The Big Mac Index is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. UBS Wealth Management Research has expanded the idea of the Big Mac index to include the amount of time that an average worker in a given country must work to earn enough to buy a Big Mac.
Time is the true scarcity
Everyone is allotted a certain amount of time before they must leave the game and how they choose to allocate their time defines how they stand in the economy playing out before us. People may store, exchange, borrow and give their time to others. People can also steal, exploit, and waste the time of others. Likewise, the greatest innovations are those that create time and the greatest scourges of our civilization are those that kill time.
Social Value Index
There are many indices that help us to track comparative values. These include the Dow Jones Industrial Average and the S&P 500, etc. People track them over time to help define productivity. Productivity (you and I going to work everyday) is what gives the dollar it’s value, not the other way around. Likewise, the Social Value Index will compare the financial profit (or loss) of a product or service with the social profit (or loss) of that product with respect to time.
Future of Money
The future of money will most likely arise from entrepreneurs influencing the social value index with thousands of new business models rather than the creation of some new independent currency. The ratio between financial currency and social currency may in fact become that “new currency” standard. As the dollar loses it’s steam, the social currency will gain steam and the Social Value Index will rise (not unlike like the S&P 500 index since 1945) to reflect a measure of social economic growth; i.e., abundant social factors of production will define productivity instead of scarcity of land, Labor, and Capital.
The trick is to cure the cancer without killing the patient
A new social currency will be born from the slow and steady evaporation of the old debt as the dollar atrophies, rather than the wholesale demise of Capitalism. As such, the Social Currency will become increasingly biased toward social priorities instead of Wall Street priorities and the pesky little flaw in Market Capitalism will correct itself. This is the primordial soup from which ideals such as the environment, renewable energy, wealth disparity, education, etc., will become highly profitable social enterprise. This can be achieved quickly and cheaply with existing technology if we index the data correctly; that is, with respect to time.
If an IPod is shuffling in the forest, and nobody is around to hear it, does it make a sound?
This is a standard philosophical riddle that raises questions regarding observation and knowledge of reality. Alexander T. Jackson, one of the great minds of the 20th century, may have said that, “View points of this riddle differ based on the perceived definition of the word ‘sound’, often confused with the definition of the word ‘hearing’.”
A $300 Ipod is shuffling in the forest and nobody is around to interact with it, does it have value?
This philosophical riddle also raises questions regarding observations and knowledge of reality. Viewpoints in this riddle differ based on the perceived definition of the word ‘money’, often confused with the definition of the word ‘value’.
To this question, Wall Street would say “Yes”, but Main Street would say “No”. In fact this brings into question the order of how we assign value in our world.
Suppose we constructed the same riddle for any physical asset such as a bridge, house, airplane, computer, car, university education, insurance policy, Marketing Department, tennis shoe, police officer, trumpet, leaf blower, FaceBook, Twitter, Linked In, fungus cream, guacamole, anything at WalMart, etc…..
Value of human interaction
Before long, we notice that the value of nearly all products and services is wholly derived from the value of human interaction with the object. So where exactly is the true value of our economy, in the object or in the human interaction? Wall Street would say “object”, but Main Street would say “human interaction”.
In finance, the credit score was established to assess the human interaction with a financial instrument called debt. Yet, in the above example it is relatively clear that the vast majority of value created is dependent on human interaction with products and services that may or may not be financed with debt, not the debt itself. It would seem that a social credit score and a knowledge inventory would be more appropriate way to assess the true value of economic activity. But where do we start establishing such an index?
The Social Value Index
We’ll start with a baseline 80/20 rule first identified by an Italian Economist named Vilfredo Pareto. In our rendition, 80% of the true economy is created in the form of social value and 20% is created in the form of financial value. Keep in mind that Dr. Pareto also defined a concept called the “Pareto Efficiency” for social resource allocation. This refers to the end-state of an economic game where no player can become better off without also making at least one other player worse off.
