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The Currency Hack

This is the final post of the Financial System Hack Series.  Contrary to conventional wisdom, the currency is the last hack, not the first.  Only after Zertify, Gamidox and Exoquant are established would it be possible to introduce a currency that could compete, if not hedge the dollar.

With Zertify we can estimate the probability that a collection of knowledge assets will be able to execute a business plan some time in the future.

With Gamidox, The Value Game is played where several communities interact around a shared asset such as a condominium, airplane, school, hospital, road, car, or any “product” that has socially redeeming value.

These interactions are measured such that we can assign “value” to the game with the Exoquant algorithm.

So taken together:

If we can predict the probability that the interactions carried out by communities of people (relative to a product) will have a known value in the future, we can represent it as a “cash flow” with a known volatility (risk).  Now, combining many interactions carried out by many communities around many products with known volatilities, we can pool the predicted cash flows into one large diversified cash flow.  Next, we can  cut the large flow into “bonds”, which we can extrapolate to net present value and to fund the community activities.  This very similar to the way that corporation form and raise money – except without the corporation.  While banks continue to issue Debt Bonds, communities will issue Innovation Bonds in parallel

Here is the hack:

In the old days everyone carried gold around with them to engage in trade.  Since gold was heavy, bankers let people keep the gold in their vaults and they wrote little chits that represented the gold.  After a while, people just traded the chits and it was no longer necessary to convert back to gold with each transaction.  Eventually, the gold standard was eliminated altogether and people just traded the paper that now represents their future productivity (debt), not necessarily gold.

The currency of abundance

Likewise, after a while it would no longer be necessary to convert the community currency into dollars.  As the dollar slowly starts losing it’s value under the weight of the debt load people will just trade community currencies.  All of these values are made visible and validated from Zertify, Gamidox, and Exoquant data.

The antigen will not be triggered because this is exactly the same way that corporations interact with banks to capitalizes and securitizes dollar debt, the difference is that we are capitalizing and securitizing community innovation by measuring data, information, knowledge, innovation, and wisdom.  A currency of abundance can then replace the currency of scarcity.

Nothing Changes and everything changes

Corporations and government can continue activities to the degree that they produce socially redeeming value by simply purchasing innovation bonds from the people with their dollars – if they’ll accept them.

Hacking the Financial System

Hacking The Financial System is not about some doomsday scenario for the end times, it represents the natural ability for humans to adapt to constraints in their environment.  Right now, the financial system is vulnerable to many new systems and technologies that are reorganizing society. This series hopes to describe the meta dynamics behind these trends and offer ways for all people and institutions to adapt.

The financial System is made up of 5 components; they act as a system.  If any of these components falters or is corrupted, the whole system becomes unstable.

These 5 components are:

  • Markets (demand)
  • Entrepreneurs (supply)
  • Accounting System (inventory)
  • Institutions (to keep the game fair)
  • Currency (storage and exchange of value)

For example:

The dot.com crash was a problem with the accounting system failure. The 2008 crisis was a vetting mechanism failure. Devaluations across the globe are currency failures. Poverty is a market failure.  Corruption is an entrepreneurial failure.   All of these forces are interrelated and any one will have an impact on all of the others.

Curiosumé, The Value Game, and The WIKiD Tools Algorithm are specifically designed to replicate major functions of these 5 components – but in a different way.  Since Finance and Economics are mathematical, and natural systems are also mathematical, we cannot escape the math – our hack needs to be true to the math. For this reason, the work may seem fairly technical.

On the other hand, we have an incredible opportunity to correct many flaws of the old economy.  Anything that has no direct impact on the math also has no impact on performance and function of the 5 components – and can be easily designed OUT of the system.

For example:

  • We have an opportunity to swap out competition for collaboration
  • We have an opportunity to swap out scarcity for abundance
  • We have an opportunity to swap out mass consumption for mass sustainability
  • We also have the opportunity to eliminate a wide range of biases such as gender bias, racial bias, physical bias, social class bias, political bias, and many many more factors that may be irrelevant.

Where’s the Hack?

Every time there is an economic instability of any magnitude, black market currencies tend to form.  We have all heard stories of Levis, cigarettes, or even tulip bulbs being used as currency.  Black market currencies can also be quite subtle, yet no less tradable.

With 21st Century technology and social media, we are witnessing the emergence of what we can only now call “social currency”; such as reputation, referrals, vouches, influence, SEO, community, groups, and various other domains.  These are all black market currencies because they are used for the storage and exchange of the value that people create…what they lack is the rest of the “system”.

The difference now – and perhaps this is the first time in human history – should the so-called black market currency become systemized to the same extent and actually perform better than the currency that it hedges,  “a flip” will occur and the old system will fail to re-boot back to it’s current form as it has after every preceding economic crisis.

That’s the hack.

The Value Game Plays The Valley Game

(The following is a draft of the unveiling presentation for The Value Game at The Future of Money and Technology Summit in San Francisco on February 28th 2011)

Hello;

The Ingenesist Project is developing a new class of business methods that convert social value into financial value, and vice versa.  The premise is that when people cooperate to do useful things, they can also create an amazing amount of social value.

Historically, we have seen how each of the great eras of human civilization was derived from the prior era when the tools of that prior era became integrated.  Like when the wheel, wedge, and pulley integrated to become the printing press.  Great social transformation followed.

So it is that integration of tools that we are most interested in.

Today, we can see this drama playing out across the Globe as people integrate the tools that were created over the last 30 years. People are reorganizing and in doing so they are directly challenging the power of financial currency with equally powerful social currency.

So it is inevitable that a conversion factor between social currency and financial currency will arise.  And that, we believe, will mark the next economic era.

So we developed something called The Value Game that we believe will help build the social infrastructure for the creation, storage, and exchange of social value.

The Value Game is a new class of business methods designed to specifically create social value.  The rules of the Value Game are very simple.  The Game Starts and Ends with money but all of the new value created in the game is denominated in Social Currency.

A Value Game is created by assembling 3 or more communities around a single shared asset in such a way that their interaction with each other relative to the asset creates social value.  In this form, social value can then be more readily converted to a financial value.

To demonstrate this, we helped launch a new company called Social Flights.  The objectives of Social Flights are to aggregate a large fleet of Private Turbine powered Aircraft and deploy them to the Social Graph instead of the Hub and Spoke system used by the Commercial Airlines.

The Shared Asset is the jet.  Player 1 is the traveler community.  Player 2 is the community of private aircraft operators. ,  Player 3 is the community of entrepreneurs at the flight destination.  The True Value Calculation compares the true door-to-door cost of using Social Flights versus other alternatives such as commercial airlines.

