Thoughts on Modes of Exchange

by Roger Bourke White Jr., copyright February 2012


Thanks to an MIT alum friend on Facebook, I just ran into an interesting essay relating to this topic of modes of exchange. It's a Cultural Conversation article in the 27 Jan 12 WSJ, The New Theories of Moral Sentiments by Dalibor Rohac, in which he interviews Deirdre McCloskey, an economic historian with a colorful career that includes appointments at the University of Chicago and the Institute of Advanced Studies at Princeton, and a sex change.

"Ms. McCloskey sees a problem in the way that economic models are dominated by a strange, sociopathic character—"Max U" as she calls him, referring to the standard economic problem of maximizing utility subject to various constraints. Her own scholarly work has become increasingly focused on bringing love, hope, faith, courage and other virtues back into economics."

In this article McCloskey argues that all these other human emotions have impact on economics as well.

Which relates to modes of exchange since economics is all about humans exchanging things.

Exchange and Emotion

Humans trade for mutual benefit. But this cooperative trading is in constant conflict with the temptation to "defect" on a transaction rather than "cooperate". The mathematical description of this conflict in choices is called the Prisoners Dilemma and was first formalized by John von Neumann as part of game theory in the late 1940's. In Prisoners Dilemma jargon the participants in an exchange can either "cooperate" and do what they promised, or "defect" which is cheating on the deal in one fashion or another.

Who to cooperate with, and when, is a choice that predates humanity. Plants and animals that symbiote with each other in mutually beneficial ways are cooperating and that is called a mutualistic relation. Those that take advantage of their partner are parasiting.

Interspecies cooperation happens in thousands of ways. It's something that Mother Nature, Design Engineer (my anthropomorphization of evolution) is constantly experimenting with. Likewise, human-human exchanges come in enormous varieties, and part of civilization's advancement is coming up with even more ways to cooperate, which is what exchanging is all about.

The choices of how to exchange have both logic and emotion built into them. The logic side says, "Hey, we have a new tool, let's use it to do exchanges in a new way." The emotion side adds "gut feeling" to whether this new idea is a good one, or not. Exchanges have been going on long enough in human history that lots of instinctive thinking gets involved. Because of this the community gets involved in lots of exchange choices. This involvement shows up as both moral and legal intervention in how people can exchange.

Even when both sides are cooperating there are good ways and bad ways to exchange from the community viewpoint. An example of a sometimes socially disapproved of way of exchanging is loan sharking -- making a loan that will last for a just a few days until the next paycheck comes around. It may be frowned upon, but when I was in the Army I sure had a lot of fellow soldiers asking, "Can you loan me ten dollars today? I'll pay you back fifteen on payday."

How to exchange is sensitive to technology. One of hundreds of examples of this is how we humans started with barter, moved to coin money, then paper money, then credit cards, and now mobile accounts. Because exchanging is so sensitive to technology, and technology has been changing more and more rapidly for humanity since the Agricultural Age began, this is an area subject to constant emotion-charged controversy in every post-Stone Age culture. A famous early example of emotion and exchange technology mixing explosively is Jesus throwing the money changers out of the temple. A recent example is the Dodd-Frank Consumer Protection Act of 2010.


Modes of exchange are an area of human activity that changes a lot as civilization advances. But the activity is so old that there's lots of brain hardwiring involved too -- instinctive thinking. Because of this mix the choices of how to do "good and fair" exchanges is constantly being tested, and the answers depend as much on emotion and cultural history as they do on logic.


--The End--