WORK IN PROGRESS
By John Wood © 2018 All Rights Reserved
An economist once explained to me how the 'invisible hand' of self-interest would generate collective well being. Part of his reasoning was that money would trickle down to the needy. Apparently, he was wrong, as behavioural economists and others have noted. The biggest elephant in the room is not macroeconomics, but the way our 'monkey brains' respond to money itself. What we need is a radically different type of money - one that is less granular, summative and inert. However, the transition could be painfully counterintuitive. Over the last five thousand years, fiat money enabled producers and consumers to trade without a ‘double coincidence of wants’. Banks facilitated the growth of increasingly ambitious ventures and 'futures' markets emboldened investors in times of pessimism or scarcity. These developments catalysed widening networks of enterprise. But they worked largely because fiat money was designed to forget (i.e. to launder) all the intangible qualities and contextual meanings that created the real value of each transaction. Today, the process has outgrown itself. While the working poor are shopping at the local food bank, all the smart money is being sucked into a black hole of hedge funds and derivatives. In effect, the positive feedback loops that sustain greed have enabled a few hollowed-out men to hold the world to ransom. Money continues to shape the Anthropocene and the Grim Reaper draws inexorably closer.
The versatility and interoperability of money are amazing qualities. However, they are also what make it alienating. For example, when locals exchange fiat coinage, their transactions become less personal and more like 'foreign investments'. This should not be surprising, given that fiat money was originally designed as a 'super-tool' for building empires. By giving soldiers the means to travel beyond friendly territories it enabled their leaders to widen their sphere of influence. As human societies expanded from villages into nation states, new codes of accountability came to replace the natural sense of 'responsibility'. This is because scaling-up hierarchies creates successive layers of management, that filters information and de-sensitises the organisation. This explains why a stranger's act of kindness cannot easily be monetised without the risk of souring personal relations. It also explains why, on paper, the state funding of care for the sick and elderly in remote parts may always seem to require more money. Money works because it is granular and one-dimensional. Just as clocks regulate society but are ignorant of time, so money unknowingly mediates between the subjective world of quality and the rigorous logic of numbers. This sleight of hand is the reason we cheerfully fail to notice its profound lack of value. As Georg Simmel put it, "the quality of money...consists exclusively in its quantity". Traders may disagree about the beauty or quality of goods, but the rigour of arithmetic offers them a level playing field. This works, because the two parties will accept the proposition that 'two plus two always equals four' without further wrangling. It doesn't. Ecologically speaking, 'rigour' only makes sense in the idealised world of rules and numbers.
Compared with large currency systems, biological organisms are immensely frugal, resilient and (re)generative. Whereas currencies are one-dimensional, ecosystems are multi-dimensional. Whereas money is inert and summative, living communities are symbiotic and co-creative. Why did we choose to make money out of dead things, rather than bring it to life? The answer is that humans will always settle for dependability, even if it sucks the fun out of life. We know that nobody can foretell the future of a newborn baby, yet are impressed when we hear that scientists can predict how a cadaver will change, over a given period. In any case, we have been extracting, shaping and collecting shiny ‘stuff’ from the ground for around 3 million years. First, we fashioned hard objects into talismans, tools and weapons. We prized them for their magical powers and valorised them as tokens of exchange. Unfortunately, this can also make the acquisition of large numbers rather addictive. In evolutionary terms, the advent of money was exceedingly recent. Humans are surprisingly inept at counting, but we get very excited by the idea of quantity. As Georg Simmel put it, “regardless of the amount, the liveliness of attached hopes gives money a glow”. So we still confuse qualities with quantities, fetishise certain numbers or struggle with quantity biases. Some exceedingly clever humans even believe the superstition that numbers are 'real'. Unfortunately, money gets real when it confers power without responsibility. It is interesting that human cognitive biases are so similar to those of some chimpanzees that learned to use money. But there is an important difference. Whereas chimps choose to spend their ill-gotten gain on berries and prostitutes, most of the world's richest men are making money out of systems designed to make more money. This would be laughable, if it were not one of the main drivers behind wars, climate change and the current cascade of extinctions.
