Wednesday, October 01, 2008

An Inquiry into Transformation through Financial Transactions

An Inquiry into Transformation through Financial Transactions

The warbles in old windows tell a story of transformation. Looking through them, notice the distortions they create in the way the world appears, and the imperfections themselves. In our internal process of reconciling the perceptions, we are augmenting our own development. In this case, our own transformation is tied to the transformation of the medium itself.

The transparency of window glass is a given; its solidity is not. Glass is created by superheating sand (silicone dioxide) until it is liquified. Though it may then be rolled into window pane in a form that appears solid, the transformation process actually continues as its substance remains not fixed but rather as a liquid in hyper slow.

Of course, glassification occurred first in nature through volcanic activity—witness obsidian—before it became utilitarian. Such metamorphic processes are continual everywhere in nature and human nature, in the physical world as well as that of thoughts and imagination. One might consider transformation something of a phenomenon in the same way as light and other natural systems. We experience them directly, depend upon them, but cannot quantify without qualification.

So to understand transformation, to find a way to mark its presence and progress, it has to be considered from a vantage point outside an input-output or linear relationship. Instead, I propose that it be considered, metaphorically speaking, as an evolutionary journey taken through a multiplicity of pathways across the co-functions of space and time.

As has been noted in the study of plant development from seed through maturation and returning to seed, transformation may look a particular way, take on a particular shape, at a certain moment, and look different moments or many years later. The challenge, of course, is discerning the metamorphic principle that links the two moments of observational intervention. In some cases it may be obvious, in others not at all. The journey itself has a direction and purpose: some of which is evident from the start; some of which emerges through the process; and some of which can only be recognized by others affected by it and by chosen signifiers of change.

Financial Transactions—Purchase, Loan, Gift
While money is an expression of processes of human nature rather than nature as in the case of plants, observing its uses in the whole context of interactions and transactions yields a subtle imagination of transformation. Though a dollar bill’s physical nature may not change (with the exception of a bit of wear and tear) as it circulates, its qualities change according to use and according to the effects and consequences of what it makes possible by way of human activity. Thus, there is an active correlation between financial transactions and transformative process. My purpose is to outline a framework by which the phenomenon of transformation can be measured.

Take the case of financial transactions. In a purchase transaction, money is exchanged for goods or services. The input and output are immediate and in some ways inseparable. The transaction happens between two parties—buyer and seller. But a somewhat mysterious third element is present at the moment of transaction—value in the form of price. To stay with this view, suppose the same object is sold again. Another exchange happens, and while the object is essentially the same, likely a different value emerges from or drops into the transaction. Anyone who has purchased a new car and then sold it knows the reality of this picture. So, the question is: What happened to the value or price between purchase transactions? We can follow the object as it was exchanged over space and time. We can document who had it, where it was, how it was used. We can document the moment of transactions and the value at the time of the transactions, but what do we make of the change in value? The famous art historian Walter Benjamin wrote about the “aura” that accrued to works of art over time as way of explaining both the intellectual and, in some cases, the financial value of the work. Ideas have currency as do things. Is that aura attached to the work of art, projected onto the work as a function of perception on the part of the exchanging partners, or reflective of some market standard? The “price” becomes relative to perceived value weighed against what anyone is willing to pay for it.

The point of this inquiry is nothing other than a way to point to the complexity of transactional phenomena, and to say that value, while it is perhaps a great and highly subjective mystery, is also a functional indicator of transformation. Each transaction is a moment in which the material (the physical exchange) and non-material (value) come together in space and time, and are accounted for in a measurable way. The material effect, one could say, is entirely in the foreground, but residing within the non-material is the contextual background—individual, psychological, relational, social, historical, cultural, and on—in short, everything that led up to the moment of transaction and that will flow from it. One could, with adequate time and appropriate tools, attempt to look through each transaction to observe this confluence as phenomenon. This would be the peak of transparency in financial purchase transactions, a window into their interiority and exteriority, but through window that is itself in slow flux.

The essence of a loan transaction is the quality of agreement between the parties to be in financial relationship over a period of time. While input and output are clearly related—a loan is made to support some capacity, activity, or project happening—they are stretched out over time as the output comes into being. The agreement sets the ground rules and sets in motion the rules of loan performance. The transaction is based on trust which is in turn reflected in and maintained by both parties living up to the agreement and by communicating progress. There are other dimensions of transparency in a loan relationship. One is to make the source of the loan funds visible to the borrower, to bring the investor into view, and then to make the borrower visible to investor. This level of transparency increases the social value and impact of the loan simply because more people are aware or conscious of what their money is doing or where the money came from. For example, I definitely feel more responsible and accountable if I know whose money I am using, especially if I see them every day.

