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A crash course in changing the world.
Money is information - but does it want to be free?
First, let's understand how money is information.
Money is a representation of value that we use to trade for other things of value, that is, when we buy and sell things. We could do without the abstraction of money, by trading the things themselves, such as trading your baseball cards for a skateboard, or bartering your gardening services for a home cooked meal. Money was invented as just a fancy kind of IOU, to allow us to trade more easily. I may want your baseball cards, but I don't have the skateboard you want, so instead, I give you some amount of money that we agree on, and you can go buy the skateboard with that money somewhere else.
The numbers which indicate how much value a piece of paper money has is clearly just an abstraction, a piece of information. Early forms of money had some inherent physical value as well, typically being made of something durable like a piece of metal. And we like to think of paper money as being backed by an equivalent amount of valuable metal, as if we could go and trade the money for the metal, but does it really matter whether there is enough gold in Fort Knox or the wh*** world to match all the money that is out in circulation? Not as long as we agree that the paper money has the value we say it does, as long as we have confidence that everyone else agrees as well.
And, of course, we don't have to use anything physical to represent the money either - virtual numbers in our bank account are enough.
The abstraction of money also allows us to not just trade with it, but give the money away to those we care about, particularly our dependent children who cannot raise the money themselves until they have grown enough.
Beyond this direct one-to-one representation of value, we also have even more abstract and indirect representations of monetary value, such as loan contracts, stock options, and credit default swaps. All are based on mutual trust in each other that we will continue to agree on the value of something as, ... whatever we agree on.
You have probably heard the phrase "information wants to be free", attributed to Stewart Brand. He said this because the cost of producing and distributing information is getting lower and lower. He also said "information wants to be expensive, because it's so valuable" and that there will always be this tension between the two. Of course, not all information is equal, some is more valuable, and some less.
So one way to look at the question of the value of money as information is that we simply agree that money has a certain value, and that is the end of it. But is that the end of it? We have to look at how information and money change over time, what they "want", short term and long term.
We are entering the Information Age, or rather, the information revolution really started exploding with the compounding advances in electronic communication and computation over the last century. Indeed, the cost of distributing information is getting vanishingly cheap, just as the cost of moving physical products around the planet has gotten as cheap as industrialization could push it during the preceding centuries of the Industrial Revolution. The production of information is another matter, just as the production of physical products is, but production costs are also being reduced, because everything else is getting cheaper as well. Almost everything!
But the real lasting value is the skills of the people who are instrumental in that production, the knowledge we possess of how to use our technologies to make everything more efficiently and thus cheaper. So I would argue that the "information wants to be free" side will tend to win out over the long run, because market forces will, over time, reduce the cost everything as much as possible. Some things will be more expensive for a while, but eventually, almost everything loses its value because something cheaper comes along to replace it. One exception is the relatively rare things that grow more valuable over time, partly for historical significance because we value such irreplaceable artifacts.
There are lots of interesting issues to explore there, but back to money and the original question: Since money is information, and information wants to be free, then can we conclude that money wants to be free?
What are your thoughts?
Just came across this article in Wired magazine: "The Future of Money: It's Flexible, Frictionless and (Almost) Free", which is really about how to make the overhead of transferring money cheaper. Fine, but what about the cost of the things being bought and sold? That's what this blog is about, and so is my extended response to some comments below: "Money will always have some value".
Money is a representation of value that we use to trade for other things of value, that is, when we buy and sell things. We could do without the abstraction of money, by trading the things themselves, such as trading your baseball cards for a skateboard, or bartering your gardening services for a home cooked meal. Money was invented as just a fancy kind of IOU, to allow us to trade more easily. I may want your baseball cards, but I don't have the skateboard you want, so instead, I give you some amount of money that we agree on, and you can go buy the skateboard with that money somewhere else.
