Economics and the Presence of Philanthropy

Economics and the Presence of Philanthropy

Imagine, if you would, what our world would be like without the presence of philanthropy. Certainly, we would continue to produce and consume. We would continue to save or invest any surplus generated out of basic economic activity. Likely, investments would continue to grow and be reinvested. The “economy” could continue to grow. At the same time, organizations that depend upon gift support and volunteer time would suffer unless they became somehow profitable. Any activity or service—such as education, research, and the arts—whose purpose or end is other than producing a profit would basically be headed for extinction. The conventional economist might acknowledge the social consequences of this, but register no economic ones. This is why it should come as no surprise that philanthropy, the art and science of giving, is not to be found in classic economics text books.

As one of the primary means of support for education or any field connected with renewing the human spirit, philanthropists know that philanthropically-funded activities actually have a very important place in the economic cycle, from a social as well as economic standpoint. Philanthropic gifts are generative in nature. That is, without charitable gifts there would be no economic activity at all. Proof: In the history of mankind, gifting processes notably preceded all other forms of economic trade transactions and monetary systems. Cultures have found ways to meet all the basic human needs without any monetary systems at all. In addition to physical needs such as food and shelter, these economies valued the non-commodity aspects that conventional economics cannot fathom, like caring and learning, imagining, inspiring. Yet these are the very things that really matter most to us day-to-day. Such intangibles fall outside the quantifiable world of modern social science. They are nice but not economic. Rather, it has been left to philanthropy, which is primarily motivated by these intangibles, to make whole the fragmented and generally inhuman picture of economics. Given this encompassing perspective, I would posit that gifting is the most important and productive component of the economic system.

In the world of risk and return, a gift is 100% risk while the returns on the gift are immeasurable, so rich are they in the experiential and qualitative aspects of life, so laden with potential for the future. The fascinating thing is that charitable activities are actually structured to consume, even burn up, excess capital. Through this transformative process, they produce new human capacity (education), new insights and breakthroughs (research), and cultural innovation (the arts), all of which often lead to economic renewal. It should come as no surprise that these three areas (and there are others of course) are primarily supported by gifts and taxation, a form of mandatory gifts.

Philanthropists know that accumulated capital is the most vital source of gifting. Money “ages,” becomes more disconnected from human initiative as it accumulates. As soon as that money is given away it leaves the sphere of investment and is given new economic life by being used for purchase to accomplish a charitable mission by the recipient. Thus the linkage is established between the generation of surplus capital and the renewal of that capital through philanthropy. The logic here is one of functional integration rather than cause and effect. Historically, philanthropy is something you are privileged to do because of your financial success. This may be considered something of the Nineteenth Century industrial model. But that too is shifting. More corporations and individuals are structuring their philanthropy as part of their present financial activity rather than putting it off pending the results of a career. For example, the dramatic increase in young people’s interest in philanthropic activity is a result of activism and engagement; they want to make a difference with their lives now rather than viewing the accumulation of resources as a measure of accomplishment. This sense of social responsibility and integration is but one reflection of a much larger, though just now barely visible, sea change in the emerging field of social finance.

Social finance holds that the purpose of money and finance is to support human initiative and to foster the evolution of new community. Social finance recognizes that in the context of a global economy, we are fully interdependent. It is no longer possible to stand outside this reality, regardless of political boundaries, accumulated wealth, or dire poverty. Social finance recognizes the human and environmental consequences of economic activities. In this paradigm, for example, socially responsible businesses are capable of bringing about needed changes in our culture through fair labor practices and the charitable distribution of a portion of profits. This is just one emergent approach in which gifting is integral to the whole economic cycle. It presents a picture of a healthier sustainable future—and one which leaves behind the industrialist model of philanthropy that lives so strongly in the mythology of American history.

John Bloom © 2007

Economic Chiaroscoro: Georges de La Tour's Payment of Dues

[Georges de La Tour. The Payment of Dues (Taxes). c. 1624. Oil on canvas. Museum of Fine Arts, Lviv, Ukraine.]

Economic Chiaroscuro: Georges de La Tour’s Payment of Dues (Taxes)

George de La Tour was a master of painting scenes illuminated by candle. It was his chief compositional and organizing principle and became his signature approach throughout his life’s work. His portrayal and storytelling revolve around the single point light source of the candle flame with its warm glow and sharp shadows. However, though he used traditional perspective, the sense of a vanishing point is absent. There is no distant resting point for the eye. Rather the viewer is implicitly included in the radiant and taut space of the dramatic scene. This is visual theater; it is about directorial as well as painterly decisions.

The story portrayed in The Payment of Dues is about an older man who has opened his purse to pay his dues or, more likely, taxes to the collector. There is an official registry or book of accounts open on the table. The collector himself stares intently on the collection of coins on the table and at the same time, as if unconsciously, tightly clutches a money bag. The figure in the back center is leaning in toward the older man to hold the candle closer, presumably so the older man can see better—though of course then they can all see the coins better. Judging by the expression on the older man’s face, this is not a pleasant experience. His worried look is not only about digging deeply into his purse to pay what is due, but also about his consignment to the fate of never having quite enough. The luxuriantly clad figure whose face is turned away from the viewer is either from the military or other form of government. Given de La Tour’s interest in character and expression, the faceless of the representative of the state is fully intentional. He is part of the group on the left side of the table who stand on the side of power. They have been rendered less visible and within a deeper and encompassing shadow than the figural group on the right hand side where the light brings forth the individual’s humanity and elicits a note of sympathy from the viewer.