The objective then, is to design Social Value Games that are 80/20 (social vs. financial leverage) compliant and Pareto Efficient then, test the hypothesis and improve it toward optimality.
Most applications of game theory are controlled from in-house or deployed against a competitive landscape. The Value Game is deployed external to the corporation and in a cooperative landscape where rewards are given to those who organize people around a “highly leveraged product” in valuable ways.
There are 5 elements to The Value Game
The first is what we call a highly leveraged product such as a conference, experience, convenience, ZipCars, or reunion – we’ll see that almost any product can be leveraged.
The next element is a secondary product vendor such as a hotel, restaurant, transportation, clothing, or equipment supplier – we’ll also see how almost any product can be deployed in the secondary role.
The third element is a consumer who seeks to minimize financial cost and maximize social value.
The fourth element is a 3rd party entrepreneur who is able to organized people in social networks and leverage primary and secondary assets in unique combinations.
The fifth Element is a true value calculator called the Social Value Index (SVI). The SVI is the scorekeeper that calculates the actual value of the leveraged product after all of the discounts and social value factors are counted.
The game starts when everyone joins the same social network underwritten by a mobile electronic debit card platform and sets their filters for what information can enter (and to block out spam). The highly leveraged product in the middle acts like a ball in play whose value is dependent on the interaction of the other elements. Secondary vendors will deploy incentives into the field. Third party entrepreneurs will organize people around the incentives and take social profits. The Social Value Index will keep score.
Example 1: A ZipCar costs about 8 dollars per hour; this business model does not encourage social activity; it encourages fast shopping. Suppose that a person pays for the ZipCar on their debit card. Local restaurants will be made aware of the purchase and then deploy coupons against the ZipCar to the buyer’s debit card. Next, a 3rd party entrepreneurs may improve the SVI by organizing a ZipCar swap so that the person does not have to leave in the same ZipCar that they arrived in and can spend more time shopping. Another entrepreneur may organize events for families and friends that increase the passengers in each ZipCar, or by capturing any inventory from the community such as movie tickets or family experiences to deploy against the ZipCar. After the event, the SVI updates the net cost of the ZipCar from 8 dollars per hour to, say, 1.42 per hour. This is 80% savings on the ZipCar and 33% savings on a day out with the family over using their own car.
In effect, the leveraged product buys itself in a convertible social currency
Example 2: Suppose that a popular aerobics instructor has 40 students. The local health food store may authorize her to give away 1000 coupons for 5% discount on store products. In return, the aerobics instructor gets 5% of total purchased. The health food store already spends 10% of revenue on advertising. It is in the instructor’s best interest to give the coupons to people who are likely to spend the most at the store. After all, if 1000 people spend 100 dollars each, she stands to gain 5000 dollars. The health food store stands to gain loyal customers without advertising. The aerobics instructor may maximize her profits by joining with a health food chef to teach classes in healthy cooking. Or, she may join with a caterer, wedding planner, or hotel to supply an entire event for which she will receive social and financial value. She may give them to colleagues who also become authorized to give away coupons – and she negotiates for a percentage of their output as well. She will become knowledgeable about the products at the store and talk about them with her friends. She may even sell the face value of the coupons for cash since it is likely that a high bidder would also be a large customer for the health food store. The Social Value Indexfavors this store, this aerobics instructor, and this social network – higher than competitors. SVI registers with Search Engines and bargain hunters seek the Aerobics Instructor for deeper information and services.
Millions of applications will arise limited only by the imagination of communities not Wall Street
I am continuously astonished at the reactions I get from people every time I make a reference to mathematics, especially Calculus. Most people politely glaze their eyes over and stare at an inanimate object somewhere behind my head. Others launch into a diatribe of how the linear thinkers destroyed the world in the first place. Others will simply say, “I have [insert Deficit Dysfunction Disorder here]”
Puzzled by Limits? Perplexed by derivatives?
The truth of the matter is that everyone already knows Calculus, they solve differential equations all day long – they just don’t know that they already know what I’m talking about. If you take away all the strange terms, squiggly lines, and alphabet soup notation,….
