THE ROLE OF MONEY & INTERNET IN SOCIAL DEVELOPMENT
by Robert Macfarlane, Garry Jacobs and N. Asokan
1998 Pacific Rim Allied Economic Organizations Conference
International Center for Peace and Development
This paper is based upon the theoretical principles presented by the authors in Central Principle and Process of Social Development. The paper applies these concepts to examine the global development process during three different stages of its historical progression.
The evolution of social institutions is the primary engine driving the development of society. Social institutions act as powerful stimuli for development by increasing the frequency, intensity and efficiency of social interactions. This evolution has moved through three successive but overlapping stages of development physical, vital, and mental that can be described in terms of the type of organization predominant during that stage. The paper examines the role of three organizations characteristic of the three stages urbanization, money and the Internet.
Early cities were physical organizations where people, activities, fields of life, resources and infrastructure accumulated at high levels of concentration and interacted in complex ways. The growth of population and urban population density increased the intensity of these interactions, creating the critical mass needed for the emergence of markets and generating sufficient demand to spur mechanization of production during the Industrial Revolution.
Money has played a parallel role at the social level as a medium for urbanization, multiplying economic activities by several orders of magnitude. Establishment of a money economy freed individuals from dependence on land as an essential resource for production and freed commerce from the double coincidence needed for barter trade. Money increased the frequency and speed of transactions in virtually every field of activity by making it possible for people to convert the fruits of their labor into a common currency that could be exchanged for any products or services. Money provides incentives for people to produce more than they can consume, releasing greater energy and creativity. It serves as a medium for conservation and storage of what each person produces and permits easy transfer over any distance, thereby overcoming limitations imposed by time and space and dramatically increasing the efficiency of transactions.
Internet promises to play a similar role at the mental level of information and knowledge as a medium to organize globalization. Internet is increasing the frequency, speed and efficiency of information exchange in every field commercial, industrial, educational, scientific, political, religious, recreational, etc. Internet also overcomes the limits of time and space by enabling instantaneous access to information around the world. It increases enormously the number, intricacy and complexity of interactions made possible between individuals, organizations, facts, activities and fields of knowledge. Internet is an organized medium for bringing all existing social organizations into greater contact to release the maximum energy of society leading to unprecedented levels of social productivity and development.
Development is the upward directional movement of society from lesser to greater levels of energy, efficiency, quality, productivity, complexity, comprehension, creativity, enjoyment and accomplishment. These attributes are both the means for achieving development as well as its most characteristic expressions or results. The factor that they all have in common and which imparts to them their value is organization. Higher levels of each of these attributes are the resultant expression of higher levels of organization in society. Organization is the capacity to mobilize all the available information, knowledge, material resources, technology, infrastructure, and human abilities to meet challenges and take advantage of opportunities. Development is the process of continuously enhancing the capacity of society to respond to opportunities and challenges by increasing its level of organization. Development is the process of creating newer organizations.
The fabric of society consists of intricate interrelationships and interactions between different activities, systems, organizations, institutions, ideas, beliefs and values. The process of social development occurs by increasing the scope and complexity of the organization of this fabric. The movement involves a simultaneous development of the social fabric in several dimensions:
A continuous process of organizational invention and innovation spurs this movement. During each phase new organizations emerge and existing organizations take on new attributes that enable them to act as spearheads of the development process. The contribution of any of these factors may for a time become so significant that we view them as essential causes in their own right. Actually they are the live evolving ends of the underlying social organization which fashions them by its excess energy and without which they cannot exist or function.
The accumulated knowledge of the society and its increasing awareness of emerging opportunities and challenges determine the overall direction given to this development process. The energy that drives the process is determined by the intensity of the collective social aspiration for higher levels of accomplishment released by this accumulated knowledge and growing awareness. These in turn are strongly influenced by the level of organization of the social collective.
Stated in other words, society becomes increasingly conscious of its inherent capabilities, the opportunities for high achievement and the means to organize itself for that achievement. The more conscious it becomes, the more its energies are released, the clearer the direction given to those energies, the more effective and efficient the organizational arrangements it fashions to support accomplishment, and the greater the magnitude and speed of social progress.
Three Stages of Social Development
The historical perspective presented thus far may create the impression that the development process is essentially a linear progression from less organized to more organized conditions generating greater benefits for society. While this is true, it is an over-simplification of what actually occurs. This complex multidimensional process of organizational development directed and fueled by social awareness and aspiration is further complicated by the gradual evolution of the society through three stages of development. By this evolution society is progressively infused by the release of greater vital energy and by the acquisition and practical application of more conscious and complete mental knowledge.
Society advances through three overlapping stages of development involving changes in the relative roles of three fundamental components of individual and collective human consciousness. We term these three components physical, vital and mental. All three components co-exist and play a role in all stages of development. The intensity of each and their relative predominance create a series of overlapping stages, rather than clearly demarcated steps. Different societies move through these stages at different times, at different rates and with variations in the relative mix of the three components. Yet despite these differences, three distinct stages can be discerned in the development of every society and in the overall development of the human community.
In the first stage there is a prevalence of the physical component. The dominant characteristic of society at this stage is a preoccupation with physical survival, protection and preservation of the status quo. There is a strong tendency toward tradition and conservatism. This is the agrarian and feudal phase where land is the primary source of wealth and the most productive resource. The primary political and social systems are based on physical, hereditary principles. Children inherit the wealth, power, occupations and social position of their parents. There is little social mobility, especially upwards. The organization of society during this stage centers around the military and land, feudal lords controlling small fiefdoms. Commerce and money play a relatively minor role. Beliefs are grounded in the past. There is little emphasis on education, experimentation or thinking outside established guidelines defined by tradition and religious authority. Skills are passed down from generation to generation by a long, slow process of apprenticeship. Guilds restrict the dissemination of techniques. The church or state controls the dissemination of knowledge. The contribution of the human resource is predominantly in the form of physical labor. Apart from a small, privileged ruling elite, the society accords little respect, rights or value to other human beings. The pace of change during this stage is quite slow, because those factors that promote rapid development are only minimally present.
The maturation of the physical stage occurs when the physical organization of society develops to the point where the increasing productivity of physical resources generates surplus produce, energy and wealth. The reorganization of agriculture in Europe following the end of Feudalism provided the basis for the rise of commerce and later industry. The vital and mental principles become more active. The generation of surplus energy and capacity in society begin to break the bonds of tradition and overflow into new fields of activity.