For example, flying between two smaller cities like Bellingham Washington and Vail, Colorado.  A Commercial flight would take close to 14 hours traveling through two hubs.  A fully utilized private flight would cost about twice as much but can make the flight in 3 hours.  So right off the bat, the True Value Calculation issues a par value between alternatives.  So if your time is worth less than, say, 70 dollars per hour, you are better off taking commercial airlines.  But if your time is worth more than 70 dollars per hour – for whatever reason – then you should take the private flight.

Now, a hotel in Vail may say – wow, here is a group of 10 people staying 5 days. They can divert advertising budget and issue a 100 dollar “discount coupon” to everyone in the group. Now the par value of the private flight is reduced to 60 dollars per hour. Next, Ski slopes, restaurants, bars, and services will deploy Coupons against the airplane lowering the par value toward closer to middle class incomes and certainly well within the business class of a commercial airline.

Things will get really interesting as people start gaming the game. The more demographic information that the traveler provides, the greater the likelihood that more and more vendors will issue them a discount coupon – which they can even resell on Craigslist.

In effect, why would someone let Facebook sell their information when people can sell it their selves?  Why would vendors pay for advertising when they can find the perfect customers directly?  Why would a manufacturer pay a retailer when the community can sell it for them?   Here we see a great deal of financial value can also be articulated in a Value Game.

Theoretically, we could build a Value Game around any shared asset from zip cars, public infrastructure, energy production, education, natural resources, even the totality of human knowledge, etc.

But for now, let me introduce Allen Howell, Chairman of Social Flights who will discuss how this new business method is developing in practice.

Social Flights should be very interesting to many of the people here because it integrates several of the hottest properties in the Valley; Travel, Coupons, Gaming, and Social Media.  Each of these communities have seen astonishing valuations lately so it will be interesting to see what happens when they, in fact, become integrated.

So please welcome Allen and I can take questions while he sets up.

May The Best Currency Win

If I was a very wealthy person and I wanted to put my money in a hedge fund that protects me from all possible future outcomes or perils in the financial industry – I would be looking for a fund denominated in social currency.  Should things go wrong, the only place you can go for support will be your immediate community.  After all, you can’t eat Gold.

The Cradle of Civilization, again?

Egypt has demonstrated with astonishing clarity in a remarkable twist in human social evolution how this game plays out.  The dictator may have all the money, but the military has all the social currency – domestic AND international.  What do you think every dictator wishes that they had more of right now: guns, money, or social currency?

What would happen in the U.S. if…

…government austerity measures stop funding education, health care, police protection, and the legal system?

Social media applications will move in to fill the void.

….if inefficient industries like the travel industry, publishing, advertising, politics, academia, and financial services hold their customers hostage by acting as the gatekeeper?

Social media applications will pull the gate down.

…if government, industry, and academia can no longer innovate ways to increase the productivity of people in their community?

They will become irrelevant as people will adapt to manage their own productivity on a platform of social media.

The Great Conversion Factor

Off on the horizon, a truly remarkable new financial system is taking shape.  This system will accomplish one very important task – it will provide a conversion factor between financial currency and social currency.

Every political gridlock, corporate controversy, wikileak, and dictator challenged by their own people is adding one more piece of infrastructure to this new financial system.  Each piece will soon join together to complete the chain required to define the social currency and the form of human productivity that will support it.   Hang on grandchildren, we are getting close.

The effectiveness of this currency will not be in it’s ability to replace the dollar, rather, it will be in the ability to convert between Dollars … and Yen, Euro, Pounds, Renminbi, Dinar, Rupee, etc., in the same Game within which world currencies exchange with each other today.

May the best currency win.

(Editors note: The above post is #5 in a series [1], [2], [3], [4], [5] introducing The Value Game to a new class of business methods.  The first real world application is Social Flights; a collaborative production / consumption game being deployed to the market.  If this works, the new business method class will be generalized throughout the economy to catalyze the convertibility of social currency.  Please join us at The Future of Money and Technology Summit in San Francisco on february 28th 2011 where we will unveil the work to the technology community)

Game Over

The first law of Gaming: If you can’t win a game playing by the rules, stop playing the game, or change the rules. It would seem that Egyptians would add a corollary “Change the Rulers”.

This is not trivial.

Billions of people are walking the planet Earth with the nagging feeling that they cannot win their game playing by the rules they are given.  If America was once the shining beacon of opportunity where hard work and perseverance were the main ingredients of success, and Americans are feeling that they can’t win playing by the rules, then you can expect two things to happen:  People will stop playing the game, AND the rules will change.

Interactive Entertainment

Looking on the sunny side, we see Gaming companies achieving astonishing valuations in Silicon Valley.  What is even more remarkable is that a similar thing is happening concurrently with Travel, Coupons, and Alternate Currencies.  Many people stand back aghast at the sheer size of some of these bets; $120M for Tripit, $5B worth Zynga, $6B for Groupon, $50B for Facebook.  The Market capitalization of Apple ($320B) is almost 2 times greater GDP of Egypt ($188B).

It would be foolish to underestimate the value the gaming component – now called “Interactive Entertainment” – as enabled by the Internet.  Gaming is an extremely mathematical science where designers predict the probabilities that a player will favor one strategy over another.  The better these prediction become, the more interactive and, ostensibly, the more entertaining a game becomes – at least to some people.

The Calculus of Gaming

It is no coincidence that the calculus of gaming and the knowledge assets deployed to the gaming industry are functionally identical to financial and marketing industries such as banking, insurance and demography.  Banks set the price of money based on the probability that you can pay it back (credit scores).  Insurance companies set the price on premiums based on the probability that you will experience a loss (actuarial data).  And Demographers predict what you will buy and who you will vote for. After all, a Bank is really just a game that bets that you will win and an insurance company bets that you will lose, and demographics keeps the game, well, unfair.  But together, they all hedge each other’s risk, not yours.

Watch The Integration, closely

From prior articles; The Travel industry is a proxy for how and where ideas are spread.  The Coupon Industry influences human behavior to accelerate the disruptive innovation and to create new value simultaneously. The Gaming Industry will define the rules by which the new game will be played and provide the ability to predict when, where, and how to value social capital. When the integrated is complete, the ability to capitalize and securitize a new social currency (next article) will emerge to hedge, and then replace, the dollar.

Game over.