This particular painting marked the beginning of Georges de La Tour’s so called “night paintings.” Rather than night, I would frame an understanding of this painting (and his others in a similar mode) around the concept of interiority—the interior spaces which we inhabit both outwardly and physically as well as inwardly and psychologically. On one hand this seems somewhat obvious; on the other, this is not necessarily understood from the deeper perspective of how the interior and exterior are linked and integrated. Financial transactions, especially paying taxes, often highlight that lack of integration between inner and outer behavior.

There is apparently no definitive historical or literary interpretation of this painting.[1] De La Tour sometimes rendered biblical stories in, for his time, modern characters and staging, but there are not enough referents included in this one to assign that kind of meaning. Instead, I would say that it is a direct social commentary on the flow of money and economic life as experienced in de La Tour’s day. Issues of class and power are woven into the story told. The people of the Touraine region, particularly the craftsmen and laborers, were heavily taxed to support endless military efforts. The military and clergy (those with the power in those days) were exempt from those taxes so the burden always fell to those who were the principle servants to the economy. So the older man in the painting is the middle-class everyman whose plight is exacerbated by the futility of taxing the poor and the self-serving protection of wealth and power by those with the “right” to tax.

Georges de La Tour was a circumspect dramatist. The message is clear but not strident. He understood the underlying human conditions created by the economic and political environment. His painting is not a judgment as much as a witnessing. He has portrayed the predicament of the craftsman as one in which this worker is stuck in the middle—almost as if in an eternal moment. There are no doors in the painting, no escape except through the eyes of the viewer. I can certainly empathize with the predicament, the tension, with the presence of power and the sense of doubt or worry all of which are also part of the field created by the light. The message of the painting is also a kind of instruction to the viewer.

Each us likely has all of the characters in the painting within ourselves. We can play many roles in relation to money depending on the circumstances—the taxpayer, the collector, the authority with power, and the cast of supporting characters as well. I am perfectly capable of shining that same pinpoint light on my own interiority, only I also have to be willing to accept the shadows as part of the whole. In painting, in chiaroscuro, as in life, both the light and shadow are sides of the same coin and share a common, and in this case pointed, source.

John Bloom
© 2007



[1] In Georges de La Tour and His World, Philip Conisbee (Ed.), presents the various ways to interpret this painting in a historical context.

Real Virtuality: QQ Coins and the Quandary of Complementary Mercantilism

Real Virtuality: QQ Coins and the Quandary of Complementary Mercantilism

Coincidental emergence occurs when a new system or structure surfaces along side its originating system. Often this emergent world coexists as a complement to the original—much as an afterimage arises from a color—rather than as a replacement for it. The conventional approach to explaining this phenomenon, that I see green as an afterimage of red, is to rationalize the secondary system by cause and effect. However, once this emergent world is understood to have its own reality, its own rules, and its own function, the causal relationship is no longer relevant. The postmodern world is filled with such emergent virtual worlds: image is mistaken for the thing itself; simulacra abound; we think we are communicating through the internet when in fact we are messaging; we transact business through credit cards and ATMs and call it money. Names for things are designed to create the illusion of the familiar and known, when the facts contradict the implied connection. A complementary color is only an opposite in a world defined by polarities. The virtue of reality is that the world doesn’t really operate that way. It is multivalent, both-and, complex, and in constant movement through time.

Cause and effect are loosely linked through the non-rational as well as rational dimensions. If one follows the color experience, the afterimage itself has an afterimage, which in turn has an afterimage—each image a transformation of its predecessor. The color of origin becomes a distant memory, but the experience of each emergent image is just as valid as the original sensory one. By exploring coincidental emergences and by understanding their “unconventional” logics, the apparent rational and “conventional” world can become clearer.

It is in this frame of mind that I was fascinated to read a recent article in the Wall Street Journal (March 30, 2007) entitled “QQ: China’s New Coin of the Realm?” written by Geoffrey A. Fowler and Juying Qin with contributions by Lina Yoon. The story, as they reported it, is that QQ coins are an online virtual currency originally issued by the Chinese company Tencent Holdings Ltd. [an intentionally ironic name?] for users of its instant messaging system ICQ to “purchase” virtual flowers and other such niceties to send to correspondents. As with other virtual currencies used in video games, the virtual coinage serves as an incentive and has value so long as it stays within the boundaries of its own system. Any accumulated earnings can only be used up within the system. For me, the simplest example of this is something like “winning” an extra ball or new game playing a pinball machine.

