Information used to be a localized affair. Before the internet, bank accounts were confined to physical ledgers in a filing cabinet and took so much work to copy that they rarely left the building.
IBM mainframes entered the office in the 1960s and ’70s and introduced the era of digital centralization. It wasn’t a conscious shift as much as a convenient one. Computers were good at managing information, so we kept giving them more. Bank checks, bond coupons, and stock certificates soon disappeared in favor of electronic record keeping. Today it would be unthinkable to rely on a paper bearer instrument of significant value.
Digital databases enabled features that would otherwise be unwieldy: fraud detection, credit scores, targeted advertising. But it placed a responsibility on the data collectors as well. As a central source of information, they inevitably become arbiters of human interactions.
Historically, powerful entities tend to consolidate their power. But the recent populist backlash might push technologists to move in the opposite direction.
Humans originally lived in small communities where social capital was paramount and trust was granted accordingly. It wasn’t that long ago that people conducted all their banking at a single branch office and bank staff knew customers by name. This led to the sort of personal relationships we see in old movies such as It’s a Wonderful Life.
Such relationships may feel comfortable, but they don’t accommodate the size and scale of modern societies. As civilization evolved, institutions arose to enforce rules and lower the risk of cooperating with strangers. Instead of trusting each of our counterparties, we need only trust the institutions. Now we can trade trillions of dollars in assets in the financial markets every day without worrying whether a stock certificate might be a forgery.
We don’t outsource trust in all aspects of life. A lot of laws aren’t strictly followed or enforced. Instead we rely on communities to come to a consensus regarding socially acceptable behavior. For example, U.S. traffic laws: Boston-area drivers get away with a lot of behavior that would get them promptly arrested in Portland, Ore.
It’s not unusual for friends to get together for a game of poker with a cash buy-in. Technically, gambling is illegal in the U.S.! The Constitution’s Fourth Amendment limits the state’s power to control our lives, protecting us from having police randomly barge into our homes. Even if the government wanted to regulate private behavior, it couldn’t station a police officer in every home to follow our every move.
Except, increasingly it can. Today, people are unlikely to pay cash for their March Madness office betting pools. More likely they’re using Venmo, where payments are automatically screened for suspicious activity. Anything that appears illegal, even transactions between friends, results in a locked account.
Digital panopticons enable stricter enforcement of rules than previously seemed possible (and maybe were ever thought desirable). Money laundering was criminalized in the 1930s, but it wasn’t until the Bank Secrecy Act of 1970 that financial institutions were required to actively police it. Back when customer records lived in filing cabinets, it was infeasible to monitor every transaction for suspicious activity.