If transparency in a loan transaction leads to trust and hopefully sustainability of a project, and the transaction was perceived to be transparent, then what is the internal change created by that transparency for each of the parties to the transactions?
1. None
2. Increased confidence in the relationship with the other party
3. Trust in the other person

Over what time period?
1. Immediately
2. In the first year or two
3. At the term of the loan

Further, if the investor(s) becomes visible to the borrower, how does that shift the perceptions or feelings of the borrower about the transaction?
1. No change
2. More responsible to repay the loan
3. More commitment for the loan to bring about the intended purpose or impact

The gift transaction is another matter altogether. Input and output cannot be tied in any direct logical or temporal relationship. A gift transaction is usually generated by an individual with resources recognizing a need by another human being or charitable organization. Once there is an agreement to make a gift, an agreement through which the intentions of both the donor and recipient become visible, the donor is actually giving up control of the funds. While the agreement was likely created based on trust, that trust is not controlled by language in the agreement (except in context of a restricted gift). Instead it is maintained by keeping the donor informed of the actions of the receiver even though generally there is no direct tracking that can link dollar given to dollar spent. For example, if I make a capital gift to a school, the gift is used up right away to pay the contractor, but in the space created generations of children will be educated. What the gift “purchased” is predictable, but what the gift made possible is not. Who knows how long it will be before one of those children becomes a successful social entrepreneur (for example). One could suppose that this is but one, among many, outcome of the gift, along with what unfolds in all those other children’s lives. A gift has a kind of infinite and broadcast impact because its output operates outside of predictable space-time logic.

Thus the quality of transparency in a gift transaction is far more in service to what passes through the transparent substance rather than on the substance itself. The terms of transparency which are so clearly negotiated and documented in the loan are rendered irrelevant in a gift because of the release of control. The issue of control, the degree to which the gift is truly released, semi-released, or not at all, is correlated to the impact and transformation affected by the gift. Every serious development officer or gift solicitor will tell you that the control issue or expectations (“strings attached”) is often the most challenging part of any gift transaction.

If the release of control is a measure of the impact of gift, then one could ask of both parties to the gift:

1. Were the expectations of the donor/receiver transparent, translucent, or opaque?

2. For the donor:
Were you able to truly give up control of the gift?
Did you give with some reservations?
Did you give despite your doubts about the receiver?

3. For the receiver:
Did you feel that the donor made the gift without strings attached?
Did you leave the transaction knowing that the donor had some specific expectations?
Did you sense the donor was giving out of obligation?

Given the nature of the gift transaction, how could one create an agreement around that which is unpredictable, except by agreeing to the value of unpredictability itself. The value that emerges in a gift transaction is particularly complicated primarily because what motivates the transaction from the donor’s perspective does not usually arise from any direct material need of their own, but rather from recognizing the material need of another. By recognizing that need and making a gift to support it without control, maybe without being asked, the money creates potential outside of time but toward the future. Simply because it will bring into being something that would possibly not have happened without it, it will have impact and transformative power.

Conclusion­—Transparency as a Metric of Transformation
To understand the material aspect of a phenomenon, one first has to consider its non-material (or spiritual, if you will) aspects. We cannot see light; we see by it or because of it. We assume its presence by what it makes present to our eyes. Money itself is an accounting system, a measure of value woven into the phenomenon of a transactional web of circulation that could be considered global in scope.

If transparency in financial transactions is key to a deep awareness of value and the values of the participants, and this awareness is a baseline for impact and transformation, then one can assume that assessing the level of transparency in a transaction would at minimum point to whether there is potential for transformation and change in consciousness about money and its uses by either or both parties, since that is an endgame of social finance. Science defines three degrees of transparency: transparent is a level in which the vast majority of light passes through the substance being measured; translucent means that some light passes through; opaque means no light passes through. The implications for what can then be seen through the substance follow the same logic.

As the level of transparency in financial transactions leads to the awareness of the implications and lives of the parties to the transactions, their human dimensions, then awareness or interest mark the beginning of potentially transformative process. There are identifiable and measurable stages of progression through transformation which begins with awareness, moves to interest, to engagement, to digestion or comprehension, to integration. Each is an indicator of progress, thus each can be marked by a small set of questions which lead to self-assessment—after all who knows better whether I have changed than me—and the observations of the partners to the transaction. One could then use the framework of transparency as a foundation for that inquiry­. I would ask: What was the degree of transparency in the financial transaction? Then, what transformation, identified through the stages of awareness, was made possible by the transparency of that transaction? Hopefully there is a rudimentary framework for answering those questions.

John Bloom