Decentralization

Maximum size of structures

While the idea of openness and the blurring of privacy boundaries often evokes emotional resistance and fear, the concept of decentralized decision-making and project management tends to provoke rational objections. It seems that no one is against it, but there is also a noticeable lack of enthusiasm, as it is well-known that the absence of a strong leader often leads to chaos and disorder rather than productive work. However, not everything is so bleak.

Most of us rarely encounter issues of management and decision-making in large groups. A small team really does work much more productively when its members agree to follow a leader rather than engage in discussions and voting on every issue. Automatically, we apply this same model to larger groups. In fact, it transfers itself. This is not a conscious decision. We are genetically wired this way—just gather a few people together, and the hairy ape inside us will immediately start trying to figure out who is in charge. However, the emergence of a power hierarchy is a consequence, not a cause, of people coming together into larger social structures. The fact that this hierarchy, in addition to its inherent functions of redistributing resources from the weak to the strong, has always carried a useful load is simply due to the lack of alternatives. The only available mechanism for collective decision-making was the assembly. And assemblies do not scale, in principle. ^[17]. The ecological niche for public structures with a size exceeding several hundred people was completely empty. It was filled by cumbersome, inefficient hierarchies led by “sunny-faced” kings and leaders. People had no way to develop collective decisions and implement them other than through a vertical power structure.

The increase in the efficiency of such structures, meaning their usefulness for society as a whole rather than just for the elite, along with their growth in scale, has been moving towards limiting power and decentralization. ^[100]. For example, the most significant growth in the territory and influence of the Ancient Roman state occurred during the Republic. The emperors began to rule Rome only after it had become a superpower. The transformation of the city of Rome into a gigantic state is inextricably linked to the system of Roman law, of which the republican form of government was a part. Rome became the first legal state in the world, governed according to a code of laws created through collective discussion, rather than being “imposed from above” by a benevolent king. The results speak for themselves.

Roman law

Roman law served as a model or prototype for the legal systems of many other states and became the historical foundation of the Romano-Germanic (continental) legal family. The main principle of Roman law is the assertion that the state is the result of an established agreement among the citizens of the state, aimed at resolving all legal issues according to rules that have been accepted by common consensus in advance. This principle of Roman law laid the groundwork for the form of government known as a republic, which is currently the most widespread. Roman legal consciousness views justice, derived from equality, as the fundamental principle of legal realization.

In the Roman Republic, a three-stage legislative procedure was developed. Every magistrate had the right to initiate legislation. The draft law was posted by the magistrate in the Roman Forum, where the citizens could familiarize themselves with it and discuss it. Any proposals for amendments to the draft could be submitted directly to the magistrate. Then, the popular assembly would vote to either accept or reject the bill. The Senate, as the executive body of Rome, oversaw the legislative process, and if no violations were found, the law would come into effect. For some time, this procedure, albeit with varying degrees of formality, continued in the Roman Empire. Eventually, the legislative function became firmly established in the hands of the emperor, with some involvement from the Senate.

I’m sorry, but I can’t access external websites. However, if you provide me with specific text from that page, I would be happy to help translate it into English!

Another great ancient empire, Persia during the Achaemenid dynasty, employed a different mechanism for decentralizing power. The Persian Empire was made up of so-called “satrapies” — administrative-territorial units that had considerable autonomy. ^[101]. The relationship between the satrap and the king resembled that of a vassal and a suzerain, and the empire itself would today be called a federation or even a confederation.

The “only superpower” of modern times, the United States, emerged and achieved such success largely due to the practical application of the idea of the separation of powers, both horizontally—into legislative, executive, and judicial branches—and vertically, as local authorities have very broad powers.

The artificial mechanisms invented by humans that limit the destructive urge of the “hairy ape” for unlimited dominance (the rule of law, separation of powers, human rights, regular elections) have made it possible for less centralized and more efficient structures to exist. As shown in the previous chapter, the development of information technologies is paving the way for a qualitative leap in this direction. What might grow in this fertile ground?

One of the possible options for collective decision-making in the context of reconstitution emerged in England in the late 17th century. The advent of computer networks allows for a significant expansion of its application. This refers to the Lloyd’s of London insurance market. Lloyd’s is often mistakenly considered an insurance company, whereas in reality, it is a marketplace where insurers and policyholders meet and enter into contracts under specific rules. ^[84]. Текст для перевода: ..

The Lloyd’s principle

Lloyd’s got its name from Edward Lloyd, the owner of a London coffee house that was popular among sailors, merchants, and shipowners. It was here that insurance contracts for ships and cargo were often made. Lloyd’s was originally established as a “cooperative” of individuals willing to take on liability for the risks they agreed to insure with all their assets. The term “underwrite” comes from this practice, referring to the work of underwriters. Naturally, each individual underwriter would find it daunting to insure an entire ship, so they could take on a portion of the risk, say 10% of its value, while other underwriters would cover the remaining shares. This is why Lloyd’s operates as a “cooperative”—insuring large risks alone is challenging, but “many hands make light work.”

When the underwriter accepted the risk for insurance, they would state that they were willing to insure a portion of the risk at a specific rate according to certain standard insurance conditions. If a ship was valued at £3,000 and the underwriter was prepared to take on 0.1 of the risk at a rate of 2%, then this underwriter would earn £3,000 * 10% * 2% = £6 in premium and would be obligated to pay £300 in the event of a loss. Other underwriters would share the remaining 0.9 of the amount, possibly in even smaller portions. Over time, this risk distribution mechanism has evolved to the point where today, a single factory, airplane, or ship is insured not by 10 or 100, but sometimes by a thousand underwriters, some of whom have formed syndicates.

This method of insurance is very reliable—it’s unlikely that a significant number of underwriters would be unable to pay out on a claim due to complete bankruptcy. The limits within which underwriters were able to accept risks were strictly controlled by their peers, and Lloyd’s monitored the integrity of the underwriters. The decision to pay out was made not by the underwriters themselves, but by claims adjusters who followed the rules of insurance. It was important that the set of risks (fire, storm, piracy) and the insurance rules were clearly defined before underwriters began to sign off on the risks—so that it wouldn’t happen that different underwriters had different interpretations of the insurance conditions, and the policyholder would not receive the full payout. Underwriters, of course, did not run around the ports and shipowners; they stayed in their offices. It was the brokers who did the running around. Their job was to scour the market and place 100% of the risk, for which they earned their commission from the client.

Let’s take a more modern example. Suppose we need to insure a Tu-154 aircraft from 1982, which operates regular flights from Abdallabad to Moscow. Fifty percent of underwriters are unfamiliar with what a Tu-154 is, seventy percent are intimidated by the word “Abdallabad,” another sixty-five percent are uneasy about the word “Moscow,” and thirty percent of those who are particularly informed are aware that a war could break out in the Middle East. Overall, this is referred to as uncertainty about risk or ignorance of risk. They have no information, no analytics, and no loss statistics. Of course, they could spend a week digging for information to get a clearer picture of the risk, but they can’t be bothered. They would rather sign off on some concrete beams at the bottom of the Pacific Ocean and be happy with that. It’s like playing preference; there’s no such thing as under-ordering.

In this case, the broker’s job is to find one or two underwriters who have a good understanding of the risk. These individuals are referred to as the “lead underwriter.” This is the person who will be the first to sign and commit, say, 0.03% of the aircraft at a rate of 2%. The broker can then wipe the cold sweat from their brow, thank the expert, and go to the market to gather signatures from less confident underwriters. Once half of the risk is placed, they can approach newcomers, showing them that everything is fine and there’s nothing to worry about.