During the next stage, the vital factor plays an increasingly active role. The dominant characteristics of this phase are dynamism and change. The energy level in society rises. It becomes increasingly inventive, outward looking and adventurous. This was the phase in which Europe began to explore the seas, leading to the discovery of new trade routes and new lands and ushering in the age of mercantilism. The greatest invention and discovery of this phase is the power of money. Commerce replaces agriculture as the predominant source of wealth. Money replaces land as the most precious and productive resource. The center of society shifts from the countryside to the cities and towns, where opportunities for trade and enterprise attract more and more people. The great urban centers grow rapidly. The rise of a merchant class wrests power from the hereditary aristocracy, at first gaining the support of ruling monarchs in exchange for economic rights and later leveraging its increasing wealth to make monarchs subordinate to parliaments. The organization of society expands rapidly during this period. New types of organizations proliferate. In order to provide an attractive environment for commerce, the rule of law and stable economic policies of the state gradually replace arbitrary decrees. Banks, shipping companies and trading houses proliferate. Religious institutions lose much of their political influence. New ways of life are accepted rather than frowned upon because they generate practical benefits. The practical comes to take precedent over the traditional. The mental influence increases markedly with the growth of experimentation, scientific discovery and new technologies. Increased travel, interaction between societies and greater flows of information engender greater tolerance and openness to new ideas and different ways of life. Expansion of commerce and rule of law increase the demand for and spread of education among the more prosperous classes.
Maturation of the vital stage through commercial and industrial expansion generates higher levels of surplus in society. Capital accumulation occurs on a large scale. An abundance of goods is produced and is available. The middle and upper classes grow in absolute and relative proportion, meaning that more people have surplus time, energy and money for consumption, education, travel and recreational pursuits. The aspiration for luxury and leisure penetrates to lower levels of society, inspiring the common man to yearn for more.
The third stage of development is one in which the mental component becomes more and more predominant. This stage has three essential characteristics that demarcate it from those that came before a great increase in the practical application of mind to generate new inventions, in the social application of mind to generate new and higher levels of organization, and in the political application of mind to elevate the status and rights of individual human beings. The first distant origins of this phase in Europe can be traced back to the Renaissance and the Enlightenment, when ideas began to gain freedom from domination by church doctrine and traditional superstitious beliefs. The mental component gained influence after the Reformation, which empowered the individual to seek direct relations with God. It led eventually to the proclamation of the political ideals embodied in the American and French Revolutions and the establishment of human rights, at first in principle and much later in practice. The onset of this phase gave rise to the birth of modern science and practical experimentation. This led ultimately to the explosion of technical innovations that ushered in the Industrial Revolution, which has continued with increasing momentum for the last 150 years. Industry gradually replaced commerce as the greatest source of wealth. Technology began to challenge the position of money as the most powerful and productive resource.
Organization is a product of the mind. Therefore it is not surprising to find that the mental phase has given birth to an incredible number and variety of new forms of social innovation, equaling or perhaps even exceeding the number and variety of new technical inventions generated during this period. Huge commercial organizations have emerged, larger and more wealthy and powerful in some cases than entire countries. The world, which was criss-crossed by sailing ships in previous centuries, is now linked together and wired by a profusion of systems and structures that connect people and activities around the globe.
The physical application of mind for scientific discovery and technological invention and the social application of mind for organizational innovation have been powerful forces for social development over the past few centuries. However, the highest power of mind expresses in the field of pure ideas. It is here that mind has introduced the most far-reaching changes that are destined to transform life in the coming centuries. Ideals and ethical ideas are as old as civilization, but the practical extension of high ideas to social life has never before been accepted and attempted on such a massive scale as it is today. The mental stage has established the principle of human rights and proclaimed the value of the individual. The 20th Century has been heralded as the century of the common man. Never before has society as a whole accorded such value and consideration for the poorest and lowliest of its citizens. The granting of universal suffrage and acceptance of the goal of universal education are unprecedented steps. Actual practices fall far short of the ideal in every society, but the direction of the social movement is clear. With every passing year new measures are introduced to extend greater physical and economic security to larger sections of the population in more countries around the world. Once this goal has been accepted by the mind of humanity, it exerts an inexorable pressure for further progress.
It is evident that the content of these three stages and the timing and circumstances of the transition from one stage to the next may vary widely between countries. However, the stamp of the physical, vital and mental components of human consciousness is remarkably similar and can be discerned even in societies that otherwise appear to have little in common. It is also evident that each countrys experience is influenced by the experience of other countries that have passed before it and by those with which it is in contact or proximity at any given time. Thus, the circumstances in which universal primary education was introduced in the Netherlands after 1618 were naturally different than the circumstances faced by Japan after 1872 or in other Asian countries after 1950 when education gained momentum in these countries. The Dutch were pioneering a new concept, whereas the Japanese were spurred to imitate the example of technologically advanced US and Western Europe, and other Asian countries to imitate Japan. This is one reason why the pace of development continues to accelerate as the world accumulates greater experience and more successful models for emulation.
Figure 1 depicts the increasing contribution of the vital and the mental components to development in recent centuries. As the vital and later the mental components gain in their contribution to productivity, the rate of development accelerates. It is worth noting that the emergence of the higher component reduces the relative, but not the absolute, contribution of the previously dominant one. In fact, each successive advance to a higher level has an invigorating effect on that which it supercedes. This is illustrated by the fact that spread of education, a contribution of the mental component, increases physical productivity.
Figure 1: Contribution of Three Components to Development
It should also be apparent that although we seem to suggest that each society passes from one stage to the next in mass, this is rarely, if ever, the case. The movement to the next phase invariably begins among the most advanced parts of the society, which means the urban centers, and among the most educated, wealthy and worldly classes. Thus New York, Paris, London, Moscow, Tokyo and Bombay have advanced much faster and further than isolated rural areas such as Appalachia, the Scottish Highlands, Siberia, Hokkaido and Bihar. Even today we can find the anachronism of near feudal communities existing almost side by side with the most modern industrial societies within the same nation state.
