In The Nature of the Graph earlier this week, I talked about friction– ie, transaction costs– inside groups and how they impact the efficiency of groups.
A transaction cost within a financial relationship can be a lot of things: from a broker taking 10% to a lawyer drafting a contract. We have to pay these over and over, but they allow us to deal with a much wider group of strangers than was previously possible.
Within social situations, friction takes other forms– we have to build a relationship instead of trusting a middleman. Once we’ve built it, though, it’s there forever, so costs are reduced. One could also argue that maintaining the relationship is a kind of upkeep cost, but I’m thinking that social upkeep is cheaper than paying fees over and over again.
But what happens when people don’t comply with contracts?
Legal contracts are simple– clauses are outlined and noncompliance results in consequences that are written in black and white. They’re usually pretty severe, which is why we don’t break them.
Social contracts, in contrast, have lower transaction costs, but something scarier happens when we break them– we get ostracized from the group. So in a situation where community has been built, we chance lose everything we built.
That’s the interesting thing about community. It makes things easier but it also puts us more at risk.
I would say that 1000 years ago, the community may have been weaker than the market. But that was mostly due to their shorter reach– after all, currency travels farther than favours. But now that they can be global, community is once again very valuable.
What do you think?
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