This Explains Everything

by Mr. John Brockman

THE ORIGIN OF MONEY

  DYLAN EVANS

  Founder and CEO of Projection Point; author, Risk Intelligence: How to Live with Uncertainty

  Carl Menger’s account of the origin of money is my favorite scientific explanation. It’s deeply satisfying because it shows how money can develop from barter without anyone consciously inventing it. As such, it’s a great example of Adam Smith’s Invisible Hand, or what scientists now call “emergence.”

  Menger (1840–1921) founded the Austrian school of economics, a heterodox school of thought derided by many mainstream economists. Yet their accounts of the origin of money beg the very question Menger answered. The typical mainstream-economics textbook lists the problems of barter exchange and then explains how money overcomes these problems. However, that doesn’t really explain how money actually got started, any more than listing the advantages of air travel explains how airplanes were invented. As Lawrence White puts it in The Theory of Monetary Institutions (1999), “[O]ne is left with the impression that barterers, one morning, suddenly became alert to the benefits of monetary exchange, and, by that afternoon, were busy using some good as money.”

  That, of course, is ridiculous. In Menger’s account, money emerges through a series of small steps, each of which is based on self-interested choices by individual traders with limited knowledge. First, individual barterers realize that when direct exchange is difficult, they can get what they want by indirect exchange. Rather than finding someone who both has what I want and wants what I have, I need only find someone who wants what I have. I can then trade what I have for his good, even though I don’t want to consume it myself, and then trade that for something I do want to consume. In that case, I will have used the intermediate good as a medium of exchange.

  Menger notes that not all goods are equally marketable; some goods are easier to trade than others. It therefore pays a trader to accumulate an inventory of highly marketable items for use as media of exchange. Other alert traders in the market catch on, and eventually the market converges on a single common medium of exchange. This is money.

  Menger’s theory shows not only how money can evolve without any conscious plan, but also that it doesn’t depend on legal decrees or central banks. Yet this, too, is often overlooked by mainstream economists. Take Michael Woodford, for example. Woodford is one of the most influential academic monetary economists alive today, yet in his 2003 book Interest and Prices: Foundations of a Theory of Monetary Policy, a central bank somehow becomes part of the economy within less than a page after the initial assumptions are introduced. Woodford does not even pause for a page to consider what a banking system would look like without a central bank. Yet free banking has a long history; the first such system began in China in about a.d. 995, more than 600 years before the first central bank.

  Can we account for the emergence of central banking by the same Invisible Hand–type of explanation Menger proposed for money? The answer depends, according to Lawrence White, on just what we mean by the term “central banking.” If government sponsorship is among the defining features of a central bank, then the answer is no. The emergence of central banks cannot be accounted for entirely by market forces; at some point, deliberate state action must enter the story. The government’s motives for getting involved aren’t hard to imagine. For one thing, an exclusive supply of banknotes gives the government a source of monopoly profits in the form of a zero-interest loan from the public’s holding of these non-interest-bearing notes.

  In these troubled times, when central banks are expanding the stock of high-powered money through massive quantitative easing, Menger’s theory is more relevant than ever. It alerts us to the possibility that the response to the current crisis in the euro zone need not be ever more centralization but could instead consist of a move in the opposite direction—toward a regime in which any bank is free to issue its own banknotes, and market forces, not central banks, control the money supply.

  THE PRECESSION OF THE SIMULACRA

  DOUGLAS RUSHKOFF

  Media analyst; documentary writer; author, Life Inc: How Corporatism Conquered the World, and How We Can Take It Back

  Having discovered much too late in life that the many things I had taken for granted as preexisting conditions of the universe were, in fact, creations and ideas of people, I found French sociologist and philosopher Jean Baudrillard’s “precession of the simulacra” to be an immensely valuable way of understanding just how disconnected from anything to do with reality we can become.

  The main idea is that there’s the real world, there’s the maps we use to describe that world, and then there’s all this other activity that occurs on the map—sometimes with little regard for the territory it’s supposed to represent. There’s the real world, there’s the representation of the world, and there’s the mistaking of this simulation for reality.

  This idea came back into vogue when virtual reality was hitting the scene. Writers evoked Baudrillard as if we needed to be warned about escaping into our virtual worlds and leaving the brick-and-mortar, flesh-and-blood one behind. But I never saw computer simulations as so very dangerous. If anything, the obvious fakeness of computer simulations—from arcade games to Facebook—not only kept us aware of their simulated nature but called into question the reality of everything else.

  So there’s the land—this real stuff we walk around on. Then there’s territory—the maps and lines we use to define the land. But then there are wars fought over where those map lines are drawn.

  The levels can keep building on one another, bringing people to further abstractions and disconnection from the real world. Land becomes territory; territory then becomes property that is owned. Property itself can be represented by a deed, and the deed can be mortgaged. The mortgage is itself an investment that can be bet against with a derivative, which can be secured with a credit default swap.

