I think its plausible that money is a system for measuring social debt. The greater service you provide someone (or society as a whole), the greater your wealth. And similarly the more you consume, the more you are indebted to society at large for providing those things you enjoy. I base this theory on a smattering of concepts including the psychology of reciprocity, and an introductory anthropology course I took in college. Hardly PhD-level research, but I think it makes a surprising amount of sense. While I aim to present a unified theory of money that explains all its features, uses, and effects there are a few areas that I have a harder time reconciling, such as why it appears to be such a weak proxy for political/social power (ie why many senators/presidents, while wealthy, aren’t phenomenally so), why we resent people for having more money than us (rather than admiring their contribution to society), why our government can force us to buy stuff we don’t want at prices we don’t approve of, and why people buy useless shit.
The starting point for my thinking is that humans are bound by the law of reciprocity. If someone does you a favor, you are obligated to repay it (assuming they gave willingly, and you received it willingly). Robert Cialdini talks about this at length in his book, “Influence” and lists it as one of the most powerful ways people can be…influenced. In fact, he argues that our sense of obligation is so powerful, that we will repay a favor many times over if no other opportunities present themselves. For example, if a car salesman fetches us a cup of coffee, we might find ourselves willing to pay hundreds of dollars more for a car than we otherwise would.
Of course, reciprocity usually drives our actions at an unconscious level; we wouldn’t explicitly exchange hundreds of dollars for a cup of coffee. And yet, we feel obligated to repay our debts any way we can. Based on my crude understanding of anthropology, this appears to be an important trait for social species like our own.
Consider what life would be like in a pre-money society, with everyone sharing amongst themselves fairly equally. From a practical, biological standpoint this makes a lot of sense because sharing smoothes out the distribution of resources. By using resources more efficiently, it would reduce the risk of mortality from starvation, or injury, or other hardship. Groups with this freer flow of resources would prosper, and grow more quickly than groups comprised of greedy misers. The selfish tribes might either die, or fail even to become true tribes.
There’s decent evidence that money was likely never introduced as a substitute for barter. That idea most likely emerged when over-simplified economics textbooks sought a way to stay focused on methods clean-cut financial exchange without drifting into murkier fields like psychology and anthropology. Of course, it now turns out that these fields are more important to understanding human economic behavior than we gave them credit for.
In a society where you know everyone, and people never leave the group, an explicit tit-for-tat exchange is unnecessary, not to mention inefficient. If you give your neighbor some berries today, they’ll repay you eventually or risk being labeled a moocher. Since moochers are treated with distain, and since humans are highly sensitive to their social status, being a moocher is no bueno. You feel a biological need to pay your debts presumably because people who don’t feel that insistent need are less successful evolutionarily.*
Setting aside the evolution of societies, and the nature of reciprocity for a moment, I would point out that we usually don’t share solely because we’ll need a favor in the future (although that’s not a bad reason). We share because we like the person we’re sharing with, or because we want a relationship with them, or because it just feels good to share. We like people more when they share with us, and we like them less when all they do is take. Even if our behaviors ultimately appear rational and self-serving, they are mediated by messy, biological channels like feelings and relationships.
Given these two things, that humans are bound together by a web of social debts (though relationships, and an inborn need to reciprocate), and the fact that barter does not appear to provide an adequate explanation for the existence of money, I propose that money exists to track social debt.
For smaller societies in which all members are well acquainted with one another, and tuned into the relationships among the other group members, money is not necessary; people can track social debts on their own mostly through relationships. Favors are typically repaid over time, and with few exceptions. The balance of favors given vs owed factors heavily into your social standing. I’ve already discussed the situation of moochers, but conversely, if you are one who consistently gives more than you receive, you will rise in standing and be seen as a leader. Doing so begets respect, which begets a position of moderate authority.** Indeed, because the group’s members are partially dependent on you for their well being, one could argue that you are more important to the group than the average person and thus deserve special treatment. This is not wasted on us humans, as we are incredibly sensitive to our social standing (largely because it helps ensure repayment of our debts, and improves social cohesion). A person can “spend” the currency of power and status in a variety of ways, some of which give them still greater respect and influence, and some of which destroy it.
As a society grows large, and interactions become more anonymous (and thus a system based on relationships alone fails to manage the needs of the members to exchange resources), the need for a new means of tracking social debt arises. So a change in thinking is needed. Rather than seeing it as debt between person 1 and person 2, it becomes more useful to see it as debt between person 1 and society (as a whole) as mediated by person 2 (person 2 has social assets, and can therefore make “purchases”). No one needs to know what favor person 1 provided person 2, or even who the people involved are. It doesn’t matter until each person needs to transact again and their net worth becomes relevant to the new parties involved.