The Role of Organization in the Three Stages
The evolution of society through these three stages is accomplished by the progressive development of more productive, efficient and complex social organizations. At the same time, the nature of the predominant organizations also evolves from physical to vital to mental. Each transition from one stage to another results in a tremendous increase in social productivity by several orders of magnitude. An examination of the role of organization in each of the three stages reveals the source of this phenomenal increase in the capabilities of society. In the following section, we examine the contribution of three different levels of social organization to development urbanization during the physical stage, money during the vital stage, and Internet as an organization of information during the mental stage.
Development can be likened to a chemical reaction. The speed and outcome of the reaction depends on the concentration of ingredients, the temperature and pressure, and the presence of catalytic agents. These elements determine the frequency, intensity and efficiency of contact between the substrates. The greater the concentration, temperature and pressure, the faster the molecules move and the more frequently and forcefully they interact with each other. The presence of the appropriate catalyst speeds the reaction between compatible substances by serving as a medium for bringing the substrates into proximity over a larger area. Development also depends on the speed, frequency, intensity and breadth of contacts and interactions. Social institutions act as powerful stimuli for development by increasing the number, frequency and intensity of interactions between compatible elements.
Population Growth and Urbanization
The most discernible trend during the physical stage of development is growth of population. In the physical stage, the primary goal of society was to ensure the survival of the community in the face of war, famine, and epidemic disease. The first result of progress in agriculture, defense and urban settlements was an increase in population. In the modern age of the population explosion, growth of population is often viewed as a barrier to development rather than a measure of it. But in prior centuries, population growth has always been limited by the capacity of society to sustain larger numbers of people. Until very recently, each improvement in agricultural productivity and food supply has resulted in a significant expansion of population. Before the invention of cultivation about 10,000 years ago, the total population of the world probably did not exceed 10 million people. During the next 8000 years, the worlds population increased about 30 times to reach 300 million in 1 AD. Since then it has grown another 20 fold. It reached 500 million in 1650, then doubled to cross one billion by 1800, doubled again to 2 billion by 1930, then tripled during the last six decades. The 12-fold growth of population over the past 300 years as a result of tremendous increases in food production and public health is an indication of the order of magnitude of social progress during this period. Figure 1 utilizes population growth as an index of the growth in social productivity over the last 500 years.
These enormous increases in population were made possible by tremendous advances in the organization of society around urban centers. Historically, the first major organizational innovation was the transition of primitive society from hunting and gathering to cultivation and rearing of domesticated animals between the 7th and 3rd Millennium BC. The capacity to generate reliable supplies of food from the land made possible the establishment of permanent sedentary human settlements. As agricultural productivity increased the supply of food, the surpluses freed more and more people from the necessity of producing and gathering food, so they could specialize in other activities. The size and location of these early settlements was limited by the productivity of the surrounding lands. Later, improved transportation made possible by the development of the wheel, roads, boats and canals enabled food to be carried over greater distances from fields to towns.
The concentration of population in early agricultural settlements led to development of fortified towns, providing physical security from external threats. The creation of towns represents the development of a higher type of physical organization. With few exceptions, these cities were very small by modern standards, rarely exceeding 100,000 inhabitants, but more densely populated than the most crowded modern metropolises. The formation of towns required the evolution of new organizations for governance, external defense, internal security, regulation of property rights, production, trade, distribution, education and religion. Within the town, the workforce divided and specialized into military, political, administrative, agricultural, industrial and commercial categories. The concentration of larger populations increased the frequency, speed and intensity of social interactions, providing far greater need and opportunity for economic exchange than occurred in sparsely populated rural areas. It created pressure on society to continuously increase food production. It created a growing market for goods and services that encouraged social inventiveness.
The growth of these population centers in turn depended upon and was facilitated by advances in the physical organization of the settlement. Towns were organized into sectors. Roads were laid, bridges were built, markets were constructed and ports were developed. In some instances aqueducts were built to transport drinking water and sewers were dug to carry away wastes and drain rainwater. This physical infrastructure enabled towns to grow into larger urban centers, further intensifying the number, size and variety of economic interactions. Cities became centers for government, trade, manufacturing, education, recreation and cultural activities. These densely populated areas where people, capital and knowledge accumulated became powerful engines for development. Packed into close quarters, news and rumors spread swiftly. The population became far more aware of what was taking place in other places. Pioneering inventions and innovations were quickly imitated by others. The growing frequency, efficiency, speed, complexity and intensity of human interactions through the organization of urban communities was the basis for the significant developmental achievements of the physical stage.
The process of urbanization that began with permanent agricultural settlements progressed very slowly up through the Middle Ages. The dual imperatives of defense and sustenance remained the principle rationale for cities and fortress towns under the feudal order. Urban communities in Europe grew more rapidly in size and number with the decline of feudalism and the rise of the mercantile era from the 12th Century onwards. Commercial communities governed by merchant councils flourished throughout Europe and exerted continued pressure for increasing economic freedom and political autonomy from feudal and monarchical power, which led eventually to the emancipation of individuals as well. The growth of merchant cities was made possible by the rapid development of a higher level of commercial organization and the increasing role of money. The growth of the money economy ushered society into the vital stage and spurred the remarkable expansion of global economic activity that led up to the Industrial Revolution.
The final chapter in the growth of urban organizations did not occur until the sustained population explosion of the last three centuries. By the time world population crossed one billion in 1800, only three percent of humanity lived in cities of 20,000 or more. Only 45 cities in the world had populations greater than 100,000. London was still too small to qualify for this elite group of urban centers. By the time world population crossed three billion in 1960, 25 percent of humanity was living in cities. The worlds urban population rose to 40 percent by 1980 and is projected to cross 50 percent by the year 2000. This radical shift of settlement patterns over the last 200 years was spurred by the onset of the Industrial Revolution and has been fueled by the continuous emergence of ever more powerful organizations characteristic of the mental stage of social development.
The Role of Money in Development
With the rise of large commercial urban centers, the principle instrument for development shifted from physical matter to social institution -- from arable land to money. Money has been the single greatest organizational invention of the past five thousand years. The emergence of money as a preeminent social institution vividly illustrates the central role of organization in the process of social development.
