The Whole Check

When I don't like being given $10

If you’re poor, debt is very bad. Shakespeare says “neither a borrower nor a lender be”, which is probably good advice when money is tight. Don’t borrow, because if circumstances don’t improve you’ll be unable to honor your commitment. And don’t lend, for the opposite reason: your poor cousin probably won’t “figure things out” this month, so you won’t fix their life, they won’t pay you back, and you’ll resent them.

Hamlet’s Polonius, whose advice I’ll now complicate

If you’re rich, though, debt is great. Financial instruments offer different rates of return under different circumstances, so a savvy borrower can often profit. For example, if a bank will lend you money at a 2% interest rate, and the stock market will probably net you at least a 5% interest rate, you can borrow as much as the bank will allow, put in the stock market, and pocket the difference.¹ You aren’t even ripping the bank off! They’re happy to get their guaranteed 2%, and you’re happy, with your financial slack, to risk a stock market crash. But the bank’s 2% is only guaranteed insofar as you’re clearly good for it. In other words, the bank has to see you as a safe bet, for you to be able to borrow and profit. Which usually makes you money, making you an even safer bet in the future. This is one of several ways the rich get richer.

Inputs and Outputs

The global economy is built on tons of speculation. Currencies derive their value from the fact that governments say they do, and the fact that taxes are paid via those currencies. The stock market, one of the largest stores of abstract value, is traded on the basis of how much money companies will generate in the future, adding an additional layer of speculation. It all bottoms out in the material world eventually, but there’s lots of profit (and loss) to be made along the way.

To some degree, the modern upper class exists to discriminate between good and bad deals, opportunities vs. scams. For a group of people to effectively communicate and execute on abstract financial opportunities, they need to have:

• Enough smarts to follow the logic as far as it goes/read the fine print (or at least the vibes of someone else who’s reading the fine print)

• Long-lasting and fruitful relationships to keep track of who can be trusted; reading the Bernie Madoff (or FTX) fine print won’t help you

• Exclusivity, so that people outside the group don’t snatch up deals first

So there’s strong incentive for groups of smart, profit-seeking people to band together, share real opportunities to establish group membership, and think carefully before letting newcomers in. There’s also incentive for scammers to mimic this strategy, but secretly screw people over rather than building long-term robust networks. There’s no silver bullet to tell the difference (again, see Bernie Madoff and FTX, who plenty of rich insiders fell for in both cases), which is part of why elite institutions are often really old. A scam usually won’t lure its victims in, patiently, for 300 years!

The Small Stuff

In movies or TV shows about politics, savvy politicians often talk about “owing each other favors”. I’m sure this happens in real life, too. But I also think it’s a caricature of something more common: people in tight-knit groups doing each other low-grade favors constantly, in a way that establishes high trust. Nor is this the exclusive provenance of the rich and powerful: churchgoers are another great example. Parishioners are expected to do minor favors for each other without explicitly keeping score, with the further expectation that if one is in need, the whole will step up and provide.

In fact, if you’re in a social group that you really care about or are excited by, doing a favor feels like an opportunity. Not because then you’ll be owed a specific favor in the future, but because it shows that you’re invested. Like, if I pick up the whole check in a gathering of several friends, that could mean one of a few things:

• I want to show off that I can afford it;

• I want to help my friends out of a sense of altruism;

• I want to demonstrate the feeling that the value of these friendships to me is so much greater than the cost of a group dinner, that the question of who pays is of no consequence, and it might as well be me.

As a human being, I am not immune to the first two motivations. But I think the third is the good one, and I wish more people in my life occupied its frame of mind. I get a weird feeling when someone wants to Venmo me $7 for the specific coffee I picked up for them. Like, if we’re tracking things at that level of granularity, the total value of the relationship can’t be that high; conversely, if the value of the relationship is high enough, small dollar amounts (or other small favors) should simply be a rounding error.

I don’t actually think that scrupulous debt-settlers see things that way. In fact, I’m sure they don’t. Expediently settling debts is a deep instinct in many people, and I think the most common motivation for splitting small checks isn’t miserliness, but rather a desire to keep money out of the social equation. I respect that. But, paradoxically, it feels like leaving money on the table. We could be establishing trust and dispensing with mental friction, and all it would cost is $7!

So, next time you’re eating with friends and you can afford it, consider just paying for the whole thing. And if some bigshot buddy of yours offers the same to you, take them up on it! A dense lattice of debt is a cheap way to bond, and sometimes a rehearsal for greater opportunities.

1. It’s of course way more complicated than this in real life, but a digression into leverage and using company valuations as collateral to secure liquidity isn’t really what I’m after, here.