Reality by Agreement

The social singularity's advance will accelerate when we start to better understand the construction of social reality. After all, the old constructions are falling apart.

Published in Underthrow Series .

With the news that the US dollar is now decoupled from the Saudi commitment to the “petrodollar,” the dollar’s value is very likely to decline. One leg of the exorbitant privilege tripod is gone. The two remaining legs—the USD as the world reserve currency (Bretton Woods) and the Fed’s ability to keep the dollar stable—are balanced in precarity. It is time to reconsider the dollar. It’s time to reconsider all fiat money.

So much of life’s bounty is invisible. That is to say, it’s both socially constructed and intersubjective. Intersubjectivity is like objectivity, but without the pretense that we can ever step out of our skins to verify the ultimate nature of reality. Our relationship to reality is always mediated by our experience.

But I’ll not belabor any philosophical points.

The point here is practical: So much of the world works because someone made something up, and we agree it’s real. Some would even say morality works this way. But let’s take a simpler example: money.

Money is, in some ways, a collective illusion. What makes it so easy to believe in is its utility. When you give it to people, they bring you cappuccinos or cars. I’m oversimplifying things a bit. We know, for example, that if there is too much money floating around out there, it could take a wheelbarrow-full just to get a cup of coffee. Still, money is a useful agreement—an unspoken social contract.

Even if we all used gold coins as money, there is nothing intrinsic about the value of gold. (A massive gold meteor shower might disabuse us of that notion. So might a competitor that is a superior form of money.) The only thing “objective” about money is its price at a certain time, but that is contingent upon the intersubjective agreement of valuers. Otherwise, people use it as a medium of exchange and a unit of account. Money serves both functions as long as the monetary unit is relatively stable over time. But the value of money is neither an iron law nor an objective fact.

As we suggested elsewhere, cryptocurrencies have the potential to upgrade money forever. Coders are not only able to program the properties of these new forms of money, but they also are only as valuable as they are useful and only as valuable as others in the network agree. Use value—utility—is in the eyes of beholders. Cryptocurrencies, like fiat monies, count on intersubjective agreement to be sustainable over the long term. This is unavoidable. And if cryptocurrencies continue to improve, they could eventually outcompete currencies minted or printed by nation-states and central banks—notwithstanding Gresham’s Law, “Bad money drives out good.” The price of cryptocurrencies can reflect irrational exuberance, to be sure. But it can also reflect the social construction of new, invisible realities, leaving the old realities like “dollars” and “renminbi” to wither.

Journalist Maria Bustillos reminds us that all value is contingent upon the subject’s perspective. She writes:

Our shared understanding of the value of that green-tinted piece of paper, that Krugerrand, ether token, or pound coin, is all that counts. And that shared understanding has no fixed meaning; it’s in eternal flux. The “value” of all money, all stores of exchange, is unstable and abstract, even in the face of every attempt to secure it — say, with a set rate of exchange against various assets — or to regulate its flow by setting interest rates. Money is only a shifting network of agreements made in and on behalf of the hive, and that’s all it has ever been—a fragile thread in a web of human trust.

Now, one would not want to overstate things.

Dollars have network effects. Cryptocurrencies have network effects. Neither are mere mass hallucinations, but they are perhaps convenient fictions. Socially constructed realities like money and cryptocurrencies are made more real by their utility. So it’s different from, say, social habit or convention alone—although these can be important, too.

Technology has helped us to upgrade what was always a social construct. So the question becomes: what else can we upgrade? What else can we construct? And which social constructs have outlived their usefulness?

Max Borders is a senior advisor to The Advocates. He also writes at Underthrow.

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