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Money and Merit: Web 2.0′s Threat to the Power Elite

by Chris Larsen on 12/5/07

The essence of the Web 2.0 movement is taking the systems that operate our markets and society out of the hands of the elites and putting them into the hands of the masses.

Chris Larsen, Prosper CEO and Co-founderIn effect, the movement is a continuation of hundreds of years of struggle to distribute power and create a pure form of democracy. These are still the very early days of the Web, and there is much debate as to whether this power shift will lead to a better society.

Two central questions associated with this debate are: Why should the masses perform better than our most brilliant elites? Will Web 2.0 usher in the wisdom of the crowds or the dumbing down of everything.

I believe that the wisdom of crowds will prevail, and that the outcome of this power transition will make markets more durable and efficient, while at the same time doing a far better job aligning the objectives of markets with society.

The Peer-to-Peer Marketplace is Toppling Cathedrals

Many in Silicon Valley have embraced The Cathedral and the Bazaar, which started as a justification for open source technologies, but has since morphed into a manifesto for Web 2.0. The Cathedral And The Bazaar The book makes the point that while Cathedrals (the elites) are more impressive than Bazaars (the people), Cathedrals are also much more vulnerable.

When disrupted, Cathedrals have a single point of failure which can take years to reconstruct. Just look at the impressively elite CDO market that is behind today’s mortgage meltdown. This market is certainly a Cathedral to financial engineering both in scale and complexity. Yet it has essentially stopped working and might be fatally wounded. How could this have happened? The CDO market is among the very largest on earth. The weakness lies in the reality that it is controlled by a few hundred people.

These “experts” were in near lockstep when the market was booming and they continue to remain largely united as the market grinds to a halt. The participants – borrowers and investors – were merely passive followers, setting up the moral hazard we are seeing now. Both sides are now hurt: borrowers with what they can now not afford, and investors with what they cannot see or price. Even the Fed Chair recently remarked, “I wish I knew what these were worth.

This Cathedral has certainly fallen.

In contrast, the Bazaar, is far less beautiful, but much more durable and adaptive. Destroy the Bazaar and the next day it will be working again – maybe in a new location or different form, but it will be functioning. This durability has great value to society and has wide application.

Shifting Power Back to the Bazaar

The Internet itself is a Bazaar: the Web’s central organizing theme has been to decentralize. Open source is also a form of the Bazaar, as is Web 2.0 and person-to-person finance – a market of hundreds of thousands and soon millions of people bringing their own views, judgments and hopes. This durability is drawn from independence and accountability. Rather than blindly following the experts, the buyers and sellers in the Bazaar see exactly what they are buying and participate rather than passively accept. Accountability is inherent, not assumed.

“Money then Merit” – The Life Approach of the Greedy Elite

Web 2.0 markets have the potential to end the elites’ destructive “money then merit” model. This is the elites’ practice of dividing one’s life into a money making phase where success at any cost is the key objective, and a merit phase where you make up for your sins.

Think Michael Milken’s journey from bond thief to cancer crusader.

Elites are comfortable with this bi-polar way of life. Fingers Crossed Becoming an elite requires a single minded focus on money and power until their position is secure. Once on top, concerns about legacy kick in, and the elites begin worrying about the merit of their actions. It’s easy to become a Philanthropist After Your First $100 Million.

It is even worse with cynical corporate elites where earning merit, such as promoting free speech or protecting privacy, is rarely more than a compliance or PR issue. The often greedy and sometimes corrupt loan and banking industries are vivid examples of this. The elites pretend that markets and society are different, which is destructive and primitive.

“Money and Merit” – A Balanced Approach to Success and Happiness

Individuals don’t really see the world in the same destructive and self-serving way as corporate elites. The average person conducts him or herself more holistically and in a manner where money and merit can work together. Individuals want to be successful and happy, which is very different from being number one at all costs. By merit I am not suggesting charity. Rather, I am talking about conducting oneself with conviction in the way one’s life should be lived.

Since starting Prosper, I have met some Prosper lenders who are among the most strident free-marketers I have ever known. They make Ayn Rand seem like an indecisive liberal. You would assume that these individuals are just like the elites I described in being singularly focused on money. Yet their belief in free markets is not a cold calculation of power; their belief is driven by a conviction that free markets will move humans forward. Whether we agree with this view misses the point, it is that most people’s conduct in the market is consistent with their conduct in society. In surveys of lenders on Prosper, people want to make a good return and feel that they helped someone at the same time.

Imagine that. Lending with a conscience in a free and transparent marketplace.

And it is not just Prosper leading the charge. A sea-change is afoot, as other progressive companies like Zopa in the UK and Lending Club in the U.S. see that providing a way for people to help people, as all benefit, is the way of the future.

Money and merit is the seed to a living market: a collective efficiency that will do a better job serving the needs of society. Any evidence of a dumbing down of the market should be temporary and should be blamed on the technology infrastructures that support the people, not on the value of the people themselves.

