An economic model of paid sex: Coase’s “The Nature of the Firm,” gains from trade, and the gift economy

In Roosh’s “Orgasm or Money” story, he describes encountering yet another semi-pro prostitute in Latvia,* and he ends by wondering about sexual cultures around the world:

Then I thought about what she had said, how it was stupid for American girls not to ask for money before sex. Was it possible that the sexual culture in America and other Western countries is fantasy, and that the best move for women was to get as much as she could out of a guy?

It’s possible that getting “as much as she could out of a guy” in terms of money is optimal for an individual woman in some circumstances, but if she plays that game she’s likely to find guys who are unwilling to make long-term investments in her. A guy who pays for sex expects to dump the provider: as the philosopher Charlie Sheen once supposedly said regarding prostitutes, “I don’t pay them for sex. I pay them to leave.”

But there are deeper problems.

Moving unpaid “labor” into the “paid” labor can have the nasty, unintended effect of monetizing a lot of activity that’s better left outside the conventional economy. Roosh is really describing is the difference between a gift economy and market economy, which Lewis Hyde describes in his eponymous book. Moving all or a great deal of sexual activity to a market economy will result in fewer people forming mutually beneficial relationships in which both reap gains from trade and specialization. Monetizing such relationships increases transaction costs for both buyers (men, usually) and sellers (women, usually), which can leave both sides worse off for transaction costs and other reasons.

Ronald Coase’s famous essay “The Nature of the Firm” (alternately, here’s Wikipedia on it) points out that firms exist to reduce friction / transaction costs that arise from alternate arrangements—like having a large number of consultants work together. When individuals are try to gain every last monetary or other advantage at the margin, they aren’t working towards the good of the whole. It’s cheaper and better for large groups of people to get lump-sum payments and then work together, to the best of their abilities, to further the total enterprise. That’s true of firms and of marriages.

A relationship can be conceptualized as a very small firm, as people continually rediscover—in “Marry Him! The case for settling for Mr. Good Enough,” Lori Gottlieb realizes that often “Marriage isn’t a passion-fest; it’s more like a partnership formed to run a very small, mundane, and often boring nonprofit business. And I mean this in a good way.” She realizes this after having a child on her own, however. Instead of figuring out that she can reap major gains from finding a decent guy and marrying him, she decides to date around and has a child via a sperm seller, only to find what should really be obvious and only isn’t to someone who’s been taught to never “compromise.”

As noted above, both parties reap gains from specialization in a firm or marriage: one person might like to cook, for example, while the other person does dishes, or runs errands, or builds stuff. Granted, this only works if both parties actually have useful skills: one time I was in a bar, listening to a nasty-sounding woman complain to two friends, one male and one female, about the guy she was divorcing, and the woman was going on about how she wouldn’t cook, or run errands, or acquiesce to any number of normal-seeming things. Finally I asked her, “What do you bring to the relationship beyond your vagina?” The guy started laughing, hard, and the other woman began chuckling, and the complaining woman didn’t know what to say, so she told me I was rude (true, although I prefer to call it “honest”) and asked how I dare ask her that sort of thing—I dare many things. But she didn’t and probably couldn’t answer the obvious question, perhaps because she already knew the answer in her heart.

The larger point contained in that anecdote, however, is that both parties gain, or should gain, from not having search for sex partners or pay for sex. In addition, long-term plans, like offspring, are easier to make.

Most of us don’t want to live in a purely market economy with every potential transaction: when our significant others come over, we don’t charge them for dinner, and, if we did, the charge would create very different expectations. Dan Ariely describes the expectation issue in Predictably Irrational and elsewhere. Once market norms, as opposed to gift-based norms, are activated, they’re very hard, and perhaps impossible, to de-activate.

Plus, to return to Coase, it’s very inefficient to price everything, and to continually think of pricing. It’s better for individuals and the economy as a whole if people trust each other and create value for each other without (always) charging for it. Relationships are, in part, a movement from market economies to gift economies, and in the process they create a lot of value, along with love, trust, and assorted other positive feelings. If there’s a large-scale culture shift away from non-paying relationships and towards women trying “to get as much as [they] can” out of guys, as Roosh describes, both sides lose, including the woman trading sex for money.