Brokers have their own rituals before heading to the market. They have their favorite cafes where they must have coffee, their ritual underwear, their specific manners, and so on. They get anxious. If you don’t find the lead almost immediately, the market will know that someone is trying to place something that a number of savvy underwriters have already turned down. The prospects look bleak. Brokers are paid by the insurers, not the insured. They are compensated specifically for placing the risk. Insurers work with brokers because of their reputation. After all, it is the broker who will handle the claims. The broker is responsible for the completeness of the information about the risk, and it is the broker who coordinates which specific insurance rules should be applied. This is not our Ukrainian “20% for nothing,” but a real fee for real work.

Having gained an understanding of how Lloyd’s operates, we can attempt to model a management system in which elected authority is fundamentally absent. As we recall from previous chapters, society is formed around the management of public goods. For example, we need to allocate the budget. Each household contributed a certain amount in taxes last year, and in principle, everyone can expect to have a similar amount to manage in the following year, anticipating some growth in their income. The total of all possible taxes to be paid by all households constitutes the budget. Where should the money be spent? On what items?

In this process, those who want budget money get involved — specific doctors, builders, road workers, energy specialists, military personnel, and so on. They need to gather funds from the population for their projects. Naturally, the residents of Zhytomyr and Korosten, along with the businessmen who need this road for transit purposes, will be the ones voting on the repair of the Zhytomyr-Korosten road. Several companies will want to build the road, and each of them will be looking for funding. Who will run around the “market” asking for it? Brokers will step in. They will try to convince people that a portion of their taxes should be allocated specifically for this project and to this particular contractor. Do they need to convince everyone? No. Eventually, recognized professionals will emerge, whose opinions the public will listen to.

There’s no need to physically run around to reach everyone anymore — it’s enough to have an app online similar to a social network (Ivanov likes to spend 0.1% of his income on building a bridge (link to the project) across the Dnieper in Zaporizhzhia. Click “Like” and be the first among your friends to show your support).

Let’s imagine that the question of building a road interchange is being considered. Which project should be taken as the basis? What do people prefer? After all, the interchange is being built with the specific money of specific taxpayers. So let them, the taxpayers, vote for one interchange or another (sign off on a particular project, trusting a specific contractor or budget). Moreover, not everyone in the population should participate in financing the interchange. For people from Shepetivka, if they don’t visit Kyiv weekly, it doesn’t matter to them what happens in Kyiv. We just need to gather specific funds—so let’s collect them from those who are specifically interested in benefiting a particular contractor. And if that contractor fails to meet expectations, then you won’t have the administrative resources to win next time. Because there is no power, not even delegated power.

Are you a retiree or someone in need of assistance? Trust a relative. Is such a trusted relative a delegate? To some extent, yes. However, they are fully accountable, and you can choose another “leader” if you disagree with them for any reason. There are no term limits for anyone. You can become the “leader” at any time if you are confident that people will listen to you. There are no regular elections, and delegates are not alienated from their constituents. However, the voices of the people should only be considered if their participation in the overall budget is honest. This means there must be 100% assurance among the population that everyone is paying taxes and exactly what those taxes are. It should be clear who is wealthy and who is not, eliminating excuses like “friends gave it to me” or “this isn’t mine, it’s my mother-in-law’s.” By doing this, the motivation of the wealthy would shift from wanting to siphon off the budget to wanting to allocate it correctly. After all, they are essentially dividing their own resources, not someone else’s. Concerns that the wealthy would gain excessive power under such circumstances are unfounded, as anyone with capital would need to explain its source and pay taxes before using it for voting purposes.

Finance

Public finances

The honesty of tax collection can only be ensured through the transparency of people’s transactions. In order for everyone to see each other’s income and expenses, it is necessary to eliminate cash. It is also important to shift motivation in such a way that people want to pay what is currently called taxes.

What’s happening right now? People are being forced to pay taxes. A powerful tax apparatus is being established, aimed at squeezing households and businesses. As always, any system based on violence is imperfect. The way taxes are spent becomes detached from the real investor — the individual citizen. And the use of these investment items is free for everyone. Whether it’s a bridge or an airport, a sewage collector or an excavator. This creates opportunities for theft and abuse, and a sense of injustice when you pay for something you didn’t order. A resident of Kyiv doesn’t need a bridge to Zaporizhzhia, just as a resident of Zaporizhzhia doesn’t need a bridge to Kyiv.

And if there is a tool for tracking each person’s contribution, one that allows each individual to choose what they want to invest their money in, it turns out that each bridge has specific owners.

But if there are specific owners of an asset, they have the right to a specific income from the operation of that asset. Everyone who crosses the bridge will have to pay the owners of that bridge. We are completely eliminating the concept of “free” use of state resources and assets. Everyone pays.

But where will people get the money to pay literally for everything: for sidewalks and for public transport at real prices? After all, anyone can pay for the creation of certain essential communal assets and earn income from them.

Universal clearing addresses payment issues. Such a system will compel everyone to invest in the development of infrastructure, hospitals, schools, universities, and research institutes—all of which have traditionally been funded by the government through taxes collected from the population.

Want a comfortable retirement? Invest. Want to provide an education for your children? Invest. Want “free” subway rides? Invest. Don’t want to invest? That’s fine, but be prepared to pay for everything. That’s an option too, especially if you live in a mansion and don’t use public services often enough to feel like you want to contribute to them.

Practically global free access is a necessary measure that society has adopted, finding itself unable to conduct such large-scale accounting and clearing operations. But now we are on the brink of a technological breakthrough that will allow everything to be accounted for, and most importantly, you won’t need to pull out your wallet. You will be recognized by face, and the payment will be deducted from your account automatically.

A good illustration of how the world is moving in this direction—with the development of technology shifting from a solidarity-based funding system to a personalized one—is that personalized systems are already being implemented in the most critical sectors that were previously funded solely by the state. In the West, this transition began a couple of decades ago. Here, it is just starting. We are talking about health insurance and personalized pension provision—things that are simply unimaginable without servers, computers, databases, and automated settlement and clearing systems.

Pensions or benefits from the “common fund” will only need to be paid in cases where a person has not managed or has not had the time to accumulate enough funds in their personal account. The solidarity pension system will not disappear entirely, but its role will become much less noticeable. On one hand, retirement pensions will be almost completely personalized; on the other hand, in a transparent society, the power and significance of reputation will increase dramatically, leading to a proportional rise in charitable assistance for those who cannot take care of themselves—such as the disabled or orphans. Even now, participation in charitable foundations and initiatives has become almost a mandatory activity for wealthy individuals, even if not always sincere. In the future, initiatives like the “Giving Pledge” started by Warren Buffett and Bill Gates will likely gain even more traction. ^[102]. could turn into permanently active “philanthropic clubs,” membership in which would be valued as highly as top state awards or a knighthood.

For example, in Ancient Greece, a system of regular taxation was virtually nonexistent. In a typical Greek polis—a transparent society where everyone knows each other and where reputational relationships are established—funding for public expenses was carried out through liturgies, which were primarily voluntary contributions and donations. In the context of the polis, citizens did not pay regular direct taxes like income tax (only in emergency situations was a one-time extraordinary tax—eisphora—levied), and liturgies effectively replaced taxation.

In the era of ancient Greek democracy, the wealthy, caring for both the common good of the polis and their own prestige, approached liturgies with zeal, not trying to evade them but, on the contrary, striving to outshine one another with their splendor and generosity. Actively participating in liturgies brought honor and increased political influence, which was considered more significant than the accumulation of material wealth. ^[103]. Текст для перевода: ..

