Economics of Social Status

In economic terms, for a good to function as money it must serve three related purposes:

  1. A medium of exchange,
  2. A store of value, and
  3. A unit of account.

We’ve already discussed how status functions as a medium of exchange. Because it’s so fluid, it can be used to price favors and other goods at relatively fine resolutions, and it facilitates transactions that wouldn’t otherwise be able to occur. Negotiating with status beats the hell out of bartering — i.e., trading one specific good for another — thereby allowing smoother, more efficient economies to develop.

Certain goods – money, nice cars – are only useful insofar as they contribute to first-order goods: food, water, reproduction.  Does social status count as a first- or second- order good?  While it doesn’t keep us alive, we are social creatures that crave and need social attention.  Consider what happens to socially isolated individuals, especially those in prison.  Go read about the economics of social status.