Granted, if a woman isn’t looking for long-term relationships or real help, it can make sense to move to a mercantile economy: this might be why a fair number of college girls get into stripping or even hooking, only to quit at or near graduation: they’re shifting from short-term expectations to long-term ones, and they know that violating social taboos can have a (major) economic payoff, but it’s easy enough for many of them to shift back into the “normal” relationship economy when their interests shift to long-term relationships.


* “Semi-pro” meaning someone who doesn’t explicitly advertise their wares but does eventually demand money for sex, or simply tries to drain guys through overpriced bar drinks and the like.

The creator's mindset and lawyers' destructiveness in Cryptonomicon

Rereading Cryptonomicon is always an absurdly pleasurable experience that yields ideas I should’ve noticed before but didn’t. For example, hacker Randy Waterhouse undergoes a life change characteristic not only of numerous nerds I know, who often swerve from the mind-numbingly pointless activities to fantastically enriching ones even though both spring from the same drive, but that also demonstrates the difference between someone who’s just happy to make something and lawyers, who do sometimes deserve their bad rap and rep:

[Randy’s] life had changed when Charlene had come along, and now it changed more: he dropped out of the fantasy role-playing game circuit altogether, stopped going to meetings of the Society for Creative Anachronism, and began to spend all his free time either with Charlene or in front of a computer terminal. All in all, this was probably a change for the better. With Charlene, he did things he wouldn’t have done otherwise, like getting exercise, or going to see live music. And at the computer, he was learning new skills, and he was creating something. It might be something completely useless, but at least he was creating.

“Things he wouldn’t have done otherwise” probably also include showering regular and buying clothes when the old ones develop holes, if Randy is anything like the majors nerds I’ve known and, occasionally, been. Most importantly, he’s making stuff. And that’s what distinguishes Randy, whatever his other problems might be, from everyone else. Lots of people talk about doing things and relatively few do. When you find someone who does stuff, it’s notable, even if the thing “might be something completely useless.”

In Randy’s case, he writes a game based in part on information gleaned from a crazy grad student named Andrew Loeb, and, when Andrew finds out, he ends up suing Randy; when the university whose computers Randy used finds out, they sue him too. Naturally, this is only a very light gloss on how it goes down, like the difference between lipstick and car paint, but events ultimately leave Randy here:

In the end, just to cut his losses and get out of it clean, Randy had to hire a lawyer of his own. The final cost to him was a hair more than five thousand dollars. The software was never sold to anyone, and indeed could not have been; it was so legally encumbered by that point that it would have been like trying to sell someone a rusty Volkswagen that had been dismantled and its parts hidden in attack dog kennels all over the world.

Which, apparently, is what happens when deranged, unreasonable people meet certain kinds of lawyers, or come from them. Randy eventually comes to “decide that Andrew’s life had been fractally weird. That is, you could take any small piece of it and examine it in detail and it, in and of itself, would turn out to be just as complicated and weird as the whole thing in its entirety.” But we have no society-wide immune system to people whose lives are “fractally weird” and want to makes others’ lives miserable, via abusing the legal system or some other means. The people who will make others’ lives miserable don’t really understand the mindset of creators, who’re just trying stuff out to see what happens. And they often don’t realize what other people are like, either, because they haven’t developed the intellectual immune system necessary to protect them from crazy assholes. Creators often live in a gift economy while others live in a commercial economy. So they get in situations like Randy does, having “to hire a lawyer” and cut their losses.

Reading over this post, I realize that, as usual, it’s not really possible to excerpt Cryptonomicon effectively, because the scene in question lasts four densely forested hardcover pages and delves into a level of nuance appropriate for Emacs users. And Stephenson’s novels are fractal too: you can examine almost any segment, from the sentence on up, and find that any part is as detailed and intense as the whole. I haven’t begun to dissect what comparing software, a non-tangible entity that can be infinitely copied with near zero cost, to a Volkswagen, which is quite finite and has many other characteristics separating it from software, actually says about both software and Volkswagens.

