posted 4 Feb 2011 in Volume 14 Issue 4
Knowledge gaming: Part II
Jan Wyllie on making non-financial rewards work
Currency has two basic functions: as a medium of exchange, and as a store of value. There are two types of currency: public currencies regulated and backed by governments, and private currencies used for group peer-to-peer exchange and valuation. This article asks whether in times when public currency is very scarce, private currencies can be deployed to motivate productivity and increase economic value. And whether serious games can be used to make the process fun, as well as rewarding.
A very short history of money
Private currencies in the form of items such as sea shells to un-minted gold have been around a lot longer than public currencies. But even in pre-historic times private currencies served as a store of value and a medium of exchange. Although oftentimes in those days, the purpose of the currency was to enable any surplus to be given away to the community and/or back to nature, which was usually conceived as the wider community.
Civilisation started destroying gift economies more than 5,000 years ago. Money became something to accumulate and spend in one’s own self interest, not to give away. This acquisitive attitude towards money drove the age of empires and wars, created the cult of wealth and riches, as well as its dark side of poverty, exploitation and inequality. Then along came the concept of interest – enabling money to make money – which actually only works for those who own money in the first place. That in turn accelerated the disparities in ‘wealth’ and funded the industrial revolution. The entrepreneurs and their workers then funded governments to create a currency-issuing monopoly and to regulate the process of lending and borrowing to make sure that lenders got their money back, plus interest.
Yet, alongside this culture of money as an expression of greed, that far older tradition of money as a way of giving back has survived on the peripheries of economic life. Indeed, even today, the world would simply not work unless people traded favours on the basis of need on a daily basis. The unspoken understanding is that, in a favour economy, if you do me a favour when I need it, then I’ll do what I can when you, or somebody else needs help. It’s an understanding which increases systemic stability and security, and distributes effort to where it is required most. Without trading favours, it would be impossible to board a bus or a train.
In his still under-read master work, The Theory of Moral Sentiments, Adam Smith argued that the most valued currency rewarding economic success was not money at all, but appreciation for doing a job well and being morally responsible for the consequences. But just look around. Look at the bankers’ bonuses, the wild speculation, the political corruption, the rampant consumption leading to quadrillions in debt – and the next and possibly the biggest financial collapse of all time.
Here is what Bernard Lietaer, who wrote the definitive history of private currencies in The Future of Money, said recently: “We have had 97 major banking crashes over the last 25 years, and we have 178 monetary crashes over that same time period. Would you not say that’s a sign of something being repeatedly unstable?”
Smith’s moral sentiments were nice in theory, but they are obviously wrong. Or are they?
The Future of Money is ambitious. It traces the history of currencies from the year dot and outlines the potential of private currencies to make economies more prosperous and just, and less environmentally destructive. Readers learn that some currencies, called demurrage currencies, had negative interest rates. They included the ancient Egyptian currency based on the value of stored grain, which diminished over time as it rotted or was eaten by rats. Or the Guild Currencies of the Middle Ages, which paid for the building of Gothic cathedrals. The advantage of a demurrage currency is that because it loses value over time, it encourages money to be invested in projects of long-term beneficial return, such as building cathedrals and planting forests. This, rather than accumulated, or lent out only if the return was high enough to beat the going annual interest rate (also known as discounting the future).
A more common form of private currency carries no interest on loans (‘mutual credit’) which also tends to discourage people from accumulating currency beyond their needs, while encouraging them to invest and spend. For example, in the first great depression, the use of local community currencies (‘scrip’) exploded across the US.
According to Lietaer, President Franklin D. Roosevelt sent a senior member of his Cabinet, John Foster Dulles, secretary of the interior, to tour the country to find out what was going on. After a few months research, the secretary returned to report that the local scrip currencies were thriving and were starting to turn local economies around. But then he reminded the President that if the Federal Government lost control of the money system, it would lose control of the country. Local currencies were then outlawed, and the New Deal was hatched. The US Federal Government borrowed the funds with interest paid to the banks (thanks, Uncle Sam) and spent it on large-scale industrial projects, profitable to the major corporations of the time, but not as good for employment as had been promised.
So it was on to World War II and the empire of the dollar. Private currencies and barter trading virtually vanished for nearly 50 years, with the honourable exception of Wirtschaftsring (Wir), which was established in 1934 and is used by 75,000 businesses in Switzerland.
‘Alternative currencies’ began to come into vogue again in the late 1980s, during the Reagan/Thatcher years when recession really hit employment and income in a way people had not experienced since the war.