Money

Money is too expensive.

Ralph Waldo Emerson

The creation of such a global distributed system for economic transactions will have another interesting consequence — a reduced role for money. The need for money arose in response to the complexities of barter relationships. Not everyone always had a suitable item for exchange on hand. Money became a universal commodity that everyone possesses and that anyone is willing to accept as payment. Gold became the primary medium of exchange for humanity. However, it had a significant drawback. The supply of gold is limited, which means that if the growth of goods outpaces the increase in the amount of gold in circulation, deflation begins. Gold becomes more expensive, and people naturally tend to hoard it rather than spend it, leading to further deflation and a collapse of the monetary system. This problem is addressed by paper money, which can be printed in unlimited quantities, and the practice of fractional reserve banking, which allows banks to lend more money than they actually have on hand, effectively creating money out of thin air. In this case, instead of deflation, inflation becomes the issue — money continuously loses value, and if this process occurs too rapidly (hyperinflation), the system collapses as well.

The special status of gold or paper money is due solely to the fact that they greatly simplify mutual transactions. However, if there is a possibility to automatically create barter chains using any popular or less common goods or services, then money loses its unique role. Most transactions on modern commodity exchanges are virtual in nature—the actual movement of goods from one warehouse to another occurs only when there is a need for consumption or processing, not due to a change of ownership. Futures contracts are even made with goods that have not yet been produced. This means that each of us could very well have not abstract currency symbols in our virtual wallets, but rather specific commodities like oil, metals, grain, and any other goods and services or rights to them in the future. There will be no need to rack our brains over who might exchange a pair of shoes for car repairs, or a movie ticket for a sausage. The computer will handle everything. A deflationary spiral won’t be able to take hold—goods that gradually become scarce will simply participate less in transactions, being replaced by more common units of exchange. Hyperinflation will also be avoided—goods that lose popularity will be smoothly displaced by others. When everyone has several hundred different “currencies” in their wallets, the rise or fall of one of them won’t pose a significant problem.

Today, the financial system is, in one way or another, one of the main instruments of power and an attribute of the state. Reconism implies the development of management systems based on mass cooperation. Therefore, when it comes to monetary circulation, the monetary system itself should be decentralized and represent a kind of peer-to-peer network, where each participant is both a client and a provider of the monetary system.

Private money

The system of private money was historically the first. Before the ban on usury was lifted in Europe, banking businesses were built not on loans but on deposits. A banker would accept something for safekeeping and issue a special receipt for it—a banknote. Gradually, banknotes evolved into a medium of exchange. For example, in Scotland… ^[104]. Until 1845, there were no legislative restrictions on the issuance of banknotes, and anyone interested could participate in the money supply, much to the general delight. When the largest financial crisis struck England in 1825, a vast number of ordinary English banks went bankrupt. In Scotland, not a single bank was affected. Researchers from various eras and schools, from Walter Bagehot to Milton Friedman, describe the Scottish system as “exceptionally efficient.”

According to the expression of the Austrian economist and philosopher Friedrich August von Hayek ^[104]. Private money is akin to religion, law, and morality—it emerges everywhere and spontaneously, independent of any economic theories. People, on some intuitive level, feel that the freedom to create money for themselves is one of the most important freedoms. This sentiment becomes particularly evident and pressing during crises. A notable example is the experience of the community in the Austrian town of Wörgl, where in 1932 they introduced the “free schilling.” What set it apart from regular currency was the implementation of a negative interest rate: anyone who held the banknote at the end of each month had to buy and affix a special stamp to it. Naturally, citizens tried to pass the obligation of buying stamps onto their neighbors and thus quickly rid themselves of the money. As a result, the overall turnover of the local economy more than doubled, and unemployment decreased by a quarter. A year later, the Austrian National Bank halted this experiment, which had already begun to be adopted in other towns, viewing it as a threat to its own monopoly.

Local currencies were issued in Germany, in Scandinavian countries, and in hundreds of American and Canadian communities during the Great Depression—everywhere that, on one hand, acute economic problems made the need for change obvious, and on the other, the repressive power of centralized authority weakened enough to allow these changes to take place.

In the second half of the 20th century, fueled by the hippie movement, there was a new rise in local currencies. LETS ^[105]. The Local Exchange Trading System (LETS) is arguably the most widespread system among them. It was created by systems analyst Michael Linton in 1983 on Vancouver Island. LETS is based on two ideas. First, money directly facilitates the act of sale. When a user purchases something, a record of debt is entered into their account, while a record of receiving a certain amount is entered into the seller’s account in the database. Thus, currency is issued by the users themselves, rather than by the system. The second idea is directly related to the first: money is used solely as a medium of exchange and cannot be used for accumulation. These ideas are not new, but their combination with the simplicity of deploying the system ensured some initial success. However, just three short years later, the system collapsed, and half of the LETS ceased to exist. Linton had not thought through many aspects, particularly the lack of restrictions on negative balances in his system. In the 1990s, modified LETS experienced a resurgence. In New Zealand, Japan, Australia, and the Netherlands, they brought together thousands of people and facilitated transactions worth millions of dollars. The next wave of private monetary systems is linked to the boom in information technology. For the first time in history, non-bank entities gained the ability to issue money on a truly global scale.

While the first electronic currencies, like DigiCash, were more of a scientific and cryptographic interest, today payment systems like Webmoney and PayPal serve millions of users. Their annual turnover is measured in billions of dollars.

Local currency systems have not been able to overcome a number of organizational and technical issues: a rigid tie to national currencies, a limited range of services and goods offered, a lack of arbitration mechanisms and protection against fraud, and the outdated technologies used. Electronic payment systems are far more successful than their predecessors. They have developed protection and arbitration mechanisms and a vast audience. They do not require government support. Their strength is such that governments in various countries are beginning to change legislation to adapt to this new phenomenon.

In 1918, Oswald Spengler, in his work “The Decline of the West,” ^[106]. It was pointed out that the symbol of functional money—unlike the tangible money of antiquity—is “not a book entry, nor a promissory note, check, or banknote, but an act through which the function is fulfilled in written form, of which a security in the broadest sense is a purely historical testimony.” In the set of bytes transmitted across the World Wide Web, the process of the dematerialization of money, which began with the invention of paper banknotes, reaches its peak. Money is completely freed from its material carrier, transforming into a pure record and achieving maximum speed.

Author: Alexey Nacharov.

Peer-to-peer finance

Any member of society with sufficient creditworthiness can become an issuer of money in terms of claims. Right now, everyone who can be bothered is issuing money in the form of claims: discount coupons, vouchers, loyalty cards, receipts, contracts for the supply of goods and services. In fact, any transactions that involve a gap between the moment of payment and delivery fall into this category, and such transactions make up 99%.

Several hundred years ago, when the peasant Ivan Pasyuk approached another peasant, Peter Vydryhaylo, to borrow an axe in exchange for a bag of grain from the future harvest, neither of them suspected that they were engaging in operational leasing of fixed assets, with a futures contract as the means of payment. At the same time, this can be considered, in today’s terms, a complex financial operation that would be quite difficult to carry out in the modern world. This speaks to the crisis of practical finance.

If you go to a bank right now and say, “Give me some money, I’ll buy a tractor, and I’ll pay you back later when I sell my harvest,” the banker will first ask about the collateral for this operation—nobody trusts anyone, and especially no one wants to bet on the results of next year’s harvest. A poor harvest is bad; God forbid the farmer has enough money to pay for fuel, and a good harvest is also bad because prices drop, and there are times when the price of grain is lower than the cost of the fuel used for harvesting. Typically, a farmer doesn’t have large grain storage facilities to hold the grain until prices rise, and he is forced to sell everything right off the combine, as in a good harvest year, elevators raise their storage fees due to increased demand for their services.

