A long time ago, in a university far far away a guy called Garrett Hardin wrote an essay called The Tragedy of the Commons, which was about a key concern of many at the time, human over-population.*
He argued that the resources of the world are finite and that if the human population continued to expand we would reach a point where the quality of life per person would be reduced as more people were added to the world. An example would be that the capacity of the roads in which traffic will flow freely in a city is finite, and as you add more traffic to the road each motorist experiences greater congestion and a lower quality of transit.
Here’s an excerpt from his essay in which he describes the concept of the tragedy of the commons using an example of farmers sharing a common paddock for their cows:
Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.
As a rational being, each herdsman seeks to maximize his gain. Explicitly, or implicitly, more or less consciously, he asks: “What is the utility to me of adding one more animal to my herd?” This utility has one negative and one positive component.
1) The positive component is the function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.
2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of -1.
Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another, and another …But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit — in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.
So, the title of this blog post included the words shared finances. What does a paddock full of cows and greedy farmers have to do with shared finances?
I’d argue that, to a degree, if a couple share their finances, the same concept of the tragedy of the commons applies as the income that the couple bring home from their jobs each month is of course finite.
With each individual purchase decision that each member of the couple makes the percentage of benefit that the member gains from the purchase is 100%.
However, the negative component that they receive from that purchase, which is, of course, the extra time they need to work in their job to pay for the purchase decision (as described in more detail here) is shared between the couple, that is the individual share of the dis-benefit is 50%.
For example if one member of the relationship decides to buy a really cool brand new mountain bike, like say a 2019 Giant Reign SX, or a YT Capra 27 AL; he gets 100% of the benefit of the extra traction that 180mm of bump eating front suspension provides, along with the street cred that comes from taking a masterpiece of space-age fluid formed aluminium out of the back of the car at the mountain bike trail car park on the weekend in front of his mates.
However in the case of shared finances he has actually only contributed his share of income to this particular purchase, hence he’s getting 100% of the benefit of the purchase, but only contributing 50% of the income required to make that purchase.
This, of course, is not the only thing that’s considered during each purchase, but over time, faced with thousands of purchases the asymmetry in the individuals share of the benefit vs dis-benefit will influence many purchase decisions and hence affect the financial health of the couple overall. Of course there’s other affects that may have to be dealt with, possible resentment, potentially having to negotiate for non-communal purchases and the fact that financial stress tends to be the biggest contributing factor to relationship breakdown.
Sharing finances is a very personal topic, I’m sure there will be a lot of people that disagree (potentially emotionally) with my opinion that sharing finances is probably more problematic than it’s worth. That’s cool, no problem, people think I’m wrong about all kinds of things, but if you’re at the point of your relationship where you’re deciding whether you should share finances with your significant other or not, at least take into consideration the above and work out some methods that work for you to manage the problem of the tragedy of the commons and think about how to disarm any other problems that could arise from shared finances such as resentment.
One solution to the problem of the tradegy of the commons is to impose more rules and regulations onto the “herdsmen” as the number of herdsmen increases. Travelling around Australia this becomes very apparent. In a city like Melbourne, there are a million rules and regulations so that the vast number of city dwelling herdsmen don’t spoil the environment for the rest of their fellow herdsmen. Contrast this with Queensland or the Northern Territory and the number of rules and regulations is dramatically less. You could argue that in general, the quality of life in a less populated city is higher, not just due to the lack of traffic, often cheaper housing etc, but also the lack of excessive rules and regulations that have been imposed to address the problem of the tragedy of the commons.
An example of the difference in the number of rules is that in Victoria, (Melbournes state) you’re not permitted to drive a car on the beach, the common reason given that driving a car on the beach will kill the birds that live on the beach. While in Queensland, everybody drives their car on the beach. If a Queenslander mentions this to a Victorian, the policeman that’s slowly been installed within the Victorians mind over time will often cause them to judge the Queenslander. I often wonder what this rule following inner policeman mindset does to the tendency of the population to take chances, risks and innovate over time.
*Reading the essay through the lens of todays cultural norms many people would label the essay racist.