By: Andrea Terzi
The economic dimension of a social system is to be found in the activity of transferring valuable things and performing valuable actions. While the terms “exchange” or “trade” define a reciprocal action, it is best to consider, at a more general level, how value is transferred. In social systems, not all values being transferred entail reciprocal action.
The process of transferring value consists of moving the liberty to dispose of some thing or act by moving either accepted ownership or use. It takes place within a set of established social relations and may belong to any of the following three transaction mechanisms that differ depending on the way value is obtained and released.
A hierarchy system
In a hierarchy system, a one-way (unilateral) obligation to give is established within a (vertical) framework of social layers. This can be imposed either within an accepted enforcement system, such as modern tax imposition, or by force or under threat, as in the case of a person relinquishing valuables to a robber or the service of human labor being delivered to its owners in a system of slavery.
A gift-with-reciprocity system
In a gift-with-reciprocity system, a one-way obligation to give is established within a (horizontal) framework of associates. An act of giving is expected to follow any act of receiving, failing which the social bond between the parties is weakened and possibly threatened. Yet, there is no required correspondence between the value given and the value received. While a charity organization offering free medical services in regions of conflict may simply expect to be well accepted locally, mutual friends may dislike situations when the value received is too far from matching the value given. This system of transferring value may turn into a barter system if the parties involved choose to keep track of their acts of giving and receiving through some form of soft enforcement, such as using labor or time claims accepted in a given local community. A barter system where people trade goods and services in kind at terms agreed in advance is thus a special case of a gift-with-reciprocity system of transferring values.
A contractual obligation system
In a contractual obligation system, two parties (who may be alien to each other) engage in a transaction where the one who gives acquires a credit claim and the one who receives acquires a debit claim, within a legal framework ruling property rights and a monetary system that serves the purpose of irrevocably settling liabilities between parties.
This transfer mechanism requires an enforcement system that penalizes anyone who does not honor the contractually agreed terms. The acquired credit claim must be settled with the delivery of a contractually specified number of units of account issued by the entity ruling the monetary system.
Obligations can be formally documented in writing or purely informal, such as when a grocery store lists prices as “offers of contracts for acceptance on the spot.” Also, a contract may be crafted as a barter-like exchange, such as when a company receives the permit for a real-estate development project and in return delivers a free new building to the community.
While a hierarchy transaction is vertical and a gift-with-reciprocity transaction is horizontal, a contractual obligation entails both a horizontal and a vertical framework of social relations. While the two parties enter freely into contract, they agree to engage in a triangular relationship, as their mutual (horizontal) commitments to give and receive are ruled by a higher-up legal system and a higher-up monetary system.