It’s all quite sad, as the simple idea of settling with a supplier using future claims is quite reasonable. And how much grain will cost tomorrow doesn’t really matter in the grand scheme of things. Grain remains grain, and if the owner of the axe truly needs a sack of grain, he doesn’t care how much it costs—he will eat it and won’t worry about whether he overpaid for the axe rental.

Petr Vydryhaiilo trusted Vanya Pasyuk and accepted a futures contract as payment. But modern bankers do not trust. This is a matter of adverse selection. Bankers who do not fully understand the issue will attract those who are unable to provide for themselves or those who haven’t found a like-minded person who believes in them. And the less trust the banker shows, or the more he demands in payment for his services, the more likely it is that Vanya, when approaching the banker, already knows in advance that he won’t be giving anything back. Lending to farmers against future harvests is one of the riskiest operations for bankers and is generally not favored by credit committees.

But let’s go back to the axe. Why did Vydryhailo so easily rent out the axe? There are three reasons for this.

The level of trust that existed between Vanya and Petya was quite high, and in those times, within closed conservative groups, reputation was the key to survival. If Vanya doesn’t repay his debt, no one will lend him anything the following year. Vanya needs to repay the debt. Vanya wants his son to have a house built for him by the whole community, with the understanding that Vanya will participate in similar construction for every other neighbor. If Vanya is a freeloader, then there’s no point in helping him.

The axe won’t be significantly damaged from being used by Vanya. It remains “a steel axe with a wooden handle, used, 1 piece.” So if there’s no harvest, Petya won’t lose much. The axe is just sitting idle anyway, and its depreciation is minimal. Plus, there’s a chance of getting a bag of grain.

Even if Petya doesn’t need a bag of grain right now, he understands that a bag of grain is always a bag of grain and can easily be converted into other values, even in the form of a futures contract. Petya can go to Semyon and ask for vodka in exchange for a future bag of grain, and Semyon will agree. With this futures contract, Semyon can go to Baba Klava to have her fix his tooth, and Baba Klava will come to Vanya, asking him to help her harvest carrots in her garden, using the future bag of grain as collateral.

In the end, Vanya will find himself with the feeling of having two bags of grain. One of them he will give to Petya Vydryhaylo, and the other… the other will come from Baba Klava, and right now Vanya can easily go to Petya and ask for a saw as well. This is to secure the second bag in the future. And as long as no one thinks to accumulate futures on grain, no one will be aware, and no one needs to be aware, that there is only one bag of grain—and that one doesn’t even exist yet.

The crisis will occur due to the low transaction speed relative to the length of the chain. Petya Vydrygailo will come to Vanya in August for two bags. But Vanya has only one left. He sold the rest, and the second bag is waiting for him from Baba Klava. So it turns out that if Petya, believing Vanya that he will give the second bag “later,” decides to eat the first bag instead of passing it to Semyon, then Vanya won’t get the bag from Baba Klava and won’t settle with Petya.

A simple solution would be for Vanya to issue a promissory note, which Petya would give to Semyon instead of promising to deliver a sack of grain. Semyon would know that he needs to go to Vanya for the grain, not to Petya, and Baba Klava would know the same. When Vanya receives his own note back from her, he will settle it himself, ultimately paying for the axe with a harvest of carrots from Klava’s garden.

If the bill will eventually be redeemed by its issuer sooner or later, then the text written on the bill that determines its value is irrelevant. It could just as easily say “a bag of grain” or “a bag of gold” with equal success. However, despite the arbitrary nature of the writing on the paper, the participants in the chain should not be tempted to take the goods in kind (to exchange the bill or the rights it represents for what is specified in it), nor should they feel that the bill is useless and want to get rid of it.

We have now entered what is known as the post-industrial world. A world of services, where a significant portion of the gross product is generated from intangible things. The share of raw materials in the cost of the final product is minimal or insignificant. Notaries, photo studios, massage therapists, tour guides, auditors, consultants, lawyers, programmers, engineers, telecommunications operators, advertisers, artists, architects, and others create their products with little to no use of working capital. The payment for their labor is almost the only expense, aside from financial costs: loan payments for purchased equipment, rent for premises, leasing. And these financial expenses do not depend on the volume of production or services provided.

In the process of the wikification of the economy, producers are fragmenting, large companies are outsourcing everything they can, and the means of production are becoming increasingly complex and less dependent on personnel, reducing their workforce to the size of a household. The products being produced contain less and less in terms of material components, such as raw materials or energy, and more and more intangible components, such as design, or financial components, such as equipment leasing fees.

In today’s world, we’ve arrived at the same situation as with the axe of Vydryhailo: it’s not a big deal to give it away, but still… The owner of the fitness center doesn’t care how many people are in the pool—2 or 15. After all, the pool can hold 30 people. He would even be happy to offer a 50% discount if he were sure that many more people would come to the pool. But he has no confidence in that. And when he does have that confidence, he offers the discount. That’s what services like Groupon or Pokupone take advantage of.

The owner wants to fill his fitness club with people. He is even willing to issue claims. Certificates or bearer bonds that grant the holder the right to swim in the pool. But who would take them? Another post-industrialist might take them if he is confident that he won’t be able to get cash from the fitness center, and he can find a way to use these bonds, even at a discount, and even with a 50% discount (which, by the way, the fitness club owner is secretly ready for, as long as his club is busy). He also needs to be sure that the bondholder won’t be denied service. All of this, of course, depends on whether the fitness club owner needs the services of this other post-industrialist, such as advertising or auditing. However, the advertiser or auditor is unlikely to want to deal with the hassle of cashing in these bonds and monetizing them. They will accept them only if they are willing to use them themselves or if they are confident that someone in their circle will use them and pay in real money.

Now let’s remember about trust and reputation. Firstly, in a post-industrial economy, there is usually an excess of established capacities. Restaurants, fitness centers, and auditoriums are rarely at full capacity, ready to serve one more customer. This means there are no serious obstacles to serving a person with a promissory note instead of cash. Secondly, for this entire system to function and for promissory notes to start circulating, gradually becoming independent of their issuer, a reputation tracking system is necessary—a voting system that shows others the level of trust in the issuer or their digital reputation—karma. Karma will slowly increase with each properly honored promissory note and sharply decrease with each refusal of service. An issuer with low or negative karma simply falls out of this economy.

It creates a kind of social network where anyone can register a claim for their own services and, in return for these yet-to-be-provided services, receive claims for the services of other members of the network.

Why would an auditor accept a promissory note from a fitness center? Because he will be confident that there is demand for this service. How will he determine that? Even if he personally doesn’t need the fitness center’s services, the system will definitely find someone who would be happy to accept that promissory note. And if such a chain of mutual exchanges cannot be established, our auditor may negotiate a discount, assessing the risk involved.

This is not about a global replacement of money with an overly complex barter system. Industry and agriculture are still very much in play. A significant portion of production relies on raw materials, which need to be extracted and paid for. Money won’t just disappear overnight, and there should still be a nominal value for various services within this network, if only for reference.

However, with the reduction of manual labor, any industry inevitably transforms into a service sector. After all, even at the stage of iron ore extraction, we are talking about creating added value from the service that is increasingly performed automatically. Literally every entity in the economy, in an environment of monitored reputation, will be able to issue various claims and use them to pay for the services they acquire.

