Tom Graves / Tetradian

More enterprise-architecture stuff, this time about the relationship between trust, value and money.

This starts from a Tweet by Swedish consultant Oscar Berg, which triggered off a back-and-forth flurry:

• oscarberg: The main currencies of business have always been information & trust. They let us exchange favors, goods/money etc <yes!!!
• erikproper: @tetradian @oscarberg 200grams of trust in exchange for one espresso?
• tetradian: @erikproper @oscarberg ‘pre-currency’ might be better term: monetary-type currency build _on top of_ trust etc
• oscarberg: @erikproper I’d need to know (info) that you sell espressos (incl price) & trust that you do good espressos to buy from you cc: @tetradian
• erikproper: @oscarberg Ah yes. But how are you going to pay for the espresso …
• oscarberg: @erikproper If I recommend your espresso to others, can’t you give me one for free?
• erikproper: @oscarberg You would, as long as eventually I get “paid” in a “currency” that allows me to “hire” co-workers, “pay” the coffee supplier, etc
• oscarberg: @erikproper you will get paid, if people trust you and have the info needed (like my recommendation) to buy your espresso
• tetradian: @erikproper @oscarberg monetary payment represents _lack_ of trust in overall economy – to understand economics, focus on trust first?
• erikproper: @oscarberg But in what …
• tetradian: @erikproper “But in what …” – sometimes paid just in thanks! – a currency is only a proxy for/in economics, not the economics itself!
• thoughttrans: @tetradian lack of trust in economy by the everyday person. hedge fund and corp execs are happy
• erikproper: @tetradian @oscarberg Monetary payment represents equalized trust? Enabling easier exchange of goods and favours by a unified value system?
• taotwit: @erikproper @tetradian @oscarberg interesting – what other Trust equalisers exist in business? Should we model them explicitly?
• erikproper: @taotwit @tetradian @oscarberg Really makes sense to more explicitly study value exchanges, and equalised notions of value and trust
• taotwit: @erikproper @tetradian @oscarberg ok that sounds like Value Network Analysis or do you think VNA is lacking?
• erikproper: @taotwit @tetradian @oscarberg Well. Is VNA in practice VN Modelling, or really critical VN Analysis, from a brdr prscptv, incldng non money
• jdevoo: @erikproper @taotwit @tetradian @oscarberg in an e3value model, exchanges can modeled that way I believe. That’s not VNA-related though.
• tetradian: @erikproper @taotwit @oscarberg @jdevoo re money and trust: getting too tangled for Twitter, will do blog-post instead!

Hence this blog-post…

To me there’s a fair amount of going-round-in-circles in the conversation above, though the point about Value Network modelling is certainly relevant. This is not unusual… And the reason why there’s so much circularity is that it’s starting from the wrong place – currency, or money – rather than where a transaction-economy actually starts, in trust and value.

Perhaps the simplest way to illustrate this is with what I call the ‘market-cycle’: trust and reputation enable relationship, which enable conversations about need and value, which enable transactions, which – when completed to the satisfaction of all parties involved – reinforces trust, in a virtuous-cycle.

In a currency-based economic model, currency changes hands at the end of the transaction: ‘completion for self’, from the perspective of the business. But if one or more of the parties are not satisfied by the transaction, trust is lost – often leading to a vicious-cycle in which transactions quietly fade away to nothing. So trust is actually the core here: not currency. The common over-focus on currency – or distant proxies such as ‘shareholder-value’ – will cripple an enterprise-architecture, especially when combined with the equally common ignorance about the centrality of trust.

All transactions start and end with trust. A currency is just a proxy for that trust at a societal level. It is not the trust itself: architecturally speaking, we must be careful always to keep the two apart, and to ensure that the focus ultimately remains on the trust itself, and not merely on its various proxies.

In a sense, a currency is actually a mechanism to transcend lack of trust. Many people have real difficulty in understanding systems or networks: they’re most comfortable with point-to-point transactions, direct reciprocal balance, ‘this for that’, ‘quid pro quo’, ‘double-entry life-keeping’ and suchlike. But that isn’t how real systems work: instead, Joe needs a loaf of bread, whilst Ben needs a hug, Kurt and Lina need timber for the barn, Mary needs someone to look after the kids while she leads the barn-raising, after which everyone needs a beer. Everything balances out somehow over the entire system, the entire value-network, but will rarely do so as such across at each point-to-point transaction.