The creation of money was made possible and spurred by the generation of food surpluses. One of the earliest forms of money was the receipt issued for grain deposits at government warehouses in ancient Babylon, which gradually became transferable to third parties. The capacity of early farmers to produce more food than was required for consumption by the family naturally prompted them to trade their surplus for other goods or services. As long as these exchanges were conducted by means of barter, they were severely limited both in volume and speed. Barter exchange required the double coincidence of a buyer and seller both wanting what the other possessed in surplus. It also involved a very complicated form of valuation, since every type of commodity would have a different price depending on the goods or service for which it was to be exchanged. Direct barter involving 1000 different commodities would require 500,000 rates of exchange. Barter transactions worked best within a narrow geographical area due to the physical difficulties of transporting products over long distances. The perishable nature of many products also limited barter exchanges. Producers had no incentive to produce more than they were confident of either consuming or exchanging with other consumers during the period before a product deteriorated.
The use of money spread gradually from one country to another by a process of imitation similar to the manner in which ideas, technologies and other social institutions are transmitted from one place to another and bear fruit wherever the soil is sufficiently prepared. The adoption of money in place of barter had a tremendously liberating and expansive impact on early society. As urbanization increased the number, size and speed of transactions by bringing many more people into proximity, money increased the number, size, speed, and efficiency of transactions even over long distances. The capacity to convert the fruits of ones labor into money meant that those fruits could be stored indefinitely, overcoming the limitations of time and providing an incentive for people to exert themselves much harder and longer than if what they produced must be consumed immediately. The capacity to convert physical goods into portable money overcame the limitations imposed by space. Whereas products could be transported long distances only at considerable cost and difficulty, money could be moved quickly and inexpensively, making possible trade over much larger geographic areas. Money also provided a common standard for valuation of all products and services, thereby vastly reducing the complexity of exchange rates. By eliminating the necessity of the double coincidence required for barter trade, money made it possible for a much larger number of transactions to be completed. At the same time, its ease of movement and accounting enormously increased the speed of commercial transactions. The increasing volume and speed of transactions made possible by money combined with the increasing size and density of urban populations had an exponential impact on the development of society.
Money had a transforming effect on society equivalent in magnitude to that brought about by the emergence of urban communities. It helped liberate society from the strict confines of the land and the retarding influences of tradition, spurring the evolution from the physical to the vital stage of social development. Before money, land was the principle productive resource and source of wealth. Those who controlled the land controlled the wealth of society. The hereditary transmission of property rights during the feudal period left little incentive for individual initiative and little room for individual advancement. During the Middle Ages, European society actually reverted for a time to barter before money returned and gained ascendance. The return of money and the rise of commerce in European society coincided with the demise of the agrarian based feudal system. Money gradually replaced heredity not only as a source of wealth, but as a source of social power and privilege as well. The moneyed commercial classes became increasingly influential, creating the backdrop for the emergence of democratic values and forms of government a few centuries later. Money freed the individual from servitude to the soil. A person could earn money and use it to purchase whatever was required for personal sustenance and also utilize it as capital to earn a living. It impersonalized and democratized transactions, empowering the possessor with economic voting power that drastically reduced discrimination based on class and status. Money increased the individuals freedom of choice and gave greater scope for the development of individual talents and potentials.
Social organizations that spur development at one stage tend to ossify and die out later on, as hunting tribes, guilds, East India companies and colonial empires, feudal and monarchical institutions have in the past. Some institutions exhibit the capacity to evolve along with society, adapting and changing to match the character of the times. Money has exhibited this capacity to evolve with the times. Sharing the characteristics of this physical stage of development, early money was itself a physical commodity, grain, gold or silver. Only gradually did representative forms of money appear, but these too were full-bodied commodity money, convertible at any time into the commodity that they represented. During the vital stage, more symbolic forms of money such as certificates of deposit, bank notes, checks, letters of credit, bonds and other forms of negotiable securities came into prominence. The complete separation of money from its physical roots came at a much later stage of social development with the appearance of fiat money that does not have a commodity value and cannot be redeemed for a commodity.
Money plays a crucial role in development. Money is the product of organization. In earlier societies, land was the principal form of wealth. The productivity of the land was the primary resource for development and that productivity depended on the organization of society for agricultural production. The growth of commerce depended on creation of more liquid forms of wealth that could be moved and traded for precious goods. Money replaced land as the principal form of wealth. But money by itself has no inherent value and cannot produce or develop anything. Money depends for its productive power on organization. The creation and operation of a money economy depended from the beginning upon the establishment of governmental organizations that could issue new forms of money, financial organizations that would honor, store and transfer it, and commercial organizations that would accept it in exchange for goods and services.
Money not only depends on organization; it is itself an organization. Money is a commodity such as gold or an officially issued coin or paper note that is legally established as an exchangeable equivalent of other commodities and is used as a measure of their comparative values on the market. It is an abstract unit of account in terms of which the value of goods, services and obligations can be measured. The systems of exchange, valuation, issuance and conversion of one form of money into another constitute elements of that organization. The value of money depends directly on the level of this organization. The more developed it becomes, the greater the productive power of money.
Money is often regarded as a unique social institution, but actually it derives its productive power from characteristics which it shares in common with other forms of social organization. Like other organizations, the development of money has occurred on the foundation of four types of organized infrastructures. In early times, a physical infrastructure of towns, ports, and roads provided the necessary conditions to stimulate the growth of commercial transactions based on money. A social infrastructure was also necessary to support the evolution of money from a commodity into a symbol. An essential requirement was for a stable government to issue and redeem the symbol for the underlying commodity. The development of money coincided with the emergence of nation states that possessed the stability and continuity necessary to stand surety for symbolic forms of money. In addition, the development of banking, stock exchanges, legislative, judicial and administrative infrastructures became essential supports for the growing use of money. In modern times, the role of money has been expanded enormously by the development of complex mental infrastructures consisting of an intricate web of technology, organization and information. Systems for international banking, telecommunications, and computerized financial transactions serve as essential infrastructure for the rapid movement of money around the world.
The emergence of money also required the development of a sophisticated psychological infrastructure in society. The progression from physical to symbolic forms of money involved a huge leap of faith for early physical man still struggling, against the direct evidence of his senses, with the concept that a round earth revolved around the sun. It must have required an irresistible urge for accomplishment and great spirit of adventure to forego the security of pure commodity money for pieces of paper and promises of redemption. The magnitude of that psychological leap is evidenced by the persistent preference of some Asian populations today for the certitude of gold in an age where much higher returns and greater security are offered by symbolic forms of money. The development of money required that people accept record keeping and systematic functioning as a way of life and have sufficient trust to deposit their funds with others. Money has long since passed from the stage of organization to that of an ubiquitous global, social institution that derives support from many organizations but does not depend on any for its existence.