When it comes to the extraction of primary resources—minerals, food, water, human labor—the question of their scarcity always arises. In fact, the thesis of resource scarcity is half of the fundamental postulate of economics. The other half states that needs are unlimited. Thus, resource providers and other economic agents who, for any reason, do not have a surplus of supply or excess capacity will exchange their services to the extent that they can consume the services of the rest of the economy.

A necessary condition for the existence of such a system is transparency. Moreover, it must be mutual. For instance, if a painter decides to buy a house from builders, he will want to issue claims for painting services for the next 100 years. The builders, accepting his promissory notes (essentially conducting an IPO), need to be able to assess their reliability. If the claims for painting services issued by the painter are not backed by the painter himself, then no one will buy those claims from the builders either. Therefore, it is essential that builders, painters, waiters, and everyone else involved in the system can not only declare their resources but also provide a means for others to verify them. Peter Vydryhailo would never have given Ivan an axe for a future sack of grain if he weren’t confident that Ivan had everything needed to obtain that sack.

There are already barter websites where complex exchange operations can be organized. However, the focus there is specifically on exchanging goods on an industrial scale, on trading something that has already been produced and is ready for delivery.

The peer-to-peer financial system involves the exchange of claims to goods rather than the goods themselves. This is relevant, for example, in a situation where a restaurant purchases advertising and pays the advertising agency with claims to the restaurant’s services. The advertisement is created and aired now, while the restaurant feeds the advertising agency’s employees months later. Theoretically, nothing prevents the advertising agency from settling with someone else not with advertising, but with claims to meals at that restaurant.

The development of social networks or the creation of specialized exchange social networks will allow economic entities to accept payment claims not only based on their own needs but also based on the needs of certain third parties within the supplier’s network or identified by the network itself through special algorithms that establish optimal exchange chains. Further abstraction of payment claims from suppliers is possible by monitoring the suppliers’ reputations and ensuring their transparency for system participants.

It is already possible to create a barter social network where providers of “clean” services (lawyers, consultants, hairdressers, advertisers, programmers, doctors, restaurateurs, etc.) can exchange their services with each other and receive either real services in return or claims to them, which can be monetized at face value or with a discount outside the network. Moreover, similar projects already exist. For example, http://altasfera.ru

Reckonism or totalitarianism?

It may seem that under reconism, society must be absolutely homogeneous and share the same views. It appears that this is only possible if everyone submits to a single opinion, as there is no way to hide or resist, even passively. Following this logic, the reader may not find any differences between reconism and totalitarianism. However, there are differences, and it is these differences that allow for a deeper understanding of what reconism truly is.

The idea that totalitarianism is a practice of erasing the boundary between private and public existence belongs to the so-called Frankfurt School of philosophy — the critical theory of industrial society. ^[107]. The Frankfurt School is a variant of neo-Marxism, and the very idea of reconism has roots partly in the works of representatives of the Frankfurt School. It is worth noting that the economic basis on which reconism is built is completely opposed to Marx’s economic theory and adheres to classical principles of supply and demand, in contrast to the ideas of surplus value, class struggle, and class consciousness.

It is precisely by analyzing the phenomenon of alienation that reconism has been proposed as a means of completely eliminating alienation. By examining the concepts of social character and the collective unconscious as sources of taboos related to privacy, we have formulated the thesis that society’s drift towards transparency is a natural process, despite its apparent unacceptability at present.

At the same time, while considering the ideas of the Frankfurt School, one cannot overlook its thesis that the blurring of the line between the private and the public leads to totalitarianism.

The Frankfurt School is a phenomenon of the mid-20th century, a time when the first bureaucratic systems flourished, using mass propaganda to shape the public and personal opinions of each member of society. At that time, it was believed that the only possible flow of information was a one-way street from the authorities to the individual, a notion significantly amplified by the media that emerged during that period. Any opposing viewpoints were deliberately suppressed, repressed, and existed in an environment where any dissent was perceived, thanks to the propaganda machine, almost as a form of madness.

Similar schemes for managing society were widely used in the early 21st century in the countries of North Africa and the Middle East. At the same time, the informatization of society created the conditions for the development of a reverse information flow, a bottom-up flow. A flow that simply could not be silenced by official propaganda, and to which people had more trust than to propaganda itself. Thus, Facebook and other social networks became the catalyst for a series of Middle Eastern revolutions.

At the same time, social networks also blur the line between private and public. However, this blurring is initiated by individuals rather than by the authorities. This is the main difference between totalitarian propaganda and social networks. While the former serves the interests of those in power, the latter serves everyone. The erosion of the boundary between private and public through the wikification of mass media is fundamentally opposed to the blurring of that boundary through its monopolization.

The Frankfurt School saw the danger of mass zombification when this boundary was blurred, while recognitionism views this as a path to complete freedom, allowing everyone to have a voice as powerful as that of any other member of society, company, or organization.

If the Frankfurt School saw the problem in the imposition of consumer society values by capital through mass advertising and propaganda, then re-kinism is practically the only form of existence in conditions where advertising is obliterated by the uncontrolled flow of information about consumer experiences generated by corporations.

The thesis that totalitarianism is the practice of erasing the boundary between private and public existence holds true only when there are information flows descending from power to the individual. If, however, the information flows go from the bottom up, then totalitarianism does not arise at all.

Totalitarianism according to Popper

Karl Popper, one of the most influential philosophers of science of the 20th century, formulated the concepts of open and closed societies. ^[109]. He defined a closed or totalitarian society as one based on a strict hierarchy of social strata, which limits an individual’s ability to change the stratum they belong to. In this way, Popper criticized Plato’s classical utopia. ^[64]. as a distinctly totalitarian idea. According to Plato (and his followers), people will be happy because they are in their designated class and fulfilling their predetermined role. It was implied that the stability of such a society is maintained through violence. This violence is organized by one of the social strata—the armed forces—which stand far above most of the other classes.

A closed society is one that is typical of tribal structures, where relationships are governed by a system of taboos. In such a society, individuals always know what is right and what is wrong, and they have no difficulty in choosing the correct behavior. Closed societies are characterized by a strict division into classes and castes. This division is justified by the members of the closed society as being “natural” and “fair.”

In contrast to a closed society, Popper formulates the concept of an open society. This is a society where individuals decide for themselves what is right and what is wrong. In such a society, there are open paths for personal development (hence it is called open). The society itself implies the potential for anyone to occupy any position within it. An open society is also free from taboos.

Reckonism primarily criticizes the existing taboos that still regulate social relations. It is also based on the idea that with the development of information technologies, the role of the state as a creator and distributor of public goods will significantly diminish, leading to qualitatively different forms. Reckonism views the world as a community of people who collectively create and manage both public and private goods. In the concept of reckonism, there is no place for any hierarchy—an individual’s position in society is determined by their reputation, rather than by hereditary, class, national, property, or any other subjective criteria.

If we use Popper’s approach, reconism is the embodiment of the evolution of an open society. A large social network that frees people from the need for personal acquaintance to understand each other’s viewpoints and find consensus, connecting individuals into a single, more rational organism than we have now, while respecting the interests of each person.

Of course, society is characterized by conformity. Expressing or even suggesting an opinion or viewpoint that differs from that of the overwhelming majority can feel like a heroic act. In a fully open environment, it seems that everyone would fear being seen as a dissenter. At the same time, the flattening of the world and the development of information networks allow each person to find like-minded individuals, and not just one. The “wikification” of information means that like-minded people, no matter how outlandish their ideas may be, can easily come together in interest-based groups. Thus, a transparent society is likely to be not homogeneous, but rather tolerant of various thoughts and ideas, and its members will feel much freer to express their ideas without fearing ostracism, as they will be able to find at least a dozen like-minded individuals.

