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Stopping the Flow

Posted by Tug Brice on 5 Feb. 2021

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Recently Alan and I were discussing game theory. This is not an uncommon occurrence but in this case, it got me thinking about some of the problems we face as a society. In this case, the problem(s) I got to thinking about were those related to hoarding. Specifically, resource hoarding. Even more specifically, billionaires.

The conclusion I have come to is that multi-millionaires and billionaires are the results of the intersection of two separate problems: the tragedy of the commons and social loafing. I can hear the questions already. “But how can billionaires be a result of the tragedy of the commons? Billionaires are hardly common!” “How can billionaires result from social loafing? They had to work hard to get all that money.” First of all, no they didn’t, and second of all, let me explain.

Let’s start by explaining the two problems. First, let’s talk about the tragedy of the commons. Wikipedia (yes, I know, but it’s a pretty decent summary and this isn’t an academic paper) defines the tragedy of the commons as “a situation in economic science when individual users, who have open access to a resource unhampered by shared social structures or formal rules that govern access and use, act independently according to their own self-interest and, contrary to the common good of all users, cause depletion of the resource through their uncoordinated action”. 

Let’s look at this definition because it covers a lot of ground. The important parts are individual users that have open access, acting independently to their own self-interest, and contrary to the common good, cause the resource to become depleted. In other words, because there are no rules in place, anyone and everyone can do what they want, and because everyone can do what they want, the resource is depleted to the point that no one can use it anymore. It’s no one’s fault because it is everyone’s fault. That is the tragedy of the commons.

Next, let’s tackle social loafing. Anyone who has done a group project in school or at work is familiar with this concept. Social loafing is the phenomenon that sometimes people tend to put forth less effort when more than one person is responsible for a thing. This happens in economics as well as social psychology, although they call it the free-rider problem. When more than one person pays for a service, it becomes over- or under-valued by those people who don’t use it. Just listen to complaints about “healthy people having to pay for universal health care” and you’ll understand the free-rider problem.

So how do these two things create billionaires, and why is this a problem? It is a result of the way money works. There is something called the “velocity of money” which is a measure of how many times a certain amount of money was spent over a period of time. Suppose there is a very small town. This town has a farmer, a mechanic, and a store owner. The store owner starts with $50. He pays that $50 to the farmer for food. The farmer then pays that same $50 to the mechanic for tractor repair. The mechanic then buys his wife something nice from the store owner with the same $50. That single fifty dollars has been spent three times, generating a total of $150 dollars. That is the velocity of money. It is important because it is a measure of economic health that includes small businesses and the average person, something stock prices do not.

The thing about money is that on its own, it is worthless. That statement may sound ridiculous. After all, money is literally worth. It is what we use to represent value. But it’s true. Money only creates worth when it is exchanged. Because we don’t value money. We value what money can get us. Money itself is just paper and metal, or 1s and 0s. It is what we can exchange for it that matters. Therefore, money only matters when it MOVES. Money creates value when it changes hands. When money is sitting still, it is worthless. And this brings us to billionaires. Billionaires become billionaires by making money stop moving. They collect money. They don’t spend it. If they did, they wouldn’t be billionaires.

So how does this relate to the tragedy of the commons and social loafing? Think about it. Money is a common resource. It creates wealth when it moves from hand to hand. And our economic system can be thought of as a giant group project. It only works when everyone pitches in. But instead of pitching in, billionaires coast. They take the common resource and hoard it to themselves. They stop it from moving and creating value and instead rely on everyone else to work and keep the money moving for them, or rather to them, where they hoard it some more. They stop the flow. They create the blockage that causes the system to stall. They are the biggest free-riders in the system, stopping money from doing what it was designed to do, circulate and create wealth for everyone. It is the biggest tragedy of our day that we allow them to exist. 

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