should be clear to every thinking person that such an economy is doomed to fail pretty soon. Synfuel? We don’t have the large-scale infrastructure in the first place, and if we had it, the massive CO2 emissions would give us a serious headache with ocean acidification and climate change, not to speak of all the dirty coal mining. Now, that in itself won’t finish off civilization. On average, one out of two Germans owns a car, while less than one out of 100 does in India. We certainly can get along with much less motorized mobility, we just have to do a few things in a different way. But “comparative advantage”
    is more or less based on the idea that you can push things around at basically no relevant cost at all.

    b) The price for agricultural products is artificially kept down. This essentially can be traced back to the thinking of early industrialization, where the declared goal was to have as few people as possible work in primary production to set free the workforce for industry. But, doing the maths quite naively here, if one farmer has to feed 10 people, while earning about the same money they do, people will spend 1/10 of their income on food. This then has a number of other interesting side effects: If the desire for industrialization leads to politically setting up the right environment to enable such ratios, then farming will become a very money-inefficient way of land use. Stick a factory, golf course, railway station, or amusement park on the land and it will generate more money. Note that, if your goal really were to increase food production, you would want to have more people on the land to take proper care of it. Two people taking care of two acres will be able to pay more attention to the land, hence produce more food in total than one person taking care of two acres. But if the second person quits farming and goes into industry where they can earn more money, this would then in sum contribute to “growth”. In chemistry, there is a similar concept, called a “disproportionation reaction”. Note that this phenomenon leads to another sociological effect that further marginalizes farmers: The implicit imperative for western civilization is to do everything in its power to get rich as fast as possible. Now, if someone makes major decisions in such a way that they contribute to us getting rich less fast than we could have, that is easily regarded by some as a sinister act of sabotage. And, as farming loses out against pretty much all other forms of land use money-generating-wise, farmers are often regarded as backwards, and actually an impediment to our society getting rich even faster.

    A key point here is that such a scheme only can work if farmers have an ineffective representation, by the way.

  3. Money/Currency is a token that lets us trade materials at agreed values and prices. It is a complex system which enables a whole range of transactions between peoples to occur that could not do so without it.

    Primitive peoples had some interesting issues to deal with when it came to recognising things of value they did and didn’t have. For example in peaceful farming communities the tradable goods were largely perishable food stuffs. So without any transport system a grower of something could only trade as much as he could carry to a potential buyer. In some situations the only thing one would receive for the goods offered was a similarly perishable product, and that product was consumed as essential food on the journey home. So the net result of the trade was zero, apart from a visit to ones mates over the main divide.

    If we look below a society that doesn’t use currency we find the natural balance between man and soil we call subsistence. The idea of a ‘modern man’ accepting a life of ‘subsistence’ is virtually incomprehensible to him, as he cannot imagine what else it is he would do with his time while he waits for his beans to grow. And this is perhaps the nub of our problem.

    A ‘modern man or woman’ cannot conceive of a life where there is something beyond staying alive and getting more ‘stuff’. Exemplified by the big boys toys mentality wherein ‘He who dies with the Bigest Toys, Wins’. We have no clue about where to find that ‘thing’ that will make us feel better. We live in the perpetual state of the addict where just one more shot will make us feel the way we want to feel; just one more!

    It is hard to think back to a time where our natural inclination to acquire more stuff, to ‘make things better for our family’, has not driven us away from our natural state. A state where we did get our carbohydrate from trees and shrubs.

    Somehow (and nature is making the selection now isn’t she) we have to learn to live in true balance with the soil, water and air of the planet; in a state of true subsistence as far as our bodies are concerned. We have to learn that the animals we live in which support our brains only need a few simple provisions to keep them alive for the day.

    Then the hard bit is training the amazing minds these bodies carry around to abandon the desire for more earthly ‘stuff’ and all the exploitation that entails, and instead to turn to the walk towards the intellectual and spiritual nirvana wherein lies true contentment; that ‘Peace that Transcends All Understanding’. It is only there will we find peace, enlightenment and that sense of wellbeing we so desperately seek.

  4. Nigel,

    I think I got that concept from Satish Kumar, which I consider a very useful one: one should make a distinction between “human beings” and “human havings”. Do we allow ourselves to become “human havings”?

    Apart from that, two quick comments: (a) “subsistence” is a tricky term, for very often, what we nowadays call “subsistence” is not, and (b) I don’t think there is something like “a society that does not use currency”. There are lots of currencies, used all the time, all over the place. As I wrote, even “barbecue invitations”, effectively, are a sort of currency.

  5. https://www.harpers.org/archive/2009/06/0082533

    Provides the modern tale of global entrapment.

    Let them eat cash:
    Can Bill Gates turn hunger into profit?
    By Frederick Kaufman

    “In some cases, P4P would not purchase a farmer’s grain immediately but instead would encourage him to warehouse his product and receive a receipt. More mysterious than rice or millet, this slip of paper presented a number of intriguing possibilities. First of all, the receipt allowed the farmer to register with his countrywide exchange, a place in the capital city where all the grain from all the country’s farmers could be bought and sold. Henceforth, the rural farmer could follow fluctuating prices with the technology of his mobile phone. The once indigent peasant could become a commodity trader and peg his sale to any time of the year. In this way, he could forecast, model, and leverage more financing. No matter that commodity speculation and grain hoarding had helped trigger the world food crisis. No matter that the recent Agribusiness Accountability Initiative declared that massive and unregulated commodity-market speculation “has pushed the prices of wheat, maize, rice and other basic foods out of the reach of hundreds of millions of people around the world.”

    “To assume that what the assistance that Bill Gates and Howard Buffet are extending to African farmers is doing is perpetuating hunger,” said Kikweke, “that is a big misconception.” The idea that Bill Gates and the World Food Program might actually be increasing famine had interrogated the very essence of the gift heading Kikwete’s way: …”

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