Friday, November 21, 2014

When money is too abstracted

Was a relief for me to sit down and process basic thinking on money, where I found myself focusing on favors, somewhat to my surprise, as I concluded that money lets you give an IOU that society makes good in exchange for someone doing you a favor. So at its simplest it's not that big of a deal so why do so many have issues with it?

I think the problem is that money is too abstracted. We need to bring money back to concrete reality.

One of those sayings that I ponder now is the claim that money is the "root of all evil", and I'm like, huh? Doing people favors is the root of all evil? I don't think so.

How did things get so distorted? How do you have people who will kill for money? Lie, cheat and steal for money?

Well, it's what you can DO with those owed favors. Like, feed yourself. Or have a home. Or buy luxuries. Or impress other people. Among many, many other things!

The monetary system allows society to have many people doing many things and facilitates transactions between people without which our modern world society could not operate as it does, and I don't think anyone has come up with a better way to do things.

Money lets you separate your action from the reward.

You can mow your neighbor's lawn, get paid some amount, and then get the return on that action, months later when maybe you use the money to take your wife to dinner. You then give that restaurant an IOU from which they can get their reward when they so choose.

That flexibility is unrivaled. It's a great thing.

The alternative is that you return the favor immediately. Or that they trust you to return it at some later date. But such trust is best between people who are close, like in a well-knit community.

Money lets you trust society to guarantee you will get a return on your efforts--not each and every individual within that society with whom you have a transaction, as they just hand you an IOU, which we call money.

So for you to lose a return on the favor your society would have to fail you.

That's why for instance legal tender in my country is backed by the US Government.

We need to talk more about money, and about doing things for others, and why giving a lot of other people something they want and getting an IOU in return is not necessarily a reason to flaunt it, put yourself above others, or do any number of things that really have nothing to do with money.

Like, imagine, you sing to a crowd of thousands and they show their appreciation with an IOU for you to use later, and that was a lot of people to whom you gave something of value so their appreciation has a great value as well!

If you see it that way, how might you think about how you get a return on what you gave?

And from there it's easy to consider where I think money does distort things, where my emphasis on money as an IOU on a favor really works well to explain some striking distortions in monetary distribution, as is a schoolteacher doing you a favor by teaching your child? Does a police office do you a favor when she protects you from robbers? Or a soldier protecting you from enemies foreign or domestic?

I don't think most consider serving your country as a soldier as doing a favor.

But with the money system someone who can do favors or as more people might consider it, give a service like a catchy song, can make much, much more than people who save a nation.

I think societies do try to make an adjustment though for those areas money is not designed to handle well.

That explanation isn't satisfying to me either, though I guess it makes sense. It's kind of unsettling so I find myself talking it out more. A person with a well designed product might sell it nationally. Today, because of the web it's easier and easier for products, like songs or movies, to go international, allowing so much more money in return. You're just doing that many more people a service and getting a return on it. It's about sheer numbers.

But for a schoolteacher? Even when lessons go online aren't they usually free? I think people just don't see lessons as a favor. So society still has to step into the breach to provide some form of support?

So community rises in importance yet again.

So much of how you see things is about community, and what values your community has given you.

To me, considering money less abstractly and concretely as an IOU from society as a return on a favor is very useful in explaining what it can bring, and also what it doesn't.

But maybe that explains why people can be most satisfied with their community regardless of money, when that community is supportive, well-knit, and most importantly its members know and trust each other.

James Harris

Thursday, November 6, 2014

Community values and money

Having had some time to ponder my ideas for a predictive framework around money in my post Money Matters, I found myself thinking about community. And that is such a huge arena in terms of its importance that again there are a lot of disclaimers. I'm expressing my personal opinions and not claiming to be an expert on money matters nor am I giving monetary or legal advice.

To introduce ideas around community and money I think it will be good to use an example I used from my prior post about two neighbors where one mows the lawn of the other who returns the favor by trimming his hedges. Where I also supposed hypothetically about the value of that behavior being potentially enumerated by money, if for instance the one neighbor could pay $50 US to have his lawn mowed and the other neighbor found he could have his hedges trimmed for $35 US.

The disparity of course is $15 US and represents a potential profit in the exchange for one of the homeowners and I suggest that how you think of that reality has a lot to do with the values of your community.

Stressing community values versus individual values makes sense here, as for instance non-profit corporations are a phenomenon of community, where supposedly they do NOT profit from their efforts presumably for the good of the community, where what the community is, can vary.

That profit is a matter of community values may seem strange. But different communities can vary a lot about how people should relate to each other even when it comes to favors. In one community people might feel it's your job to know the value of your efforts and others. While in other communities there might be a feeling there should be a fair exchange. So for instance in such a community with our hypothetical example the homeowner who did the hedges maybe should also give $15 US to his neighbor to even the exchange.

If your community values business exchanges more highly it might expect people to be aware of the value of their work, and even reward others for taking advantage of a lack of information--profiting from other's mistakes. That could be seen as an incentive to learn.

Community can mean a lot of things and I'm going to not try and define it, but I will offer the idea that community can offer support for members who need help.

So support of community has a value in insuring that a person has the potential of support later, and that social insurance is something that can be monetized to some extent as well which is the purpose of the insurance industry.

Many people may be surprised to learn that at least in the US, insurance companies are not to profit from premiums, and seek to balance the money received in premiums exactly with the money paid out in claims.

So where are they supposed to make profit?

Insurance companies are supposed to make profit on the return from investing the premiums paid into them, which represents a community value of the United States of America. People don't like the idea of someone profiting from the misfortune or potential misfortune of others. But it's quite fair to invest the money people pay to be insured, and make your profit there, as it doesn't hurt them one way or the other, as long as the money isn't lost on bad investments, and it's better than the money just sitting to the advantage of no one waiting to be paid out in a claim.

Profit can be win-win, or win-lose.

In a win-win profit situation both entities in a transaction walk away with an equal benefit. For example in our hypothetical situation if the one homeowner who receives the greater value in the exchange evens it by giving $15, the other homeowner technically "profits" by that amount, but in actuality the money merely balances the exchange and both homeowners win--they each get a needed service done. One person's lawn is mowed and the other has his hedges trimmed.

In a win-lose profit situation, one entity in a transaction walks away with more than given. Which is the situation if neither homeowner cares to balance things or one is unaware that mowing his neighbor's lawn is monetarily more valuable than having his hedges trimmed.

Communities can actually value either exchange. They can even go further and value charity, where one person simply gives benefit to another with no expectation of anything in return. Then "profit" is simply removed as a concept.

Hypothetically the win-win profit situation is the optimal one. Then both parties get as much as they give, in an even exchange, which notice betters each of them without harm.

Also notice that the win-lose situation depends on a disparity in the exchange. Whether that disparity is addressed or not can be about will or information. If one party is unaware of the disparity then that person can give more than received in return from lack of sufficient knowledge.

Information then can be seen to be the key to willful exchange outcomes, where people get to make a decision about how to address exchange disparities. To make that decision they must first know the exchange disparity exists!

My assessment that profit is a matter of community values is a personal opinion. Others may disagree, but I like that I can fit it so nicely with prior concepts already discussed as I work further in what I see as a functional science of money.

James Harris