***

(Editor’s note: The above post is #4 in a series [1][2][3][4][5] introducing The Value Game to a new class of business methods.  The first real world application is Social Flights; a collaborative production / consumption game being deployed to the market.  If this works, the new business method class will be generalized throughout the economy to catalyze the convertibility of social currency.  Please join us at The Future of Money and Technology Summit in San Francisco on february 28th 2011 where we will unveil the work to the technology community)

Don’t Blame The Bankers

There are two sets of values in an economy. Financial value and social value. The value that is required to make something is financial value. The value that a product provides to a community of people is called social value.

Financial Currency

In order to make something, money is used to purchase raw materials and labor. After these ingredients are integrated, the product is then marketed, transported and sold for more money that the input costs. This is called financial profit in a system called market capitalism. The degree to which financial profits are gained or lost is the degree to which a financial value system is functional or dysfunctional.

Social Currency

When the product enters a community, it helps people to occupy their limited time on Earth in a more peaceful and productive manner. The product unites families and communities around human attributes such as happiness, joy, comfort, security, and wellbeing. This is called social profit in a system of social capitalism. The degree to which social profits are gained or lost is the degree to which the social value system is functional or dysfunctional.

Domination

In market capitalism, no enterprise is allowed to make less money than they consume for very long without being punished. Yet, in social capitalism there is no common means to even account for social profits or losses. There are no formal inventory of raw social materials, social value added labor, social marketing, transport, storage or exchange of social capital – the social value system is largely irrational.  The profit accounting and structural mechanisms are what make market capitalism dominant over social capitalism.

Bankers should be studied

For better or worse, the financial system works exactly as it is supposed to. Bankers do exactly what they were designed to do. They will do the same thing tomorrow as they did yesterday. Bankers are extremely predictable.  The problem lies in our irresponsible design for social capitalism and our dependency on anything but ourselves for economic outcomes.  All of the means and methods that we call an “unfair advantage” are available to each and every one of us if we simply copy bankers.

Look beyond the symptoms and you’ll find the cure

By virtue of the range, complexity, and scope of problems that surround our species it should be somewhat obvious that social capitalism is poorly executed. It does not represent a system of human attributes and values. Social Capitalism is unorganized, unaccounted, and unworthy to act in the interest of the participants. That is where the problem lies and that is where the solutions need to be applied.

Must admit that WE have a problem

Anyone can point their finger at the bankers and blame them for all the bad things in the world.  It is a completely different matter to exert the mental discipline to fully understand what makes a banker rational and what makes a banking system accountable, then to generalize this genius for applicability to ALL forms of Value, including but not limited to social value.  If the bankers accept or reject any value system, they will do it rationally.

Be a Banker

Social media provides an extraordinary set of tools for social capitalists.  Specifications that mimic the banking system in social media are readily available.  Important awakening projects are arising that take responsibility for the future rather than lay blame on the past.  It’s time that we all become bankers.

The Future of Social Currency

The Branded Debit card has long been a staple of the vanity financial services industry.  Having your favorite football team, alma mater, or non-profit proudly displayed upon your purchasing prowess is a clever offshoot of those printed checks of days gone by.  Now, in the age of social media, YOU are the brand. Your product is your information and the information that passes through your social graph.

Self-branding

The most valuable asset is not who you’ve known in the past – many of those relationships are played out.  Rather, it is whom you will know in the future.   Your future connections are where all new innovation will be valued – all the decisions that are yet to be made and all the intentions yet to be acted upon. The only metric that can accurately predict this is your knowledge inventory; what you know, what you are talented in, and what you enjoy doing.  You are the future maker.

The Innovation Banker

Future of Banking

When I use the term “Innovation Bank”, people conjure up the image of a cheery place where anticipation reigns as starry eyed depositors arrange their intellectual property in neat cubby boxes, Patents fly like cash register receipts and companies troll the halls looking for a cure for their bottom line blues.

This is not exactly what we have in mind, nor is it too far off either. An innovation Bank is simply a knowledge inventory that contains knowledge assets that exists in the format of a financial instrument and can be deployed for the purposes of increasing productivity.  In the process, it makes 10X more of itself every time it is deployed.  It mints its own money.

The Innovation Banker

This is not much different than a financial bank. In fact, in the financial bank, everyone assumes the borrower has the knowledge to execute the business plan and the bank lends the money. Oh, by the way, the money makes more of itself  10X over (fractional reserve system) every time it is deployed.

With the innovation bank, everyone assumes the entrepreneur has the money to execute the plan, and the seek to borrow the knowledge. Other than that, they can be considered identical. The key is in the scope, depth, and format in which the knowledge assets live in a community as well as the ability to track and preserve the creation of new knowledge in a community.  An innovation banker is a knowledge banker

A Virtuous Circle

Together with the financial banking, these two system engage in the dance of the virtuous circle of innovation enterprise. Apart, they collapse into the swirling cesspool of eternal debt and infinite interest (pun intended).

Ingenesist.com

Music by Phil Felicia

Social System Capitalism

SS lottery cardWhether we like it or not, we all live in and among various system; weather systems, social systems, management systems, monetary systems, transportation systems, etc. The easy way to identify a system is to simply remove one of it’s parts – if it fails, well, that WAS as a system.

You can own a perfectly good car, but if one tire is not filled with air, the entire car has NO SOCIAL VALUE. All the other pieces could be perfectly operational, the motor, transmission, brakes, etc. However, you can’t go to a wedding in it, you can’t go play golf in, you can’t even get to the bus stop in it; the car has no social value. Seems a little silly, but compressed air is part of our social system.

Suppose that you have a perfectly good social system and you remove the financial system. Will the social system fall apart? … Well, that’s an interesting question…after all, people will still have education, health, knowledge, ingenuity, empathy, community, productivity, infrastructure, and they will very likely get up in the morning and build things anyway.

Now, look at it the other way around. Suppose that you have a perfectly good financial system and you remove all of the people, does the financial system fall apart? Ridiculously, 100% yes it will fail, who will use money it if there is nobody here? The cows? Duh.

We cannot have a rational discussion about the market capitalist system without also having a rational discussion about the social capitalist system. Yet, Social Capitalism is barely defined. Social capitalism is hidden behind command and control corporate systems and “intangibles” accounting.  Social Capitalism is constrained by invisible lines on a map; marginalized, taxed, oppressed and controlled by skin color, gender roles, marketing, politics, and conflict all in the name of my God and Country.

It is interesting to consider an invisible system designed to suppress a visible system that supports the invisible system (say that 3 times really fast….it sounds like someone letting the air out of the tires). The most obvious opportunity for the future is to stop letting the air out of the tires.

Luckily, social media is changing everything by acting as an alternative place for the exchange and storage of value. The weaker the financial system gets, the stronger social media systems will get; but not the other way around. Think about it like a system.

