Money, Wealth, and Whuffie

A common fantasy of adolescence is imagining a world without money in which you can get whatever you want without needing those pesky green pieces of paper bearing pictures of George Washington. The fantasy quickly turns into annoyance that some people have lots of those Washington portraits. What makes those people so special? Why should they get to acquire all that cool stuff when you can’t?

Enter Cory Doctorow’s novel Down and Out in the Magic Kingdom, a veritable Fantasyland for the indignant adolescent. In this world, money has magically morphed into Whuffie.

To our embittered adolescent, that seems so much better. Up against the wall, green pieces of paper! Whuffie is here! Whuffie seems like a really amazing new form of money. You get more Whuffie by doing nice things for people. You lose Whuffie by being mean. So if you want to spend your days writing poetry or making puppets, you can still acquire Whuffie and be rich! Finally the right people are the rich ones.

Alas, go one step further and the Whuffie experiment starts unravelling. If Whuffie is created when people are grateful for something I have done, why does it matter if I have any Whuffie myself? I can be grateful even if I never do anything to make others grateful. Indeed, why would I give up Whuffie (reputation) when I give you Whuffie (reputation)? If I spend Whuffie as fast as I acquire it, doesn’t that mean I have the same reputation as the person who never acquires any reputational capital?            Doctorow compounds this problem by changing the terms of the economy. In this world, scarcity is, well, scarce; it is a world where “even a zeroed-out Whuffie loser could eat, sleep, travel and access the net without hassle.” You don’t need Whuffie for all those things. Why do you need Whuffie: “While I couldn’t get a table in a restaurant, I was free to queue up at any of the makers around town and get myself whatever I wanted to eat and drink, whenever I wanted it.” You have no Whuffie but you want a steak and lobster dinner with some top shelf bourbon to wash it down? No problem; you just can’t eat it in a restaurant.

The longer you look at it, the odder Whuffie gets. Doctorow is not unaware of this problem. In an essay written over a decade after the novel came out, Doctorow begins, “I need to confess something: ‘Whuffie’ would make a terrible currency.” He is certainly right about that. But, then he adds: “Whuffie has all the problems of money, and then a bunch more that are unique to it.” He explains that the problem with Whuffie and real money is that the people who end up at the top are “sociopathic jerks who know how to flatter, cajole, or terrorize their way to the top.”

That, however, is not the problem here. The problem is not that Whuffie is bad money; the problem is that Whuffie is not money at all. Doctorow is confusing “money” with “wealth.” They are not at all the same thing, and the difference is vitally important for seeing why the monetary system in Doctorow’s novel isn’t dystopian; it is nonsensical.

Money is a particular asset, and even among assets, it is not a particularly desirable one. You actually don’t want all that many green pieces of paper; you would much rather have assets that increase in value over time. However, money is enormously valuable as a thing used to purchase other things. We use money because barter is hard to arrange. Money smooths out the ability to trade what I have (including my time) for things I want. Moreover, we only need money because things I want are scarce; in a world in which I can get whatever I want whenever I want it, the need for money vanishes.

Doctorow seems to know this, which is why his economy has to have some things that are still scarce; you can travel all over the world, have a place to stay, and eat whenever you want, but just don’t try to go into a restaurant. Why do people provide those free things though? Presumably people provide food to others because they get Whuffie even from those zeroed-out Whuffie losers. So, why do the owners of restaurants and select other goods only get Whuffie if the customers have some to spare?

What about considering Whuffie as a replacement for wealth? This works better and indeed is probably what Doctorow was imagining when he wrote the novel. In the real economy, people with lots of wealth can acquire the things they want because they can convert their wealth into money and use the money to purchase the things they want. This is not the only way to acquire things in the real economy though. If you have a high reputation, if people like you and think you are an amazing person, then people are willing to do favors for you, give you things you want but not expect any payment in return. In Doctorow’s novel, Whuffie is just quantifying that reputational capital. But, that sort of reputational capital is not something that can function as a medium of exchange. Whuffie isn’t money.

This confusion between “money” with “wealth” has real-world consequences. The ultimate source of money in the modern age is the government. Because of the potential to abuse the printing press, governments all over the world have delegated the power of creating money to an independent central bank. This has not stopped people from arguing that the government should fund a wide array of projects simply by creating more money. In making this argument, people are making the same error as Doctorow made in his novel. Creating more wealth is desirable. Creating more money? The money itself is not creating wealth; in the absence of more things being produced, the increase in the amount of money will simply result in higher prices. The fact that Doctorow’s novel is confusing money with wealth is illustrated by the fact that no one is concerned that increasing reputations are going to cause inflation. Sadly, this confusion does not just happen in novels.

James Hartley is Professor and Chair of Economics at Mount Holyoke College, where he teaches Macroeconomic Theory, Money and Banking, and Principles of Economics among other economics courses.