Saturday, December 21, 2013

Lab Notebook: Why money technology works

5 goats = 1 cow
12 eggs = 4 loafs of bread
1 gun = 2 horses
1 goat = 20 loafs of bread
1 horse = 3 goats

All these barter equations carry enormous amount of information about goods involved in the exchange and rules to calculate their "aboutness," including expectations about the future (weather, hunger, wisdom of the ruling king, etc.) The more goods, services, and experiences (GSE) are available, the more information is necessary to make calculations and decisions whether to transfer the GSEs into one's future.
When instead of the barter equations we use money, we compress huge amounts of GSE aboutness into a single number. That is, from an innovation perspective, money and markets are compression mechanisms. The compress payloads, so that we can increase the GSE space exponentially.

Thousands years ago, Spartans used heavy metal bars to represent value. You couldn't carry it; only mark up one's ownership of a "slice" of iron.
Today, we use hard drives of financial institutions to accomplish the same task. Except, using computer technology and market mechanisms, we managed to compress our expectations about the past, present, and future of a myriad of GSEs in a bunch of zeros and ones.

5 goats = 0000010000
12 eggs = 0000001010
1 gun = 0001010010

The amazing aspect of this mechanism is that money and markets allow us to decompress a single number into all kinds of GSEs - pure magic.
tags: invention, innovation, money, technology, book, tool, control, deontic, payload, aboutness

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