Financial Currency vs. Social Currency

The difference between the current economic paradigm and the next will balance on the difference between financial currency and social currency. Let me explain:

The flawed calculation

Obviously, the Gulf Oil Spill was a result of a flawed calculation. As a result, the rig was not equipped with an “acoustic trigger” in the event of an explosion – should the dying surface workers fail to hit the manual cut-off – this device would automatically shut the well.   The device costs 500,000 dollars.

The estimated damage at 1 month of constant spilling was estimated at 14 Billion dollars with no solution in sight. The residual social cost in unemployment, health and destruction of social fabric could easily double that score. The long-term cost to industries and natural ecosystems could double that number again.

Score: 500,000 dollars vs. 50 Billion dollars; The financial currency to social currency ratio = 1: 100,000

Ted Nugent, a fervent and vocal Republican, Tea Party spokesperson, 2nd amendment activist, hunting enthusiast, and hard rock guitarist accuses this nation of losing it’s culture of accountability. His quote on CNN this weekend “I never had a fire, but I have a fire extinguisher in every room of my house. The spill was a criminal act of negligence”. In this case, I would have to agree with ‘The Nuge’.

Accountability is a calculation

When a company performs a cost benefit analysis, they look at the remediation cost of peril and the cost of mitigating peril and the probability that the peril will occur. The problem arises from the valuation of remediation cost; quoted in financial dollars “subject to litigation” when it should be actually be quoted in social currency. Litigation risk is not a proxy for social currency.

In the example of the Gulf Oil Spill, this equation was off by a factor of 1:100,000. Every other possible failure calculation that could have occurred was likewise flawed by the same ratio. Therefore, there is 100% probability that none of the perils were properly mitigated, hence, accountability was zero. I am sure the 11 workers who perished would have agreed.

Scraping the Deep Web

So what would accountability look like? We see that Social Media, in general, provides a remarkable system to punish low integrity and reward high integrity. Could this medium of exchange in social currency provide an accountability standard to hedge financial currency?

If Facebook can map the human consumption genome, technologists certainly have the data scraping ability to develop a true value calculator that can compare financial value to social value for any venture, prior to the venture being executed. In fact, we should be able to predict what ventures are more likely to occur given the relative values of social and financial currencies. The fear, of course, is that this will hurt business.

True leverage calculator

A true value calculator would, in fact, be better for business because it improves business intelligence shifting opportunities to meet true market demand. A true value calculator would not eliminate markets, it would liberate the true demand of a market. And if that is not enough, consider the 100,000:1 market leverage that the trade in social currencies could have over financial currencies.

Now that’s a business to consider!

They Should Pass A Social Currency Option

cubscout-mainMy new favorite rebuttal to any argument from economic ailment to political controversy is: “I’d like to see a social currency thrown into the mix”.

It is really convenient to have the same position on all issues; Health Care, Terrorism, abortion, financial meltdown, education reform, and political scandal – my response is the same. “I’d like to see a social currency thrown into the mix”.

What the heck am I talking about?

Several recent blogs articles (and here, and here, and here) have converged around the idea that social currency is something that people earn from being active in a community, network, or social organization. Social Currency in lauded upon the recipient in many forms such as Google juice, respect, engagement, trust, re-tweets, reputation, merit badges, check-ins, tokens, Whuffie, wiggly worms, etc…

Regardless of what you call it, all social currencies have a very unique characteristic that differentiates them from a financial currency. Social currencies reward high integrity and punish low integrity.

Social Currency can be earned or converted:

Organizing a community around a common goal is serving a need that government and corporations do not have to fulfill in their “Social Charter”. So it has value.

  • Helping a neighbor find a job supplants the work of the government funded unemployment office.
  • Helping an elderly neighbor with their shopping supplements the Department of Health and Human Services.
  • Adopting a child alleviates expenditures in the foster care system, abortion, and possibly the courts and prisons.
  • Helping local vendors stay afloat by organizing a community of group buying or groupons reduces the demands on bankruptcy courts and social services.

Social Currency can also be eliminated:

  • Public servants and politicians who squander the trust of their constituents through acts of corruption and impropriety
  • Corporations who decimate local priorities in favor of Wall Street priorities.
  • Breaking the law, endangering others, neglect, fraud, breech of social contract .
  • Consumption far in excess of social contribution.

Take any issue and apply social currency

The health care debate is an excellent example. First, let’s apply a social currency to all of the people voting on the bill. Next, let’s apply a social currency to everyone arguing against the bill. Next, let’s apply a social currency to everyone arguing in favor of the bill. Let that count establish the burden of proof of the argument.

Next, let’s pay for Health Care Reform in social currency, not financial currency. That means people with a surplus of social currency receive health care at a certain rate. People with a deficit of social currency receive health care at a different rate.

Finally, compensation to health care providers would also be biased by a social currency. Providers with a surplus of social currency are paid at a different rate than providers with a deficit of social currency.

What about cheaters?, who pays these subsidies? how do you count it?, It’s a job killer, corporations will go bankrupt, losers still lose, Holy cow, this messes everything up!!!!

Actually, it’s not much different than how we allocate money on a credit scoring basis. It’s not any more difficult to count than the blood-money coursing through the veins of an unvetted financial / insurance system. Most importantly, constraining a Financial Currency with a Social Currency sets up a whole new landscape of benchmarks and incentives that accelerate innovation, in effect, printing new currency.

That’s what I mean when I say; “I’d Like to see some Social Currency in the Mix”


Gowalla and Foursquare: Money is as Money Does

manhattanMoney happens because people happen, not the other way around.

Wall Street has no idea what’s knocking at their door with the emergence of a new class of Social Media Applications that incorporate geolocation strategy.

Money is as money does.

Hanging out in bars and buying silly tokens does not define a sustainable economy any more than borrowing money from yourself with interest in order to keep it sufficiently “scarce”. However, the strategic combination of social capital, creative capital, and intellectual capital does define a sustainable economy.

Social Productivity can be loosely defined as “what you make with your time”. All of us have a limited number of hours on Earth.  “Don’t waste my time” is the new Tax on Tea. The Last Mile of Social Media is a critical step that will complete the Internet as a system of social organization, and as a result, financial reorganization.

The 5 components of a financial system

A financial system must have 5 components acting in a system in order to sustain itself:  1. a means to store and exchange value (currency). 2. inventory 3. vetting  4. entrepreneurs, 5. A business model.  If any of these components is missing or becomes corrupted, the whole system fails.  Where all of these components are intact, however primitive, an economy will flourish.

1. Currency is a social agreement and the Dollar is no exception.  The “social agreement” is the presumption that the currency is scarce and therefore valuable.  In reality, time is scarce.  Geolocation is important because traveling is a quantity and guessing is a quality that are both time consuming.