Through Randy, however, Stephenson is trying to explain hackers, or at least show one in action, since they’ve been conspicuously absent in literary fiction while probably doing more to change the world than virtually any other group over the last 30 or so years. You can’t really explain their core in a short space, which is why Stephenson devotes about a quarter of a 1,000 page book to examining one, and another quarter or so to examining one’s literal and figurative predecessor. But I could imagine an academic paper examining the construction of a hacker’s temperament, how it differs from the straw-man average man’s temperament, and how an eventual awareness of that difference forms the hacker’s outlook. Randy’s encounter with Andrew can be read as the awareness of that difference coming to the fore, rather as a comic book hero comes to realize that his special powers separate him from his classmates. The difference is that comic book heroes usually have their villains pre-selected and presented as suitably villainous, whereas in life it’s pretty unusual to come across someone as conveniently villainous as Andrew is here.

The creator’s mindset and lawyers’ destructiveness in Cryptonomicon

Rereading Cryptonomicon is always an absurdly pleasurable experience that yields ideas I should’ve noticed before but didn’t. For example, hacker Randy Waterhouse undergoes a life change characteristic not only of numerous nerds I know, who often swerve from the mind-numbingly pointless activities to fantastically enriching ones even though both spring from the same drive, but that also demonstrates the difference between someone who’s just happy to make something and lawyers, who do sometimes deserve their bad rap and rep:

[Randy’s] life had changed when Charlene had come along, and now it changed more: he dropped out of the fantasy role-playing game circuit altogether, stopped going to meetings of the Society for Creative Anachronism, and began to spend all his free time either with Charlene or in front of a computer terminal. All in all, this was probably a change for the better. With Charlene, he did things he wouldn’t have done otherwise, like getting exercise, or going to see live music. And at the computer, he was learning new skills, and he was creating something. It might be something completely useless, but at least he was creating.

“Things he wouldn’t have done otherwise” probably also include showering regular and buying clothes when the old ones develop holes, if Randy is anything like the majors nerds I’ve known and, occasionally, been. Most importantly, he’s making stuff. And that’s what distinguishes Randy, whatever his other problems might be, from everyone else. Lots of people talk about doing things and relatively few do. When you find someone who does stuff, it’s notable, even if the thing “might be something completely useless.”

In Randy’s case, he writes a game based in part on information gleaned from a crazy grad student named Andrew Loeb, and, when Andrew finds out, he ends up suing Randy; when the university whose computers Randy used finds out, they sue him too. Naturally, this is only a very light gloss on how it goes down, like the difference between lipstick and car paint, but events ultimately leave Randy here:

In the end, just to cut his losses and get out of it clean, Randy had to hire a lawyer of his own. The final cost to him was a hair more than five thousand dollars. The software was never sold to anyone, and indeed could not have been; it was so legally encumbered by that point that it would have been like trying to sell someone a rusty Volkswagen that had been dismantled and its parts hidden in attack dog kennels all over the world.

Which, apparently, is what happens when deranged, unreasonable people meet certain kinds of lawyers, or come from them. Randy eventually comes to “decide that Andrew’s life had been fractally weird. That is, you could take any small piece of it and examine it in detail and it, in and of itself, would turn out to be just as complicated and weird as the whole thing in its entirety.” But we have no society-wide immune system to people whose lives are “fractally weird” and want to makes others’ lives miserable, via abusing the legal system or some other means. The people who will make others’ lives miserable don’t really understand the mindset of creators, who’re just trying stuff out to see what happens. And they often don’t realize what other people are like, either, because they haven’t developed the intellectual immune system necessary to protect them from crazy assholes. Creators often live in a gift economy while others live in a commercial economy. So they get in situations like Randy does, having “to hire a lawyer” and cut their losses.

Reading over this post, I realize that, as usual, it’s not really possible to excerpt Cryptonomicon effectively, because the scene in question lasts four densely forested hardcover pages and delves into a level of nuance appropriate for Emacs users. And Stephenson’s novels are fractal too: you can examine almost any segment, from the sentence on up, and find that any part is as detailed and intense as the whole. I haven’t begun to dissect what comparing software, a non-tangible entity that can be infinitely copied with near zero cost, to a Volkswagen, which is quite finite and has many other characteristics separating it from software, actually says about both software and Volkswagens.