Once upon a time, only the high priests of economics or fiscal policy were were seen to be smart enough to re-design money. Today, cryptocurrency evangelists are muscling in. They tell us that money will be safer and fairer if we put our trust in the god of Blockchain. This is not such a bad idea. Distributed ledgers technologies (DLT) offer us the chance to reclaim value, perhaps by dissolving the intrinsically granular, unit-based nature of money. This looks unlikely, given that, in essence, digital systems evolved from the Aristotelean technique of 'excluding middles' to make binary codes. It may also be because nobody has yet seen why cryptocurrency terms, such as 'mining', 'tokens', 'work', or 'units', may discourage us from 'thinking outside the box'. Of course, these kind of metaphors were validated by physicists and economists in the Enlightenment era. They encouraged the idea that mining was a viable axiom for understanding money and business. This analogy holds, as long as what is being dug up is homogeneous and plentiful. When this is the case, returns on investment can be quantified as a dependable aggregate. This led to the dangerous conceit of 'economic growth', which merely corresponds to an increase in the rate of productive digging, or in new assets being counted as 'surpluses'. Unfortunately, mines have no capability for 'growth'. On the contrary, when the cost of extraction gets too near the market price of the product, their predictable path to depletion will render them 'uneconomic'. This fable chimes with popular religious dogmas of the day and sanctified the economic 'law of diminishing returns'. What was overlooked, however, was that what sustains the world is a living network of synergies that are immensely more numerous, surprising and valuable than the 'assets', 'commodities' or 'resources' that are its ingredient parts.
image by André Karwath
In the last few hundred years, the obstinate logic of mining (i.e. business by exploitation) led to a perpetual anxiety that entropy would reduce prosperity unless we could somehow sustain 'economic growth' (e.g. as in GDP). Unfortunately, this focused attention onto finding efficiencies at a managerial, rather than at a bio-regional level. The intensification of food production meant that 'cash crops' were routinely transported speedily over increasingly long-distances. The emphasis on wholesale production reduced biological diversity in many of the poorest countries. By assuming that all worthwhile business could be 'scaled-up' without limit, we normalised the idea of 'economies-of-scale', rather than 'ecologies of scale'. In short, the idea of 'friction-less' trade simply refers to accountability methods that manage quantities in the neatest convenient way. Unfortunately, it often entails friction in the sense that complex living systems are compromised, overlooked, or wasted if they seem irrelevant to business models or can be be dismissed as 'externalities'. One way to move beyond this lamentable mindset will be to re-envision the world as a living 'diversity-of-diversities', rather than a portfolio of exploitable resources. This might, for example, mean radically diversifying and downscaling our lifestyles and our business models. If we are to step up to the plate we must learn to think beyond the summative and one-dimensional logic of mining. In the current system, ‘unity’ can exist as a final sum of identical quantities, For 'living systems', however, the notion of ‘unity’ is something that emerges from the organism's many qualitative and ongoing acts of self-regulation (i.e. 'autopoiesis'). Hence, what we call 'growth' in living systems is a complex expression of combinatorial fusions and surprises. Whereas conventional money is designed to 'add up' neatly, synergistic relations are countless and ineffable. As Paul Romer said, "Possibilities do not add up. They multiply." In this the world of possibilities, two plus two is likely to exceed four. This only seems counterintuitive because conventional mathematics fails to see 'relations' in a fully situated, ecological sense. By omitting some of the essential intangibles, or 'externalities', mathematics boils them down to 'ratios'. Similarly, when we try to combine heterogeneous things we may find that summative logic misses the point.
Schools still expect students to calculate team tasks using summative mathematics. A whole genre of ludicrous examples of workmen digging holes.
1 man —— 48 days
2 men —— 24 days
3 men —— 16 days
4 men —— 12 days
5 men —— 9 3/5 days
6 men —— 8 days
- In a team of 8, each team member is responsible for 25% of all relations
- In a team of 4, each team member is responsible for 50% of all relations
- In a team of 3, each team member is responsible for 66.6% of all relations
- In a team of 2, each team member is responsible for 100% of all relations
The good news is that, if we can transcend the flatland of unit-based money, we can create new opportunities that exist when the logic of (re)combination is scaled up to a three-dimensional level. A helpful starting point is Euler's Law, of 1751, which demonstrates why it will be auspicious to design future business models around collaborative clusters of at least four players, or combinations of at least four assets. Although his proof is neatly exemplified in geometrical figures (i.e. polygons) the underlying principle also holds true for any combinatorial propositions involving four, or more, players. This is modeled by regarding the vertices (i.e. letters) as 'players', or 'assets' and the lines (i.e. numbers) that connect them as 'relations'. Hence it is clear that, in polygons, the numbers of 'relations' exceed the number of players only when you move from flatland to the 3D world. For example, whereas a triangle has an equal number of players and relations (i.e. 3), a tetrahedron has a 'natural surplus' of two (i.e. four players and six relations). The surplus of two is also found in all polygons, irrespective of size:
- Euler's Law (1751) states that V + F = E + 2 where -
- V represents the number of vertices
- F represents the number of faces
- E represents the number of edges
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