2. The knowledge inventory is emerging where people establish themselves as experts through blogging, community organization, and development of creative content.  The new class of social media applications like Gowalla, Foursquare (and those not yet created) will eventually evolve to highly organized and finely granulated knowledge inventories in and about communities.

3. The vetting mechanism will form as people with common knowledge assets aggregate around cooperative activity rather than competitive activity.  High integrity will be rewarded and low integrity will be punished. Gowalla and Foursquare are still easy to cheat, but that will get worked out.

4. Entrepreneurs. As information becomes infinite, time becomes more scarce, thereby forming the basis of this new economy. Entrepreneurs will identify knowledge assets and elevate them from low levels of productivity to higher levels of productivity. Gowalla and Foursquare provide visibility to some rudimentary knowledge assets – it will only get better.

The New Class of entrepreneurs will begin by aggregating strategic combinations of vendors.  Then they will aggregate strategic combinations of knowledge assets and match them to strategic vendors in infinite combinations. They will manufacture “time”.

5. The business plan is simple: A. transform data to information, B. transform information to knowledge, C. transform knowledge to innovation, D. transform innovation to data.  Each transformation produces “time”.

In fact, this is all that Gowalla and Foursquare accomplish.   Each transforms data into information and people transform information into knowledge.  People are drawn to the possibility of  increasing the value of their time in their community.

If people can make their own currency more efficiently than a corporation or government can do it for them, they will. Don’t worry, a currency will find a way to represent them – after all, money is as money does.

Social Currency And The Innovation Bank

'Innovation and Growth, Chasing a New Frontier' book launch(2)The real estate market is trashed, money markets are unstable, commodities are in the tank, the banking system is corrupted to the core, inflation is looming around every corner, and the politicians are engorging themselves in a game of Cerebral Gridlock.

Literally, there is no safe place to put your money. Instead, people are investing their productivity in social media – social media is simply a storage device for knowledge assets. Soon it will become a stock exchange for knowledge assets. Investors should not take this lightly – the best place to store your money is in the real productivity of real people.

People are trading knowledge assets in social media. This exchange is denominated by a conversational currency. If we consider the structure of conversations and compare that to both the structure of social networks AND the structure of our financial system, we see a huge opportunity to develop an alternate financial system that can capitalize and securitize knowledge assets in social media.

Ingenesist.com

Music by Phil Felicia

Video: Tangible Knowledge; The Holy Grail of Social Media

Accounting Balance sheets have tangible assets and intangible assets. Unfortunately, intangible often means invisible and those on the dark side of the moon wind up in the unemployment line.

What if knowledge assets were tangible? What if you owned your knowledge like a company owns a structure or specialized machinery? What if it could be quantified and qualified so that it resembles all other tangible assets? Easy answer…entrepreneurs will trade it, like money.

Calculating The ROI of Social Media

This video introduces a new way of looking at social media valuation. People find value in social media otherwise they would not do it. How is that value expressed as a financial instrument? If you engage your clients in the same currency that they are trading among themselves, the greater the likelihood you will realize the value of the new media phenomenon.

Social Currency; History Matters

historymattersHistory often provides clarity in the present. I was searching the term “Social Currency” and I found these two posts on a forum from all the way back in 2001.  The authors are quite explicit in their expectations of social currency in their present and deep into the future.

A framework for the future:

I find such framework to be useful in grounding my own opinions, expectations, and aspirations in the social media space.  The authors here are quite intimate in their views and we would all be remiss in not searching the hidden layers of our consciousness on the subject.  Enjoy.

(I left all the links in hoping that this would suffice for credits back to the source  http://everything2.com/title/social%2520currency)

Banks In The Present

I see a lot of articles asking the question why people are not absolutely livid about what is happening to them. The degree at which their wealth is being transferred away from them and the debt being shod on their grandchildren is astonishing. I saw LA burn for a whole lot less after the Rodney King affair and this crisis does not even foment a decent March on Washington like the good old Reagan days.

It would clearly be in the best interest of stock market capitalists to keep the majority of people poor, weak, and disorganized. Below a certain economic threshold, people simply fail to organize – they are too busy trying to feed their families by working harder. This is where they want to keep us…but will it work?

It’s Time for a Reputation Based Currency

Many people know that the events that inspired what now has become The Ingenesist Project originated with my personal observation and experience of the Mexican Peso Crisis as a visiting professor.  Very few people in America realize the implications of a real financial crisis and associated currency collapse. Unfortunately, many people in the World have – perhaps we should listen to their ideas.

The Good, the Bad, and the Ugly

As recently as 1999-2002, Argentina experienced the type of worst-case financial collapse that America narrowly avoided only a few months ago – but that may eventually happen. The simplest reality is that when things go really really bad, people need to continue trading among each other for basic needs using a functional and relevant currency.  When things are really good, people need a currency that reflects productivity, not debt – i.e., social capitalism priorities, not necessarily Wall Street capitalism priorities.

Ground Zero

It is not surprising to me that great applied currency applications would be  coming out of Argentina today.  The Whuffie Bank is an exciting new project that introduces a reputation based currency inspired by several science fiction authors of the past, specifically Cory Doctorow.   Likewise, the founders of the Whuffie Bank demonstrate the perfect combination of humility, openness, and inquisitiveness that is required in the emerging social media space.  Everyone realizes that the Whuffie is not a perfect currency, but the story has to start somewhere and TWB has something important to say.

It’s Time for a Reputation Based Currency

I’ll talk more about the Whuffie Bank as I learn more.  First, it would be best to describe the origin of the term.  I lifted the following description from Wikipedia:

Whuffie is the ephemeral, reputation-based currency of Cory Doctorow’s science fiction novel, Down and Out in the Magic Kingdom. This book describes a post-scarcity economy: All the necessities (and most of the luxuries) of life are free for the taking. A person’s current Whuffie is instantly viewable to anyone, as everybody has a brain-implant giving them an interface with the Net. (Cory’s Blog)

The term has since seen some adoption as a synonym for Social capital, including its use in the title of the Tara Hunt book The Whuffie Factor.

Building a Better Entrepreneur; Google 10^100

Google 10^100 award voting is Launched.  There are two sectors that we believe would have the greatest impact on the greatest amount of people; building a better banking system and funding social entrepreneurs.  You can’t have one without the other – if Google funds these two sectors in concert, the outcome would be incredible.

Build A Better Bank

In the old banking system we assume that we have the knowledge to execute a business plan and we go to the bank to borrow the money.  In the new banking system, we will assume we have the money and we go off in search of the knowledge.  Social Media is an excellent “public accounting system” for knowledge assets.