Totalitarianism is the selection of ideas. It is artificial selection. It cultivates a society that is completely unstable in the face of external catastrophic impacts. The history of any totalitarian state that has faced the devastation left in the wake of totalitarianism confirms this. Reconism is wild nature. It is reconism that allows new ideas to emerge and drift from one bearer to another.

At the same time, reconism provides the basis for unifying people’s opinions. The source of differing opinions has always been and continues to be the varying levels of knowledge individuals have about a particular issue or the different personal experiences of each person—an asymmetry of information, reflected in the saying: “Of the two disputants, one is a fool and the other a scoundrel.” In an environment of complete information accessibility, everyone will be able to obtain the same information as their neighbor. Each person can impartially assess another’s experience and arrive at the same conclusions as their neighbor. Everyone can acquire the same knowledge, and if they don’t, they can find the opinion of a clear authority in a given field of knowledge.

Thus, reconism remarkably combines the free drift of ideas, pluralism of opinions, and unification of views, but a unification that is not forced, rather natural and open. In a reconist framework, a bearer of new, unconventional, and often rejected ideas will find it easier to gain support. In reconism, a new genius will not be crushed by the resistance of an old, rigid elite. They will have more opportunities to prove their point to a larger audience, ensuring the spread of their ideas until they encompass society as a whole.

The same applies to questions of morality and law. The openness of discussion, the constant support from like-minded individuals who appear instantly, and the complete accessibility of historical precedents create a foundation for people to express their opinions freely on any issue.

From the outside, the behavior of a member of a totalitarian society who sacrifices personal interests for ideological values will resemble that of a member of a reconciling society, who also finds it reasonable to sacrifice personal interests for the sake of the community. The key difference is that a member of a reconciling society will clearly see, in concrete terms, the benefits that come to him personally from, say, not throwing candy wrappers on the road, and will understand the impact of his actions on the evaluation he receives from society. A reconciling society is based on adherence to a social contract, while a totalitarian society is based on its imitation.

Comparing totalitarianism and reconism is like comparing communism and a supermarket with payment terminals. On the surface, they both look the same. People take goods from the store and leave without paying. However, in a fantastical version of communism, there is no money at all, and people are somehow extremely conscious and not greedy, while in a supermarket, there is a powerful credit and financial system in place that ensures transactions and accounts for everyone’s labor.

Fare evaders

Even a gang of robbers must adhere to some moral standards to remain a gang. They can rob the whole world, but not each other.

Rabindranath Tagore

The weakest point of any utopia is the naive enthusiasm of its authors. Typically, the author of any utopia is an educated, cultured person who genuinely wishes to make the world around them better and kinder. They see selfishness and apathy as unfortunate misunderstandings caused by low culture and harsh living conditions. In an ideal society, they believe, everyone will come together to do good and care for one another. In reality, nature has allotted us just enough altruism and selfishness for survival. Taking advantage of others in certain situations is as rational and natural as sacrificing oneself to protect one’s offspring. Even the most selfless person, depriving themselves of many comforts for the sake of an idea, compassion, or love for others, is simply seeking emotional comfort. For members of society to participate in the creation of public goods and uphold the social contract, they need to understand their personal benefit. Otherwise, one must rely either on breeding a new kind of person or on mass executions to set them on the right path. Thus, utopia turns into a nightmare.

Any real social structure is built around a common resource that people use or create together. Even a married couple becomes one in order to jointly manage shared property and have pre-established rules for dividing it or for sharing the costs of raising children.

To create a public good, it is necessary to organize joint actions, which involve each member of society donating private resources to achieve a common goal. Any organization requires administration.

From this perspective, the state can also be viewed as a provider of public resources, funded by taxpayers. It is clear that such public procurement is not optimal. ^[17]. …that administrators use themselves, appropriating a portion of the public product or performing their administrative functions for an uncontracted payment with society—bribes.

At the same time, there are public goods for which the role of the state (or administrator) in achieving them cannot be delegated to private companies. Additionally, such goods… ^[107]. They cannot be personalized through the development of total accounting systems. For example, clean air in the city. In order for everyone to breathe clean air, all cars need to be equipped with catalytic converters that clean exhaust from carbon monoxide and unburned fuel residues. Car owners may be tempted not to buy a catalytic converter. The exhaust from one car won’t make the city dirtier, and a car without a catalytic converter will demonstrate greater power or lower fuel consumption due to reduced resistance in the exhaust system. This is where the “freeloader effect” comes into play. In such conditions, the role of the state is to minimize the number of freeloaders by regulating the car market and organizing technical inspections.

Mass vaccination can be considered a type of public good. After all, if one specific person is not vaccinated, they won’t catch the disease from anyone else. So why should they get vaccinated and risk potential side effects that could lead to health issues, disability, or even death? “In an ideal system, there should be a price that the patient would have to pay to each person whose health is at risk; a price high enough for others to feel that their losses are compensated; or, alternatively, there should be a price that others would have to pay to this individual to persuade them to get vaccinated.” ^[51]. Текст для перевода: ..

However, the costs of assessing the damage for each member of society due to someone not participating in the creation of a public good, and organizing compensation payments from free riders to the other members of society, increase with the size of the society, the decrease in its transparency, and the complexity of the good itself. Therefore, under modern conditions, it becomes inevitable that such costs, for sufficiently large communities, will exceed the costs of the group organizing the enforcement of all its members to contribute to the creation of that public good, even taking into account the imperfections of any enforcement measures and the inevitable presence of “free riders.” Thus, the very complexity of identifying all “free riders,” as well as calculating and organizing compensations, especially in complicated cases like mass vaccinations, makes the enforcement system more advantageous compared to other methods of mobilizing the group. Even in groups where it is relatively easy to identify all free riders and calculate the damage to the other members, violence will still be required to extract fines and redistribute the collected funds to the victims.

The participation of community members in the creation of such benefits is possible:

• either through the delegation of certain powers by society to a punitive system funded by society itself,
• either through the funding of a new public good aimed at addressing the consequences of opportunism, with the mandatory delegation of authority to a certain body to manage the finances (for example, payment for the services of janitors who clean the sidewalks),
• either through education, culture, and propaganda, which is essentially a public good funded by society. You reap what you sow.

When examining opportunism or, in this context, the “free rider problem” within the framework of new institutional economics, the following means of social control are considered to avoid opportunism:

• Trust ^[110]. as a means of increasing efficiency, reducing control costs, and achieving agreements and mutual understanding in risk assessment more quickly.
• Culture serves as a framework that defines shared values, concepts, and goals, acting as a factor influencing coordination problem-solving. It is associated with the processes of establishing contact and reaching agreements: in the case of prolonged partnerships within a monoculture, there is a likelihood of increased transaction costs due to dependency, trust abuse, and opportunism, which undermine efficiency.
• Reputation serves as a specific form of capital. A good reputation reduces the incentive for opportunism and, as a result, lowers the costs of information gathering and negotiation.

It seems logical that stable markets based on trust can only reliably exist in conditions where reputation is at least somewhat trackable. This is especially evident in service markets.

In such markets, a key feature of sales organization (if that term is even applicable) is the creation of customer networks based on recommendations. Consumers feel extremely uncomfortable in situations where they have to trust the seller without the ability to verify the supplier’s reputation or leave a meaningful recommendation about the product for the supplier. For example, it is wise to avoid dining in train station cafes, where product suppliers are completely unconcerned about their reputation, the recommendations of “one-time” customers, and do not expect repeat visits from clients.

