Monday, May 20, 2019

Getting rid of Debt: How About Replacing Money with Social Credit?

Mark Twain had a genial idea with his story "The One Million Pound Bank Note" published in 1853. It was such a huge amount of money that it couldn't be exchanged, yet it gave its owner all sorts of perks and goods. It was, in a certain way, an anticipation of what we call today the "social credit score" obtained on the various social media services on the Web. It is a form of money that can be owned, but cannot be exchanged -- in most cases, you can't even go negative with your social credit. So, no debt, no bankruptcy. Would it be possible to build a financial system based on this concept? Not easy, but also an idea being examined nowadays, especially in China with their state-owned social credit system (shèhuì xìnyòng tǐxì). The text below is derived from the chapter on financial collapses of my new book "The Seneca Strategy," to be published in later 2019.

The whole problem of financial collapses is the result of the existence of money. But what is money exactly? Without going into the various theories of money that economists are still discussing, we can say that once, money was something that everybody agreed on: a weight of precious metals. After all, the British currency is still defined in units of weight, even though one pound (in monetary terms) does not weigh a pound (in physical terms). Still, up to not too long ago, money was simply a token representing a physical entity, typically a certain weight of gold and silver. But things changed a lot with time and, with the 20th century, the convertibility of the dollar into precious metals was more theoretical than real. In 1971 president Nixon formally canceled it. From then on, money has been a purely virtual entity created by central banks out of thin air. How people accept to be paid for their work by something that doesn’t exist is a little strange, if you think about that. But that doesn’t change the fact that money is the backbone of society: it is exchanged, lent, borrowed, distributed, spent, and more. And, with money, there comes debt, and with debt there comes insolvency and, with it, bankruptcy.

Could we think of going a step beyond the institution of bankruptcy laws and imagine a financial system where people can’t go bankrupt? This is an idea that floats nowadays in the world’s global consciousness. Perhaps the first proposal in this sense was made by Cory Doctorow in 2003 (during the pre-Facebook age) in his novel “Down and Out in the Magic Kingdom” where he proposed a kind of “merit money,” called “Whuffie,” that people could accumulate on the good deeds that they performed. This money was a form of credit, but it couldn’t be spent – it just produced perks and advantages for its owner. It was something that pre-figured the “credit score” that Facebook and other social media would later develop. Maybe Doctorow was inspired by Mark Twain’s story "The Million Pound Bank Note" (1903), where the protagonist finds that the mere possession of this banknote of enormous value entitles him with honors and goods, without the need of exchanging it. But Doctorow may have been thinking of the concept of personal honor, fashionable in less monetized times than ours. As an honorable man you were entitled to some privileges, but enjoying them didn’t mean that your honor would be reduced as a consequence.

Later on, the concept of on-line credit score was developed by social media sites such as Facebook, taking the Web by storm starting in 2004. It had been preceded by what was perhaps the first modern social media system, “Friendster” which appeared in 2002 and went bust in 2015. The variety of these sites is large today and most of them use some kind of “credit scoring” for their users. In Facebook, there is no such a thing as a negative scoring, but the possibility of rating users down exists in other social media, for instance in Reddit, where your “karma points” can go negative if you happen to utter an especially ill-thought comment.

The idea of using the social media on the Web as a form of money was proposed perhaps for the first time by Solitaire Townsend in 2013. The Chinese government seems to have taken the idea seriously and they are implementing a statewide system of social credit (shèhuì xìnyòng tǐxì) that's supposed to “grade” Chinese citizens on a merit score. You get positive points for being a good citizen: helping an old lady crossing the street will bring you points from the lady and from the people who witnessed the good deed you performed. You get negative points when you do something bad, like getting a traffic ticket or just a bad report from someone who felt hurt by something you did.

The Chinese social credit system can be seen as a form of money, in the sense that it is based on the yin-yang opposition of debt and credit. Having a sufficiently high social credit score is a prerequisite for being able to purchase certain things which, in the West, are not for everybody anyway, plane tickets for instance. Something similar had been developed in earlier times in the Soviet Union, where the members of the Soviet Communist Party were considered as having a higher “credit score” than the others and they enjoyed non-monetary perks and services that were denied to the normal Soviet citizens. It was the “nomenklatura” system, not so much different from what we call the “establishment” in the West.

The idea of a universal social credit score is being experimented in various forms, but in the West, it is regarded with suspicion, at the very least considered as an invasion of people’s privacy and the denial of personal freedom. There exists a site called “people” ( trying to assign a merit score to everyone – it doesn’t seem to have been very successful, so far. But even in the proud West, there exist smaller scale credit rating systems. For decades scientists have been using “academic credits” designed to establish a pecking order among the scientists working in the same fields. Initially, the system was based just on the number of scientific publications (“papers”) that a scientist could produce. That led to the concept of “publish or perish” and to the multiplication of both papers and scientific journals in a gigantic jumble of low-quality publications. Attempts to remedy the disaster led to various schemes to grade both journals and publications. The latest, currently the most popular, version of scientific grading is called the “h-index” and it provides individual scores depending on how many times a paper published by a scientist has been cited by other scientists. The h-index system, just like all the other scoring systems in science, is based on peer evaluation, therefore it is a kind of social credit system.

