First Mathematical Model of a Gift Economy

Reality Sandwich

Since the economic collapse, the “equilibrium theory” of supply and demand that is the essence of 21st century economics has come under attack. Peter Weijland of the University of Amsterdam suggests a formal mathematical theory describing a gift economy.

From The Physics arXiv Blog:

Consequently, since the 2008 financial collapse (which ought not to have been possible under equilibrium theory), there has been a growing sense that economics needs to be drastically reformulated. Understandably, equilibrium theory has come under particular attack.

But alternative economic systems are hard to find and those that are known have been largely ignored by mainstream economists. Today, Peter Weijland at the University of Amsterdam in the Netherlands takes a small step towards changing this by developing a formal mathematical theory describing a gift economy. Weijland’s conclusion is that such an economy is not so different from the market economy that dominates today.

Weijland’s key insight that makes the gift economy mathematically tractable is that when Albert gives Brenda a gift, this is not a one way transaction. Granted, Brenda immediately benefits from the gift but Albert also has a reasonable expectation that the gift will be returned at some point in the future.

In other words, Albert exchanges his gift for a kind of social credit that has particular value now and in the future. “We develop a mathematical model for such economies by means of a system of social credit instead serving as an alternative money of account,” says Weijland. “Every individual keeps track of a mental bank account of social credit in relation to every other person individually.”

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