Money Velocity & the Gift Economy
Money velocity is a big deal, but only economists talk about
it. I'm no economist, but I know what I like. Money velocity measures how
many times the average dollar changes hands in a year. The GDP measures all
the transactions we do in a year.
When we get a dollar, we spend that dollar, which gets measured as
a $2 addition to the GDP. If consumers and businesses feel confident, they
spend money faster and the GDP goes up and we proclaim ourselves successful,
If we hang on to our dollars a little longer, we're less successful. I don't
know what the current figures are, but I recall money velocity being about
12-14 times a year when I took my single Econ course. (Obviously, you should
look elsewhere for your economic insights.) The calculation is made by dividing
the money supply (no simple calculation, that) into the GDP.
If money's zinging around the economy at the rate of 1 move
per month (12 per year) and it slows by just a day, the GDP drops by 3%,
which is a big deal. It gives us an idea why the consumer confidence rating
is so important. It's safe to assume that money velocity was higher in 1999
than it is now, and that difference may account for the relative weakness
in the economy.
The Easy Refunds "Bounce"
A few decades ago, no one but the big catalogue companies
did any mail order business. Then it began to catch on and lots of businesses
started mail order operations. In those days you had to have a reason to
return an item to a store. I remember clerking at Macy's in high school when
you
actively resisted returns, unless the goods were obviously defective. The
new mail order companies were equally reluctant to accept returns and people
started complaining to the Federal Trade Commission. Legislation was passed
requiring mail orders to be returnable for thirty days after shipping, at
the customer's whim,
no reason required. Naturally the companies bitched
and moaned that it would ruin them. You know, like Jack Valenti excoriating
video tapes and file exchanging.
What actually happened was unexpected. The mail order business
exploded! Released from the fear of getting stuck with the wrong goods, customers
came out of the woodwork. This was one of many lessons about large effects
from small changes. Although consumption is a double-edged sword (wasting
resources and trapping human consciousness on the material plane), if you're
using your economics filter, you like more activity, since it's the only
way we know to raise living standards.
How'd that work again? Oh yeah. If
we increase customer's confidence in purchases, they start to spend just
a bit faster, and those dollars end up back in their pockets sooner, go
out sooner, yada yada. A righteous cycle.
Caveat Venditor
As Mitch said the
other day, Xpertweb inverts the traditional balance of caution in a transaction.
Instead of a wary buyer, we let the
vendor beware. This shift is analogous to shifting the mail order risk
from the buyer to the seller. The Xpertweb mantra is that every vendor and
every customer has a grading history and the seller allows the buyer's grade
to affect the price. You can never predict effects, but that is likely to
cause people to open their wallets just a little faster and start that righteous
money velocity cycle.
Velocity = Generosity
Imagine an economy that's cooking along with an exuberant
P2P model that's no worse than Xpertweb. Now you've got folks spending more
freely on stuff, and sellers find
it easier
to employ more and better people, because they're rated also. The stage is
set for a kind of looseness in the economy that characterized the late 90's,
when people and governments felt they could afford to do more of the right
thing. Under this romantic economic model, you start to see a similarity
to the gift economy, where people produce freely and put their stuff out
there and just assume plenty of gifts will show up real soon.
So maybe the name of the magazine should be Fast Money rather
than Fast Company.
11:50:59 PM 
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