Our current banking system has gotten it backwards.

Technological change must always precede economic growth. The supranational currency may be backed by productivity and not debt.  Social media provides an excellent platform upon which to design such a banking system. People trade “social currency” at a tremendous rate.  This is evidenced by the amount of destructive innovation is occurring in many legacy sectors due to social media.

Better Banking Tools for everyone

“Partner with banks and technology companies to increase the reach of financial services across the world. Users submitted numerous ideas that seek to improve the quality of people’s lives by offering new, more convenient and more sophisticated banking services. Specific suggestions include inexpensive village-based banking kiosks for developing countries; an SMS solution geared toward mobile networks; and ideas for implementing banking services into school curriculums”.

Suggestions that inspired this idea

1.    Enable prepaid cell phone bank accounts for millions of people working in the informal economy
2.    Create a community-level electronic banking system for rural areas
3.    Build IT-enabled kiosks which provide access to financial services
4.    Create a single world bank or supra-national currency, uniform rules and transparent public accounting

Fund Social Entrepreneurs

Venture Capital is ridiculously expensive. Corporate innovation serves shareholders value over social priorities.  Some say that the financial risk of funding innovation is too high. The top ten reasons why start-ups fail are due to knowledge deficits, not money deficits.  A new banking system that trades knowledge as currency would solve this problem.

The key is to match most worthy knowledge surplus to most worthy knowledge deficit.  Google is perfectly able to build a search app for knowledge assets if there were an inventory of knowledge assets.  With the most worthy match, Risk can be reduced and new financial instruments can be developed such as the innovation bond, innovation insurance, tangential innovation markets, and destructive innovation transition contingency options, etc.

Help social entrepreneurs drive change

Create a fund to support social entrepreneurship. This idea was inspired by a number of user proposals focused on “social entrepreneurs” — individuals and organizations who use entrepreneurial techniques to build ventures focused on attacking social problems and fomenting change. Specific relevant ideas include establishing schools that teach entrepreneurial skills in rural areas; supporting entrepreneurs in underdeveloped communities; and creating an entity to provide capital and training to help entrepreneurs build viable businesses and catalyze sustained community change.

Suggestions that inspired this idea

1.    Provide targeted capital and business training to help young entrepreneurs build viable businesses and catalyze sustained community change
2.    Create a non-profit, venture capital-like revolving fund to invest in high-impact local entrepreneurs
3.    Send young American entrepreneurs to underdeveloped communities to help create small businesses that would economically benefit those communities
4.    Create schools in rural areas to teach local people how to become entrepreneurs
5.    Create a private equity fund to help immigrants in developed countries finance business development in their countries of origin

The Value of Social Currency

How big is this opportunity?

Roughly 10% of the US gross Domestic Product can be attributed directly to the process of evaluating or examining transactions.  This represents a 1.4 Trillion Dollar of value in a system that may be better organized, captured, and preserved through social networks and the conversations that they produce.

Social vetting on a scale that would allow social networks to monetize would require that communities organize their knowledge assets specifically for deployment to a market.  All that an entrepreneur needs to do is fill this need.

What happens if they don’t?

The true cost of vetting may be calculated by what happens in the absence of oversight, transparency, and disclosure. When the vetting process fails, so too does the industry.  The continuing financial crisis of 2008 was fueled by a failure to regulate mortgage backed securities.  The financial Crisis of 2002 arose from a failed accounting (CPA) profession.

The losses due to the absence of vetting mechanism exceeds by many times the cost of having a system in place.  The financial crises of 2002 and 2008 have together wiped out nearly 20 Trillion dollars of value and incurred high volatility to financial systems due to failed vetting mechanisms.   The people who held the knowledge about the impending doom had no effective medium to share.

Who vets KNOWLEDGE assets?

The flow of money lives and dies by the vetting mechanism.  CarFax, Experian, Ebay, Google owe their existence to the ability to vet information – However, they do not vet knowledge.  The ability to deliver the right knowledge asset to the right place, at the right time for the right price is tantamount to being able to “manufacturing innovation”, that is, to print money.  Inversely, the ability to foresee the result of specific knowledge assets deployed to specific business conditions is the Holy Grail of entrepreneurs.

Social networks can carry out this very important function of the Innovation economy; organize, locate, and develop knowledge assets in a form which can emulate a financial instrument.

How are things changing?

Emerging ideas such as conversational currency, relationship economics, innovation economics,. nd new ways to value intangibles are appearing in research blogs across the web.  Disruptions to Global finance, environmental policy, and the emergence of global currencies are setting the stage for a huge transformation in how society organizes itself.  Traditional industries such as print media, advertising, and banking are failing. Nothing is sacred except change.

Where are these communities, and what do they want?

Many communities exist today in a variety of forms and functions such as communities of practice, fellowships, service organizations, professional societies, trades groups, affinity groups, etc.  Increasingly they are moving to Social Media such as Facebook groups, Linkedin groups, Affinity groups, aggregation groups, and political action groups.  Communities are using social media technology to engage the knowledge domain contained within them.

As such, they will soon have ability to foresee the result of specific knowledge assets deployed to specific business conditions.  This is the Holy Grail of modern civilization.

Web 3.0; An Elephant Never Forgets

The opportunity for America reminds me of the elephant that is convinced since birth that the slender rope tying him to the fence post is stronger than he.  When the elephant grows up, he still believes the rope is stronger even though the elephant now has gained the strength to pull the whole building down.  Americans are the 8000 pound elephant in the middle of the room.  The question on everyone’s mind is: what will the elephant do next?

Throughout history, economists have determined the structure of business, enterprise, and commerce and wisely the government complies.  With remarkable success over the last 150 years,  corporations had been the source of most innovation sufficient to support the value of a currency.  Fortunately, the corporation had become the center of economic policy while the knowledge inventory within them have been fenced inside the accounting term: “intangible assets”.  Unfortunately, our corporations can no longer innovate efficiently enough to support the debt. Witnessing GM facing up to this very question, while the government manufactures money like taffy, seems a lot like feeding sugar calories to an elephant that is too big to fit out the door, dead or alive.

What the economists and many of the great visionaries of out time do not anticipate is the emergence of computer enabled society and the tangibility of knowledge outside the corporate structure through developments of social media.  Web 3.0 is supposed to bring us a semantic web – a computer program will be able to read the elephant story above and determine whether it is about education, zoology, macramé, Interior decorating, taxidermy, building demolition, or cliché old business metaphors.   Perhaps this is our little rope tied to the post as we wait for Mother Corpora to provide solutions.  Get a grip, the only computer that can read, classify, and extract a thousand words for any photograph is between our collective big floppy ears.  Web 3.0 will be semantic alright, except by the integration and capitalization of human knowledge through social media.