So a currency forms a useful bridge for people who can’t or don’t or won’t understand and trust those whole-of-system flows: I don’t get a straight barter-balance in this transaction, perhaps, but I get these tokens called ‘money’ which supposedly entitle me to other resources from someone else within the jurisdiction that these tokens apply. It’s a useful kludge, a workaround for lack of trust – and it’s really important that we understand that it’s nothing more than that.

More seriously, it’s a kludge that has some very severe limitations. One is that it really only works in practice with ‘exchangeable’ items – tangible goods and services, and a limited subset of non-tangible services (knowledge-work’ etc). With anything else, it tends to induce some serious delusions: for example, as the old song puts it, “money can’t buy me love”, or hope, or freedom from fear – though it can sometimes buy simulations of such things, which is not the same at all, and which itself creates further serious societal problems…

Another limitation of most (perhaps all?) currency-models is that there are always people who are left out, because they don’t have access to appropriate ‘exchangeable items’. Parents, children, the elderly, the sick – these are often the people who most need resources, and yet in a currency-based model they may well be the people least likely to receive them. (This is true for everyone, actually. If you take the stereotype lifecycle – childhood, teenager, first leaving home, partner, then kids, middle-age, kids leaving home, retirement, old age – and map it the likely resource-needs at each stage of that cycle against the likely resource-availability ['income'] in a currency-based economy, you’ll note that it’s an almost perfect mismatch: whenever the needs are highest, the resource-availability is lowest, and vice-versa. In short, our ‘normal’ currency-based model, is not merely a poor system, but almost the worst that could possibly be devised.)

Even more problematic, most modern currencies are virtual-only (no longer connected to anything tangible, such as the old ‘Gold Standard’), and hence potentially infinite; yet the most of the resources that purport to be obtainable via currency-based transactions are finite. This leaves the system wide-open to a vast range of ‘price/value mismatch’ games – hence inflation, scarcity-pricing, most resource-’bubbles’, most of the present ‘financial system’, and most of the current ‘financial crisis’. In terms of the resources and capabilities that it provides, the value of a house really hasn’t changed much in the past fifty years; but the price has changed enormously, including – now – the amount of life that one is expected to assign to someone else in order to obtain it. (The effective price of a house had been stable for a hundred years or more, at about three times the respective annual salary; but in the 1990s that ‘life-price’ suddenly leapt to five, seven or even ten years, for no actual increase in value at all. It therefore becomes interesting to ask where all that ‘excess value’ went…)

Much the same mess occurs with several related key business-concepts such as ‘shareholder-value’. There are huge problems with price/value-mismatch – hence ‘asset-stripping’ on one side, the ‘DotCom bubble’ on the other. There’s no actual linkage between share-price and real share-value (or even much understanding of what ‘value’ actually is, in the literal sense of ‘that which is valued’). And even the price itself is based on complex emotive responses to other complex, mostly non-linear, mostly non-reversible transforms from transactions acting on complex mixtures of ‘exchangeable’ items (physical goods and services, and some types of non-physical services) and ‘non-exchangeable’ items (goodwill, relationship, brand and, above all, trust): hence the ‘double-entry balanced accounting’ so beloved within the entire economic is little better than somewhere between wishful-thinking and outright fraud.

So as enterprise-architects and the like, what do we do about this? A lot: for example, we definitely need to map each enterprise at a whole-of-system level, tracking the value-transactions and value-transforms at each point in the network. Perhaps the single most important point, though, is to remember that every currency is a mere fiction, a kludge to get round people’s inability to trust: and it’s not the fictional currency, but the real trust that lies behind it, that is the true basis of any real-world economics.

Update: Take a look at Wim Rampen’s blog-post Destroying Customer-Value for a really good first-hand example and analysis of how currency [money], value and trust interact in the business-relations between a telco [cellphone service-provider] and a long-term customer.

Another follow-on to the theme about the economy as enterprise-architecture and the role of money within an economy. This one picks up from another direction, namely knowledge-management – specifically, a post on KMWorld by Phil Murray, ‘Everything is connected… really… Putting meaning to work‘.