  The computer algorithm trading credit default swaps (as well as the programmers trying to follow that algorithm’s actions in order to devise competing algorithms)—this level of interaction is real. And financially speaking, it has more influence over who gets to live in your house than almost any other factor. A credit-default-swap crisis can bankrupt a nation as big as the United States without changing anything about the real land it refers to.

  Or take money: There’s the thing of value—the labor, the chicken, the shoe. Then there’s the thing we use to represent that value—say, gold, grain receipts, or gold certificates. But once we’re accustomed to using those receipts and notes as the equivalent of a thing with value, we can go one step further: the federal reserve note, or “fiat” currency, which has no connection to gold, grain, or the labor, the chickens, the shoes. Three main steps: There’s value, the representation of value, and then the disconnection from what has value.

  But that last disconnection is the important one—the sad one, in many respects. Because that’s the moment we forget where things came from—when we forget what they represent. The simulation is put forth as reality. The invented landscape is naturalized and then mistaken for nature.

  And that is when we become particularly vulnerable to illusion, abuse, and fantasy. Because once we’re living in a world of created symbols and simulations, whoever has control of the map has control of our reality.

  TIME PERSPECTIVE THEORY

  PHILIP ZIMBARDO

  Professor emeritus of psychology, Stanford University; author, The Lucifer Effect: Understanding How Good People Turn Evil

  I am here to tell you that the most powerful influence on our every decision that can lead to significant action outcomes is something most of us are totally unaware of and yet is the most obvious psychological concept imaginable.

  I’m talking about our sense of psychological time—more specifically, how our decisions are framed by the time zones we have learned to prefer and tend to overuse. We all live in multiple time zones, learned from childhood, shaped by education, culture, social class, and experiences with economic and
family stability or instability. Most of us develop a biased temporal orientation that favors one time frame over others, becoming excessively oriented to past, present, or future.

  Thus, at decision time for major or minor judgments, some of us are totally influenced by factors in the immediate situation: what others are doing, saying, urging, and one’s own biological urges. Others facing the same decision matrix ignore all those present qualities, focusing instead on the past: the similarities between current and prior settings, remembering what was done and its effects. A third set of decision makers ignores the present and the past and focuses primarily on the future consequences of current actions, calculating costs vs. gains.

  To complicate matters, there are subdomains of each of these primary time zones. Some past-oriented people tend to focus on negatives in their earlier experiences (regret, failure, abuse, trauma), while others are primarily past-positive, focusing instead on the good old days, nostalgia, gratitude, and successes. There are two ways to be present-oriented: to live in a present-hedonistic domain (seeking pleasure, novelty, sensation) or being present-fatalistic, believing nothing you do can change your future. Future-oriented people are goal setters, who plan strategies, which tend to be successful; but another future focus is on the transcendental future—life begins after death of the mortal body.

  My interest in time-perspective theory inspired me to create an inventory so as to determine exactly the extent to which we fit into each of these six time zones. The Zimbardo Time Perspective Inventory, or ZTPI, correlates scores on these time dimensions with a host of other psychological traits and behaviors. We have demonstrated that time perspective has a major effect in a vast domain of human nature. In fact, some of the relationships uncovered reveal correlation coefficients much greater than any seen in traditional personality assessments. For example, future orientation correlates .70 with the trait of conscientiousness, which in turn predicts longevity. Present hedonism correlates .70 with sensation-seeking and novelty-seeking. Those high on past-negative are most likely to be high on measures of anxiety, depression, and anger, with correlations as robust as .75. Similarly substantial correlations are uncovered between present fatalism and these measures of personal distress. I should add that this confirmatory factor analysis was conducted on a sample of functioning college students, thus such effects should be cause for alarm by counselors. Beyond mere correlations of scale measures, the ZTPI scales predict a wide range of behaviors: course grades, risk-taking, alcohol, drug use and abuse, environmental conservation, medical checkups, creativity, problem solving, and much more.

  Finally, one of the most surprising discoveries is the application of time-perspective theory to time therapy in “curing” PTSD in veterans, sexually abused women, or people suffering from motor-vehicle fatality experiences. Drs. Richard and Rosemary Sword have been treating with remarkably positive outcomes a number of veterans from recent U.S. wars and also civilian clients. The core of the treatment replaces the past-negative and present-fatalistic biased time zones common to those suffering from PTSD with a balanced time perspective that highlights the critical role of the hope-filled future, adds some selected present hedonism, and introduces memories of a past-positive nature. In a sample of thirty PTSD vets of varying ages and ethnicities treated with time perspective therapy for relatively few sessions (compared to traditional cognitive behavioral therapies), dramatic positive changes were found for all PTSD standard assessments, as well as in life-changing social and professional relationships. It is rewarding to see many of our veterans, who have continued to suffer for decades from their combat-related severe traumas, discover a new life rich with opportunities, friends, family, fun, and work by being exposed to this simple, elegant reframing of their mental orientation.

