The previous article identified a recurring trend in human history; each new stage of civilization resulted from the integration of tools invented in the prior stage. That is; the output of one tool becomes the input of another.
In general, this is what defines a “system”. One of the problems with systems is that if one major piece fails, the whole system falters. Today we have computer systems, transportation systems, social systems and financial system that all behave in this way.
The financial system is built on five integrated pillars
A currency is a device that people use for both the storage and the exchange of value. Currency serves as a proxy that represents the value of things that people produce it is not in itself a product.
The accounting system keeps track of the things that people produce. It is helpful to use a currency to represent the the storage and exchange of value from the things that people produce; but again, currency is only a representation of inventory.
An economy must have a vetting mechanism that keeps the game fair otherwise nobody would play. Today this includes a legal system, contracts, and institutions - such as representative government – that defend the value of things that people produce.
Classically, entrepreneurs are the merchant class who allocate land, labor, and money in various proportions and combinations as a means of organizing and matching the supply of things that people produce with the demand for what people produce.
People define markets. They supply the inventory that other people demand and they demand the inventory that other people supply.
Examples of financial system failures are legendary
The Enron Fiasco was an accounting system failure caused by a vetting mechanism failure. The housing bubble was a was a currency failure because CDOs effectively divorced the dollar from any meaningful representation of productivity. The unemployment crisis is a social failure that limits the ability for people to supply the things that they demand.
The Inevitable Economy
So what if the functions of these same five pillars could be achieved and integrated in some other way? What if this is already happening? Going through the list backwards to reflect a mirror image:
People are reorganizing in new and different ways. They increasingly use social media and mobile technology to supply and demand limitless information with which they then use to supply and demand many useful things of each other.
Land, labor, and capital are becoming increasingly irrelevant in the age of non-scarce information – instead, entrepreneurs are allocation social, creative, and intellectual assets as a means of matching the supply and demand for the things that people need.
Social contracts are playing an increasing role in keeping the game fair. It is not in the best interest for anyone to act with low integrity when they can be Googled in a matter of seconds.
The knowledge asset inventory is forming in many applications and platforms – but it is not yet integrated. When this happens, an accounting system for social, creative, and intellectual assets will immediately emerge.
Finally, the currency
Any device that can represent human productivity better than today’s money will become that next currency. This can only happen after the four pillars begin to integrate.
The currency is supported by the system. The system is NOT supported by the currency.