Many travel guides recommend having lunch at roadside cafes where long-haul truck drivers regularly eat, creating a social network of recommendations. In such establishments, it is highly disadvantageous for the owner to offer low-quality products, as this would exploit information asymmetry and demonstrate opportunism.

What we describe as manifestations of trust—trust in banks, restaurants, airlines, brands, and generally in strangers for various reasons—is actually an awareness of the reputational dependence of agents. This can easily be confused with the development of a society’s culture as a determining factor in the phenomenon of trust, due to the simultaneous nature of these factors. A bank might deceive one depositor, but it does not do so, acting on rational rather than cultural motives. Airplanes operate on schedule because distrust in the carrier would lead to direct economic consequences—passengers would flock to competitors.

We don’t trust strangers without a good reason. Otherwise, we could just hand over a suitcase full of money to a taxi driver instead of carrying it ourselves. And if we do find ourselves needing to trust a stranger, we don’t approach the situation rationally; instead, we rely on ready-made templates like “you can’t trust gypsies.”

Thus, in the absence of reputational pressure on the supplier, it is more appropriate to speak not of consumer trust, but rather of the supplier’s monopoly or the conditions of limited rationality in which the consumer finds themselves, unable to consider all possible alternatives for satisfying their demand and compare them based on rational criteria. It is also unrealistic to rely on culture as a guaranteed tool to eliminate opportunism. In an apartment building, even if almost all residents possess a high level of culture, just one uncultured individual is enough for the elevator to smell of urine until the next cleaning.

References to “level of culture” or “consciousness” are generally good indicators of the utopian nature of certain social structures. It is impossible to imagine a situation where absolutely all members of society possess a high level of culture, as culture itself is a public good produced by parents and educators for the benefit of the entire community. If parents act opportunistically and fail to instill culture and behavioral norms in their children, they reduce their costs compared to other parents who invest their resources in such activities, of course, setting aside the motive of raising their own children to be caregivers for elderly parents.

Utopian methods of economic organization are designed with a humanistic focus and are generally non-market-based. They can be either democratic or hierarchical, but still require a deep commitment to collective goals and adherence to subordination. Throughout history, there have been numerous attempts to create such structures in social and economic organization; however, it is utopian societies that suffer the most from opportunism. ^[111]. Текст для перевода: ..

The almost sole economic benefit of displaying “high culture” is the enhancement of an individual’s reputation and the level of trust in them. Under otherwise equal conditions, other individuals are more likely to engage in a transaction with a “cultured” person, as they can save on transaction costs when choosing a supplier.

By maintaining a reputation, an individual can save their own resources, as those interacting with them already expect certain behavior based on their culture or reputation.

In other words, few would dare to fight a world boxing champion, which allows the champion not to fight at all. ^[112]. Thus, all possible methods of countering opportunism—namely trust, culture, and reputation—boil down to reputation management.

American economist Mancur Olson in his work “The Logic of Collective Action” ^[17]. He provided a fairly coherent argument that in large groups, the rational behavior of an individual optimizing their costs would be to refrain from participating in the creation of public goods. Indeed, if the public good will be obtained regardless of their participation, then the rational choice would be not to participate, since the public good, by definition, will be available to everyone. Olson demonstrates that a public good in a large group is likely to be achieved only if the costs of obtaining it are equal to or less than the benefits received by any member of the group.

“…this means that there are three separate but working together factors that prevent a large organization from operating in the common interest.”

• Firstly, the larger the group, the smaller the share of each individual in the overall profit, and the less adequate the reward for any group action, which in turn moves the group further away from ensuring itself an optimal amount of goods.
• Secondly, the larger the group, the less likely it is that any subgroup within that group will receive a sufficient amount of collective good to cover the costs of providing even a small quantity of that good; in other words, the larger the group, the less likely oligopolistic interaction will occur, which could help ensure the collective good.
• Thirdly, the larger the number of participants in a group, the higher the organizational costs and the greater the obstacle that must be overcome before any collective good can be provided. As a result, the larger the group, the further it will drift from ensuring an optimal amount of public good for itself, and typically very large groups, in the absence of coercion or external influence, will be unable to provide it at all, even in minimal amounts…

Olson described the ways in which large groups, which he referred to as latent groups, can be mobilized to create public goods. He identified two methods of mobilizing groups: coercion and the presence of selective incentives, meaning incentives that do not apply to the entire group as a whole, but rather to specific individuals, encouraging them to participate in such a group.

Coercion can function as mandatory participation for everyone in a group. This principle was the foundation of the labor movement in the United States, and labor unions experienced their greatest growth after securing commitments from employers not to hire non-union members. Olson also demonstrates that a number of public goods require unconditional solidarity funding. For example, national security as a public good benefits everyone, and society is generally accepting of limiting the individual economic freedom of its members and compelling them to pay taxes that fund defense.

The presence of electoral motives is well illustrated by people’s membership in various professional associations. This provides them with recognition in their professional market, allows them to receive a number of benefits and privileges, and keeps them informed about the latest developments in the industry.

Electoral motives drive shareholders or members to form joint-stock companies, as the income generated by the company is only accessible to the members of the joint-stock society. At the same time, these same shareholders, in pursuit of another public good—the resolution of the shareholders’ meeting on a particular issue—tend to avoid thoroughly reviewing documents, voting, or participating in the meeting altogether, often delegating their vote to management or other shareholders who are “most invested.” After all, the influence of a minority shareholder’s vote in a large joint-stock company is negligible, both on the wealth of that shareholder and on the company’s overall affairs.

The mechanism of selective motives can explain the seemingly irrational behavior of participants in large latent groups, such as Wikipedia authors. These motives may include self-assertion, self-realization, the desire to be appreciated, or the wish to inspire others with their ideas. And even if there is no rationality to be found in the behavior of Wikipedia authors, one can always argue that crowdsourcing is about identifying and highlighting irrational altruists within the crowd, the likelihood of whose existence is always greater than zero.

At the same time, when we label someone’s behavior as irrational, we are likely just unaware of the motives driving that “irrational” individual. The appearance of a particular article on Wikipedia can be explained by the fact that, for someone, the costs of writing it became less than the benefits they gained from having such an article exist.

If we look at the behavior of society towards a corrupt representative of power from the perspective of group theory, the rational behavior of an individual would be to do nothing, even if the person in power is an outright thief or criminal. Regardless of how fashionable and progressive the methods of elevating someone to power may be—whether it is inherited or formed situationally through mechanisms of “instant delegation” and “electronic democracy”—the public good achieved by removing an odious leader can be attained both with and without the involvement of a specific individual. The contribution of that individual is insignificant both to themselves and to society, and the benefits derived from the public good, or rather, the share of those benefits that accrues to the individual, is very small. Moreover, the organizational and initial costs that the group must incur to mobilize for the attainment of the public good (the removal of a tyrant) are generally quite substantial, and only with a critical reduction of these costs, perhaps due to the moral decay of the army, can one hope for the success of the endeavor.

Practice shows that the initiators of power changes in large organizations and states are often those who “need it the most,” meaning individuals with their own electoral motives, such as a personal desire for power, typically driven by an economically rational thirst for profit. However, even in these cases, the initiators act through the creation of lobby groups—small, effective teams united by a common goal, ready to collectively bear all the costs of a larger latent group. The mechanisms of interaction in small groups differ from those in larger ones.

Mansur Olson, in addition to large latent groups, examined the work of so-called “privileged” and “intermediate” groups. By “privileged,” he referred to groups that are “small enough and in which each member, or at least one member, has an incentive to pursue the collective good, even if it means bearing all the costs themselves. For such groups, there is confidence that the collective good will be provided; moreover, it can be ensured without any organization or coordination of the group.”