Although money and social capital appear quite different, the fundamentals are pretty similar. Both require massive amounts of trust. In one case, trust is needed at a very interpersonal level, and you know exactly who you are dealing with. But as a society becomes larger and more complex, the trust shifts to institutions like a government, treasury department, and federal reserve. Secondly, both systems ascribe higher status to those who accumulate greater capital (be it social or financial). Mark Zuckerberg, Bill Gates, and Warren Buffett rightly receive greater respect and deference than I do. In fact, the magnitude of their contributions is so large that they are treated with awe all around the world, and as a result, all of humanity is in their “debt;” they are very rich compared to the rest of us. Thirdly, both systems encourage interdependence; there is an advantage to helping those in need, and to repaying the favors that we have received. In this way, the interests of the individual and those of the group are linked whether by money or social instinct! That’s a really powerful concept. Encoded in our DNA is the capacity to form institutions and organizations that link people who have never met and make them useful to one another. I suspect this is one of the biggest reasons why humans have risen to become the most powerful species on the planet.
It’s worth noting that giving, by itself, is insufficient to accumulate social standing and hold others in your debt. You must give something worth having. The feeling of indebtedness, after all, depends as much on the receiver as on the giver. More simply, crappy gifts don’t exactly prompt someone to exclaim, “gee, I owe you one!” or, “Let me give you some of my implied social standing as measured by this green, paper proxy in exchange for that thing!” In contrast, people who provide something of real value thrive in their endeavors, and the organizations they lead gain the resources needed to provide even more value to the world.
This theory has limitations of course, but nonetheless is the basis for my thinking about entrepreneurship. Namely, it’s not about “getting,” “extracting,” or “winning,” it’s about giving. And not just that, it’s about giving in a way that is appreciated, and filling an unmet need in a way that can only be done if you’re in touch with your audience. From the standpoint of accumulating social credit, you are behooved to focus on giving really good gifts; to benefit the recipient above all else. Only by helping others can you help yourself. Help more people in a bigger way, and you’ll make more money.
This framework has interesting implications for wealth accumulation too. The only way to grow rich is to give more than you receive, no matter the society you live in. Even if you do a million excellent favors for a group of people (say by giving them iphones), if you cash in by requesting a bunch of favors for yourself (asking society for a mansion, a speedboat, and a sportscar, all plated in gold), you’ll be no better off in terms of your ability to demand favors from the world.
Alternatively, if you have accumulated some social capital/money, you can decide to invest it. According to my theory, for equity investments this is like putting your reputation behind something and saying “this is a good idea everyone, give this person the resources to make their idea happen so that our society is better.” For debt, it’s issuing a favor to someone who needs it more than you do. You get repaid with interest according to the urgency and severity of their need. If you make good judgments in your investments, you gain greater influence and can direct more resources to future ideas. If you are wrong, you will have to steadily earn back the prestige/money you lost. This works out as a pretty beautiful system in our modern world; good ideas, implemented by capable people get more resources behind them to maximize the benefit. Half-baked ideas, cobbled together by con-artists or idiots, fail to gain traction (or at least, the second bad idea a person has is a lot less likely to receive funding, society cuts its losses).
It’s a weird way of thinking, but I’m often amazed by how many aspects of our world can be explained by thinking about human nature and biology. This article was essentially the result of my trying to answer why humans like money. The simplistic, consumerist answer is “because we like stuff. Stuff says we can help make babies survive better. Have babies with us.” I don’t think anything that vapid really explains our behavior, though; there’s so much more to life than accumulating stuff and trying to reproduce.
Instead, I like to think about human nature in terms of what makes us happy. Theoretically, we’re incentivized by nature to do more of what makes us happy, it’s who we are biologically. This approach leads to a pretty fascinating view of humanity, and gives us a useful starting point for examining who we are.
(Ilana Strauss wrote a really interesting article about the myth of barter that influenced my thinking: http://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/. I recommend you read it; articles like this are why I think anthropology is so fascinating).
This article makes passing reference to this assumption, although I couldn’t find a good way to cite my college anthropology course where I learned that leaders of small groups of humans achieve their status not by birth, or wealth, but by contributing more than anyone else http://www.independent.co.uk/voices/commentators/peter-gronn-early-human-society-hunted-gathered-ndash-and-worked-without-leaders-1706868.html).
*By the way, the longer that person waits, the greater their odds of receiving that label, and the more generously they’ll have to repay you to re-establish their reputation as an upstanding citizen (which is probably why debt pays interest).
Bonus Thoughts: This does not dismiss the use of money as an instrument of power. On the contrary, I believe it sheds new light on it. Not all uses of money (for the purpose of exercising power) are equally sophisticated. Using money to do a favor for someone, such as buying them lunch, or taking them out on your boat for an afternoon, can be seen as benign—even generous—and leads the person to feel more favorably towards you. Giving someone a wad of cash and ordering, “do this for me” is as blunt, and ineffective as someone who considers themselves important declaring, “I’m popular, so you have to listen to me!” The first is the way we hope to treat our dearest friends, and how we want to be treated, whereas the second sounds like it came straight out of an insecure high-schooler’s mouth.