Matt Levine once wrote:

money is a social construct, a way to keep track of what society thinks you deserve in terms of goods and services

That is: Bob makes me a sandwich. I give Bob $5. In doing so, I proclaim to the world that Bob’s sandwich has increased my happiness by five units. The whole of society is indebted to Bob for the Good he has done.

Bob then goes to Amazon and buys a pair of socks with the $5. Society repays his debt by giving him a pair of socks that make him five units happier. The money cycle continues: Jeff Bezos has done $5 of Good, and Jeff calls in the favor by buying (part of) a G700, etc.

A challenge to our modern free market system is that people do not believe this. People do not believe that the money you have reflects how much goodwill you deserve. For good reason! Wealth is often earned in ways that have minimal or negative effects on global utility. Wealth is often inherited by heirs who did nothing to earn it. Even a self-made fortune through honest work is highly random and path-dependent.

That money equals social good is a myth of the free market system. A myth in the sense that it is a meme, which, though not entirely true, reflects the ethos of the system.

If you believe that free market capitalism is the least-bad economic system and want it to succeed (and I do 123), it is imperative to continually push for the myth to be more true. That means taxing externalities, raising inheritance taxes, and closing loopholes and regulatory arbitrage. 4

  1. Caveat 1: In groups smaller than 150, you can mentally track your mutual social balance with everyone, and money is cumbersome. But you need a more rigorous accounting system to scale it to 8 billion people. ↩

  2. Caveat 2: In a post-ASI world where humans produce negligible economic output, it is unclear that free market capitalism is the best system, because wealth will be frozen at pre-signularity levels. But this is a topic for another essay :) ↩

  3. Caveat 3: I think society should owe you a balance of goodwill merely for existing. That is, we should have UBI. ↩

  4. Saving Capitalism by Robert Reich is a great read that goes further on this topic. ↩