The connecting link is that, in effect, money – or any other form of currency, ‘thing’-based, time-based or whatever – is essentially a form of quantitative information in relation to a belief about economic relationship. The crucial word there is ‘about‘ – the currency denotes something about the relationship, but in itself does not contribute in any way to the relationship.

There’s no doubt that a currency could contribute quite a bit to the overall operation of an economy: such as transaction-governance (‘a token of exchange’) and quantification of overall resources (though for money that’s always been in doubt, and in effect has ceased to function at all since the shift from the ‘Gold Standard’ to ‘imaginary-money’). But perhaps the greatest problem is that it exacerbates the delusion that the currency somehow ‘is‘ ‘the economy’, rather than merely information about the economy. So whilst the whole of Phil Murray’s post is relevant here, the following section seems particularly apposite from this perspective.

What really counts

It’s not that we should – or even can – shift our attention completely away from information (and unstructured information, in particular). It’s that we have failed to address meaning in the context of work. Yet, that is what we need to do in order to transform our economic activities, both as individuals and as groups working toward common goals.

In one of the great ironies of creation of value by humans, we looked at the byproduct of knowledge work – that is, information – and saw in it both the problem and the solution for the central socio-economic problems of our times. We stopped looking at what we do, how we do it and how we create value. Our reaction to knowledge work has been analogous to focusing on the shavings on the machine shop floor instead of on how we create products with those machines.

You cannot – and do not – act on words. You act on meaning. You always have to convert words into meaning before you act. It’s the meaning behind information that counts. And sometimes you don’t need words at all.

Meaning? Yes, “the thing one intends to convey especially by language,” according to the Merriam Webster dictionary. Not the language itself, not the text strings and symbols that fill our books and screens, but the significant stuff that language intends to represent so that we can communicate what we understand. The connections among things. Causes and effects. In the context of work: the relevance or importance of those connections. The subject of logic, argument and epistemology. A pervasive, essential aspect of rational human activities that is accepted as critical to creation of value and economic progress, and yet an idea routinely dismissed as unusable, elusive and unmanageable at the same time. And the missing ingredient in our understanding of work and the creation of value in the age of information.

Perhaps read it again, paraphrasing a bit, and substituting the word ‘money’ or ‘currency’ for ‘information’ throughout, as shown in [..] below:

What really counts

It’s not that [at present] we should – or even can – shift our attention completely away from [money] (and unstructured ['currency'], in particular). It’s that we have failed to address meaning in the context of work. Yet, that is what we need to do in order to transform our economic activities, both as individuals and as groups working toward common goals.

In one of the great ironies of creation of value by humans, we looked at the byproduct of [exchangeable] work – that is, [money] – and saw in it both the problem and the solution for the central socio-economic problems of our times. We stopped looking at what we do, how we do it and how we create value. Our reaction to [exchangeable] work has been analogous to focusing on the shavings on the machine shop floor instead of on how we create products with those machines.

You cannot – and do not – act on words. You act on meaning. You always have to convert words into meaning before you act. It’s the meaning behind [money] that counts. And sometimes you don’t need [currencies] at all.

Meaning? Yes, “the thing one intends to convey especially by language,” according to the Merriam Webster dictionary. Not the language itself, not the [numeric figures] and symbols that fill our [account-]books and screens, but the significant stuff that language intends to represent so that we can communicate what we understand. The connections among things. Causes and effects. In the context of work: the relevance or importance of those connections. The subject of logic, argument and epistemology. A pervasive, essential aspect of rational human activities that is accepted as critical to creation of value and economic progress, and yet an idea routinely dismissed as unusable, elusive and unmanageable at the same time. And the missing ingredient in our understanding of work and the creation of value in the age of [money].

Ouch…

And remember that all of the above applies only to exchangeable work (services delivering ‘things’, actions and/or information) within the constraints of a possession-economy: it excludes much or most of what really matters – such as feelings and faith, past and future – and, for the most part, the greater part of the population – such as parents, children, the elderly and disabled and their carers, or most ‘creatives’ such as artists, scientists, musicians, futurists and academics. Money is merely information about a subset of a subset of a subset of the overall economy: calling it ‘the economy’ is not merely a bad joke, but an increasingly dangerous one as well.