As an organization, the power of money is based on authority. The value and productive power of money depends directly on the perceived strength of the issuing government and the authority conceded to it by the population. This authority has an economic aspect, its capacity to maintain fiscal discipline, to collect taxes, to prevent counterfeiting. It also has a wider political and social aspect. The value of money issued depends on the perceived strength and stability of the government, the military strength and stability of the country and its relationship with other nations, and its capacity to enforce rule of law among its citizens. Authority and trust are complementary forces. Ultimately the strength of a currency depends on the extent to which it gains the trust and confidence of society, which today means the global financial community. Remove this trust and confidence, as occurred during the US banking crisis of the Great Depression or during the recent financial crisis in Asia, and the entire monetary system is threatened with collapse. The ultimate foundation that gives force and effectiveness to this greatest of social institutions is not hard core physical assets but an intangible human value.
As an organization, money also derives power from the systems of which it is constituted and through which it acts. The value and productivity of money is directly proportionate to the quality of systems for minting, storage, accounting, transfer, exchange, savings, borrowing, investment, credit and information flows. It is indirectly proportionate to systems for administrative decision-making and enforcement, trade, manufacturing, R&D, transport, telecommunications, education and training. The productivity of money depends upon the velocity with which it circulates through these systems. Each system contributes directly or indirectly to determine the overall speed of circulation, which increases with each advance in social development. The establishment of a sophisticated global communications system now enables hundreds of billions of dollars to flow back and forth around the world on a daily basis in search of higher rates of return.
Organizations derive their power from the complexity of the activities to which they relate and the breadth of activities with which they are integrated. As the complexity of the interconnections between the synaptic junctions in the human brain determines the degree of intellectual capacity, the intricate interrelations forged between activities determine the degree of social development. Money has a powerful catalytic effect on development arising from its capacity to relate to, integrate with and energize virtually every other activity in society. Not only every variety of product and service, but also every variety of social activity has come to be valued in monetary terms. Late during the monarchical period, aristocratic titles became available to wealthy merchants for a price. Education, the traditional mark of the nobility, opened up to all with the money to acquire it. Marriage, civil claims and personal injury suits, civil and criminal judgements, tithes for religious salvation, political election and appointment, copyrights, patents, knowledge, information and even artistic inspiration have been translated into monetary terms and stimulated in their own development by the development of money. Although this characteristic of complexity and integration is most apparent with regard to money, every social institution has a similar type of impact on existing social activities. Thus, the creation of a national organization of highways or a national system of education promotes national defense, agriculture, industry, trade, tourism, recreation, education, immigration, publishing, and so forth.
The ultimate determinants of the power of social organization are the values of society. The institution of money has been so deeply accepted and internalized by every society in modern times that it would appear to have assumed the status of an ultimate value in itself. The constitutional and legal framework of the nation state provides protection for all types of property rights. Monetary incentives are utilized everywhere to encourage higher levels of individual productivity and group performance. Brushing aside hereditary claims for social status, society accords the greatest respect to those individuals, organizations and nations that have amassed the most wealth. But this apparent preeminence of the money value is misleading. The remarkable creativity and productivity of money is itself based on a bedrock of other social values without which it could not produce anything of worth. The value of money depends directly on all the values that support its functioning as an organization. These include physical values such as accuracy, orderliness, punctuality, regularity and efficiency; organizational values such as discipline, standardization, systematic functioning, communication, coordination and integration; and psychological values such as trust, integrity, harmony and creativity. Take away these intangible but priceless social accomplishments and the value of money quickly vanishes into obscure symbolism. Money is a tremendously productive social organization, but like every social organization it depends on an incorporeal human foundation for its existence.
The ultimate foundation for the value of money is not material wealth but the value of human beings. Money has grown in its power and productivity not because society has accorded it ultimate value, but because it has become an instrument and medium for fulfilling human aspirations and elevating people. The more society has come to recognize the inherent value and potential of the human being, the more productive the individual, society and money have become. Money has served as a symbol of the infinite potential for human accomplishment. As such it has released enormous energy, creativity and initiative in society. But the ultimate source of that unlimited creative energy is the individual and the society, not money.
Organizations of the Mental Stage
Knowledge is the central characteristic of the mental attribute of human consciousness which has assumed an increasingly dominant role during the last few hundreds years. Although we speak of the mental phase as being of very recent origin, it is evident that the mental component has been an active contributor to development since primitive societies developed agriculture and invented the wheel. What has changed very markedly is the relative contribution of this mental attribute, which is made visibly evident by the increasing speed of development in modern times. The knowledge that the mental component acquires and applies to further human progress has had a profound effect on all aspects of social life ranging from pure mental concepts to practical physical applications. The action of mind in four specific fields has had an especially powerful influence on the course of global development -- political thought, social organization, education, science and technology.
The development of philosophical thought and values expresses in social life as changing concepts about the purpose of life, the role and nature of human beings, and the relationship between the individual and the collective. This abstract and exalted field of mental speculation appears far removed from practical considerations. Yet it has been the source of the revolutionary thoughts and values that have radically transformed the political and social structure of civilization over the past five centuries, leading to the establishment of democratic principles and forms of governance as a global standard, if not quite yet a global practice. This movement can be traced back to the revival of humanistic thought, spread of education and secular values that arose during the Renaissance. It gained momentum with the spiritual empowerment of the individual by the Reformation, the birth of modern science, the affirmation of rationalistic ideals during the Enlightenment, and the declaration of human values by the American and French Revolutions. These movements have culminated during this century in the collapse of colonial empires following World War II and the rapid spread of democratic forms of government in Latin America, Eastern Europe and Africa over the past two decades. The tremendous release of individual energy and collective dynamism that accompanied the practical acceptance of these ideals has provided the impetus for momentous social accomplishments that until recently seemed inconceivable.