Calculus is astonishingly simple
The Banker does not care about money, he cares about the rate of change of money.
The Stock Market does not care about risk, it cares about the rate of change of risk
The Politician does not care about votes, they care about the rate of change in votes
The Meteorologist does not care about weather, she cares about the rate of change in weather
The Pilot does not care about lift, they care about the rate of change of lift
The Gymnast does not care about motion, she cares about the rate of change of motion
The Artist does not care about color, he cares about the rate of change of color
The Doctor does not care about your health, she cares about the rate of change in your health
The Baker does not care about dough, they care about the rate of change of dough
The Farmer does not care about crops, he cares about the rate of change of crops
The Scientists does not care about data, they care about the rate of change of data
Google does not care about information, it cares about the rate of change of information
When people can learn how to understand what they are really doing in instead of what they think they are doing, then and only then, will we be able to see, and subsequently, build the next economic paradigm. That is why I use mathematics and that is when Social Media Becomes a Science
The Capitalist does not care about value, they care about the rate of change of value
The Patent system is slow, static, and expensive. Sure it’s great for corporations and wealthy institutions, but what about the rest of us? How do we get paid for our intellectual property? We make rapid fire decisions every day that can make or break markets – who’s got time to patent?
Intellectual Property In the Cloud
Or maybe the last thing that Wall Street wants is for Engineers, Architects, designers, and creative people to get “royalties” on their work. Wall Street is quite happy collecting the royalties of the creative people in America – those people who actually produce something real and tangible. Social media is a social contract and Intellectual Property is our tangible currency. Hello.
We know the Venture Capitalists look for returns of 1000% on their investments. We also know that Corporate innovation (as reflected by the S&P 500) enjoys a long term median return rate of about 9-10%
It follows to reason that all of the innovation that could return somewhere between 10% and 1000% goes largely un-capitalized. This does not mean that the innovation does not exist – it only means that it is invisible to any existing financial system, it is accounted as “intangible” – or worse, it shows up as a liability.
Parents caring for children, Children caring for elderly parents, Mentors educating proteges, groups of people organizing, sharing knowledge, and growing families – all increase the net productivity of society. Legions of people creating options and opportunities for themselves and each other in communities, social media, and extended networks – all increase the value stored in communities. Billions of people-hours inventing better ways to do the things that they do, compensating for the shortcomings of governments and corporations – all of this innovation falls into the range between 10% and 1000% ROI, yet, remains invisible and un-capitalized.
Social media as a whole is growing at well over 200% per year where every single interaction creates incremental multiples of social value – otherwise people would not do it (to say that people are irrational is to say that markets are irrational). Where is all that value going? Meanwhile, in the current Global financial debt crisis, institutions that hold huge amounts of cash are scouring the globe for pockets of low-risk productivity as sanctuary from volatile financial markets.
Now, suppose that an innovation bond were to come along which produces a risk adjusted return of, say, 15%. This means that human productivity is being reliably increased somewhere in a community by only 15% per year. If this were the case across a broad sector of inter-related communities where productivity were denominated in a fungible currency, investors would seek refuge in the Innovation Bond. If the Innovation Bond returned say, 20% or more – all the money in the world may drop the debt based currency in favor of the innovation based currency by seeking refuge in innovation bonds. Yes, I said it – “all the money in the world”. Now, get over it.
Proceeds would be distributed to organized communities whose knowledge inventory is formatted like a financial instrument in the form of entrepreneurship. Proceeds would go to communities where the probability of success is known long before the bets are made in the form of Cheap Venture Capital. Proceeds would go to communities where productivity is defined by an un-corruptible algorithm through decreased volatility coefficients. Proceeds would go to communities where assets are valued accurately by true supply and true demand. Proceeds would go to less developed communities with the highest social arbitrage potential rather than those with the most powerful marketers and lobbyists. Most importantly, money would go to corporations that adopt the innovation economy. The stronger the institutions of Social Capital become, the greater the value of an innovation bond. New production of goods and services would reflect these social priorities in the True Value Game.
