The crossover point where the transactional use of social capital makes economic sense is falling to the point where it replaces notes and coins.
My old chum and unreconstructed warrior for cash, Ron Delnovo, was moved to tweet his outrage at the behaviour of a shop worker in the UK a few days ago.
This is an interesting take on Boots obvious sensible desire avoid counterfeit currency, from which they have no recourse. If they get stuck with a bent fiver, they can’t take it down to the Bank of England and ask for it to be replaced with a kosher one. Because of forgery on a grand scale, the Bank is about to replace our banknotes anyway in an attempt to keep the transaction costs associated with criminality down to a low level.
[From Plastic banknotes: Bank of England plans to modernise from paper | Business | theguardian.com] Did I mention that I have a new book out? In “Identity is the New Money“, I illustrate the relationship between social and financial capital with the specific example of cash:
Plastic banknotes with a see-through image of Britannia are likely to replace traditional paper notes from 2016 under plans being drawn up by the Bank of England. The Bank said the wipe-clean polymer notes will be less tatty, tougher to counterfeit and last up to six times longer than cotton-paper based notes.
Suppose I am wandering through Woking market and I want to buy a doughnut. I give the trader UKP1. The trader doesn’t have to trust me, he only needs to trust the UKP1, and the cost of failing to detect that my UKP1 is a counterfeit is quite small (despite the large number of fake UKP1 coins in circulation in the UK).
Since I wrote that, it turns out that the government is going to introduce a new UKP1 coin because of rampant counterfeiting of the old one, so the next time Ron goes to Boots, he can expect the assistant to bite his UKP1 coin (or do whatever they need to do to assay the token) as well as subject his tenners to deserved scrutiny. All of which goes to illustrate my point rather well, I think. The crossover point at which it is more cost-effective (for society as a whole, not just the merchant) to establish the relevant reputation needed to allow transaction to proceed on the basis of Ron’s identity (or as Jaron Lanier would put it, his “economic avatar”) in a age of always-on high-speed communications, complete social graphs and mutual recognition (our word at Consult Hyperion for the combination of good-enough identification and good-enough authentication) has fallen below the level needed to support UKP20 transactions, probably below UKP5 transactions and will soon drop to a level at which “non-identity” sub-UKP1 transactions will make no economic sense.