Invisible Hand
Wherever one might be on the fan/critic spectrum of capitalism, we can all recognize its important impacts on how modern life works. Markets and money are central to the meaning and operations of a capitalist system and their pervasiveness has many ramifications.
For millennia, money has been tangible (e.g. coins, cowrie shells) and transactions, even if mundane, were usually clearly noticeable. Mary Poppins, for instance, bought bird feed at tuppence a bag. She handed over some coins and got the goods in return. The shift to paper money (banknotes date back almost 4,000 years) was an important stage in the abstraction of value. The notes were a representation of value—often silver or gold—mediated by the promise of a bank or merchant to pay, but the notes had no inherent value themselves. As governments increasingly got into the act (e.g. China in the 7C), they, too, promised to redeem the paper for a chunk of precious metal.
This link was broken in the aftermath of WWI, when reconstruction demands outstripped the piles of gold in government vaults. Those of a certain age remember when US paper money expressed a promise to redeem the note for some of that gold.
Until it didn’t. Nixon broke the formal link between money and gold in the US in 1971. Silver was eliminated from US coinage in 1965. Since then, we all rely solely on the social convention (back by statute) that our coins and paper are actually worth something more than the paper (or copper/zinc) that they’re printed on.
As part of this broader shift, credit cards began to become widespread in the 1950s, further distancing value from transactions. Electronic transactions followed in the 1970s and now phones are banks and myriad apps (e.g. Venmo, PayPal, ApplePay, Zelle) make money instant and frictionless. Cryptocurrencies (with their own set of complications) are of a similar ilk.
We’ve come a long way from “tuppence a bag.”
One of the important implications of this historical process is that it’s become increasingly easy to forget that you’re spending money. As transactional friction has gone down, the psychological hurdle of handing over your hard-earned cash is lowered. It’s therefore easier to spend more. I doubt this is a coincidence.
The latest stage is the semi-invisible charge account. You give Uber your credit card and every time you take a ride, the money (indirectly and in stages) moves from your account to theirs. Subscriptions (e.g. Netflix, cell phones) accelerate this process. The transaction is so transparent and distant from actual usage that it virtually disappears and the funds automatically transfer to the service provider regardless of whether you actually use the service or not. Why worry about the cost of heating if your utility bill gets folded into your monthly credit card statement (along with dozens of other charges) which then gets paid by automatically dipping into your bank account?
The perennial bugaboo of “hidden charges” is part of the same story. Most of the time legal requirements mandate their disclosure, but they’re usually buried in a plethora of fine print and legalese. Here in San Francisco, restaurants have taken this to a new level by adding a surcharge of 4-7% nominally for meeting local mandates for benefits for employees. How these additional costs are different from the other normal costs of doing business is not clear, but instead of bumping up the price of a $24 plate of pasta by $1.50, the restaurant puts a line in small print at the bottom of the page indicating the charge but leaving the “list price” the same.
Karl Marx (and other critics of capitalism) have pointed out that the insertion of markets ensures alienation of both laborers and consumers from each other and the products and services created and utilized. Now that everything seems to pass through “the Cloud,” this distancing and alienation are increasing and, likely, contributing to the general sense of disconnection we all face in the modern world.
When Adam Smith talked about the invisible hand of the marketplace (another metaphor that has been seriously abused by subsequent interpreters), he likely didn’t imagine that invisible hand reaching down into our pockets and scooping up the cash without so much as a “by your leave.”
Wherever one might be on the fan/critic spectrum of capitalism, we can all recognize its important impacts on how modern life works. Markets and money are central to the meaning and operations of a capitalist system and their pervasiveness has many ramifications.
For millennia, money has been tangible (e.g. coins, cowrie shells) and transactions, even if mundane, were usually clearly noticeable. Mary Poppins, for instance, bought bird feed at tuppence a bag. She handed over some coins and got the goods in return. The shift to paper money (banknotes date back almost 4,000 years) was an important stage in the abstraction of value. The notes were a representation of value—often silver or gold—mediated by the promise of a bank or merchant to pay, but the notes had no inherent value themselves. As governments increasingly got into the act (e.g. China in the 7C), they, too, promised to redeem the paper for a chunk of precious metal.
This link was broken in the aftermath of WWI, when reconstruction demands outstripped the piles of gold in government vaults. Those of a certain age remember when US paper money expressed a promise to redeem the note for some of that gold.
Until it didn’t. Nixon broke the formal link between money and gold in the US in 1971. Silver was eliminated from US coinage in 1965. Since then, we all rely solely on the social convention (back by statute) that our coins and paper are actually worth something more than the paper (or copper/zinc) that they’re printed on.
As part of this broader shift, credit cards began to become widespread in the 1950s, further distancing value from transactions. Electronic transactions followed in the 1970s and now phones are banks and myriad apps (e.g. Venmo, PayPal, ApplePay, Zelle) make money instant and frictionless. Cryptocurrencies (with their own set of complications) are of a similar ilk.
We’ve come a long way from “tuppence a bag.”
One of the important implications of this historical process is that it’s become increasingly easy to forget that you’re spending money. As transactional friction has gone down, the psychological hurdle of handing over your hard-earned cash is lowered. It’s therefore easier to spend more. I doubt this is a coincidence.
The latest stage is the semi-invisible charge account. You give Uber your credit card and every time you take a ride, the money (indirectly and in stages) moves from your account to theirs. Subscriptions (e.g. Netflix, cell phones) accelerate this process. The transaction is so transparent and distant from actual usage that it virtually disappears and the funds automatically transfer to the service provider regardless of whether you actually use the service or not. Why worry about the cost of heating if your utility bill gets folded into your monthly credit card statement (along with dozens of other charges) which then gets paid by automatically dipping into your bank account?
The perennial bugaboo of “hidden charges” is part of the same story. Most of the time legal requirements mandate their disclosure, but they’re usually buried in a plethora of fine print and legalese. Here in San Francisco, restaurants have taken this to a new level by adding a surcharge of 4-7% nominally for meeting local mandates for benefits for employees. How these additional costs are different from the other normal costs of doing business is not clear, but instead of bumping up the price of a $24 plate of pasta by $1.50, the restaurant puts a line in small print at the bottom of the page indicating the charge but leaving the “list price” the same.
Karl Marx (and other critics of capitalism) have pointed out that the insertion of markets ensures alienation of both laborers and consumers from each other and the products and services created and utilized. Now that everything seems to pass through “the Cloud,” this distancing and alienation are increasing and, likely, contributing to the general sense of disconnection we all face in the modern world.
When Adam Smith talked about the invisible hand of the marketplace (another metaphor that has been seriously abused by subsequent interpreters), he likely didn’t imagine that invisible hand reaching down into our pockets and scooping up the cash without so much as a “by your leave.”
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