In effect, Social Priorities will drive Wall Street priorities instead of Wall Street priorities driving Social Priorities – that is Social Capitalism
In the future, there will be only one sustainable investment left – people, communities, and their natural willingness and ability to be productive with their time. The rest is history.
Factors of Production (from classical economics) are presumed to be some proxy for land, labor, and capital. Suppose, however, the factors of production for modern society were something like “Social Capital, Intellectual Capital, and Creative Capital” of people and their relationships? After all, these are the assets that are deployed in order to produce the proverbial basket of goods upon which most currencies are compared.
Since these factors of production exist between the ears of each individual person, they are, by definition “privately controlled” and readily exchanged among other people in social networks. If the US Supreme Court can rule that Corporations are people, then it is equally valid that people are corporations. Therefore, Social Capitalism refers to the economic and social system in which the means of production are social, creative, and intellectual assets.
In order for Social Capitalism to become the dominant form of social organization, quite literally, society must reorganize itself to trade “abundant intangibles instead of scarce tangibles”. Then, all the decentralized innovations can integrate. The following video describes a system for reorganizing society so that the new economic paradigm; called Social Capitalism, may emerge.
Reorganizing For The Era Of Social Capitalism
Social Capitalism is similar to Material Capitalism with the exception that society would trade in abundant intangibles instead of scarce tangibles….and, everything changes.
The Article below is from 2010 – more than 4 years ago – when Social Capitalism was just beginning to enter the lexicon of the social media practitioners. This article below quotes the Wikipedia Article on “Social Capitalism”. That article has since been removed by Wikipedia for failure to be a real -ism; I suppose. That is, Wikipedia does not yet recognize the movement as a real form of Social Organization. It is interesting, if not historic, to watch the progress of a social movement from its tenuous inception:
Social capitalism is an old idea taking on an new form in the age of social media where social capital, creative capital, and intellectual capital are deployed outside the construct of the prevailing corporations or governments.
Throughout human history, societies have reorganized themselves in response to tyranny, innovation, environment, new wisdom, etc. I believe this to be the root of what Social Capitalism is, and therefore, how it should be defined.
In The Shadows:
The dominant definition of “Social Capitalism” from Wikipedia reflects a social cause cast against the backdrop of market capitalism. This definition acknowledges that economies work better when everyone participates; specifically, the so-called tier 1 and tier 2 people. Tier 1 individuals have steady financial incomes that allow them to function without private or government support. Tier 2 individuals cannot meet the prevailing standard of living and rely on private or government support. Therefore the prevailing definition of Social Capitalism often refers to efforts to bolster tier 2 persons as a means of reinforcing the economy for everyone.
There is an inherent conflict where tier 1 is held responsible to support tier 2 as a means of protecting their tier 1 status. Traditionally tier 2 included poor families dependent on food stamps; children who depend on public education; elderly people who are no longer able to work, and low-income criminals who require police intervention, etc.
Ideally, getting more people from tier 2 into tier 1 is the desirable objective. Indeed political division is marked by the theories and practices on how exactly that objective would best be accomplished.
A worst case:
What happens when tier 2 is simply forgotten; they are simply allowed to fail in the mainstream economy? What if the government becomes too weak to bolster their economic prospects? What happens when a critical mass of tier 1 people involuntarily enter the tier 2 environment bringing along their substantial knowledge inventory. They are otherwise very productive people that had been laid-off, outsourced, underemployed, or otherwise marginalized.
The Special Case:
What happens when Tier 2 deploy new technologies that responding to their priorities, not necessarily Wall Street priorities. What happens when tier 2 people trade a social “currency” among themselves? What happens when tier 2 swells to a size and scope that they are able to bear broad political and economic influence. Many great human struggles emerged from under the hand of a Tier 1 constraint using their own manner to store and exchange value (currency) represented by their own knowledge inventory and productivity. Why would that not happen internally in American Society?