We spend billions on a human genome project to inventory our DNA, but nothing to inventory the knowledge as it exists naturally in society.  We will build statistical models to forecast weather, elections, click-throughs, insurance, demographics, and mortgage risk; but nothing to predict the value of various combination of social capital, creative capital, and intellectual capital in society.  We have search engines that match most worthy blog to most worthy keyword, but little to match most worthy mentor to most worthy apprentice.  The top reasons why start-ups, businesses, innovations, and markets fail are due to the wrong knowledge in the wrong place at the wrong time. It seems that if we solve the knowledge inventory problem, then we can solve the innovation risk problem.  That, in turn, will solve the money problem which solves the elephant problem.  We need to release the great “intangible asset” into the wild world of tangibility and trust that it knows where to go.

Sometimes it just takes someone to give us permission to do things differently.  So here I go: human knowledge is the most perfect, predictable, flexible, and valuable capital asset in our world.  Knowledge can become far more tangible than anyone could have ever imagined. Information, knowledge, and innovation are profoundly related – separated they are useless, integrated they are wisdom.  Everyone on earth innovates every day, period. The vast majority of people will do the right thing given the right incentives.  With the next development of the Internet, we will have the tools to organize ourselves in a far more efficient manner than the command and control structure of a traditional corporation.  Management can be outsourced too. Corporations respond to corporate priorities, social networks respond to social priorities.  Which one sounds like a business case to curb global warming?

The Ingenesist Project specifies three web applications which if developed and deployed to social media will allow social capital, creative capital, and intellectual capital to become tangible outside the construct of the traditional corporation and inside social networks.  Just because people have never organized themselves in an open sourced innovation economy before, does not mean that they never will.  But once they do, well, let’s just say that an elephant never forgets.

The Great Convergence

Hey Kids, It’s 3D:

The objective of this article is to discuss the Great Convergence of computer enabled society. Social media must not be allowed to converge to a single apex – rather, it must converge to 3 distinct and tangible dimensions.

The factors of production for the industrial economy are land, labor, and capital.  If you lose one, you can’t use the other two to build an SUV, for example.  The factors of production for an innovation economy are social capital, creative capital, and intellectual capital. All production in the new economic paradigm will result from the allocation of a “secret sauce” of social capital, creative capital, and intellectual capital.  Again, if you lose one, you can’t use the other two to build anything meaningful.

The congregation of congregations:

In order to find The Great Convergence, we simply need to examine Social Media to discover where social capital, creative capital, and intellectual capital tend to congregate.

One of the more obvious illustrations appears to be playing out between LinkedIn, Facebook, and Myspace.  Many people use Linkedin for professional contacts (intellectual Capital), other people use Facebook for friends, family and more diverse associations (Social Capital), while many others use MySpace to post videos of their rock band, Artwork, or to discover the latest Mash up (Creative Capital).  Of course there are many more social networks, lots of cross talk, different demographics, rants and raves, etc.  I intentionally leave this analysis sparse as these conditions simply reflect the nature of The Great Convergence.

The Next Economic Paradigm:

We need to watch The Great Convergence with laser focus and deep personal interest because it will be extremely important for the development of what comes after the knowledge economy.   Whatever form this next economic paradigm takes, globally and locally, will depend upon The Great Convergence.  The Innovation Economy is the only wrench left in the toolbox for resolving the vast global problems that we face today.

The Innovation Economy must end global warming, restore financial accountability, enact sustainable enterprise, and institute renewable energy – or not.  This is a huge burden to ask of the next “greatest generation”.  It is clearly in everyone’s best interest to identify, encourage, and support The Great Convergence to form in 3D, before the old single-apex game “resets” and starts all over again, perhaps for the last time.

[The Ingenesist Project discusses this concept at length and identified various predictions, methods, and scenarios, including specifications for an Innovation Economy.]

Social Media; The Opportunity of a Century

The Perfect Storm:

We are at an historic time in human history; one that may never repeat itself again. The current financial crisis may provide just enough disruption for a completely new economic paradigm to emerge; the Innovation Economy.  We cannot squander this moment arguing over common logon for our Twitter and Facebook profiles; a far greater integration is required from Social Media.

Advertising is not the correct revenue model.

It is astonishing that Social Media, in general, has not figured out how to make money.  Social Media IS money.  All wealth on Earth was created from the social capital, creative capital, and intellectual capital of people – wealth creation is already crowd sourced.  Now, there is an opportunity for Social Media to harness this engine of economic growth and wealth creation – if they could only see it.

The problem is simple: Globalization is proceeding as if economic growth can occur before technological change. Some time in the past, we got these two things up mixed. It does not take money to make money; it takes innovation to make money.  Technological change MUST ALWAYS happen before real economic growth can occur.  Anything else is a transfer of wealth, not the creation of wealth. All that is unsustainable today – the economy, the environment, natural resources, energy – is due to this itsy bitsy anomaly of current market economics.   Today, we can easily correct this little flaw with almost a flip of a switch – but the window of opportunity will be short – and we need to be clever.

The idea that human knowledge is tangible and behaves individually and collectively like a financial instrument is still considered impossible.  The ability to place a market value on the social capital, creative capital, and intellectual capital of a team, community, or geographic population of people – let alone a social network – has never been accomplished.  This idea remains the Holy Grail of finance and one that Social Media is uniquely positioned to capture.  If the finance industry can invent “tangible derivatives” out of thin air paper, then we ought to be able to do the same with knowledge assets that live and breathe tangibly all around us.

If it looks like money, it will behave like money, guaranteed:

First, we need to build a knowledge inventory system that includes everyone; and which can be anonymously codified and amalgamated with logic in machine readable format (the Universal Decimal Classification System is a good candidate). Second, we need to sample our inventory in a community using the proverbial “Bell Curve”. Third, we need to develop a search engine that returns the probability that a strategic combination of knowledge assets can execute a given objective. Fourth, we need an innovation Bank that will “pull” knowledge surplus and “pull” knowledge deficits together from diverse communities.   (Please see the IEc101 at http://www.ingenesist.com)

This should not sound too weird; it is the same game that Wall Street plays.  The switch is flipped when we engage our innovation system with the financial system.