The crux of the WSJ story goes like this: “Then last year something happened that Tencent hadn’t originally planned. Online game sites beyond Tencent started accepting QQ coins as payment.” In other words, the rules of one “virtuality” were co-opted by another “virtuality.” The QQ coins crossed the boundary of one system into another with a different though somewhat parallel set of rules. The authors cite the convenience of managing and accounting for petty transactions online as one of the primary motivations for the shift. Interestingly enough, the other online game companies recognized the essential value of the virtual QQ coins. Like real money they represent nothing more than an accounting system for which Tencent already had a structure that could be leveraged for the sake of efficiency. This is free market mercantilism at its best.

But the QQ situation quickly became more complicated. The subheader for the WSJ article reads, “Officials Try to Crack Down As Fake Online Currency Is Traded for Real Money.” The article spends much of its focus on the quandary the Chinese Government is currently facing. One result of free market mercantilism is that it can quickly generate a surplus. The article goes on to state: “At informal online currency marketplaces, thousands of users helped turn the QQ coins back into cash by selling them at a discount…Traders began jumping into the QQ coin market as an opportunity to make a quick yuan off of currency speculation.” Yet the authors never question how “real” the real currency is. Of course, once the QQ coins were pegged to conventional currency value, they could be used as a parallel system for real commodity purchases beyond the reach of government control and the tax system. And, with the advent of secondary exchange markets, transactions related to QQ coins can occur both within and between the virtual and real money worlds. The Virtual Economy Research Network [virtual-economy.org] calls these transactions of conventional currency for virtual property RMT’s or Real Money Trade.

Back to the pinball machine model. Provided the pinball game is online, there is now a mechanism to sell that extra game to someone else for an agreed upon price. That person can then use that game either to play online, or to sell for cash to someone else who wants to use it, or thinks they can sell it for more. One can see very quickly how many schemes could unfold. The WSJ article mentions a few such as “intimate private chats online,” and online gambling. For a government used to tight regulation, the open market and economically democratic invention of the online virtual world is a challenge.

One notable difference between conventional currency (yuan) issued by the government and the QQ coins issued by Tencent Holdings is their physical versus virtual realities. They are both monetary systems that stand in for an accounting of value, at least until they are sold as commodities. The government sets the value of the yuan, and, since the government stands in for the people, it represents, for better or worse, an agreement by which the citizens abide. What supports the value of the virtual currency is not just the supply and demand, as the authors of the article state, but also the quality of perception and what the currency makes possible. The QQ coins came into existence in order to enhance online communication, to add emotional value to an instant message. As superficial as that may appear, it is the motivating human emotion that makes the virtuality of the coins real. For a user to be able to operate in an “economic” life free of government control is itself a coincidental emergence.

Many virtual currencies are part of or attached to online games. And there is an aftermarket in RMT to purchase some of the virtual equipment used to play those games. One need only explore eBay to find them. This kind of trade is driven by the desire to profit from a willing market. It is based on the flawed assumption that what is virtual is real, like mistaking the image for the thing itself. The fictional Wizard of Oz was, of course, one of the modern masters of this kind illusion. His power lasted until the curtain was pulled back by Toto and he was revealed to be manipulating the machinery of deception, and all too human in his humiliation. But Oz was a dream from which Dorothy could awaken.

Virtual coins and virtual realities are not dreams, they are complementary systems that first emerged as a mechanical reflection of human consciousness. As a result, they exist as a kind afterimage alternating between the light and shadow of that consciousness. The Chinese Government has every right to concern itself with the QQ coins and their potential for creating economic chaos. Their goal would be to return QQ coins to their own self-contained system and thus sever any linkage with the conventional system. The real interest is in controlling the value of the “coin of the realm” by also controlling the perception that that value is controlled. What the QQ coins point out is that value is a spontaneous occurrence, and is drawn into currency by perceived need, convenience, and reduction of hindrances to the flow of human activity.

Tencent Holdings probably never imagined that QQ coins would flow over their intended boundaries. But neither does the company have an interest in stemming the flow. Tencent gains visibility and publicity as it demonstrates that a currency is only as vital as its social and economic efficacy. There are thousands of complementary currencies at work in the world solving important social problems that governments may not recognize as having economic interest or have the resources to meet. Where currencies arise out of a community’s interest, they tend not to compete with, but rather augment or fill the void of conventional currency. Where currencies are issued by for-profits to leverage their businesses, they will inevitably compete with governmental currency when those currencies become commodities. Open market or exchange currencies, as Tencent’s QQ coins are designed not only for competition, but also to capitalize on market-based efficiencies which leverage existing resources such as the yuan. What threatens any government is losing the authority or control over the emergent self-governing power of this profitable currency. But then the legal issues governing virtual online activities are yet another dilemma—whether the current body of national and international laws apply to a virtual world. The complement or afterimage of law would be chaos, because an absence of law would be socially inconceivable. In the case of QQ coins, chaos, at least, has real virtuality.

John Bloom
© 2007

[Note: I am appreciative of my colleague Gary Schick, COO of RSF Social Finance, for passing along this WSJ article. The image of the QQ Coins with Tencent Holdings logo penguin came from the The Virtual Economy Research Network website.]