The Ghost of the DCW Haunts us

David Flynn writes:

Let's consider some other costs or constraints imposed by a barter system.
Barter relies on a double coincidence of wants. For an exchange to occur, you must have the goods I want, and I must have the goods you want.
If I have lemons and want apples, but the only person that wants lemons has wheat, well, I am just out of luck. I am not going to trade with someone for a good I do not want. People tend to be picky about this kind of thing. People are also smart. They recognize this is a risk, that nobody will want to trade with them or they will not be interested in available trades.

This got me thinking about the ubiquity of the double coincidence of wants. Much of one's life is governed by this concept. For example, having a conversation with a friend or going on a date with your love interest. Although it is classically associated with a perfect barter of goods and/or services, the model can be applied more broadly by relaxing that assumption because, in idea space, goods (ideas) are non-excludable. Also, as an intellectual endeavor, it is worth thinking through this concept's implications in the present day.

Double coincidence of wants applies to barter because it is riddled with high transactions cost. To trade any good, person A has to want the good person B has and have the good person B wants. Insert notions like quantity and unit of exchange, and you quickly understand why commodity money came to dominate, and consequently, fiat money. In idea and relationship space, compromise is commodity money. Where the intrinsic value of the compromise is a part of your worldview. This means when a person is persuaded or pressured into performing an act, the trade is lubricated through their compromise. Think about this the next time you're pressured into going to that gathering you don't want to attend. This observation is not to diminish the importance of compromise. On the contrary, it is a call to perform the cost-benefit analysis!

More pressing are studies like this, and this, and this, and every other variation (headlines will suffice) of this phenomenon. Why is this the case? I opine that it is a failure mode of the double coincidence of wants; a failure mode that arises from the race to personalization, i.e., personalized feeds, personalized ads, and every personalized X for all X. Thus, when almost all your needs are provided virtually, or your wants are hacked through mindless scrolling what use is the double coincidence of wants, or compromise?

Because the double coincidence of wants is usually an unlikely happenstance, and compromise can be expensive, we need to find the money. Universities used to (and some still do) provide good models for this. Books help(ed) in this regard. Sports teams and tight-knit communities also have this problem figured out. Thus, I challenge you to find the type of money scales.

The problem with finding money that scales is that it implies a central force controlling the supply of said money, a fiat currency (in idea space) of some form. To a certain degree, this is true. But for fiat money to be accepted, everyone has to believe it has value. For every currency, there's a bitcoin, and for every finance, there's a decentralized one.

Certainty rating: 60%


Recent Posts

See All