The Flip Side of the Coin
Centuries ago, humans invented money to facilitate the exchange of goods. This point has been driven home in many an economics lesson or history of society. But money also serves a second, related purpose – it is the reward given to individuals who do something beneficial to society.
Prizes like the Nobel Prize, Fields Medal, and the X-Prize are given to individuals who contribute knowledge or technology that is deemed to be of value to others in society. Governments award contracts to individuals and firms to provide services for their constituents. We generally view people with money as more successful, more productive, and more important. They are the ones who have done something that society judged to be meaningful.
Now, why give these game-changers money in the first place? First, the obvious answer – incentive. Setting up rewards for those who make life better for everyone else is a great way to convince more people to do the same. Second, and less obviously – empowerment. Those who do something beneficial to society are likely both to (a) have more ideas and (b) be successful in implementing them. Viewing dollars as “economic votes” capable of redirecting human activity, rewarding those who have done something beneficial to society with money (economic power) is a great way to empower them to make bigger and better changes in the future.
The Failure of Money
So what’s the issue? Our economy is not rewarding those individuals. This problem has always existed in some form, but two features of today’s economy have magnified this little inefficiency to intolerable proportions – information and altruism. I’ll discuss them first to frame the rest of our discussion on money.
The two features closely related. As has been pointed out by many others before me, today’s economy does mostly in information. A unique feature of information that has been baffling economists and business leaders for at least the last two decades is that it is infinite in supply. The world does not have a finite number of Bach’s Double Violin Concerto. I can listen to it 1000 times in a row and it won’t stop anyone else in the world from enjoying it themselves. Unlike oil, land, or iPods, the world does not run out of Bach. Information products create atmospheres of sharing. Since my giving you a copy of a Bach album does not reduce my enjoyment of it, I have no qualms sharing my Bach. Information economies beget altruism. Again, this isn’t because information economies are noble or godly in some way; they just don’t erect barriers to sharing.
Why is this important to money? Altruistic sharers don’t expect monetary compensation and we don’t plan on giving it to them. Information exchanges occur, for the most part, without exchange of money or the expectation of such an exchange. Wikipedia, Napster, and the blogosphere have convinced us that we no longer need to pay for information.
Now part of this is great. Self-motivated learners can now independently pursue any topic of their desire without the help of a university. Environmentalists can learn how to compost, garden, and get off the grid all using freely available information online. We’re flattening the playing field and giving anyone with passion and an internet connection the chance to benefit from the centuries of society’s information aggregation. This is undoubtedly a good thing for the future of humanity.
But now we have a problem. More people are creating and sharing valuable information than ever, but we’re not rewarding them. There is no money for the thousands of Wikipedians, forum gurus, and bloggers (and once society gets something for free, don’t think you’ll ever convince them to start paying for it). The best we’ve come up with so far is advertising – a lame and oft bemoaned model for monetization.
The Symmetric Transaction and the Law of Conservation of Money
Now most of what I’ve said so far, you are likely familiar with. I hopefully have explained it a somewhat unique way so that you learned to see the issue in a richer way, but now I offer a way to view the problem that might be helpful in finding a workable solution.
The ultimate problem lies in what I call the “law of conservation of money”. That is, for any transaction to occur, we require the buyer to pay the same amount that the seller receives. The transaction is symmetric. If I want your Big Mac, I pay $5 and you receive $5.
The exchange of information, per our discussion so far, does not lend itself to such a transaction. By the infinite supply of information and the great societal benefit of its availability, we do not expect users to pay for it. Yet, by that same great societal benefit, we want producers to be paid.
What we really want then is an asymmetric transaction. We want to break the law of conservation of money.
Towards a New Currency
Now, how do we do this? There are a few key issues: the degree of asymmetry, how that asymmetry is bridged, and with what type of compensation.
First, the degree of asymmetry. We could entirely eliminate the cost for the user entirely or simply allow the user pay a smaller amount of money than the producer receives. In both cases though, we have to bridge that gap.
The bridging of this gap is essentially the role of the government. Governments are set up to invest in projects that are beneficial to everyone but that individuals alone likely won’t pursue. Now, we are seeing some individuals like Jimmy Wales (founder of Wikipedia) pursue such projects, but there are certainly many more ideas that never get off the ground because the people behind them are too busy making money in other ways. If they could make money in this way though, there’d be many more great works out there.
But how to compensate these people? With the same money we’ve been using all along? Or with something new? Remember our discussion earlier. One major goal of rewarding these people is to empower them to do even more.
The Failure of Monocurrency and the Rise of Multicurrency
Flexibility of currency is usually seen as its greatest advantage. But there’s a problem here. Drug lords and porn kings earn a lot of money because they exploit neuroanatomy and a biological human instinct for sex respectively. Bill Gates made a lot of money because he created something that changed the world and facilitated the flow of information and ideas across the globe. These are two very different kinds of activity yet we incentivize them with same currency. We reward Bill Gates and porn kings with same thing. That doesn’t seem right at all!
We need multiple systems of reward. A single “monocurrency” can do lots of things. It can purchase entertainment, the power to start new ventures, and political power. We want to dividde those things. We want to give the porn king money to purchase entertainment and happiness for himself. We want to give Bill Gates the same, but also the power to start new ventures and realize more ideas as well.
Muhammad Yunus has called for something similar to reward what he calls a social business. However you phrase it, society needs new currencies; we need to review the broad types of activities that merit compensation, determine the distinct types of compensation that those activities merit, and redesign the economy to reward human productivity accordingly.