TOC The value of money Your Turn

February 5, 2013

Money matters and leaves no one indifferent. Some pile it up beyond all measure. Some bewail its corrupting power. Rulers all over the world worry lest its flow through their economies be too sluggish. On my more modest mode, I maintain ePrivacy is all about money. But what is money?

Actually we should not ask what forms money takes (1), but what functions it fulfills. Like any fluid, its role changes according to whether it is stored or made to flow. In the former case, money is used to store value for the future, in the latter it is a means to trade goods and services for the present.

For moralists, money is dangerous because it is normally so efficient in storing value. Hyperinflation and other bubbles notwithstanding, money tempts miserly minds who would otherwise be discouraged had they to accumulate other goods, either bulkier or too perishable and far less liquid.

John Kay takes a similar stance on trade (2). Neither should money be offered for a service if "it affronts human dignity [...], disturbs social solidarity [...] [and] is aesthetically unpleasant". How then can one build sustainable business models and monetize data for the Information Age?

As long as his moral perspective is shared by society, John Kay's position is indisputable. Yet he fails to do justice to Michael Sandel's statement that "not all goods are properly valued [as commodities]". To say valuing them in this way is not proper explains nothing, despite being true.

Take John Kay's example of a "contract of enslavement". Society today holds such a contract to be abhorrent. Yet for the sake of argument assume it were legal while laws prevented slave owners to abuse their property. Assume then a certain "prospective slave" could deliver a total of 10,000 hours of work as a software engineer. Why couldn't a fair contract be drawn at that price? Why would it be an affront to human dignity?

With stock options underwater and pension plans unfunded, some software startups do not treat their employees any better. If proper terms let slaves break their contracts at will, where would be the loss of freedom? The real reason is that a software engineer is not the same as 10,000 hours of work. Although each man has a price, he would undersell himself for that or any other price. The deal would not be complete.

And so the contract would not be proper because it could not be properly valued. Michael Sandel explains John Kay, not the other way around. In some cases then money as a means of trade does not so much demean as it, alone, fails to make transactions final and fair. But as the Information Age waxes, these transactions I call incompletable are becoming the norm when they used to be the exception in the waning Energy Age.

Remember all information is a potential lie and any deal made on this basis should remain open as long as the lie may be exposed. Analyzing how mortgage-backed securities are traded, Floyd Norris relates that "Mr Litvak bought [a] security for 41.13 percent but lied to the customer by saying he actually paid a full percentage point more" (*). The lawsuit against Jefferies' bent broker does not hinge on whether he lied but on whether he should be held accountable for lying. Floyd Norris' focus lies in judging how easy the S.E.C. will make it for truth to be found.

The soaring popularity of so called clawback provisions (3) is proof individual incomes are no longer considered final. It should be obvious by now this should apply to corporate incomes in the banking industry. Barclays, of Libor fame, is also under probe for "allegations [it] lent Qatar money to invest in the bank as part of its cash call at the height of the financial crisis in 2008, which enabled the bank to avoid a UK bailout", report Daniel Schäfer, Caroline Binham and Simeon Kerr (**). This circular transaction was itself incomplete as Qatar's help could not be openly valued as such.

Outright lies and latent risks are not the only reason why a price-based transaction must remain incomplete. "The Violence Against Women Act [...] [gives] the victims of sex crimes, including child pornography, the right to restitution or compensation for the "full amount" of their losses", Emily Bazelon writes in an essay on its application to "child pornography viewers" (***). It shows the psychological trauma of being the victim of what a judge called "a continuing digitized rape". It also makes clear that monetary reparations in themselves can never "fully" atone for the crime.

Transaction incompleteness should be no cause however for eliminating all monetary considerations as morally corrupt. To invoke this principle to deny financial relief and make pornographic victims pay for their mental health would be cruel. Yet this is exactly what happens to American kidney living donors. While John Kay is right in rejecting "the sale" of transplant organs as "unacceptable", US donors receives no money at all and are therefore personally responsible for any future medical complication and any present increase in insurance premium due to their generosity.

When Arthur C. Brookes delivers a spirited defense for online education, a necessary innovation "in an industry that is showing every indication of a bubble" (****), implied is the need to unbundle the product, the transfer of gradable skills and knowledge, from the service, the induction into an influential alum network. Even when the former is industrialized at commodity prices, no transaction can complete the latter.

Mastering this intrinsically incomplete exchange of money for services, American colleges call on successful alumns to share the fruits they partly reap on the reputation of their alma maters, creating an acceptable moral obligation. This is what Philippe d'Iribarne calls the "logic of honor", in contrast with a reliance on contracts. Hence by dropping the pretension of being able to fulfill trades, money can still play the role of enabling them.

In the value markets we discussed a few years back, money was already seen to be a facilitating factor rather than the sole mover as on traditional price markets. By incorporating reputations and recommendations into the determination of such exchanges of value, we formalize the need to let time tell. All what remains for the parties involved then is to recognize some contracts may leave indefinite social obligations.

Read Nelson D. Schwartz, who sees "a fundamental shift in the job market [as] big companies [...] are increasingly using their own workers to find new hires" (*****). Many offer a monetary incentive for such personal recommendations. Lucy Kellaway wonders: "if I outsource this [On work] column, would you really care?" (******). The comparative merit of being an artist, with a reputation to maintain, versus a manufacturer, with costs to contain, mimics the problem at the leading newspapers. Structured to sell sentences as a product, can they compensate their creative writers?

For BSkyB, the solution is obvious. It puts the viewers, their performance artists, into continuing digitized slavery. Sure Robert Budden tells us "it has no current plans for" "tap[ping] into viewers' online behavior" to drive "its own "tailored" advertising service" (*******). Meanwhile every other data source is fair game, from Experian to set-top boxes. When the law is complicit, serfdom can indeed thrive under a logic of honor.

By turning incomplete transactions from being an issue to becoming a starting point, we can now better account for the function of money in trade. There to compensate for a transfer of value, it does not have to make it full and final, only possible. Let laws make it fair, to add value to society.

If a logic of honor thus distinguishes monetization from commoditization, will the spirit of the Information Age be more French than American?

Philippe Coueignoux

  • (*) ............. Case Offers Peek Behind The Curtain Of a Security, by Floyd Norris (New York Times) - February 1, 2013
  • (**) ........... Barclays in Qatar loan probe, by Daniel Schäfer, Caroline Binham and Simeon Kerr (Financial Times) - February 1, 2013
  • (***) ......... Money Is No Cure, by Emily Bazelon (New York Times Magazine) - January 27, 2013
  • (****) ....... My Valuable, Cheap College Degree, by Arthur C. Brookes (New York Times) - February 1, 2013
  • (*****) ..... In Hiring, a Friend in Need Is a Prospect, Indeed, by Nelson D. Schwartz (New York Times) - January 28, 2013
  • (******) ... If I outsource this column, would you really care?, by Lucy Kellaway (Financial Times) - January 28, 2013
  • (*******) . A TV that knows who you are, by Robert Budden (Financial Times) - February 1, 2013
  • (1) for more details, see money supply in the wikipedia
  • (2) Low-cost flights and the limits of what money can buy, by John Kay (Financial Times) - January 23, 2013
  • (3) for more details, see clawback in the wikipedia
February 2013
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