In short, in the current obsession with money and the like, we’ve allowed ourselves to focus on the dust and detritus of the economy, in the mistaken belief that that is ‘the economy. We might be able to patch something useful together from that detritus of the economy, if we recycle it appropriately, but it still misses the point: the real economy is not about the waste-product that’s left lying on the factory floor, but about what we were creating in the first place – that which is the real value, measured most by how we feel.

Money is ‘information-shavings’, the left-overs from real economic activity, real economic relations. Might help all of us if we put it in its proper perspective – and preferably sweep it up into the waste-bin where it has always belonged.

Spent much of the past couple of days getting overly-involved in two great threads on Venessa Miemis‘ ‘Emergent by Design‘ blog:

• Social Capital is not the same as Whuffie
• What could the future of money look like?

The first thread started with a very necessary attempt to distinguish between social-capital and reputation-based ‘currencies’ such as Cory Doctorow’s imaginary ‘Whuffie‘ (as described in his sci-fi novel “Down and Out in the Magic Kingdom” – the ‘magic kingdom’ being Disneyland, of course ). The key distinction that Venessa drew – and I think she’s right – is that social-capital is collective, a ‘network effect’ of the social context, whereas reputation is an attribute within the frame of that social-network, typically attached or attributed to the individual: in other words, they’re not the same, and should definitely not be treated as being the same.

This lead to the second thread, about ‘the future of money’, because much of the discussion in the ‘Whuffie’ thread was about the supposed need for some kind of ‘alternative currency’. (Clearly some people in the thread had hoped that ‘Whuffie’ would be it, but despite the efforts of well-meant initiatives such as The Whuffie Bank, it became evident quite quickly that it wouldn’t and couldn’t work in a ‘currency-like’ way.) There was – and at present, still is – a lot of discussion about various ‘currency-like’ proposals, such as TimeBanks, ITEX cashless payment, ‘Quids’ alternate-currency, and so on.

But what I found immensely frustrating was that almost none of them were thinking in true economic terms – and I wasn’t very popular for pointing out this unfortunate fact. Instead of enquiring what an economy is, what it needs to do, what purpose it serves, and so on – what would seem to be essential first-principles concerns about the context – they’d all assumed automatically, without question, that some kind of currency was ‘the answer’, and hence rushed off to create it. In other words, exactly the same mistake as far too many IT-folks: “here’s the solution – how can we force your problem to fit it?”

Ready? Fire!!! … aim…?

oops…

Yeah… really frustrating…

No-one with any sense would doubt that there are serious problems with the present ‘money-economy’ – not so much ‘serious problems’ as ‘close to catastrophic failure’, in fact. Everyone in that conversation recognised this – which is why they were pushing so hard for alternatives. But the catch was that none of the alternatives actually resolved the core reasons why a money-economy won’t work; most of the proposed ‘solutions’ not only replicated those problems, but actually made some of them worse. What was so frustrating was that in each case it took no more than a couple of minutes’ analysis not only to show that it wouldn’t work, but why it wouldn’t work. Yet no-one, it seemed, wanted to hear this: instead, off they want, charging off down their respective blind-alleys in the blind certainty that they’d found ‘the solution’.

What’s wrong with money, then? Short answer is: a lot. To give just a few examples:

• It only deals with point-to-point transactions, not network-effects – especially at a societal level.
• It’s designed to work with ‘alienable’ physical objects, but now no longer has any actual anchor in the real world – instead, we have literally trillions of supposed ‘money’ in imaginary ‘derivatives’ sloshing around the globe.
• It’s very easy to ‘game’ via artificially-constructed price/value mismatches.
• The implied ‘gravitation’ structure of money-based capital means that it tends to create ‘winner-takes-all’ accumulations – exacerbating social imbalances, often in the extreme, requiring separate action to try to redress the balance.
• Attempts to link ‘intellectual property’ into the money-system have resulted in a system which purports to match finite ‘alienable’ entities (physical ‘things’) with potentially-infinite ‘non-alienable’ entities (information) – which by definition cannot balance.
• Many organisations – particularly banks – are legally ‘entitled’ to invent money from nowhere, in effect assigning themselves an ever-increasing share of the society’s resources.
• A currency, by definition, relies on trust in the institutions that manage that currency, which in this case is the banks – yet much of that trust has been lost, and at present remains at an all-time low (hence the strong societal interest in options for ‘alternative currencies’).
• There are no built-in mechanisms to manage assignment of resources to those ‘outside’ of the monetary exchange-system (particularly children, parents, elderly, disabled and their carers, but also artists, scientists, thinkers, futurists, ‘creatives’ of any kind) – these stakeholders can only be served by ‘external’ mechanisms such as taxation (which are clunky and kludge-ridden at best), or by forcing them to do work within the money-economy (which means that their actual needed work can no longer be done).
• There is a very strong tendency towards short-termism.
• There is a very strong tendency to try to force everything into a crude, ludicrously-simplistic ‘double-entry life-keeping’.
• There is a very strong tendency to assume that ‘value’ exists only in monetary terms, as ‘valuations’ of ‘resources’ – hence, for example, a forest supposedly has no value until it is cut down, a mountain has no value until mined for its minerals, and so on.
• There is a very strong tendency to assume that anything which cannot be counted and ‘valued’ in monetary terms either does not matter or does not exist.