LETS [local exchange trading schemes], Time Banks, Ithaca Dollars and such like grew exponentially. In the UK alone, by 1992, LETSLINK UK (of which I was a trustee) had registered and approved more than 400 local community currencies, which were used for trading knowledge, skills and goods. That was when we invented the term ‘complementary currencies’ at the eponymous LETSLINK UK conference, as an alternative to ‘alternative currencies’, so that governments would be less hostile to the concept. But then came the dot-com boom, followed by the debt boom, which meant that people were again completely focused on accumulating, spending or borrowing public currency.
Private currency growth withered. LETS groups died… that is, until about two years ago when our Open Intelligence monitoring began to indicate a renewed interest in private currencies, especially in the social media arena, where they are known as social currencies. The huge growth in computer and video gaming over the past five to ten years has familiarised countless millions with the use of private currency as a reward mechanism and as a medium of exchange. Now the Twittersphere is abuzz with private currency building initiatives, such as #metacurrency and #thefutureofmoney, and Facebook is coming out with its own currency and trading exchange for apps.
Unfortunately, the three strands of private currencies – traditional local community based complementary currencies, gaming currencies, and Web 3.0 type social currencies – have yet to become entwined. It is best for business to be prepared for when they do, because, given the extremely fragile state of public currency at the moment, private currencies could suddenly go from slightly loony to mainstream.
Basic elements of currency design
There’s a lot more to designing a currency than deciding which face to put on the note. The first decision is to decide whether to use physical or electronic tokens or notes as cash, which makes trading anonymous. Or, to use virtual bank accounts where all trading is transparent. Not only does total accounting transparency build trust and discourage illicit accumulation, it also provides users with invaluable feedback metrics indicating who is trading, what, where and when.
The next thing to decide is an interest rate policy. Ruling out positive interest rates because of the lessons of history above, the only choice is between zero interest and negative interest accounts. On the basis that it is wiser to move one step at a time, start off with a zero interest design before moving into the accelerated investment world of demurrage currency.
The next currency design questions are a bit trickier. What is the value of a currency based on? And how is that value established? One answer is to peg the value to a convenient national public currency. Another is valuing contributions on the basis of hours spent. But that runs up against the problem of deciding an equal rate or a differential rate, somehow based on qualifications. And how can you trade goods with a currency that represents hours? A third option is to base a currency’s value on a basket of goods, such as timber and eggs. An untried option is to base rates on need, so those in most need pay the lowest rates. If the goal of the currency is not individual accumulation, then the economics of this kind of transaction might well work, if the objective is to focus the most resources on the greatest needs. Still, it might be a step too far for now.
Once again, start with the simplest and most familiar design option. Either peg its value to the established public currency, or go for a standard rate per hour which can, if required, be negotiated by each party. And then simply haggle on the price of goods.
By far the biggest design challenge in creating a successful private currency is the trading directory, which is the main tool for connecting buyers with sellers. In the old days (early 90s), successful LETS groups spent much of their time and effort compiling, printing and distributing detailed directories of wants and offers. Even then, though, it was the metadata that was the crucial determinant of success and failure. Groups with directories of long lists failed. Directories with meaningfully classified tables of content in the front and indexes at the back succeeded.
Nowadays, all the physical stuff can be done in a MySQL database with a hypertext pre-processor front end. Indeed, the ability to provide faceted classification and tagging makes for a vastly richer directory than a paper version could afford, which can be updated by users on a daily basis. However, the advances in what the technology can do make the design of the categories and tags, which the users will actually use, even more important. It’s not new: retailers and supermarkets are doing it all the time with their store layouts and it is a key factor in their success. But it needs to be done, preferably by people who know what they are doing.
The final design factor to be considered is the social glue that holds the trading system together. Back in the LETS days, this part of the process was also very hard work – organising trading events, entertainment and parties, so people could meet and converse. If the social effort was not made, the group would quickly become moribund.
New opportunities to play for
This time around, in the age of the global social web, incorporating the social glue of conversation into the design of a private currency system should be much, much easier and less time consuming, as well as being virtually free.
The strange thing is that the culture of the social web is already primed for benefiting from private currencies. It is already a culture of sharing, giving, helping and collaborating, which seems uncomfortable with the old notions of profit and mass marketing. It is a culture that understands that accumulating knowledge and relationships is not about quantity; it’s about the quality of learning and engagement.
Social currency combined with serious games working through the web could transform the nature of trading. As the current debt and interest driven currency system, the need for a different ways of trading and rewarding has never been greater.
The next article will be about what knowledge games using social currencies over the web would look like and what their significance might be.
Jan Wyllie is the founder of Open Intelligence and author of Taxonomies: Frameworks for Corporate Knowledge. He can be contacted at firstname.lastname@example.org