With most value now created in rich and diverse social networks, standard money is a thin and reductive representation of social life, failing to measure value beyond basic reciprocity. We refer to one of its failure modes as a ‘tragedy of the commons’ or ‘free-rider problem’ – when many people benefit from a public good and no one wants to contribute because they must pay the full cost of their contribution but receive a small part of the benefit. Even though these activities are so fundamental to modern life, we tend to forget their importance because we rarely charge for them. Thus tragedies of the commons are nearly everywhere. The success of platforms like Patreon and Kickstarter, for example, on which creatives receive the sum of voluntary contributions to their work, suggests that optimal funding for public goods should be much higher and that any further movement in this direction will find immediate traction. We can facilitate greater cooperation across social distance if we develop formal systems of value that more closely approximate the complexity of our social and economic relations with one another.  

Quadratic Finance, one of RadicalxChange’s proposals, is a deeply transformative social technology that aims to capture more of the richness of modern interdependent relations. The innovation is in accounting for the tragedy of the commons: each contribution to a project gets multiplied by the total number of people who contribute (N) because the benefit of every contribution is spread across all N people. The result is that the project receives the square of the sum of the square roots of all contributions to it. The system promises a more dynamic and dignified world of work and collaboration where we spend less time worrying about monetisation and more time creating value for users.  Indeed, there would be fewer conflicts between what satisfies the goals of the individual or collective and what is good for the world.


Quadratic finance: Amount raised = number of people contributing x amount contributed per person

Still, the more we come to rely on this imperfect formalism, we must recognise its limitations if we are to avoid ‘overfitting’ it and, to use the analogy of progress of communications technology, move beyond just a leap to the telephone. Namely, relying on individual revealed preferences is an imprecise way of figuring out what people actually want because it loses track of the reasons for their preferences. For one, this means Quadratic Finance cannot combine and reconcile different reasons and thus requires complementary deliberative tools.  We see an early example of such tools in Taiwan, the most active digital democracy in the world, where they use social and information technologies to reach consensus among diverse perspectives.  Further, it means Quadratic Finance ought to account for the fact that we are not atomised individuals and our goals and preferences only emerge in a social context. Our evolution from tribal communities to the diversity and interdependence of modern social life has meant that each of us are now part of many groups that mediate different elements of our lives and give us meaning.  Our preferences are partial to our own perspective, groups and causes, which makes cooperation natural among people already in relationship to each other, but leads to conflict among those whose commitments do not overlap.