A Closer Look at Micro-economies

A faked handshake.

To start, "Micro-economies" is a neologism of my choosing to describe very small economies that exist within larger ones. I considered "Inclusion-economies" instead, so as not to confuse them in any way with the study of micro economics, but the point of focus is that these economies are small. Plus 'inclusion-economies' doesn't exactly roll off the tongue.

An example, frequent readers of the blog should already be familiar with, is the college dorm room. Dorms feature scarce resources that are desired by multiple people who interact with one another, thereby making it an "economy." The field of economics is concerned with how best to allocate limited resources.

If you'll recall, I advocated "privatizing" the college dorm by taking "community" property owned by many people and distributing it to individual ownership. To summarize, doing so should help reduce unwanted clutter -- as people keep the things they *own* a little cleaner. It should also cause the various things not everyone can use simultaneously to be allocated on the basis of 'who values it most,' rather than 'who gets there first,' which is a better, more efficient system. But if you haven't read the article, you can find it here. I recommend you give that, at least, a skim.

One thing that good economies have in common is money, which is why I've advocated for its use in our micro-economy. Without money, people in an economy are forced to take on the inefficient practice of bartering, which leaves many desirable trades unmade. If I want corn but all I have is wheat, a corn farmer will only sell me his goods if he wants wheat. I'm out of luck if what he really wants are tomatoes or an xbox or a car. Money is the medium by which any transaction can take place to the benefit of both the seller and the buyer, even if one is making something that the other doesn't want.

So?

As may already be clear from this description, the nature of money is such that it only works when people in the economy agree to accept it. If a government prints the little words on their money: "this note is legal tender," it doesn't mean a thing if stores won't take it and consumers don't want it. But money also has some other requirements in order to function properly.

1. People must agree to accept it in exchange for goods.
2. It should be relatively portable. An example of when it isn't is the infamous Rai stone, but the problems with Rai Stones are well known, and an economy will function smoother with lighter money.
3. It needs to be difficult for people in the economy to produce. If the value of money is greater than the cost of making it, people will simply enter the business of making money. Governments solve this problem by making their money obscure, even as they themselves print it in excess.

Now that the basics are covered, the point of interest is: micro-economies could establish their own currency.

In the case of our dorm room, I have selected as a feasible option: Dremel tool attachments. As the sole owner of a Dremel tool in our dorm of six, people would be unable to add to his/her pool of this very distinctive money. Provided I give up all the pieces I own from the get-go, neither would I. Buying them is expensive, and none of us have a car to go get them anyway, so adding to the money pool is likely an unprofitable action.

As you can see, the pieces are easily portable, with different sizes and colors to which differing values could be assigned. Provided all dorm members agree to accept them at these values, which shouldn't be a difficult task considering there aren't many people to convince, our currency is good to go.

So what are the advantages of using our own currency as opposed to dollars? When I presented my "privatization" concept to some friends, neighbors and dormmates, an overwhelming complaint revolved around "paying for things we'd already bought." Much as I tried to convince them it simply wasn't true, since the things they had to pay for would be counterbalanced by
the income they'd receive, I think the complaint came as the result of a deeper motivation in people: to not make deals between friends in cash.




For the same reason we buy gift cards instead of just giving birthday boy the money, people like to trade favors instead of paying those who serve them. They *like* to barter. Dollars and other government currencies have been plastered with the idea of a "cold, hard exchange." People trade their dollars most often with those they will never really meet -- the anonymous management of Walmart or the collector of vending machine revenue -- so taking those dollars and giving them to a friend evokes a theme of "nothing personal, just business" in a scenario where the people involved are personally involved.

Whether or not that's a logical state of mind, it's certainly the popular one.

I would contend that a "made-up" currency avoids the majority of these feelings. In the 5th grade I recall a "Brazilian marketplace" designed by some creative teachers. Students in all the other grades, and even some parents, would be given fake Brazilian coins when they walked in the door, represented by slips of paper with a unique, printed design. Everyone considered the event to be lighthearted and enjoyable, even as my homemade caramels easily dominated the food scene, where they seemingly might not have, in the case that we were exchanging dollars. I think this idea also has something to do with the feeling that if people are giving up dollars they're really *losing* something, whereas when people give up a "fake" currency, it's just a little paper. Flawed though this logic may be, it seems pretty widespread.

Another practical reason for using our own money is that monopolizing the small industries found in micro-economies, which, arguably, is already hard to do, becomes an even more difficult task. In the case of the dorm room, as we evenly divide the sources of capital there would be an even division of our money along with it. Money is, after all, merely the representation of this wealth. Provided everyone acts with economic rationalism, so as to maximize his/her potential income and we divide the capital evenly from the beginning, in theory we'll have a zero-sum game where the amount of this new money we have stays pretty much the same. Theory never works out exactly in practice, but we should get pretty close.

This quasi-evenness within the micro-economy is a huge preventer of monopoly development, since no one is able to adequately pay off another for the use of his capital.

It's true that people could just revert to paying with real dollars but they have a strong incentive not to bother. After all, those dollars can be spent on items outside the micro-economy, while the money we make cannot.

As you can see, the implementation of a new money in a micro-economy must be determined on a case-by-case basis. There is no defined system of money that must be used provided it meets the requirements and those requirements will be met by different objects depending on the economy's circumstance. The general concept, however, will remain the same, and the same benefits should apply in all cases.


If you'd like an update on the current state of the dorm, well... See for yourself.

The kitchen table-- worse than it has ever been.

Every problem I've predicted and illustrated as a result of retaining community property has drastically worsened. Cluttered tables and an abominable sink are expected, and items are even beginning to pile up on the floor.

The community milk quota.

The rate of consumption of community food has increased by roughly 250% since its founding. As the first buyer of community milk I remember purchasing 4 gallons to feed the six of us all week, with a little milk to spare. Last week we went through 4 gallons in less than three days. The outcome of buying shared food became so out of control that the dorm-mates were forced to accept my half-way "compromise" proposal of quotas, where the community food buyer would only be required to buy a specified amount of food and no more. The quotas currently stand at 4 gallons of milk and 36 eggs. Community bread was removed entirely.

Can't stop an idea whose time has come, I suppose.

The study of these "micro-economies" leads to many interesting conclusions, and the problems some have with them may still have solutions. With so many applications -- from the household to the workplace -- it's certainly a worthy study to pursue.


Next up: a follow-up natural rights.