The idea of money is something that we are all familiar with. It’s a part of our daily lives and we couldn’t survive without it – but why?
When humans lived in small tribes, they knew everyone, knew what to expect from everyone, held each other accountable and knew to what extent they could trust someone. They all helped one another and gave to each other, knowing that they, in turn, would be helped and receive as needed. But as tribes grew into villages, then towns, then cities, then regions, then countries, then global societies, we lost the ability to know and trust those with whom we give and receive. We no longer know, or are assured that we can trust, the people that we must rely upon to meet our daily needs. So, if I give wheat to someone that I don’t know, can I trust that he will give me something that I need later on?
What is Dunbar’s Number
Dunbar’s number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person.[1][2]
This number was first proposed in the 1990s by British anthropologist Robin Dunbar, who found a correlation between primate brain size and average social group size.[3] By using the average human brain size and extrapolating from the results of primates, he proposed that humans can comfortably maintain 150 stable relationships.[4] There is some evidence that brain structure predicts the number of friends one has, though causality remains to be seen.[5]
Dunbar explained the principle informally as “the number of people you would not feel embarrassed about joining uninvited for a drink if you happened to bump into them in a bar.”[6] Dunbar theorised that “this limit is a direct function of relative neocortex size, and that this, in turn, limits group size […] the limit imposed by neocortical processing capacity is simply on the number of individuals with whom a stable inter-personal relationship can be maintained”. On the periphery, the number also includes past colleagues, such as high school friends, with whom a person would want to reacquaint themselves if they met again.[7] Proponents assert that numbers larger than this generally require more restrictive rules, laws, and enforced norms to maintain a stable, cohesive group. It has been proposed to lie between 100 and 250, with a commonly used value of 150.[8][9]
- Wikipedia
How Does Dunbar’s Number Affect Monetary Theory
In the context of economics, Dunbar’s Number suggests that trust and social cohesion play a pivotal role in financial transactions. Within small, tightly-knit communities, monetary exchanges may be based more on personal relationships and trust, leading to informal economies. Conversely, in larger societies, where individuals interact with a greater number of people, formal monetary systems become necessary to facilitate transactions beyond the limits of personal connections. Understanding Dunbar’s Number helps economists appreciate the social dynamics that underpin monetary theory, influencing the design and functioning of financial systems.
Ultimately, the idea of money necessarily developed out of the growing and changing human social structure. The expansion in the size of human social groups meant that a means of meeting the needs of others and having one’s own needs met in a way that was fairly reliable was necessary. Money, it turns out, was the only reasonable method of keeping track of the things that, in the past, hadn’t needed to be kept track of.
Of course, money has been around for thousands of years and Dunbar’s Number has only been discussed for the last thirty of those. But even though we only came to give a name to this idea in the 1990s, monetary theorists have always understood the social dynamics in monetary theory. Let’s look at how modern economic theorists apply Dunbar’s Number to monetary thought.
How Do Economists Use Dunbar’s Number
Economists apply Dunbar’s Number in creating monetary theory by recognizing its implications for social networks and trust in economic transactions.
Understanding that individuals can only maintain stable relationships with a limited number of others, economists consider how this affects the functioning of monetary systems.
- Network Effects: Economists consider how Dunbar’s Number influences the formation and expansion of economic networks. Within smaller communities, where individuals interact closely, informal monetary systems may be preferred, relying on trust and personal relationships. In larger communities, formal monetary systems become essential to facilitate transactions among a broader network of individuals.
- Trust and Cooperation: Dunbar’s Number highlights the importance of trust and cooperation in economic interactions. In smaller groups, where social ties are stronger, individuals may rely more on trust-based exchanges. In contrast, in larger societies, formal institutions such as banks and legal frameworks become necessary to ensure trust and enforce contracts.
- Market Size and Complexity: The size of social networks influenced by Dunbar’s Number affects the complexity of economic transactions. In smaller communities, markets may be simpler and more localized, with limited participants. As communities grow larger, markets expand and become more complex, requiring more sophisticated monetary systems to facilitate exchanges.
- Policy Implications: Understanding the limitations of social networks can inform economic policy decisions. For instance, policymakers may consider the impact of community size on the effectiveness of monetary policies, financial regulations, and social welfare programs.
Incorporating Dunbar’s Number into monetary theory provides economists with insights into the social dimensions of economic behavior, helping to design more effective monetary systems and policies that account for the inherent limitations and dynamics of human social networks.
Is There Any Way Around It
In a globalized economy, there really would be no way around the need for money. In fact, unless the human population shrunk dramatically and people returned to tribal living, the need for money is inevitable. But there are a few interesting options that groups could incorporate into their social structures that might compliment the need for, and use of, money. One great example is time banking.
Even though money is certainly here to stay, that isn’t necessarily a bad thing. Money can be a very useful tool in meeting our daily needs in a large society, but finding other options to supplement the use of money and ways to build social capital and mutual aid networks is equally important. KommunityKoin educates people about how to develop social capital and leverages the KoinPurse web app to expand their reach beyond Dunbar’s Number – thus allowing one to develop a wider network and broader social capital. This is the first time that such a tool has ever been made available. Click the button below to find out more about how you can take advantage of this opportunity.