Through Randy, however, Stephenson is trying to explain hackers, or at least show one in action, since they’ve been conspicuously absent in literary fiction while probably doing more to change the world than virtually any other group over the last 30 or so years. You can’t really explain their core in a short space, which is why Stephenson devotes about a quarter of a 1,000 page book to examining one, and another quarter or so to examining one’s literal and figurative predecessor. But I could imagine an academic paper examining the construction of a hacker’s temperament, how it differs from the straw-man average man’s temperament, and how an eventual awareness of that difference forms the hacker’s outlook. Randy’s encounter with Andrew can be read as the awareness of that difference coming to the fore, rather as a comic book hero comes to realize that his special powers separate him from his classmates. The difference is that comic book heroes usually have their villains pre-selected and presented as suitably villainous, whereas in life it’s pretty unusual to come across someone as conveniently villainous as Andrew is here.

The Gift — Lewis Hyde

Lewis Hyde’s The Gift is one of these frustrating books whose last chapter is vastly better than any other and whose main point is somehow true even as the support for that point is weak, nonexistent, or wrong. He argues, reasonably enough, that contemporary Western capitalist societies tend to undervalue creativity in the arts, particularly when said creativity doesn’t sell. But in trying to make his point, he too pretends that a firewall exists between the creative, “gift” economies and the exchange/contract economies. At the end he decides the two can be reconciled, but that occurs after a series of irritating pronouncements with unsubtle jabs the exchange/contract economy. Nonetheless, The Gift made me think differently about the world by the time I finished with it, which few books do. I’ll swing back to that at the end, because The Gift also deserves plenty of criticism.

Although The Gift is a book, it feels like a long magazine article might have been the more appropriate form for it. Do we really need more than 50 pages about American Indian gift exchange cultures? And the chapters on Ezra Pound seems particularly worthless, and the one on Whitman interesting but overlong—a microcosm for The Gift as a whole. Some of its metaphors strain credulity and seem almost deliberately narrow, as when Hyde writes:

Gifts of peace have the same synthetic character. Gifts have always constituted peace overtures among tribal groups and they still signify the close of war in the modern world, as when the United States helped Japan to rebuild after the Second World War. A gift is often the first step toward normalized relations. (To take a negative example, the United States did not offer aid to Vietnam after the war. […])

The United States didn’t rebuilt Japan in hopes of joining hands and singing about world harmony—the goal was to build Japan as a bulwark against Communism in Asia. The “gifts” were probably closer to bribes. At the same time, the United States didn’t win in Vietnam, which might explain why no foreign aid money went to the country; if the North had been overrun and destroyed, then it might have been rebuilt with American dollars. Likewise, the United States’ proxy war in Afghanistan resulted in little subsequent aid, as discussed at the end of George Crile’s Charlie Wilson’s War.

I’m not sure this shows anything other than Hyde failed in this example, but he does in many others too. In a footnote, he says:

There is no technology, no time-saving device that can alter the rhythms of creative labor. When the worth of labor is expressed in terms of exchange value, therefore, creativity is automatically devalued every time there is an advance in the technology of work.

Time-saving devices can free up more time for creative labor: there are more writers and artists today than there were in, say, 1800, in part because most people aren’t engaged in backbreaking farming or 15-hour days in factories. Education levels have risen enormously, in part thanks largely to time-saving devices that give us more time to study and more wealth to devote to schools, libraries, and the like. Furthermore, labor expressed in exchange value does not automatically devalue creativity—establishing things like copyright, which allowed writers and others to derive an independent income from their work, if anything increased the worth of creative labor for people like writers. And creativity is not limited to what we think of as traditional arts—for example, computer programming is often enormously creative, and those who tend to be maximally creative also tend to be better compensated than those who aren’t. If Hyde were going to say that “When the worth of labor is expressed in terms of exchange value, creativity can be devalued,” I would agree: the number of poets whose contribution can be measured monetarily is small. As Gabriel Zaid says in So Many Books: Reading and Publishing in an Age of Abundance, “[…] the conversation continues, unheeded by television, which will never report: ‘Yesterday, a student read Socrates’ Apology and felt free.’ ”

Such problems occur throughout the book, although they’re alleviated in the conclusion, where Hyde retreats on many of his more ridiculous assertions. He says:

[…] my own ideas underwent a bit of a re-formation. I began to understand that the permission to usure is also a permission to trade between two spheres [the commercial and gift economies]. The boundary can be permeable. Gift-increase (unreckoned, positive reciprocity) may be converted into market-increase (reckoned, negative reciprocity). And vice versa: the interest that a stranger pays on a loan may be brought into the center and converted into gifts. Put more generally, within certain limits what has been given us as a gift may be sold in the marketplace and what has been earned in the marketplace may be given as a gift.