Social Capitalism is where factors of production in an economy are purely human and technological and less structural:. Specifically, social capital, creative capital, and intellectual capital deployed outside the construct of the prevailing corporations or governments. Maybe it should be called “structural capitalism” because that is what is actually changing. We are at an extraordinary time in history where an extraordinary structural reorganization is taking place.
I came across an interesting business model for the deployment of a social currency. Stock Harmony, quite simply, sells itself to interesting people. Those people then interact with each other adding social value to Stock Harmony. The more social value is created, the more the original shares are worth. The more the shares are worth, the more interesting people will join further increasing the value of the shares. From that position to deploy social value, Stock Harmony can amplify the voice for social priorities over Wall Street priorities, effectively re-allocating factors of production.
Actually, the same thing happens all the time in typical social circles, networks, affinity groups, and political action committees. However, I am not certain that anyone has yet been successful (ethically) in using social circles as a way to store and exchange value. That is why Stock Harmony is interesting.
It sounds so simple, right? Well, … not really….
It’s all about structure. The way that a process or system is structured determines how people interact with it. Structure also determines how governments, markets, laws, politics, and even public opinion interact with the process or system as well. Interestingly, the structure of facts often keeps secrets tight. In short, structure shapes human behavior and human behavior shapes structure.
Companies sell shares to raise money. Per SEC regulations, the “sale of shares” must comply with certain disclosure and accounting standards. The SEC regulates companies in the sale of shares as a means to safeguard investors. In other words, it is illegal to sell shares without government oversight.
The possibility that anyone can sell shares in themselves or their private enterprise as a means of raising money is, by default, relegated to the banking system. A person essentially sells shares on their productive time on Earth to buy a house, a car, or a business, etc. The structure begins to crumble when the employment contracts begin to crumble. As people leave the old system, they take their value with them and tend to create new ones. This is where Stock Harmony treads.
What if the shares are issued in non-dollar denominations?
Today we see many non-dollar denominated structures arising apparently at the same rate that the financial system is failing. Google secretly invests 100M in Zynga – a gaming company with a common gaming currency. Facebook established a system of currency-like Credits. Groupons deploy social currency to incite monetary discounts, etc, and PayPal stands ready for the next killer currency app. Any of these transaction systems are poised to hold a black market currency if fiat currencies fail. If the fiat currencies fail to recover, the black market becomes a gray market and ultimately a legitimate market. So, there is a lot at stake.
Currency must act as a proxy for human productivity;
So this is what makes Stock Harmony interesting. The successful “next currency” will be the one which best represents human productivity. Only then will someone be willing to trade their productivity for that of another person using a currency note as an exchange mechanism. This is where other alternate currencies fall apart and where Stock Harmony shows greater strength. After all – what would you rather accept in exchange for your services – Farmville gaming currency or a currency backed by the harmony and productivity of real people in real community?
This video describes a set of predictions for 2020 based on an entirely new form of capitalism whose velocity and voracity will take the world completely by surprise. Nothing is sacred and nobody is immune, not Facebook, not Google, not Wall Street, not even Governance itself….
The above video playlist consists of the full 6 parts of the expert panel discussing non-quantifiable exchanges as recorded on April 26 2010 at the Future of Money and Technology Summit in San Francisco. The complete video is about 55 minutes. I encourage you to watch it because very few discussions about the future of money approach the subject with as much experience, introspection, and clarity as this historic panel has.
This is not another doom-gloom room – but a truly optimistic model of a future financial system built on a platform of social media. These panelists represent some of the top thought leaders, visionaries, and practitioners in the area of “Local Social” – where nothing happens until the rubber meets the road. It was a great privilege for me to be a part of this esteemed group.
The future of Money and Technology Summit is one of the most important conferences to emerge as a result of the accelerated innovation and organizational re-structuring forming as a result of increasing constraints on the global financial system. We all look forward to another excellent conference next year!