BCE Part 2: Why new-wealth created upends the social fabric

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 The primary goal of social structures: Wealth sharing!

  • Agri-economy created the Kings, Churches based on myths
  • Industrial evolution – demonetized labor
  • Money becomes an independent entity – we learn to borrow from future
  • Internet – demonetization of knowledge
  • Enter Blockchain Economy

BCE has all the potential to obliterate the current social and political world order. We must look at how wealth drives social structures to comprehend this profound implication, even though it appears the other way around.

Primary goal of social structures: Wealth sharing!

If you carefully look underneath, the very purpose of our social norms is to facilitate wealth sharing. At worse, they also are cooked-up justifications that few rich feed to the majority masses that always get a raw deal. The sense of right or wrong, jurisprudence, who and what can be taken from whom, sharing of work burden et al., or even Gods, aren’t they like tools of mass manipulations? 

If you see the history of how each wave of wealth creation changed our social fabric, interesting patterns emerge. 

  •  First, an invention reduces the cost of economic enablers, leading to more production and creating new wealth exponentially. 
  • New structures/constructs to generate value come into existence. Interestingly they become feasible only at these lower cost levels. 
  • This new wealth creates new classes of people benefiting and getting wealthy. 
  • The new wealth needs to be shared with more people; this necessitates upgrading market makers. Market makers are those who facilitate Trust required to carry out value exchanges. 
  • Social structures now need to adapt to new wealth. Not the governing systems, but in more general what is ‘socially-in’. The nouveau riche and reformed market makers start demanding their share. Mind you; haves always control have-nots! New social norms emerge, often initially upsetting the existing ruling class greatly. Not usually without some bloodshed or revolutions. 

Agri-economy created the Kings, Churches based on myths

Look at what agriculture did as an invention creating the first wave of wealth. It enabled commodity surplus, unlike earlier hunter-gatherer economies that didn’t hoard anything beyond daily needs, except bartering skins, souvenirs, or hunting tools. This barter economy couldn’t handle the commodity surplus; hence money as a store value was invented, facilitating trading beyond agri-communities. 

This set-up required a significant jump of faith; you needed to trust people outside your community to set the value on the monetary constructs (how about large stone rings as money?) and then trust them to honor those value commitments. 

We developed Kings and Priests as trust facilitators. This set-up effectively was the demonetization of mutual Trust. How so? You didn’t have to know the person, but you needed to know if the other party believes in mutual King, God, or morality. Most of these were myths; early Kings seriously thought they were Gods and were part of perpetuated myth as custodians of social order. 

This wave lasted up to recently, until the 1800s. The wealth fueled the growth of cognitive reasoning. We are still significantly influenced by philosophy, reasoning, and other social thinking from this era. At this stage, the value was still tied to labor in the physical form driving agriculture.

Industrial evolution – demonetized labor

Then we invented the steam engine, which began the industrial revolution. Look at the massive 2nd wave of wealth creation during industrialization and after, created as a result of demonetized/reduced cost of labor providing an alternative to physical labor. 

Industrialization created many economies of scale that didn’t exist before. A new working middle class was born. Supporting social structures needed to change; kings and priests couldn’t handle this explosion of wealth; they had massive costs just being maintained. We needed collective wisdom and a larger vision of the now complex economy. After Great Depression and two world wars, corporates took hold as mechanisms to create and transact wealth. In the process, modern-day governments took shape. Of course, some experiments like Communism failed.

How did social ethos change? If you look at the period from the early 19th century to 1990, individualism flourished, and strict agrarian hierarchical norms were no longer relevant in urbanized living. Hoarding physical labor lost relevance, and hence slavery lost its hold. New world America flourished without the baggage of legacy social structure. Bureaucrats, politicians, bankers, corporate moguls emerged as a new class replacing kings and priests.

Capitalism and Communism were both novel experiments, resulting from demanding middle class to be included in power play. Capitalism won over in a prolonged tussle of ideologies during cold-war. Actually, not long but in a blink, considering how long it took to establish an agricultural framework earlier. 

Money becomes independent entity – we learn to borrow from future

Petro-dollars, a proxy for new-found energy sources, changed the money concept. Money got unshackled from physical assets like gold. This created temporary instability as the demand and supply balance of money and backing assets was disturbed. How do you make sense of printing money? Our deficit funding is borrowing from future generations. Interestingly this was also the period when our wealth transcended time; we could monetize our children’s earnings now, look at all pay-as-you-go social benefits built up in America from defined benefit retirement schemes.

This rising wealth spurred the explosion of cognitive thinking. Machines enabled us to think beyond our bodily limits; we started living longer, achieved by conquering famine and discovering antibiotics. We began to look deeper and longer, both at microscopic and macroscopic levels. We could now formulate the world as mathematical constructs. We no longer needed myths in the light of rational experiments that anyone with sufficient effort could repeat. No wonder when we look back, there are pantheons of Gods being forgotten and banished from relevance. 

Internet – demonetization of knowledge

Our life at this stage around the year 1990 was a significant turning point. We had almost run out of steam from industrialization; we probably would have collapsed if we continued in this state. Many scholars proposed we achieved all that humans can do. 

Enter 3rd wave! Internet!!! What could possibly be reinvented? Knowledge. Internet demonetized knowledge — big time.

Think of bankers, accountants, actuaries, engineers, managing directors and board members, scientists. Before the internet, ilk of these were custodians of wealth; hoarding knowledge was like accumulating wealth. Internet bubble burst once in 2000, but more by mishandling the market structures. Notice how many ideas humbled in the crash didn’t die. Instead, they became more resilient, look at FANG (Facebook, Amazon, Netflix, Google) and Microsoft combined value created. New wealth is based on now-free knowledge (information) access.

Now, we haven’t yet been socially acclimatized to this new wealth. Look at all those hordes of IT geeks relentlessly coding away blissfully, disconnected from nature and living in the digital world! The new rich are beginning to demand their place in the running economy. Social and political norms are falling away; one no more can hide from the constant onslaught of information. While market makers/traditional mediators are disruptively adapting, governments and ruling political and religious entities are not. It’s not in their genes to adapt; trying to cling to now-doubtfully-relevant socio-political norms could make their fall even harder.

The 2008 credit crisis is the only symptom of a deeper tectonic rumbling in the wealth space. The derivatives that precipitated the crisis are more like dotcom ideas that went bust. Bound to come back more resilient. You can’t un-invent an invention. But how do our Governments respond? By printing trillions of dollars! And probably regressive regulations, underestimating deeper drivers of change. The liquidity glut might lead to an even deeper recession unless there is the next wave of value creation.

Enter Blockchain Economy

Fortunately, we seem to have conditions ripe for the next wave of value creation, BCE. Beyond the scales of anything we have witnessed, massive wealth creation is in its early swell now. Blockchain is something more fundamental than Bitcoin, or set of computers talking to each other to keep the identical copy of records each. 

This BCE is set to upset the prevalent wealth -> Trust -> social structure linkages. Sooner than you can blink!!

The BCE idea so amazingly fits into this jigsaw of economy-social governance-our societal ethos, provides exciting future possibilities. I will be exploring in more detail in the final part of this blog series. 

I look forward for your comments!!!

I currently work full-time at Swiss Re, Bengaluru. The blogs and articles on this website www.balajos.com are the personal posts of myself, Balachandra Joshi, and only contain my personal views, thoughts, and opinions. It is not endorsed by Swiss Re (or any of my formal employers), nor does it constitute any official communication of Swiss Re.