Clunky Flow

J.P. Rangaswami explores the notion of applying ideas from the banking system to the problems of identity and trust in the information economy over at his confusedofcalcutta blog.
Using those thoughts as a starting point, the following is a riff that just got way too long for the comments section:

If the question was: “How do we most efficiently handle the information economy?” The answer may well be found by looking at the banking institutions that evolved to serve the cash economy. And its an excellent idea to look for efficient services for the information economy by taking inspiration from those services that increase liquidity and reduce friction in the cash economy.

This search begins with the fundamental question: So how do banks work? Well, you don’t have to have had an account in Northern Rock or in a US subprime lender to know that banks are all/nothing depending on the presence/absence of trust.

But its also worth stepping outside the normal stomping grounds visited when discussing trust and noting that trust emerges naturally in two distinct ways in human society. 1) Through contract ritual 2) Through friendship/gifting rituals. Every tribe and culture that ever existed engages in both. And both are necessary to satisfy our economic needs. Its worth repeating that and empasising the keywords. Both are needed to satisfy our economic needs. The role of frienship/gifting rituals in meeting our economic needs is often overlooked not because of its lack of importance but because we are hard-wired to have a blind eye to its importance.

Bear with me while I explain what I mean by this point. We don’t intuitively understand the mechanics of friendship/gifting rituals because evolution/Mother Nature/God has hard-wired us to have a blind eye to the mechanics of these rituals. Because Mother Nature doesn’t want us to be too calculating in all our actions. Because she knows that a lot of the beneficial things we could do, we wouldn’t do, if we were to stand back an analyse them coldly. Having kids, for example. Or risking ourselves in even a small way to rescue someone else in trouble. Both these examples parallel friendship/gifting rituals…ie where you are giving of yourself with no explicit contractual expectation of getting a return.

Think of finding yourself in a position of being able to rescue another person. Now, move on and think of yourself in the position of being able to rescue a bank on the verge of collapse.

The banking system is a great example of the contractual ritual formalised and scaled-up so that it operates with great efficiency for the benefit of the market and all its participants. As solid as a banking system might look as a central part of society it is of course highly vulnerable and it could collapse overnight. But the threat of collapse is mitigated by a form of the friendship/gifting ritual rather than the contractual ritual that kicks into the action when the system come under threat. For example, when a major bank collapses it causes a scare and a run on other banks. The governments intervenes on behalf of its citizens and will sink all the financial and political power it can muster to rescue the banking system for wholesale implosion.

As such the entire banking system is underwritten in trust not by a contractual guarantees but confident expectation that a rescue is likely to be there when it is needed, whether or not the banking system is truly deserving or not. Which is just another way of describing a friendship contract.

Thus, although we are generally blind to it, the fact remains that friendship/gifting contract is the foundation for the contractual contracts upon which the banking business is operated. Banking systems could not exist without it. Banking systems would repeatedly collapse without it.

If you wish to explore the hidden mechanics and processes of gifting/frienship economies that underlie our contract-based economies and how they are used to create bonds of trust it is worth taking a look at these analyses in wikipedia as a starting point.

Koha

Moka

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