Go where the money is:

Social Media is perfectly positioned to develop these features in their products and in our communities. We first must understand that innovation is predictable.  We may not be able to say exactly where the innovation will lead, but we can be sure that if we place a group of strategically diversified persons in a room, innovation will happen.  If the fact of innovation is predictable, risks related to the invented can be pooled, morphed, or diversified.  If risk can be diversified, it can be hedged to zero.  If innovation has zero risk, Wall Street will salivate to issue “innovation bonds” to finance diverse communities of practice.  If innovation capital is inexpensive and accessible, a great amount of innovation will occur.  The anomaly of capital markets can be reversed, and the result will be sustainable economic growth.

Naturally, the compensation structure will be in the form of dividends, both financial and in social welfare.  New corporations will emerge and the old corporations will become more efficient. What is invented will tend to reflect social priorities rather than today’s short term Wall Street priorities.   America must innovate at an intense and sustained rate in order to compensate for the imbalance of debt economics that has been created in its absence.  Social Media can be, and must be, the infrastructure upon which an Innovation Economy is built.  Again, this opportunity is staring us straight in the eye.  This is the conversation that must be having today if we will meet the challenges of tomorrow.

Tangible Knowledge; Options and Contingencies

In order for knowledge to become a tangible asset, we need to come to grips with the fact that human knowledge is fluid and mobile, whereas a condo or a piece of machinery is static.  A machine can’t walk away if it does not like their management.

With knowledge assets, the typical “Return on Investment” (ROI) model breaks down.  When assets have a mind of their own, there is no reliable way to calculate ROI without somehow corralling the asset inside some form of closed contract, a corporation, political system, social class, or by introducing barriers to exit, etc.  In the modern financial system, human assets are held tangible by debt obligations – today many people go to work in servitude of debt, not in creation of new ideas.

An option* is the right, without the liability of obligation, to exercise a decision in the future.  Human interaction accommodates this valuation model quite readily; it’s called free-will.  Therefore the option valuation model is an adequate method to assess knowledge assets as a means of making them tangible.

The value of a financial option can be calculated if one knows the following 5 variables: The asset price, the strike price, the date of maturity, the risk free interest rate, and the volatility – or, the odds on the bet.  By contrast, the ROI model requires us to know basically the same things; the cost today, the strike price (future sale price), the date of maturity, the risk free interest rate, and the probability of success – or variance of the expectation.  The equation is just a little different.

Individually, human behavior often appears chaotic and irrational, but in aggregate, we know that human behavior is really quite predictable.  If you put similar people together, you get similar ideas.  If you put extremely different people together, you get extremely unpredictable ideas.  If you put strategic combinations of people together, you should be able to predict the variance of the ideas.  This is all the information we need to place a value on our bet.   If human behavior is predictable, it is tangible.

Suppose we enter into a ROI venture and it fails miserably; the market was wrong or the product was wrong, or the people were wrong, etc.  Even though the investment failed, the knowledge accumulated from the attempt can be exercised in many other projects in the future. While the Patent may turn out to be worthless, the knowledge gained by the team can be used over and over again.  Each person gains a statistical data point in their experience set with which to assess comparable situations in the future.  This is an option and this option has value.  If the team were disbanded without somehow capturing the inventory of new knowledge assets, a very valuable set of options becomes squandered.

Some companies such as Google, try not to kill an idea, they morph the idea into something else.  Free-range knowledge tangibility must achieve those same objectives.  Today we see people building networks on Linkedin – this activity resembles the collection of options on future opportunities.  People post on social media to see and be seen by other knowledge assets as a means of collecting more options for their careers or actions. People would not be doing it if there was no intrinsic value.  The next big leap will happen when knowledge tangibility is married to the financial system through the direct valuation and capitalization of options.  Did I mention there is an equation for that?

The Ingenesist Project specifies a method and system for knowledge inventory that would produce a variance for knowledge assets.  The Percentile Search Engine would pull knowledge assets in combination that diversify variance into a highly predictable surplus assets and deficit assets.   The Innovation Bank would match most worthy surplus to most worthy deficit.  As such, the Innovation Economy itself is now a most worthy option for supporting a feeble financial system.

The ROI model is the mother of all squandered knowledge assets – the very same assets that are really purchased on a project, successful or not, are often willfully abandoned.  All of the parameters of an option valuation model can now be met with social media and The Ingenesist Project integration methods. Free-range knowledge assets can then be directly financed toward business objectives.  The idea of an innovation economy based on knowledge tangibility is well within our grasp technologically, culturally, and systematically.

Social media has an astonishing opportunity to integrate social, creative, and intellectual knowledge assets to trade that single most important part of the puzzle, tangible knowledge assets.  I suspect that this outcome will depend on whether these new tools are treated to an ROI valuation model or on an options valuation model.

* Italic used for clarity

Social Enterprise; Show Me The Money

The term social capital is thrown around with great ease without really understanding what the word “capital” implies.   Capital is money used to earn more money; that means that social capital must somehow be related to, or derived from money.  There is no shortage of blog posts asking the timeless question “Where’s the money in all this social stuff?”

If social capital is money, it needs to behave like money.  So for our litmus test today, let’s talk about financial derivatives – the same ones that got us into the mortgage crisis mess.  A derivative is something whose value is derived from something else.  The price of an SUV is often derived from the current price of fuel.  Not so obvious are collateralized debt obligations – but they are kind of similar.

So where is the money in all this social network stuff, what on Earth is a social capital derivative, and how can it be “capitalized”?

Suppose I start a social network for my neighborhood. The objective of this social network is to make certain all of the data collected by, and posted on Zillow.com (a real estate valuation site) is accurate.  After all, it is not in anyone’s best interest for an overpriced house to stay on the market too long because it raises questions about the value of the other houses.  Nor it is in the best interest for a house to be undervalued – that too brings down the value of the other houses.  It is in everyone’s best interest that all the houses are correctly priced.  If this could be accomplished, then a discount real estate broker can be used saving 2-6 percent on the transaction.  That sounds like real money to me.

Meanwhile, it is in the best interest of all of the neighbors to help all of the other neighbors to improve those things on everyone’s homes that increase correct market value by the most; kitchen, bath remodels and a little landscaping, etc.  Again, this supports the value of everyone’s house and improves people’s decisions on how to invest their home improvement money.  Wow, that sounds like real money too.

A sample of persons living in a community would surely reveal a whole range of specialized knowledge useful to others in the neighborhood. Neighborhood watch organizations are better crime deterrents than police patrols.  Further, local contractors, banks, stores, and businesses would love to target such an organized and focused group of people. They may even pay the community for advertising on the site… cha ching!  Nobody would dare provide poor service since reputations would be quickly damaged on the community forum; likewise, disputes are handled quickly and equitably since it is everyone’s best interest to do so…

Now for the derivative:

The number one attribute for increasing the value of a home is a good neighborhood.

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