Help! My society needs more money. Part 2 — the solution to & cause of all problems [Strange Solutions]
This is part 2 of a 4 part series. Read up on the rest:
Part 1: Money & the lizard brain
Part 2: Scarcity — the solution to & cause of all problems
Scarcity — the root of it all
Surviving & thriving are psychological drivers in our relationship with money (and other objects), but what powers these drives?
A reasonable hypothesis is the “perceived scarcity of supply” — a quality of the natural world that plays a large role in regulating population of species. Scarcity of supply simply means that there is more demand for a good/resource than available supply. It is not only applicable to the human world, but to the animal world as well. E.g., lion populations in the wild tend to have an upper limit because run-away lion population growth would make food sources (deer) scarce.
Human are the only species that can perceive scarcity in the future as well.
This scarcity (whether real or perceived) kick-starts our evolutionary-based needs of de-risking or enhancing our lives. Let me repeat, for a truly abundant resource, there is no need for competition or co-operation, and thus no need for exchange or a monetary system.
Considering that we’ve been dealing with scarce goods that have an actual impact on survival, it is not shocking that any medium of exchange that deals with these goods would also need to to be scarce.
I doubt that there is any other way to devise an “abundant monetary” system that deals with goods that are “scarce”.
The scarcity-led characteristics of these underlying goods have also led us to make certain design choices about money (perhaps unknowingly). Decisions such as:
1. Centralized control. A commodity that is inherently not scarce (like stones or paper) can only become scarce if you can control the supply. And doing this is much easier when a single body controls the levers supply.
In most cases this means that supply of money is controlled by the nation-state (or a collection of nation-states) — even if execution is done by intermediaries such as banks.
2. Permanence. A direct result of the psychological drive for protection. Storing a scarce resource for future use makes sense if you’re unsure about future availablity of that resource.
This may seem absurd on the surface, but there’s no sacred reason (other than your desire to de-risk the future) that the money in your bank account has no expiration date.
3. Interest rates. Scarcity of money also means allocation of capital becomes super important. At both a micro (you) & macro (society) level this ensures that scarce monetary resources are not wasted, and only high-impact activities are funded. Ideally, this should benefit not only the funder, but also society as a whole.
Our money systems have evolved to deal with scarcity, and they have been spectacularly successful. But inherent in all this is the fact that current monetary systems were designed specifically to deal with scarce goods.
But are all goods and services truly scarce?
Real vs Perceived Scarcity
While scarcity is a fact for most resources that have been important for surviving & thriving throughout our evolutionary journeys, there are subtle fallacies in the way we view most resources.
Specifically we see two misattributions that are common:
1. Viewing truly scarce things as naturally abundant. Natural resources, the ability to the planet to withstand human actions etc.
2. Viewing non-scarce items as scarce. Such as digital goods.
In the rest of the article, I would like to explore whether we can design a complementary monetary system that can function as a medium of exchange in situations where the second misattribution reigns.
That is, where scarcity-led design leads to a situation of sub-optimal resource allocation for society as a whole. The following graph may help illustrate exactly what problem we’re solving for (viewed through the lens of scarcity).
Our further investigations will specifically solve for Zone 4 problems. This is because this is the goldilocks zone where impact could be achieved simply by tinkering with the nature of monetary systems.
While working in Zone 4 — i.e., with goods that are perceived to be scarce but are not really scarce, we will not incorporate following into the design choices of the complementary currency. These are:
1. Using money as a resource to help derisk the future. Saving money means spending less than you earn. One reason this is done is to build a safety cushion of savings that can help out in hard times. However, for resources that are not scarce, this is not a key requirement for the underlying monetary system.
Our explorations will not solve for this problem.
2. Getting people to feel secure/special because they have more than others (i.e., keeping up with the joneses).
Money provides a measure against which worth can be measured (though not perfectly). This psychologically promotes the concept of competition & is inherently alluring to a species that evolved in a competitive environment.
We will not design our complementary currency to satisfy these needs. Primarily because current monetary systems already do a good job of it.
Instead we focus our attention to design a complementary currency ONLY for underlying goods/services that are often incorrectly assumed to be scarce.
The problem here is that because money is the only medium of exchange available even for these good, we are forced to view them from a scarcity-lens — even if they’re not scarce.
This is how you end up in a situation where there is work to be done, people to do it and yet nothing happens for lack of money.
This mis-judgement in Zone 4 has become even more heightened by recent trends such as emergence of digital goods & a shift towards a service economy. Digital goods, by their very nature are not scarce commodities in strictest sense of the word. In addition, unemployed or underemployed humans have the potential to provide more services than they are currently being paid for.
The next section focuses on designing such a complementary currency for our Goldilocks Zone 4.