This transformation of the political organization of societies which has extended basic human rights at first to the middle class and eventually to the common man was mirrored by a parallel development of the social organization for education that was equally far reaching and powerful in its impact. Education is the systematic organization of the cumulative knowledge and experience of humanity and the transmission of that knowledge to the next generation in a concentrated and abridged form. It is the central instrument for making the past discoveries and experience of humanity more and more conscious and accessible for application by society to meet the opportunities and challenges of the future. If the distribution of political power to the entire population was inconceivable to the pre-revolutionary aristocracy and common people of Europe, then the concept and practice of universal education prevalent today would have been absolutely unthinkable. The Renaissance and Reformation led to a revival of interest in education that, like science and philosophy, had been eclipsed in Europe during the Middle Ages. Prior to 1600, education was confined to a small population consisting mostly of Christian scholars and the nobility. Both Luther and Calvin believed that every individual should read the Bible and urged establishment of state educational systems. In the 17th Century education spread gradually but maintained a strong religious orientation. Leading thinkers of the Enlightenment stressed the importance of intellectual knowledge to the practical advancement of society and the importance of secular education. During the next century secularism and social progress began to prevail and for the first time advanced scientific and mathematical knowledge became a part of the school and university curriculum in Europe and North America. The growing recognition of the importance of education for social progress led to the extension of elementary education to the middle classes and prompted more states to assume responsibility for establishing and maintaining national school systems.
Over the last two hundred years, education has become one of the principle organizations in modern society. Since the end of World War II, it has come to be universally recognized as a principle instrument for national development, leading to a worldwide expansion of primary and secondary education along with a multiplication of colleges, universities and professional schools. At the same time, the breadth of the educational curriculum has been expanded and significantly reoriented to cover a great many areas of applied knowledge such as specialized fields in engineering, physical and biological sciences, business management, economics and most recently computer sciences. Education has awakened the mind of humanity to its innate potentials and to the enormous untapped opportunities in its external environment. This growing awareness has released infinite energy for mental creativity, social innovation and practical invention. It has raised the aspirations and expectations of people everywhere for the fruits of progress. It has equipped individuals with the mental knowledge and skills to fashion and manage more and more powerful and complex forms of social systems, and to design, manufacture and operate more and more powerful and complex forms of technology. It has created an unprecedented openness and tolerance, which are an essential basis for global development in the coming years.
Mind applying itself to the field of thought creates new concepts and more powerful ideals. Applying itself to the field of society, it creates new and improved social organizations. Applying itself to the field of matter, it discovers the physical laws of nature and creates new technologies and inventions. The application of minds creative powers to the field of science, technology and practical invention has had an enormous impact on social progress during the last two centuries. History reveals a slow and uneven advance in applied scientific knowledge and technology. There have been periods of great inventiveness and great discoveries in the distant past, followed by periods of stagnation. But nothing can equal in sheer numbers and significance the explosion of human invention that has occurred since the onset of the Industrial Revolution. A classic study by Lilly found that the relative rate of inventiveness rose seven-fold between 1700 and 1900 to reach a level at least ten times higher than had been achieved during earlier millennia.
A number of specific factors have contributed to this accelerating rate of inventiveness, but the essential cause has been the emergence of the mental principle as the spearhead of social development. Its energies released by politically awakening and social freedoms, its thought liberated from blind submission to tradition and refined by education, the power of mind has applied itself to transform the social and material life of humanity. Superstitious beliefs and religious dogma characteristic of the physical stage have been powerful deterrents to fresh thinking and innovation during much of human history. In the Middle Ages in Europe, inventions that seemed a little too clever or unusual were frequently condemned as satanic and their inventors persecuted. Thus, Copernicus heliocentric theory was rejected as inconsistent with the scriptures and remained unpublished during his lifetime. Churchmen condemned Galileos refracting telescope as an instrument of the devil. After he openly endorsed Copernicanism, he was sentenced to life imprisonment for vehement suspicion of heresy. The movement of rationalist thought ushered in by the Enlightenment reduced the inhibiting influence of superstition and religious dogma and cleared the way for the emergence of the experimental sciences.
There is a common tendency to view technology as a thing apart and to explain the developmental achievements of the last 200 years exclusively or primarily in technological terms. This view is inadequate because it attempts to isolate advances in technology from the general advance of knowledge and social organization characteristic of the mental stage of development. In earlier periods, scientific investigation and technological innovation were carried out as isolated activities without the support of the social organization. Prior to the 15th Century, there were no reliable mechanisms for the recording, preservation and dissemination of inventions, so most discoveries were applied only locally and a great many were lost altogether. Individual inventors adapted and improved mechanisms for specific applications, but in most cases their innovations were never transmitted to others or standardized for widespread use. The technological developments of the Industrial Revolution would not have been possible without the organization of scientific knowledge and the establishment of scientific associations throughout Europe in the 16th and 17th Century. The publication of scientific journals aided the conservation and organization of societys technical knowledge. Until legal protection for patents was introduced at the end of the 18th Century, inventors had no way of knowing about similar inventions and no way to stake an economic right to their discoveries, except by keeping them secret. In France exclusive rights to an invention were protected by letters of patent granted only by royal authority and records were kept in a single central location inaccessible to all but a few.
Technology is knowledge of matter organized and applied through a practical organization. The widespread application of technology during and after the Industrial Revolution depended on the development of several other types of social organization. The organization of agriculture by enclosure of common lands in England generated surplus farm incomes, freed people to migrate to the towns, and fueled rapid population growth, which resulted in an increased market for manufactured goods and made mechanization feasible. The organization of urban commercial centers, transport and foreign trade created demand for larger volumes of production than could be readily produced by human labor. Poor roads in 17th Century Europe retarded industrial invention. There was little incentive to increase production so long as expansion of the market was severely hindered by poor transportation. The development of sea trade routes during the 18th Century opened a much wider market for manufactured products, stimulating a new outburst of invention. The organization of mass production according to the principles of division and specialization of labor made the adaptation of mechanized technology practical. The organization of education equipped the society with the skills necessary to design, manufacture and utilize an endless stream of more complex and sophisticated inventions. Technology developed as an integrated part of the evolving fabric of the social organization.
We witness today the confluence of factors that characterize the mental stage unprecedented political freedom, a global affirmation of the individual and the rights of the common man, abundant and overflowing social energy, an irrepressible drive of mental inquisitiveness, the accumulation and codification of knowledge in all fields, the universal aspiration for and spread of education, a worldwide revolution of rising expectations, a veritable explosion of technological inventiveness, and the accelerating pace of organizational creativity and innovation, which is the technology of social development. These factors coming together in the mental stage have given birth to a new form of organization whose creativity and potential contribution to social advancement rival in importance the role played by money over the past millenium. The emergence of the Internet as a worldwide system of communication, information exchange, education and commerce is opening up vast opportunities for more rapid development. It is eliminating barriers to communication imposed by space and time, leveling the playing field between rich and poor, and making possible universal access to information and services at very low cost.