The numbers which indicate how much value a piece of paper money has is clearly just an abstraction, a piece of information. Early forms of money had some inherent physical value as well, typically being made of something durable like a piece of metal. And we like to think of paper money as being backed by an equivalent amount of valuable metal, as if we could go and trade the money for the metal, but does it really matter whether there is enough gold in Fort Knox or the wh*** world to match all the money that is out in circulation? Not as long as we agree that the paper money has the value we say it does, as long as we have confidence that everyone else agrees as well.
And, of course, we don't have to use anything physical to represent the money either - virtual numbers in our bank account are enough.
The abstraction of money also allows us to not just trade with it, but give the money away to those we care about, particularly our dependent children who cannot raise the money themselves until they have grown enough.
Beyond this direct one-to-one representation of value, we also have even more abstract and indirect representations of monetary value, such as loan contracts, stock options, and credit default swaps. All are based on mutual trust in each other that we will continue to agree on the value of something as, ... whatever we agree on.
You have probably heard the phrase "information wants to be free", attributed to Stewart Brand. He said this because the cost of producing and distributing information is getting lower and lower. He also said "information wants to be expensive, because it's so valuable" and that there will always be this tension between the two. Of course, not all information is equal, some is more valuable, and some less.
So one way to look at the question of the value of money as information is that we simply agree that money has a certain value, and that is the end of it. But is that the end of it? We have to look at how information and money change over time, what they "want", short term and long term.
We are entering the Information Age, or rather, the information revolution really started exploding with the compounding advances in electronic communication and computation over the last century. Indeed, the cost of distributing information is getting vanishingly cheap, just as the cost of moving physical products around the planet has gotten as cheap as industrialization could push it during the preceding centuries of the Industrial Revolution. The production of information is another matter, just as the production of physical products is, but production costs are also being reduced, because everything else is getting cheaper as well. Almost everything!
But the real lasting value is the skills of the people who are instrumental in that production, the knowledge we possess of how to use our technologies to make everything more efficiently and thus cheaper. So I would argue that the "information wants to be free" side will tend to win out over the long run, because market forces will, over time, reduce the cost everything as much as possible. Some things will be more expensive for a while, but eventually, almost everything loses its value because something cheaper comes along to replace it. One exception is the relatively rare things that grow more valuable over time, partly for historical significance because we value such irreplaceable artifacts.
There are lots of interesting issues to explore there, but back to money and the original question: Since money is information, and information wants to be free, then can we conclude that money wants to be free?
What are your thoughts?
Just came across this article in Wired magazine: "The Future of Money: It's Flexible, Frictionless and (Almost) Free", which is really about how to make the overhead of transferring money cheaper. Fine, but what about the cost of the things being bought and sold? That's what this blog is about, and so is my extended response to some comments below: "Money will always have some value".
Views: 155
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Comment by Ezra Ho on April 2, 2010 at 7:22am
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Making money free is as good as saying phasing out the monetary system.
Instead of defining money as what you did, why not consider why we started to use money. At a time when human labour was needed to extract resources and then to manufacture a certain produce, a value would be attached to that product simply because it took human effort to do it. And in an environment of scarcity, people just did not have time to make stuff out of goodwill. They had to have the monetary incentive to do it. At the same time, it is this same monetary incentive that corrupts our social institution.
In your article, you mention that the cost of information and physical products are increasingly becoming cheaper and cheaper due to automation. Right, when machines increasingly replace human labour, the value of a product based on human effort becomes zero. Also, if machines were to replace human labour, and no one was employed, in a monetary system, this would mean that purchasing power of the average citizen/consumer would become so low that economic "growth" cannot be sustained. The solution then, acting in tandem with technological progress is to abolish the monetary system and realise that we have to use our combined technological and natural resources for all the world's peoples, not just for a small group of elites.
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Comment by Sarah Shaw Tatoun on April 2, 2010 at 12:59pm
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Thanks Daniel-- Stewart Brand is one of my long-time heroes. I think there are two great problems going forward-- one is a lack of transparency: It's very hard to tell, often, just what the inputs are that have gone into the production of information and what it 'should' be worth. Marketers are extremely skilled at using the latest knowledge about human psychology to 'suggest' very high prices to us. (Using things like 'social proof' and establishing a high 'first price' which is then discounted, leading the consumer to believe that they are getting a bargain.)