The societal impacts of these problems are rapidly approaching catastrophic levels. Yet none of the proposed ‘alternative currencies’ tackle more than a minute fraction of that list: most offer at best a localised kludge that might address a couple of issues whilst creating several more.

Let’s be blunt about this: the present system does not work. It actually never has – and that’s not surprising, because it was only ever intended to deal with point-to-point ‘trade’-transactions between fairly large groups (tribes, communities etc), hence it’s bit unfair to expect it to be able to run the entirety of an economy. But to create something that does work, we do need to go right back up to the level of the entire economy, and work our way back down from there. Which, yes, might – might – include some kind of ‘currency’ to tackle specific types of transactions: but not as the core of the economy itself.

This is actually no different from any other whole-of-enterprise architecture. (The only distinction is that it’s an ‘enterprise’ at the scale of an entire society, but that’s all.) So we would use the same overall approach:

• Who (and/or what) are the stakeholders in this enterprise?
• What are the core values? What is ‘value’ in this context? What is valued, and by whom? In other words, what determines ‘appropriate’ in this enterprise?
• What are the assets, functions, locations, events, capabilities and decisions within this enterprise? – in other words, the resources of the enterprise that need to be managed, distributed, shared and used in the most appropriate manner.
• What are the value-propositions that this enterprise needs to offer to and with its stakeholders?
• What mechanisms and responsibilities would be needed to create, deliver and monitor those value-propositions?
• What governance would be needed to ensure that all activities within the enterprise are optimised to be ‘on purpose’?
• …and so on.

To me, every attempt at a currency will inherently fail because it cannot take network-effects into account: by its nature, a currency is a mechanism for governance of point-to-point transactions, without any direct means to link to whole-of-system impacts. So I honestly believe that all of these attempts at ‘alternative currencies’ are a waste of time: we should be far better served by putting the same effort into understanding how an economy actually works.

And the key to that, to my mind, comes down to perhaps the scariest fact of all: there are no rights. ‘Rights’ are a social fiction; but the mutual, interlocking responsibilities that underpin those purported ‘rights’ are a social reality. If we want those purported ‘rights’, where we need to start is with creating a better understanding the ways in which those real responsibilities need to interlock: a focus on ‘rights’, like a focus on ‘currency’, is at best an unhelpful distraction from this requirement.

Where this gets gets scarier still is that our entire present economic model is based on a concept of ‘right of possession’ – hence a ‘right to personal property’. But there are no rights: only responsibilities are real. And in a network, there is no ‘personal’: only the network is real. Right at the fundamentals of economics, ‘personal property’ is just another fiction – and a very dangerous fiction at that. Yet personal responsibilities for societal resources – the appropriate management, maintenance and use of those resources – are real. And as with ‘rights’, those interlocking responsibilities result in something that looks almost exactly the same as ‘personal property’ – but we now know how we get there, via those responsibilities.

If we turn it this way round, we end up with something that looks very similar to what we have at present: but it resolves all of the structural flaws of a ‘money-type’ economy, and we also know exactly how we get there.

Once we know that that’s what we need to aim for, then we can start talking about ‘intermediate currencies’ and the rest, as part of a transitional ‘roadmap’ towards that more workable model. But those ‘alternative currencies’ are only an intermediate step, and we don’t start from there.

That’s what would change these sad attempts at ‘Ready? Fire! Aim…’ into a more viable ‘Ready? Aim? Fire!’ – and rekindle the fire in our social economy.