Think Bigger. Aim Higher. Go Further.

Month: January 2012

The 5 Pillars Of The Inevitable Economy

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. Where we are today carries many clues about where we need to go tomorrow. However, change cannot come about from changing random components because the output of one component is the input of another. In general, this is what defines a “system”.  This article describes the 5 pillars of the inevitable economy.

The financial system is built on five integrated pillars

Currency

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 an actual product.

Inventory

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.

Vetting

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.

Entrepreneurs

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.

Society

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:

Society

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.

Entrepreneurs

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.

Vetting

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.

Inventory

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.  

The Inevitable Next Economy

The Human Productivity Chart:

Human civilization has progressed through many stages.  Each stage arose from the “integration” of the tools developed in the prior stage.  Believe it or not, the next economic paradigm will arise from the integration of the tools being developed in the current stage of human development. Let me explain:

Hunter -gatherer:

We started as hunter-gathers who traveled from place to place to follow animal migrations and seasonal flora.  People would collect fallen branches and burn them for heat or cooking.  Then people started to sharpen rocks that could be used to hunt food better than a dull rock. They sharpened rocks to chop down trees for warmth and shelter.  Soon they sharpened rocks to till soil.

The agrarians

The arrival of the agrarian age came when the arrow, the axe, and the plow were integrated; that is, the output of one became the input of another – allowing people to conserve energy and increasing productivity. The emergence of communities led to the division of labor as people specialized their skills. People soon developed tools and techniques for forging metals, building structures, and harnessing of forces such as wind, sun, water, and domesticated animals.

City-states

The arrival of City-States arose when division of labor, harnessing forces, and transportation became integrated.  Spare time became available to experiment in ideas such as governance, laws, civil services, and currency. Travel allowed for trade of goods, services, and the spread of knowledge across great distances.

Philosophers

The age of philosophy emerged as the leisure class, knowledge exchange, and civil law integrated such that people began to question existence, spirituality, and test theories about the observations that they constantly witnessed in the natural world.

Scientists

The scientific age emerged from the integration of tools developed during the philosophical age.  Written language, mathematics, geometry, came together as alchemists attempting to turn lead into gold, instead created many other new and useful things from the elements. Astronomy, calculus, the scientific method, and modern finance were born.

Industrialists

The industrial age emerged as an integration of the tools developed by the scientific age.  Eli Whitney demonstrated the “interchangeability of parts” paving the way for modern production. The printing press and cotton gin demonstrated the scalability of machinery while capitalization and securitization of value (finance) allowed a merchant class to allocate land, labor, and capital.

Information

The age of information formed from the integration of tools created by the industrial revolution.  All that machinery created a tremendous amount of data.  Computers were developed for processing data creating information that could be used to make productivity more efficient.

Knowledge

The Knowledge age emerged from the integration of tools developed during the information age. The Internet vastly accelerated the amount of information available from which knowledge could be applied as factors of production in physical systems from weather prediction, space travel, medicine, and new ways for people to organize their selves.

Innovation

The innovation age will emerge from the integration of tools developed by the knowledge age.  So called “social media” is creating thousands of platforms upon which people reorganize themselves around interests, affinities, relationship, and commerce.  As these tools integrate; that is, when the output of one tool becomes the input of another tool (and vice versa), a new economic paradigm will emerge.

Wisdom

Keep in mind that the agrarian economy and all previous stages are still with us today. Keep in mind that elements of future economies also exist today.  Keep in mind that the US dollar has not always been the currency of trade nor should we expect that it will always be with us in the future. We can assume that the productivity inherent in people and communities is not dependent on the currency, rather, currency is dependent on it.  Time is the only scarce resource and everyone has an equal amount of it.  As such, time is the only true currency.

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