Separating Cream from Crap

@dana-edwards had a post a couple of days ago about whether centralized pyramid style organizations favor psychopaths, and it got me to thinking about how the reward structure of a system is what creates the outcomes of the system.

Which got me to thinking about money.

There is a monetary principle called "Gresham's Law" that states that "bad money drives out good." So imagine if you have two coins in your pocket -- one made of gold, the other made of copper. If you melted both down, the gold metal would be worth much more than the copper metal. Yet both coins are stamped $1. So when you pay for your coffee, do you give the clerk the gold coin or the copper coin?

Of course -- you pass along the copper coin and hang on to the gold one, because why pay more for your coffee than you have to? And when everyone does this, gold coins cease to circulate because they stay nestled in everyone's pockets, and the only money that remains circulating are the cheap, bad copper coins.

Now imagine how this situation changes if the clerk has the option of refusing to accept the copper coin, or has the freedom to adjust the "value" of the copper coin regardless of what number is stamped on it. Two things would happen -- gold and copper coins would immediately be worth different amounts of money, and gold coins would start circulating again and might actually drive copper coins out of existence, because as a business owner, why accept copper coins of dubious value if you don't have to?

What makes the difference is the rules of the system. If the system allows individuals the freedom to make whatever choice they think is best, then the community steadily exerts pressure against crappy coins and steadily rewards good quality coins. When freedom is allowed, Gresham's Law runs in reverse and good money drives out bad.

But once a monopoly is instituted over money, once individuals are no longer granted the freedom to select whatever money they feel is valuable but instead are forced to accept all money as equal even though it isn't, once they are forced to obey legal tender laws, then Gresham's Law runs the way we usually think of it, and bad money drives out good.

The thing that perverts the system then, that changes the system from a self-reinforcing virtuous cycle of better and better money to a self-reinforcing vicious cycle of worse and worse money, is whether the population is freely allowed to choose between the good and the bad. Either way, the people act as one way valves. Whether those one way valves eliminate good products or eliminate bad products depends on whether the system trusts the people or not.

This process applies to any part of society. If individuals are allowed the freedom to choose between bad restaurants and good, bad restaurants go out of business and all that's left are good ones. Same for any product and service. How the population weeds out the bad is by calmly avoiding it, by peacefully declining to pay for it or interact with it. There are no angry confrontations, community organization, or group voting required. They just steadily and quietly vote with their wallets.

But now let's think about how this process would work in a hierarchy or pyramid organization. The problem with a hierarchy is that interactions are not voluntary. You don't get to choose which accounting department you use -- you use the company one. You don't get to choose which janitorial staff you use -- you get who you get. And that limitation, that monopoly control, applies to all aspects of the hierarchy.

Now, imagine that you have some lazy janitors and some conscientious ones, and riding herd over all of this is the janitorial manager. The lazy janitors stop and dump their trash in the good janitor's bins, spend most of their time hiding in a bathroom stall on their phone, and essentially don't clean anything at all. That leaves more work for the few conscientious ones. Eventually, they either get fed up and quit, which would represent a vicious declining cycle of quality, or they go and talk to the janitor manager. If the janitor manager was promoted because they are hard working and conscientious, then they will bring the hammer down on the lazy ones -- but it will be a constant struggle. Constant monitoring and checking, because the lazy janitors are always pulling against them, and only the ability to freely fire them would make the lazy janitors try to do a good job.

But imagine how this would go if the janitor manager was promoted because they were related to the CEO, or because they constantly flattered the personnel manager, or cheated on certification tests, or actively sabotaged the conscientious janitors. Essentially, the more nefarious their behavior, the more they get rewarded by it as long as they don't get caught. And when those people end up in a position of power, they are now able to pervert the reward structure for anyone underneath them, such that good people leave while bad or desperate people stay.

The tight linking together of the pyramid organization, the forced relationships between its members that cannot be peacefully declined short of termination, its inability to allow its constituents the freedom to weed their garden in a quiet and non-confrontational way are what tilt the concept of the hierarchical organization away from a virtuous cycle and towards a vicious cycle. And thus cream and crap both rise to the top, but crap will always have access to weapons that the cream refuse to use, and thus in the end, crap always wins.

Sadly, this has been known for milennia. Aristophanes in 405 BC wrote in The Frogs:

The course our city runs is the same towards men and money.

She has true and worthy sons.

She has fine new gold and ancient silver,

Coins untouched with alloys, gold or silver,

Each well minted, tested each and ringing clear.

Yet we never use them!

Others pass from hand to hand,

Sorry brass just struck last week and branded with a wretched brand.

So with men we know for upright, blameless lives and noble names.

These we spurn for men of brass...

The moral is that the more you allow people freedom to make choices, the better the system gets. And the more you forbid people to make choices, even if you are doing so in a sincere effort to improve the system, the worse the system gets. That's just how reality works.