We have been tracing the evolution of social institutions that developed by a long, slow unconscious process over centuries or millennia. Now we are confronting a phenomenon that is expanding before our very eyes, proliferating globally with a speed that defies even our most sophisticated capabilities for tracking and measurement. For the first time we have the opportunity to observe the process close up at an accelerated rate that enables us to perceive those conditions that make it possible and to experience first hand as participants the social will that propels this development.
Internet was born and grew up in the USA, a social environment in which political freedom, social self-expression and individual empowerment have been elevated almost to cult status; in which widespread prosperity has distributed material comforts to the majority of people; in which higher education has been extended to more people than anywhere else in the world; in which the discoveries of science generate keen anticipation and excitement; in which the quest for information has become an insatiable thirst; in which the productive value of information has become a self-evident fact of life; and in which new technologies are accepted, assimilated and mastered with greater eagerness and facility than at any other time or place in history. Viewed in this context it is evident that the development of Internet is neither a fortuitous discovery nor an inevitable evolution of technological trends. It is a natural expression and embodiment of the aspiration of modern society for unlimited and immediate access to information and unlimited means for individual creativity and self-expression. This aspiration has released a colossal energy in society that is by no means restricted to any single country or form of expression, but rather flows and overflows through every conceivable channel that will lend itself as an outlet.
Internets Four-fold Infrastructure
Like every major social organization that has come before it, the emergence of the Internet has taken place on the foundations of a four-fold organizational infrastructure. At the physical level, Internet is the product of the creative convergence of two very powerful technology-based systems -- computer networks and telecommunications. The coordination of two or more systems or fields of activity unleashes a tremendous productive power. The linking together of mail order and retailing propelled the growth of Sears to become the largest retailer in the world within quarter of a century. The linking of air transport with a unique system for auctioning flowers has enabled tiny Netherlands to capture 68 percent of world trade in cut flowers.
The initial infrastructure for Internet was established in 1969 to provide a secure and survivable communications network for organizations engaged in defense-related research. Over the following two decades, it evolved into a fast, convenient, low cost means for universities and research institutions to electronically exchange information and messages. The spread of personal computers in businesses, government, schools and homes coupled with the growth of local area networks during the 1980s and early 1990s provided a means for million of individual users to link into the system. These developments propelled the growth of the Internet from a thousand or so networks in the mid-1980s to about 60,000 connected networks in mid-1995. By the middle of 1997, the Internet was available to an estimated 100 million register users worldwide.
A huge number of incremental technological advances in computer hardware and software, data transmission and satellite communications contributed to the development of the Internet. Among these, the development of a standardized graphic interface language compatible with a wide range of computing systems formed one of the final links that transformed a text oriented information system into a multimedia system for publishing, broadcasting and transactions -- the World Wide Web.
It would be a gross oversimplification and misconception to view the Internet primarily as a technological advancement. All these technologies taken together do not inevitably add up to the Internet. It is possible, perhaps even likely, that had the same technologies been available in an earlier time and under different circumstances, they would not have given rise to a system with the same characteristics. What is new and unique about the Internet, thoroughly in character with the temper of our times, and the source of its unprecedented productive capacities is its organization. Internet is primarily and preeminently a new model and form of social organization with untold power to transform the way society functions.
Even before Internet emerged as a worldwide phenomenon, the shift in computing from a specialized activity carried out in central data processing departments to an activity performed by millions of individual workers at their own workplaces and the linking of these separate computers into vast networks for exchanging information over long distances changed the way in which work was being carried out in businesses, universities and government. Even more significant was the organizational model selected by the U.S. Department of Defense. Rather than a hub of computers under centralized control, the system was designed so that every computer on the network could communicate, as a peer, with every other computer on the network. Thus, if part of the network were destroyed, the surviving parts would automatically reroute communications through different pathways. The result was the creation of a vast organization without central authority or hierarchy.
It is difficult to separate out the mental infrastructure that supported these physical and social components, because it is so closely intertwined with the other elements. Development of scientific and technological capacities and knowledge were obviously central. In addition, the spread of general education, computer literacy and skills have given rise to a society with the mental energy and capacity to readily accept and rapidly adopt this new medium to an infinite variety of uses. A psychological foundation was also essential. Surely a society that feared technology or a workforce that feared being replaced by computers would not have responded enthusiastically to the creation of an ubiquitous system that lends itself to so many possible applications. In actuality, although the system was developed by government and large organizations, its entry into the mainstream of the national life was almost entirely the result of the publics ready and enthusiastic response and wholesale adoption of the new organization.
The very rapid development of the Internet in the West has only been possible because these four foundations have been built up and strengthened during the past few decades. The development of these infrastructures required the prior accumulation of huge surpluses of capital, mental energy and leisure time that could be made available by the society and channeled into the new activity. These surpluses are a product of the maturation of the vital stage of development, which generated the enormous growth of economic activity, productivity, capital accumulation, education and leisure in Western society.
Organizational Power of the Internet
From this perspective, the material circumstances and technological developments that made the emergence of this new organization possible appear less significant than the force that has guided their expression and the organizational structure that makes the Internet unique. It is impossible to predict the magnitude of the impact and all the ramifications of this new system on social development in the coming decades. But even after discounting the hyperbole generated by marketing firms and media coverage, it is clear that the Internet will and is already exercising a very profound influence on the development of the human community.
Access to and use of the Internet is heavily concentrated in advanced industrial countries and urban centers today. It is primarily geared to provide the types of information and services sought after by the more educated and the wealthy. However, the Internet has the potential to powerfully influence the pace and direction of progress in less developing countries and regions as well.
These are only a few of the most obvious areas in which the Internet will or is already transforming society. But the most profound impact is likely to be in intangible areas that are very difficult to quantify and measure. They can only be vaguely indicated by analogy with the impact of other institutions that have transformed social life, such as language and money. Language is an organized system of sounds and symbols that enables rapid and accurate communication of thoughts and sensations between people. Before language, the ability of two individuals to communicate was extremely cumbersome and limited. Social life was very primitive. Experience could not be shared with others, recorded or passed on to youth. Organized group activities were severely restricted by the inability to arrive at a common set of objectives, plan of action, division of labor, timeframe and agreed basis for sharing the results. The introduction of language made organized activities possible and with it the birth of developing societies and mature civilizations.
