Financial infrastructure

Hopefully at this point I have made a fair case that people will do jobs, and people will do the right sort of jobs to direct resources towards the things that make a healthy economy: satisfying people's genuine needs without too much waste. Another part of economic calculation is the ability for businesses and consumers to make rational decisions about what goods to acquire. This is associated, at least in part, with the idea that in an exchange economy prices will clearly signal which resources are most beneficial to use at the time due to supply and demand considerations. For example, if a fork manufacturer is looking to make their forks out of one of a variety of useful metals, which one should they obtain? Well, in an exchange economy one clear signal they can use is price: the cheapest (appropriate) metal is likely in highest supply and/or lowest demand, meaning that it would be socially beneficial to use that metal over the alternatives because there is a sufficient amount available to use that isn't being taken away from some other high-demand production. Can a non-reciprocal gifting economy perform as well?

Once again, I think the answer is yes. But to do so, I want to introduce another concept, which is the type of financial infrastructure that a non-reciprocal gifting economy could use, which I call "giftmoots".

Financial infrastructure is not strictly necessary for exchange or gift-giving to take place. Two people can conduct an exchange with just each other by negotiating with each other and then transferring the agreed-upon resources. Similarly, two people can agree to a non-reciprocal gift if one requests and one offers. But financial infrastructure is what allows information to aggregate, which allows lots of people to get the information that they need all across the network of the economy.

Banks

The most obvious infrastructure in an exchange economy is the bank. Banks are where money can be stored and retrieved. Banks can transfer money from account to account. These two things allow people to engage in transactions without having to lug bags of money around, which is very convenient in the modern world, and speeds up a lot of economic activity.

Banks also issue loans. They provide credit for tansactions, which helps keep the system liquid. If someone wants to make a big purchase, or a purchase before their pay comes in, a bank can issue credit so that the transaction can take place - and without this, the number of transactions and the amount of economic activity would dwindle. Banks give out loans to businesses, allowing them to expand and increase productivity, to make innovations, and so on. Banks provide a way for capital investment to occur so that money doesn't sit idle. Exchange economies need transactions to be happening all the time - it's one of the reasons that economic health is sometimes measured in GDP, and it's one of reasons that exchange economies can enter a crisis or downturn without any sudden loss of real resources. The lack of exchanges happening in an exchange economy can cause activity to slow. So while banks and loans are not completely necessary for exchanges to occur, they are essential for exchanges to occur at scale, and they have a long history.

Banks also make money. There are a variety of ways that this has been done throughout history. One way is that banks store some valuable asset (such as gold or grain) and issue a receipt for it in a unit of account, and people can trade the reciepts more easily than they can trade the asset. Another way is that banks use "fractional reserve banking", where they issue money for loans based on their deposits, but still guarantee those deposits, effectively letting the money exist in two places at once. Nowadays, banks simply issue new money based on their capital reserves, on the premise that they'll get in trouble if they lend out too much and can't balance their books.

So, in an exchange economy banks play a vital role in letting the economy work at scale by facilitating transactions, preventing money from being idle, and using loans and money creation to increase liquidity and keep the exchanges happening in an exchange economy.

Governments

The second major type of financial infrastructure is the government. The government plays an enormous role in the way that transactions and money can work. It collects taxes, taking money out of the market, and spends on projects and welfare, putting money back into the market. It sells bonds, it regulates markets, it creates central banks that set the interest rates, and so on.

The most central thing that a government does in most states, however, is determine what constitutes the currency, which it prints, overseas, regulates and sets as the acceptable method of paying tax. The entire monetary ecosystem of a country is determined by the government, and it wields enormous direct and indirect influence over how much money is in the system, how fast it can circulate, how easy it is to obtain, and in some states how much it can be traded for foreign currencies.

The government has a huge interest in the legitimacy and stability of currency, and the liquidity of the market, because when these things fail, widespread exchange fails and markets start to collapse.

Money

But even in an exchange economy without banks and without governments, widespread exchange (such as it may be) is usually best facilitated by money. Money itself is critical infrastructure for the exchange, and it works best when there is some agreement as to what constitutes money, how things are valued in terms of money, and how recognisable and trustworthy it is. Governments have traditionally taken the role of defining and ensuring these things, and sometimes banks, but money can exist and function without them.

From the functions of money - the unit of account, the store of value, the medium of exchange - come prices. Prices are what the supporters of the economic calculation argument claim allow people to aggregate their individual rational decisions into a meaningful market that conveys significant information that facilitates the next wave of rational decision-making. Money is the fundamental aggregative infrastructure for the exchange economy, and while I've put forward some arguments that a non-reciprocal gifting economy would have success in solving economic calculation problems (where they are not overstated), a non-reciprocal gifting economy would work best if there is also an aggregating infrastructure. But given that a non-reciprocal gifting economy would not have money, it needs some alternative infrastructure to do the job.

So a non-reciprocal gifting economy needs at least one more ingredient - some sort of financial infrastructure that can aggregate information. In the next few articles I'll introduce this infrastructure, the giftmoot, and explain what role it plays in aggregation, investment, distribution, equilibrium, and more.