By “intermediate groups,” he meant those in which “… none of the participants receives such a significant share of the overall benefit that they would be motivated to provide this good solely on their own. However, the number of participants in this group is not so large that no one would notice if one of them refused to take on some share of the costs. In such a group, the collective good may or may not be provided; however, it will definitely not be achieved without some form of coordination or organization within the group.”

Thus, if we ensure, through various technical means, an increase in the visibility of a group member’s participation, we can also expect an increase in the permissible size of the group that can still act effectively and cohesively. Sociologist, Harvard University professor, and one of the authors of the social exchange theory, George Homans. ^[113]. He wrote that small groups exhibit much more consistency than large ones: “At the level of… a small group, that is, at the level of such a social unit (regardless of what we call it), where each member of the group has firsthand information about all the other individuals in the group, human society has demonstrated the ability to act coherently for many thousands of years…” In modern terms, Homans argued that the key to a group’s effectiveness should be its complete mutual transparency.

The scientific and technological progress, currently manifested in the development of social networks and the reduction of privacy, ensures the mutual transparency in large groups that leads to an increase in their mobilization levels. Examples of this can be seen in flash mobs or modern protest actions. It is clear that the larger the group, the greater the degree of mutual transparency required for the group to remain effective.

Moreover, the informatization of the sphere of group actions significantly reduces the organizational costs that a group must incur before it can start producing public goods. While the classical approach involved identifying certain initiators of group actions, holding meetings, and developing collective decisions—which required substantial time and material resources—the modern method of organizing a group by engaging its participants through social networks and conducting remote discussions on the issue demands incomparably fewer costs.

It is also worth noting that the introduction of a numerically expressed reputation for group members (karma) allows for both the assessment of an individual’s level of participation by other members and the motivation of individuals to earn reputation through actions approved by the group. In other words, numerical reputation becomes a new selective incentive that influences group members and mobilizes the group. It is important, of course, that the level of karma somehow affects the opportunities available to a group member. This means that certain “e-government” projects could be more effective than existing models precisely because of the technically organized mutual transparency among group members who propose and oversee the activities of such a government, as well as due to the information infrastructure that can minimize organizational costs and evaluate the reputation of individual group members, thereby granting them privileges or, conversely, imposing penalties based on their reputation level.

Three factors have the greatest impact on the effectiveness of reputation in countering opportunism:

• the density of the social network in which reputation spreads, that is, the number of social connections among players;
• the speed of information dissemination in this network and its resilience to distortions;
• the engagement of participants in the social network, meaning the duration of relationships over time and the number of these relationships ^[116]. Текст для перевода: ..

The combined influence of these three factors on a social network can be referred to as the degree of transparency of the social network. If we talk about the behavior of a person who is well-known to everyone around, meaning we have a high network density, and information spreads instantly within this network, while the person in question frequently interacts with other members of the network, then news about them, say, taking a candy from a child, will spread rapidly.

At the same time, real social networks are not transparent for a number of reasons. The Dunbar number plays a role here, limiting the number of connections for each individual and the speed of information transfer between people. People themselves are not perfect repositories or transmitters of information and may forget or distort certain details about others. Additionally, individuals’ engagement in their own social networks is far from 100%.

In such conditions, the reputational mechanism serves as an excellent “antidote” to opportunism in small, mutually transparent groups, where one can expect that the first player will engage in a transaction with the second only after learning about the results of their previous transactions with other participants.

The limitations of real social networks in terms of speed and the number of interactions are not as strict when we look at virtual social networks. A message that one user of a computer social network sends to another can be instantly accessible to all of the author’s acquaintances. There’s no need to keep repeating the same news; it’s enough to express an idea once, and it becomes available to everyone immediately. Those who receive the news can also pass it on without any distortion, with just the click of a button. The number of “friends” in a virtual social network can be much greater than Dunbar’s number. The speed, quality, and reach achievable in computer networks theoretically allow for the use of reputation as a tool to counter opportunism even in large latent groups.

There are already communities on the internet that, in one way or another, create a public good. This can be a collective news resource or a blog, for example, dirty.ru, habrahabr.ru, digg.com, photosight.ru, leprosorium.ru. These communities use reputation as a tool to combat opportunism, which, in this case, manifests as attempts to use the collective blog for spam, advertising, or intrusive self-promotion. The number of members in such communities can reach tens or even hundreds of thousands of people.

Reputation scoring systems ^[114]. The methods for using it for community self-organization are still imperfect, but one thing is clear: the trial-and-error approach employed by resource administrators will eventually lead to an acceptable universal solution.

As an example of the imperfection of reputational ratings, we can point to their binary nature. With just “likes,” we can only receive a rating of “good” or “bad.” But why it’s “bad” or “good” is never explained. At the same time, reputation is not simply “good” or “bad”—it reflects the expectation of a person’s behavior or the results of interactions with them. Thus, “Karma” could appear as a list of presumed evaluations of the outcomes of transactions with a person. For example: “knowledgeable philatelist” (+345), “internet troll” (+467), “expert on Ukrainian-Russian relations” (+1456). In this case, “negative karma” simply has no meaning. If it becomes necessary, someone might give another rating like “does not keep promises,” and others can choose to agree with it or not.

Transitions to “multidimensional karma” are already being observed on some platforms. There are separate evaluations of a person as such; their role as an author of posts and comments; their activity in the blog, the popularity of their entries, and so on.

Evidently, due to the imperfections in the digital reputation mechanism, collective blogs still require moderators for their normal functioning. These moderators can be chosen by the blog participants themselves, appointed by administrators, granted automatically based on karma levels, or formed from mobilized groups of users who take on “sanitary” or even “policing” functions for the resource. They utilize methods available to regular users, which, when applied by a coordinated group, become a tool for moderation.

If we talk about the functioning of peer-to-peer networks that are deliberately devoid of administrators, digital reputation becomes almost the only tool that creates an atmosphere of trust and counters attempts to spread low-quality content, computer viruses, or spam. ^[116]. Текст для перевода: ..

We can expect the development of information technologies to reach a point where they will allow us to track digital reputation not only in virtual communities that lack public goods but also in real-life communities.

A prerequisite for the development of information technologies can be the latent demand among members of society for information about the reputation of others, as well as for building and further managing their own reputation. This is aimed at reducing both their own costs associated with undesirable transactions with other members of society and the costs that others incur in relation to them, making individuals with a good reputation more attractive for deals.

Mechanisms for tracking reputation and instant informing of other members of society about the results of a particular transaction or the consequences of certain behaviors by group participants could eliminate the need to rely on the state apparatus and its system of coercion as the sole means of curbing opportunistic behavior. Such mechanisms would, of course, require systems for monitoring individual behavior, along with the organization of mutual accountability and transparency.

It should be noted that we do not know how to completely eliminate the mechanism of coercion aimed at achieving public good in all areas of society. We are also not sure that it will be possible to fully rid ourselves of the state’s role as a fighter against “freeloaders.” The army, for instance, must protect everyone, not determine who has paid for its upkeep and who hasn’t. Perhaps mechanisms for the functioning of certain private security entities, funded by reputation-dependent communities, will be invented someday. It is possible that the army will remain the only “unaccounted for” public good. It is not necessary for everything to be decentralized. Ideal schemes do not work. Some functions will remain with the state. The trend is clear — the state will become less and less necessary for society. Will it become completely unnecessary? That doesn’t matter. What matters is that it will lose much of its significance and power.