Damn: if only that line of reasonable thinking had informed the entire book. It didn’t, which render sections of The Gift reminiscent of freshman-year manifestos written by tipsy students who just finished Marx. Despite those problems, some sections early fascinate, like the chapter on “The Gift Community,” where Hyde says:

Is is a rare society that can be sustained by bonds of affection alone; most, and particularly mass societies, must have as well those unions which are sanctioned and enforced by law that is detached from feeling. But just as the Roman saw the familia divided into res and personae, the modern world has seen the extension of law further and further into what was earlier the exclusive realm of the heart.

The more one tries to regulate the affairs of the heart, the less those affairs seem like they are of the heart. Dan Ariely and Tim Harford make similar observations, backed up by experiments, in Predictably Irrational and The Logic of Life, respectively. And institutions are fond of exploiting the gift economy by masquerading their exchange/commercial actions. For example, Division I American college sports piggyback on the gift economy: although to football, basketball and baseball players are essentially professionals, high-caliber universities pretend that tuition is a “gift” even as the same universities extract millions of dollars in television and merchandising revenue from such players. The idea that Division I players are amateurs has become increasingly absurd, much as the Olympics have been professionalized. In Beer and Circus: How Big-Time Sports Is Crippling Undergraduate Education, Murray Sperber even argues that the sports mentality harms students.

Yet I can’t help but imagine places where gift economies don’t apply at all, and they’re often not very pleasant. As I write this, I sit in a Tucson airpot bar. Airports have everything wrong with them: they are transitional, one-off spaces filled with strangers, the “restaurants” they offer consist of pre-made food with character slightly above a TV dinner, and for some reason we as a society have decided that Constitution rights and privacy don’t apply here. People I don’t know can stop me at will, and merely flying requires that I submit to security theater that is simultaneously ineffective and invasive. Everything is exorbitantly expensive but not of particularly high quality. Menus don’t have beer prices on them.

The airport, in short, is designed to extract money from a captive audience; this might be in part why I don’t care much for sports stadiums, Disneyland, and other areas where I feel vaguely captive. In Great American Cities (to use Jane Jacob’s phrase), something is always happening, there is always another place down the street, and you can decide to be as invested or anonymous in society as you like. In contrast, airpots feel like a trap: you can’t choose to avoid them, at least not without enormous costs in terms of time, money, and concentration. Maybe I wrote about college sports above because a few basketball games are playing around me, along with facile, noisy political news that’s more like a talk show than newspaper. If there were a bar in the Tucson airport without this ceaseless parade of visual noise, I would go to it. I’m trapped in an extreme form of the market economy, where no reciprocity exists and the gift is hidden and completely subservient to commerce. I might not have the gift, but regardless of whether I do, I’m frustrated here, where the food is more fuel more pleasure, as if choosing between burritos and pasta is like choosing between octane grades. Good chefs are artists, and maybe none could work in the security of an airport. I only wish that I had somewhere quiet and comfortable to sit. Neither kind of place exists in airports, unless you pay for it, and, again, I have no choice but to participate. At least with the most market, you have a choice.

In short, there are few better places to instill sympathy to the arguments of a book like The Gift, which, for all its problems in expression, nonetheless drives at a serious problem in market economies that seem unlikely to depart. They are not as serious as Hyde makes them out to be—I too would like it if more people read Saul Bellow and fewer watched Flavor of Love, a show I’ve never seen but have heard allusions to at least three times in the last week—and the market has a habit of self-correction, but that doesn’t mean they do not exist. And The Gift gives one a better way for analyzing the world and believing in creative acts that don’t necessary have immediate financial gain.

Despite my antipathy towards The Gift I occasionally find myself recommending it, albeit with caveats attached. It threads an argument that deserves to be more often heard in a non-sentimental or strident context: that not all worthy forms of creativity are financially remunerated adequately but that they are valuable nonetheless. The Gift is not brilliant, as the jacket copy claims, but art deserves all the defense it can muster, but over the long term, I suspect that art will be its own defense.

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