The other problem is one that Howard Rheingold and, I believe, Clay Shirky are particularly concerned with: the time cost of what I think Rheingold refers to as 'crap filtering'. As more and more information appears it becomes essential to learn how to quickly discard the stuff that's badly thought out, misleading or outright wrong. Particularly in the current economy, where companies often have large investments in producing extremely persuasive 'crap' this is, I think, our biggest challenge.
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Comment by Daniel LaLiberte on April 6, 2010 at 5:18am
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Thank you both for your comments. Many interesting points to respond to. This medium of communication is not ideal for such discussions, but I'll give it a try. Well, never mind. My response got long enough that I will post separate blogs. (And while I was doing that, I got locked out by ning. Just as well, the weather was great for yard work.)
I just posted "Money will always have some value" in response to Ezra's comments and blogs. Thanks for inspiring me to get those thoughts out.
Sarah, I think we are more in agreement, so ya... :) But here are a couple more things that came to mind in response to what you said.
The lack of transparency regarding pricing applies to all products, of course. For physical products, I think it is interesting that in addition to other factors, there is a perceived value based on the size and mass of the object that doesn't necessarily reflect the development costs. Another interesting related fact is that the cost of physical products over time eventually bottoms out at the cost of transporting the material around, proportional to its mass and distance traveled.
For an information product, there is the additional problem of finding out what the value of it is without actually having a copy of it and trying it out. Various strategies for dealing with that all amount to some form of trust. E.g. trust that you won't "steal" the information, or trust that someone else who reviewed the product is telling the truth, or trust that even if I give it to you free, you will probably buy something else. And that relates to your point about the increasing value of filtering - you have to trust that the filter is not excluding something you would want to see.
As far as what the products "should" be worth, I am not a believer in somehow making those decisions in any centralized manner, unless there is a near-monopoly situation or other inequities in which it is necessary to maintain control over a market that would otherwise not have sufficient self-control. So I believe that people, both buyers and sellers, should be able to agree on whatever value for products that they agree on, and this distributed control is better for approximating real value.
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Comment by Michele Baron on April 6, 2010 at 5:45am
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It seems that trust and value, as well as knowledge, may reside in Pandora's Box. It is a dilemma, assigning accessibility and worth to knowledge. Interesting post. Thank you
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Comment by Patricio Buenrostro-Gilhuys on April 7, 2010 at 4:43am
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Money is the process of abstracting real resources, form seeds to metals to paper to plastic to bits. The latest economic crisis is multifactorial but I truly believe that the bottom line is the disconnection between real resources and money on a screen. At some point there is discrepancies between wall street, banks and the real value of stuff. Now money doesn´t even needs to be printed its just information. Yet it has a real social and environmental impact. How many hours does a sweatshop worker it took to make does motherboards? What´s the embodied energetic cost of the computer´s lifecycle including raw material extraction, transport, manufacture, assembly, installation, disassembly, deconstruction and/or decomposition? http://en.wikipedia.org/wiki/Embodied_energy That includes the oil for the plastics in the computer, the death soldiers that it took to take over an oil rich country etc . . .
Information has a very high cost.
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To elaborate more on Sarah's post, people have to be aware of the history and develop of what we call the consumer society, which has its roots in the science of mass psychology. To make a long story short, what we think of as 'normal' economic behaviour was engineered at the start of the 20th Century by Freud's nephew Edward Bernays. See Century of the Self, highly recommended. And also consider this phrase, mass production requires mass consumption. We usually think of it the other way, but what about from this perspective?
@Patricio:
Yes, that is really true. We see so much evidence of this all the time from the hike in oil prices due to Wall Street speculation to the creating of diamond scarcity. In a monetary system that profits from inefficiency and scarcity, this is how the system is designed to operate.
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