  DEVELOPMENTAL TIMING EXPLAINS THE WOES OF ADOLESCENCE

  ALISON GOPNIK

  Professor of psychology and affiliate professor of philosophy at the University of California–Berkeley; author, The Philosophical Baby

  “What was he thinking?” This is the familiar bewildered cry of parents trying to explain why their teenaged children act the way they do. Developmental psychologists, neuroscientists, and clinicians have an interesting and elegant explanation for teenage weirdness. It applies to a wide range of adolescent behavior, from the surprisingly admirable to the mildly annoying to the downright pathological. The idea is that there are two different neural and functional systems that interact to turn children into adults. The developmental relationship between those two systems has changed, and that, in turn, has profoundly changed adolescence.

  First, there is a motivational and emotional system that’s very closely linked to the biological and chemical changes of puberty. This is what turns placid ten-year-olds, safe in the protected immaturity of childhood, into restless, exuberant, emotionally intense teenagers, desperate to attain every goal, fulfill every desire, and experience every sensation. And for adolescents, the most important goal of all is to get the respect of your peers. Recent studies show that adolescents aren’t reckless because they underestimate risks but because they overestimate rewards, especially social rewards—or, rather, that they find rewards more rewarding than adults do. Think about the incomparable intensity of first love, the never-to-be-recaptured glory of the high-school basketball championship. In youth you want things, and then in middle age you want to want them.

  The second system is a control system that can channel and harness all that seething energy. The prefrontal cortex reaches out to guide and control other parts of the brain. This is the system that inhibits impulses and guides decision making. This control system depends much more on learning than does the motivational system. You get to make better decisions by making not-so-good decisions and then correcting them. You get to be a good planner by making plans, implementing them, and seeing the results again and again. Expertise comes with experience.

  In the distant evolutionary past—in fact, even in the recent historical past—these two systems were in sync. Most childhood education involved formal and informal apprenticeships. Children had lots of chances to practice exactly the skills they would need to accomplish their goals as adults and so to become expert planners and actors. To become a good gatherer or hunter, cook or caregiver, you would actually practice gathering, hunting, cooking, and taking care of children all through middle childhood and early adolescence—tuning up just the prefrontal wiring you’d need as an adult. But you’d do all that under expert adult supervision and in the protected world of childhood, where the impact of your inevitable failures would be blunted. When the motivational juice of puberty kicked in, you’d be ready to go after the real rewards with new intensity and exuberance, but you’d also have the skill and control to do it effectively and reasonably safely.

  In contemporary life, though, the relationship between these two systems has changed. For reasons that are somewhat mysterious but most likely biological, puberty is kicking in at an earlier and earlier age. (The leading theory points to changes in energy balance as children eat more and move less.) The motivational system kicks in with it.

  At the same time, contemporary children have very little experience with the kinds of tasks they’ll have to perform as grown-ups. Children have less and less chance even to practice such basic skills as cooking and caregiving. In fact, contemporary adolescents and pre-adolescents often don’t do much of anything except go to school. The experience of trying to achieve a real goal in real time in the real world is increasingly delayed, and the development of the control system depends on just those experiences. The developmental psychologist Ron Dahl has a nice metaphor for the result: Adolescents develop a gas pedal and accelerator a long time before they get steering and brakes.

  This doesn’t mean that adolescents are stupider than they used to be; in many ways, they’re much smarter. In fact, there’s some evidence that delayed frontal development is correlated with higher IQ. The increasing emphasis on schooling means that children know
more about more subjects than they ever did in the days of apprenticeships. Becoming a really expert cook doesn’t tell you about the evolution of tool use or the composition of sodium chloride—the sorts of things you learn in school. But there are different ways of being smart; knowing history and chemistry is no help with a soufflé. Wide-ranging, flexible, and broad-based learning may hinder the development of finely honed, controlled, focused expertise in a particular skill.

  Of course, the old have always complained about the young. But this explanation does elegantly account for the paradoxes and problems of our particular crop of adolescents. There do seem to be many young adults who are enormously smart and knowledgeable but directionless, who are enthusiastic and exuberant but unable to commit to a particular work or a particular love until well into their twenties or thirties. And there is the graver case of children faced with the uncompromising reality of the drive for sex, power, and respect, without the expertise and impulse control it takes to ward off pregnancy or violence.

  I like this explanation because it accounts for so many puzzling everyday phenomena. But I also like it because it emphasizes two important facts about minds and brains that are often overlooked. First, there’s the fact that experience shapes the brain. It’s truer to say that our experience of controlling our impulses makes the prefrontal cortex develop than it is to say that prefrontal development makes us better at controlling our impulses.

  Second, it’s increasingly apparent that development plays a crucial role in explaining human nature. The old evolutionary psychology picture was that a small set of genes—a “module”—was directly responsible for some particular pattern of adult behavior. But there’s more and more evidence that genes are just the first step in complex developmental sequences, cascades of interactions between organism and environment, and that those developmental processes shape the adult brain. Even small changes in developmental timing can lead to big changes in who we become.