The common element of these social merit systems is that points cannot be exchanged among owners. We could imagine a society fully based on a credit system where you obtain goods and services just on the basis of your credit rating. So, suppose you want a coffee, you pay for it by adding a number of credit points to the coffee shop owner/waiters, but you don’t detract these point from your score. Things get a little more complicated if you want something expensive. So, suppose you want a fancy car: you can have, say, a Ferrari if your credit score is sufficiently high. Again, the fact of “buying” a Ferrari in this way doesn’t reduce your credit score but, of course, there has to be some kind of record keeping that prevents high-score people from accumulating Ferraris as if they were toy cars. There is some similarity, here, with the way the Soviet Union market system worked. In order to have a car, you had to register on a list and wait for your turn. Years later, you could see that car delivered to you and you were erased from the list and prevented from re-enlisting from a certain time. That made sure that you wouldn’t waste the products of the people’s factories by having more than one car. But Nomenklatura members didn’t need to wait, being high in the credit score list.

So, a “reputation currency” could work, at least in a certain way. An advantage of such a system is that it may be rigged in such a way to create no negative credit (no debt). Could we eliminate the bad consequences of insolvency in this way? And, in a single sweep, we would eliminate such things as theft, robbery, corruption, swindles, and all the crimes related to money. We can imagine ways to swindle the system, but nobody ever could steal your credit rating at gunpoint!

But, obviously, there are problems with the idea. Doctorow says about his creation, the “Whuffie” money, “Reputation is a terrible currency” and that’s very true for those who are at the wrong end of the scale. Have you ever been bullied as a teen? If it happened to you, you know how hard it can be to be the boy at the lowest rung of the ladder. And the only way to move away from the bottom is to behave in the most abject way with the leaders of the group: flattering them and obeying their orders. Doing so, eventually ensures that another hapless person will eventually occupy the bottom place in the pecking order. Then, if you are a scientist, you surely know how powerful a merit score can be as a factor pushing you to conformism. If you are a young scientist, you know that your career depends on never-ever criticizing or disparaging your senior colleagues. That’s a privilege you’ll gain only after getting your tenure and even then you’ll have to be careful about displeasing the powerful dons who control the financing of research.

Doctorow understands this point very well when he says in his book

Whuffie has all the problems of money, and then a bunch more that are unique to it. In Down and Out in the Magic Kingdom, we see how Whuffie – despite its claims to being ‘‘meritocratic’’ – ends up pooling up around sociopathic jerks who know how to flatter, cajole, or terrorize their way to the top. Once you have a lot of Whuffie – once a lot of people hold you to be reputable – other people bend over backwards to give you opportunities to do things that make you even more reputable, putting you in a position where you can speechify, lead, drive the golden spike, and generally take credit for everything that goes well, while blaming all the screw-ups on lesser mortals.

This is similar to the situation in science nowadays. There is no “scientific bankruptcy” for scientists: their h-index, as it is now, can’t go negative. So, no matter how bad a scientist can be, there is no direct way to hit him or her with a bankruptcy sentence and remove it from the pool of the recognized scientists. This is probably the reason why it is often said that “science progresses one funeral at a time.” (a quote attributed to the German scientist Max Planck). It means that old scientists tend to block scientific progress until the natural phenomenon of biological collapse removes them from the system. It would be an interesting reform to introduce “negative points” in science and fire the scientists who manage to go negative because of one or more truly bad papers. But, before that happens, the “Whuffie trap” that Doctorow described would play its role to push scientists toward the most abject conformism. For a scientist, avoiding to be being the target of the wrath of the scientific powers that be (SPTB) could only mean that they should be extremely careful to avoid to publish or voice anything that goes against the current consensus. And that would destroy that spark of creativity that, despite all odds, science still manages to maintain, so far.

So, switching to an always positive form of money would have some advantages in the sense that it would eliminate debt and, with it, insolvency and all the related problems and traumas. But it wouldn’t in itself, change the fact that currency is just a proxy for something real, the entities we call “goods” or “commodities.” Social credit money wouldn’t do much to solve problems such as resource depletion and pollution: people would still want to consume and waste resources and those who have a high social credit would do that just in the same way as those who are rich in terms of conventional money.

In the end, money may be a virtual entity and you may also define it as the devil’s dung. But we are addicted to it and we keep playing the money game. Money is so deeply intertwined with the way our society works that we can’t even imagine how it could work without it. What could happen to us if a large financial collapse were to destroy the value of our mighty dollar? We can’t say for sure, but the mighty Globalized Empire might crumble like a house of cards in a single, huge, Seneca collapse.


Ugo Bardi is a member of the Club of Rome, faculty member of the University of Florence, and the author of "Extracted" (Chelsea Green 2014), "The Seneca Effect" (Springer 2017), and Before the Collapse (Springer 2019)