If you are old enough to remember when yearbooks were more popular than Facebook, you were an adult in the pre-Internet era.
That seems like a long, long time ago.
Today we often refer to Facebook and other such websites as “social media” or “social networks.” The idea is that the Internet facilitates the interaction and even collaboration of disparate people in far-flung locations who may otherwise have no other way of interacting.
It’s a miracle, right? Except when it’s a total waste of time, but I’m not going there.
It’s a mistake to think this all started when Facebook began in 2004.
I’ll argue that the original social network still in operation today started in Siena Italy in 1472. And it wasn’t a website, it was a bank.
Banks, and other financial institutions, have as their common function the cooperation of individuals to do together what they could not do apart.
In any economy, the banking system is like the heart, pumping blood (and in that, oxygen) to every corner of the body, keeping it alive moment to moment. Banks pump money everywhere, nearly instantly, going where it is needed to keep the economy alive.
But banks are only able to do that because individuals agree to cooperate by depositing money in the banking system, effectively loaning the banking system some of their wealth. The bank agrees to keep their money safe, pay them some interest and give it back to them whenever they want it.
Remember the scene in It’s a Wonderful Life when George Bailey tries to explain to a panicked crowd how bank liquidity really works… “the money’s not here…why, your money’s in Joe’s house, right next to yours, and Mrs. Kennedy’s house and a hundred others…you’re lending them the money to build and they’re going to pay it back the best they can…”
Banks provide a safe place for depositors to store their money while providing a source of cash to borrowers who want to spend that money and pay it back at interest.
But it is the social aspect of it that makes it all work – no one person could accomplish that by himself. It takes cooperation. Social cooperation.
The same can be said for insurance companies. They collect premiums from a large number of insureds and agree to pay the few that experience the protected catastrophe. What would happen if every insured house burned? There isn’t an insurance company in the world big enough to survive that.
But that’s the whole point – all houses don’t burn down at once. Every bank depositor doesn’t want all their money at once. A large number of people, cooperating together, can provide for economic growth, or economic protection, in a way none of them could have done it alone.
The same could be said for mutual funds and other investment funds. Large numbers of people cooperate to achieve a degree of financial diversification (and therefore safety) complete unachievable by any but the wealthiest individuals.
In many ways financial institutions provide the foundation and support superstructure that makes our lives, businesses and economies survive, thrive and reproduce. And they do it all by helping strangers cooperate.
They were the original social networking sites.
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