I encourage you all to read this, its one of the most insightful economics pieces by a non-economist that Ive read. No I dont think were going to transition to a money-less society any time soon, but the distinctions he makes about money are really good IMO. While Klout, Klip Triberr, and SocialRank exist, the speed of the transition might be wishful thinking by a journalist who charges to read his website, UNLESS an entreprenur creates a blockchain or otherwise internet-first currency that rewards social influence by an objectively-verifiable standard. https://theinformation/The-Second-Coming-of-Non-Consensus-Currencies The Second Coming of Non-Consensus Currencies By Sam LessinSep. 29, 20146:50 AM PDT Comments by Eric P. Newcomer, Diego Berdakin and 1 other Currencies are based on consensus. For a currency to have value, a consensus must form around what it is, who has it and what it is worth relative to other things in the world. This is the case with currencies like the Dollar or Euro, where the consensus emerges from government fiat, or gold, silver or platinum, where the consensus is rooted in chemistry and tradition. Even cryptocurrencies like bitcoin are rooted in the concept of consensus, albeit one based on some clever math and a distributed form of majority voting. While traditional consensus currencies are not going away, I believe a type of currency is on the rise that has nothing to do with consensus. The spread of efficient communication technology is enabling the recapitalization of social capital, which is both the original form of capital and the ultimate non-consensus currency. It’s based purely on the decentralized accounting of peer-to-peer credit and relationships, and not on any sort of central or agreed upon standard or authority. Whereas for the last hundred years, we have seen a massive consolidation in the currencies used around the world, I believe that technology is now bringing us to the brink of a currency Cambrian Explosion. The History of Consensus Currencies We needed consensus currencies to be able to take advantage of the transportation and logistics revolution that occurred over the last several centuries. When you don’t know someone and the cost of communication is high, you need a widely known single source of truth to trust and use as an efficient proxy for trade. Therefore, the expansion of transportation technologies that made global trade cheap and efficient—from highways to shipping containers—went hand-in-hand with the need for consensus-based globally accepted currencies. One of my favorite examples of this is how the rise of the U.S. dollar as a single national currency more or less happened concurrently with the rollout of the railroad. Before the railroad, most regions traded locally with each other using local bank notes. This worked for these localized economies because people knew the relevant banks and their solvency. But as the railroad made it possible to trade across regions, people needed a way to trust each other beyond trusting a regional bank. Thus, it really took the rollout of the U.S. dollar as a national currency to create the consensus and trust needed to run the economy as a national, rather than regional or local, unit. Consensus currencies were extremely valuable in their time and will continue to be used. But they will be in relative decline as today’s generation of communications technology is making consensus less critical by making it feasible and efficient to check a lot of references and exchange a lot of information around a trade. There are many reasons of this, not the least of which is that while consensus currencies are generally quite efficient for trading standardized goods, they can only help you get access to a relatively narrow band of services. You can buy food at McDonalds, but generally not a great home-cooked meal. Consensus currencies also carry relatively steep transaction costs—chief among them taxes. Today’s communications infrastructure allows us to deal more efficiently in more esoteric forms of currency and capital. Consider how global citizens are actively trading in the Manhattan and London real-estate markets. Consider the complexity of equities and derivatives that the market now generally trades with relative ease and efficiency. None of these asset classes have universal demand and appeal like the dollar or gold. What they do have, however, is enough of a consensus aggregated around them from a large enough audience that they can be priced and traded with the help of modern communications infrastructure. A Truly Contextual Currency These more esoteric “currencies” still fit within a traditional framework because they can be reduced to dollars and still generally get denominated that way. But that’s not true for the most interesting new currency being unleashed by technology: social capital. Social capital—defined as the credit you earn with other people by helping them and collaborating with them—is the dark matter of our global economy. There is an enormous amount of it sloshing around, and it is extremely hard for anyone to account for and quantify it despite the fact that its effects on the universe are enormous. You may be wondering whether social capital is a currency at all. Unquestionably, yes. It always has been, and always will be. Social capital—defined as the credit you earn with other people by helping them and collaborating with them—is the dark matter of our global economy. There is an enormous amount of it sloshing around. Here’s a thought experiment to illustrate why. You, as a modern human, probably hold some traditional consensus currency (aka money) and have some social capital (credit for future help from other people). Both can be used to get you dinner. If faced with the choice of sacrificing all of your financial capital or all your social capital in the form of your identity and your relationships, you would probably give up your financial capital, at least I would. The tradeoff illustrates that, at some level, social capital is real and a meaningful form of capital. Moreover, throughout much of the world, consensus currency is very scarce. Small villages and communities operate not on the exchange of pieces of paper or consensus-based assets, but on a willingness to help each other in a life-long game. Social capital is the opposite of consensus-based. Rather social capital is extremely contextual. There is no single consensus about you as a person; there are only various opinions held by various people you know. Your balance of social capital with different people varies based on how you interact with them. And unless you are a celebrity, only a few thousand other humans know you at most—hardly a strong global consensus. But while not consensus-based, social capital does have a key attribute which historically has made consensus so useful: It is fungible and increasingly so. Historically, you could only use social capital to trade with a small number of friends who know you. But today, technologies like social networks and messaging services make it easy to look someone up and understand their relationships and reputation on the fly from your perspective. These technologies are playing the same role that banks played for consensus-based forms of capital, namely making it easy to account for transactions, do credit checks and store value for later. Practically this means I am more than happy to do favors for friends of friends, or people that have a good reputation, even if they cannot pay me back directly because the capital can eventually flow back to me in another form. Because communications technology allows us to more efficiently manage the incredible complexity that is contextual and personal capital, social capital is becoming more useful and valuable. What’s Ahead In order to predict what may happen in the future, it is useful to look at the past. One of the biggest effects on measured Gross Domestic Product over the the past hundred years has been more women entering the workforce. It’s not like woman weren’t working before. Rather women were working in their communities and families and effectively being paid in social capital, for example, accruing credit with members of their local community and trading services like babysitting, safety via the neighborhood watch or cooking. But over the last century, as global trade exploded and consensus currency became relatively more useful, it made sense for women to switch their personal production away from social capital in their communities and towards traditional consensus-based currency. As communication technology recapitalizes social currency, people are likely to switch their production (and consumption) back towards social capital and away from financial capital as the relative value of social capital increases. That could have a variety of effects, for example, a shift in how we think about employment. Europe’s high unemployment is generally considered a sign of economic weakness. But it is possible that at least part of the shift is being driven by people shifting production and consumption away from consensus currencies after they cover their basic needs. Also, the definition of luxury may change. For example, people may value unique experiences, which require a high amount of social capital, more than traditional luxury items. Of course, a shift in the balance of production and consumption back towards social capital could pose some serious issues for our society. Since social capital cannot by its nature be converted into consensus currency, we would face a shrinking effective consensus-currency tax base as a percentage of the overall economy. That could easily spiral in a very problematic direction, as a smaller relative tax base must be taxed more and more in order to support our government infrastructure, pushing people further away from wanting to transact in consensus-currency. Moreover, social capital isn’t egalitarian. The nice thing about consensus currencies is that all dollars are equally green; there is a level of equality built into the system. Social capital doesn’t work that way and can be quite unequal and unfair in that respect. It is hard to know exactly how this shift will play out, but there is a strong argument that continued technological revolution, which once pushed the world towards global consensus currencies, will now move us towards non-consensus forms of accounting and trade—ironically how the world used to work. We have built so much social and political infrastructure on the backbone of consensus currency that any shift will have dramatic implications.
Posted on: Sun, 05 Oct 2014 22:17:54 +0000