It is the responsibility of Web 2.0 companies like Prosper to find the right balance between transparency, privacy, freedom and safety to unleash the full potential of the Bazaar. The companies that get this right will succeed; those that do not will crumble. Either way, people empowered with technology to share and collaborate will win their struggle because their conduct is inherently more valuable than that of the elites.

Be well, and prosper.

Chris Larsen is the CEO and Co-founder of Prosper.


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13 Responses


RateLadder | December 6th, 2007 at 2:53 am

The Ayn Rand comment is hilarious.

She is the farthest politically from a liberal… Perhaps she went so far right that she came back around the backside of the continuum and is now on the left.


Mike | December 6th, 2007 at 10:00 am

I find your invocation of Eric Raymond’s The Cathedral and the Bazaar quite ironic since, by the essay’s definition, Prosper’s marketplace would still be a cathedral. This is not meant as a slur since it’s a practical requirement for most financial marketplace, but there is still a ruling elite embodied in the corporate Prosper. Prosper has control of the marketplace and only Prosper can make changes.

This is not to dismiss the opportunities that Prosper has provided. Prosper has empowered it’s marketplace users with options and information that are unprecedentedly in the financial world. They have shifted the opaque process of connecting lending and borrowers greatly improving the financial cathedral, effectively reducing the size of the alter and expanding the seating for the community. But it’s self-delusion to deny that we’re still in a cathedral.


Anonymous | December 6th, 2007 at 11:05 am

This is certainly one of the most exciting parts about the evolution of the web – the ability of the masses to create dialogue and connect with minimal need from large corporate entities. The growth of P2P sites certainly bodes well for the shift of power back into the hands of ordinary citizens to make a positive impact on the world and the lives of others. Sites like kiva.org, donorschoose.org, and of course prosper.com are so exciting and compelling because they allow the community spirit of helping one’s neighbor to shine through!


Ed | December 6th, 2007 at 6:39 pm

Chris Larsen really hits the nail on the head when he talks about this evolution of using the Web 2.0 to allow the masses to make the markets especially the lending market. As an MBA student I just finished the book Wikinomics” which details this exciting transformation. It will be exciting to see where this leads us.


Scott | December 7th, 2007 at 11:58 am

I wanted to congratulate you on an excellent idea. As having been one in the past that’s been “desperate for just a small (say $1k) amount of cash” to cover some expenses, and having my own business at the time, getting traditional credit was extremely difficult, and I ended up in the hands of the paycheck loan people, which I’ve finally dug myself out of.

Now I’m on the “other side” of the fence, where I’ve got some extra investment cash (not a ton, but it’s building) and I’m tired of the classic mutual fund game of going up, and down, and up, and down.

I’d much rather give up the short term liquidity in favor of having regular dividend returns that I can either a) reinvest, or b) draw on, as needed.

Over the past few months, I’ve been building my prosper balance, and I’m pleased, every day, as I see my balance grow, with very little concern about a potential default on one or two cases, as the prosper method allows me to diversify.

I’m also happy with Prosper in that I can “choose” where my money goes, from a societal standpoint.

Whether it be new business ideas, or someone who needs a helping hand in a time of need, Prosper allows a level of “social consciousness” that you don’t traditionally see in investment vehicles.

Again congratulations on this business, I hope it goes well!


Nicole Langley | December 7th, 2007 at 1:10 pm

I’ve just listed my request for a loan for the second time, so it’s good to hear of your success. Just as you can “choose” where your money goes as an investor, it is satisfying to me to contemplate not only being chosen, but also, as a consumer/borrower “choosing” a community of real people who will believe in me and my listing sufficiently to fork out $50 or $100. For the conventional borrower our finanial interactions, from borrowing to purchasing, from capital to labor, have been radically depersonalized by automation, from the ATM to our role in blink-of-an-eye banking and market transactions in which we participate, like flotsam in a sea of unknowing. I join Scott in congratulating Prosper on this really fine invention. I hope my second listing gets enough hits to bring me a loan.


Angela E | December 15th, 2007 at 8:09 am

I am very happy to be a prosper member. I am trying to change my life and cannot get traditional help financially. I am so glad that this Prosper is alive and well and love seeing the interaction between people instead of institutions. Thank You.


Sandra | January 4th, 2008 at 11:34 pm

What are you plans for taking the company public? Now that we know how it works, when will the stock be available?


Mike G | January 5th, 2008 at 1:52 pm

I’m happy to be a Prosper member too. It’s a good feeling to be taking a piece of the pie from credit card companies, all at a lower interest rate than they charge. Who decided that 22% is the correct rate to charge someone? I’m happy to take 17% and take the same risk as the card companies!


dhondup tsering | September 3rd, 2008 at 4:32 am

what is money? what are different between the merit and demerit????

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