Thursday, May 14, 2009

A promise to pay

If you start to wonder what is money, one of the first things that comes up is that it is a medium of exchange, and that it is a better system than barter which is what people had before money.

But that is only part of the story, as there is another way to exchange value besides money and barter, and understanding that very familiar way can bring back an understanding of what money is, in an intuitive way.

And I think that's important as like the U.S. abandoned the gold standard years ago so that the U.S. dollar appeared to be backed by nothing (it's not), money itself has become disconnected in many people's minds from its symbolic nature.

Money has little if any intrinsic value, so most of its value is extrinsic--given to it by others--and it has to do with a promise to pay.

Understanding the symbol of what money covers is a lot like understanding how in algebra x is just a variable, so you can have equations like x+y=z, but you can change the symbol, and have a+b=c.

To get a grasp of the underlying thing that money is a symbol for, consider the other means of value exchange besides money or barter, which is giving and receiving favors.

Seem too simple? How about an example then, as if you have a significant other, consider asking that person to do you a favor and make you a cup of coffee.

Now someone without someone to ask a favor of a cup of coffee, can, if there is a coffee shop nearby, go and buy a cup of coffee--exchange money for the value.

So asking for favors is a way of exchanging value which is actually closer to money than barter, as often when you ask a favor there is an expectation that you will return it, at some point. Whereas with barter, there is an immediate exchange of value for value: like a shoemaker exchanging his shoes for, say an egg laying chicken.

He gives the shoes--he gets the chicken.

You ask a favor, you rely on the memory of the person who gives the favor. And they rely on yours. It is a promise to pay back the favor, later.

You hand them money, they get to use the money for something they want, later.

But people can forget favors, or ask for them, even repeatedly, with no intentions of ever paying back!!! The system is flawed by the need for good memories, and trust.

In contrast, rather than ask a neighbor say, for the favor of a cup of coffee, you can pay for the value of a cup from, say Starbucks, or Peets, or some other coffee shop, and get it, without further owing anything at all.

The abstract value of the favor that is remembered in one case is captured by the money in another. The money is like the encapsulation of a favor: a symbol of that value exchange, which now brings me to our modern Web.

To the extent that there is an exchange of value on the web, it can be said to be by all the means above: barter, favors, and money.

People can exchange attention for information, like barter. Or can pay for goods on the Internet directly by money. Or they can do favors.

The problem for modern companies operating on the Internet is not acknowledging the possibility of a promise to pay, so that often there is simply no way to pay.

For instance, let's say I write something that you think has value. You might say I did you a favor, unless I just wanted you to read it, so I just wanted attention, so you paid already, but...how do I know? Well you could comment, but should you have to comment? And is that really giving back value?

But what if I had ads (I don't) then if the ads paid from your attention then I'd be paid by the people who run the ads through someone else, like Google, and that would do it, right?

Well people who pay for ads pay for them if you buy something from them! As they are paying for the ads either from purchases you and people like you make or the promise to pay that is part of the system of ads, for instance, we watch television ads and enough people go buy the stuff to pay for the television programs.

So if enough people don't go buy the things in the ads, then there is no way for a payment to come from the people who would like to sell things.

So I did you a favor.

Let's go back if that seems wrong: if I write something and you see value in it, then maybe you can comment or if I had ads you could click on ads, but if those things aren't available then I did you a favor: transfered value with none in return.

But is there a promise to pay? And I'd say, no. So then, is it really a favor?

Was there an exchange of value? Yes. You read something that to you had value.

Was there a return of value in exchange? No.

So you get a value gap, which I also call a promise to pay, which in our big wide world is something that helped push money as a symbol of value, as you can ask favors of your friends or spouse--like a cup of coffee--but asking favors of strangers is often called begging.

Friends return favors and hopefully you would to your spouse as well, in more ways than simply say, making a return cup of coffee!

But strangers can't be expected to return favors, as, well, how do you even know what to give in return?

Imagine you go to a strange house to some people you don't know, knock on the door, and ask for a favor of a cup of coffee? Even if they wanted to (and weren't scared of you begging at their door) and gave you a cup of coffee, how could you return that favor really?

Bring them back a cup of coffee later? Offer to mow their lawn later? Something else...?

There really is no way. It's unlikely that you have anything of value to them--extrinsic value--to pay for the disruption of a strange person knocking at their door and asking for a cup of coffee! There is no way to pay them back. Best thing is not to bug them in the first place!

We don't ask favors from strangers normally, but somehow there is this massive and very enticing system called the Web, or the Internet, or the World Wide Web, or whatever where we end up forced to have favors from strangers just about every time we use it.

The biggest mistake that Web companies like Google, or Yahoo! or any number of other companies make, and the mistake people like me make in putting out content as freely as we do is that we are doing others a favor without giving them a way to do anything in return, and in reality, there really isn't any favor they can give in return that would work!!!

Money isn't a necessary evil. It is a symbol. It is a way to exchange value.

Without an ability to pay, on the web people can often not give value back, no matter how much they'd wish. There simply is no way.

You routinely use alternatives to exchange value when you do someone a favor, or receive one in return, where there, the "money" you might say, is your memory and theirs. The value is held in memory, held in trust.

But favors entail a promise to pay, but web companies often don't give you the ability to pay, so a value gap hangs...
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