Money has played a similar role as the basis language for commerce. Before money, the ability of two individuals to interact economically was extremely cumbersome and limited. Money provides a common language in which economic goods and services, property and privileges can be expressed, valued and exchanged. The introduction of money has made possible the exponential growth of production, trade and consumption. Now Internet is establishing a common language and a readily accessible mechanism for the rapid exchange of information and ideas between virtually everyone who has access to the system. Development is a function of the velocity of social transactions. Money has immensely increased the speed of transactions. Internet is making many transactions instantaneous. Intellectually, this will exponentially increase the opportunities for exchange and dissemination of ideas and information for business, education, governance and research. The increased velocity and better quality of information, better because more current, will dramatically increase the speed and quality of decision-making. Practically, it will dramatically increase global access to goods and services.
In addition to speed and access, Internet also provides a mechanism for infinitely expanding the interactions between users and for customizing services to meet individual needs. Before Internet, the primary delivery systems for information have been one-to-one such as the telephone, fax and post, which like barter are limited by the need for a double coincidence, or one-to-many mass broadcasting systems such as newspapers, radio and television, which cannot discriminate between users or provide customized services. Internet makes many-to-many relationships a reality. By so doing it increases the potential number of interactions and transactions infinitely. It also enables either the source or recipient of information to control content and customize it to meet specific individual needs. As mass production has made more sophisticated products available to more people at lower cost, Internet will make customized and personalized services affordable and accessible.
Money increases energy in society and enables that energy to be utilized more efficiently. Before money, people had little incentive to produce more than they could consume. Money provides a means for individuals to save the fruits of their labor, store them indefinitely, transmute them into any form, transfer them to others or exchange them for any other social commodity. In so doing, money releases peoples energy and encourages them to work harder. Similarly, Internet allows the intellectual work of any individual to reach a far wider audience than is otherwise possible and to be more fully utilized by society. It releases mental energy, encourages mental creativity, and makes the results of creativity more widely available.
This new social system derives its unprecedented productive power from the same attributes that have made organizations effective since the dawn of society, but the similarity may not be immediately obvious. Organizations acquire power from their capacity to exercise authority and direct the energies of people. Internet is an organization without any discernable center of power or ability to direct anyone or anything. It is the first organization that anyone can access, but no one can own or control. Authority exists on the Internet, but it has been impersonalized and internalized. It is impersonalized in the form of strict technical standards, communication rules and language conventions to which all users must conform in order to participate in the organization. It has been internalized in the sense that usage of the system is strictly voluntary. The force that drives the growth of the system is the self-directed motivation of individuals and organizations to use it in the absence of any external compulsion. The enthusiastic interest that the Internet has evoked around the world is a measure of the determination of society to fully explore and exploit the potentials of this organization.
Organizations also derive power from systems, which we term the skills of society. The Internet is a very complex organization of systems for the generation, transmission, distribution, reception, and cataloging of information. As the Internet becomes a more common and accepted means of carrying out activities, it will equip society with an entirely new order of skills to raise productivity, increase convenience, improve quality and accelerate actions.
The power of an organization increases with its complexity, with its ability to coordinate and integrate a wider range of activities. Cities became centers of intense energy and high productivity by maximizing physical coordination between different activities concentrated in one location. Money derives much of its power from its ability to relate to every type of social activity, convert one into the other, and coordinate each with all the others. Internet has a parallel capability to cross-reference any subject and create meaningful linkages between previously unrelated topics. Every new social organization spreads gradually until it enters into relationship and integrates with every other social organization. The development of car travel has supported the growth of fast food, hotels, transport, commerce, industry, education, suburban communities, tourism and recreation. The development of television combines and integrates entertainment, educational programming, news, advertising, direct marketing, politics, sports and public service. Internet combines and integrates the functions of mail, telephone, fax, motion pictures, television, radio, newspapers, libraries, schools, conferences and discussion groups. It makes it possible to interrelate political, commercial, financial, educational, recreational, scientific, medical, religious, cultural and personal activities, stimulating the growth and increasing the productivity of them all. It creates the maximum number of potential synaptic connections between different subjects and activities.
Ultimately organizations derive their power from the values they embody and express. Although some people decry the absence of values on the Internet, by which they mean the lack of control over the suitability of content, the Internet actually embodies high and strong values from which it derives an almost irresistible strength. These include physical values such as speed, timeliness, efficiency and productivity; organizational values such as standardization, systemization, coordination, integration and communication; and psychological values such as equality of access, public service and empowerment of the individual.
As money empowers the individual with unlimited access to economic goods, Internet empowers the individual with unlimited access to knowledge. It enables a person to do what previously only an organization could accomplish. It makes people more competent and less dependent. It increases freedom of choice. It may soon bring a time when no book need ever go out of print and every student can choose his own teacher. Internet reduces the limitations imposed on humanity by space and time. It helps elevate people from the physical to the mental stage. As money has become a symbol of private property, individual acquisition and self-affirmation, the Internet is a symbol of our collective accomplishments, shared inheritance and human unity.
Some may argue that a theory which is so comprehensive and all-embracing may, by explaining the significance of everything, sacrifice the focus and precision needed to be practically useful. We disagree. On the contrary, we believe that the theory will help focus attention on precisely the right points for the analysis of policy options, because it calls first of all for determining the present status and preparedness of the society, the current direction given to its energies and aspiration, and the level of social organization and infrastructure presently available to support further development initiatives.
The theory is not a substitute or alternative to current economic theories of development. Rather than contradicting or diminishing the significance or utility of current theories, it can help place them in proper perspective and by so doing makes more precise the conditions under which their projections will be accurate and their prescriptions will be effective. In addition, the theory also provides fertile ground for the development of new specialized theories that reveal specific phenomenon in a wider social context. This may in some cases lead to conclusions at variance with the views resulting from a fragmentary analysis in a specific local context. For example, the significance of inflation in the context of social evolution is very different than the view that arises from explaining its immediate short-term causes and effects in the context of changes in monetary policy in an industrially advanced economy.
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