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Debt and interest commercialized traditional society. As more mercenaries were hired, the concept of wage activity spread. As products became commodities, consumers depended more on the market and monetary income than on subsistence production. As private property took hold, there was less room for communities or communal forms of possession. Robert Lane distinguished between warm and cold societies. He called societies based on emotional support, empathy and reciprocity “warm”, and societies based on impersonal relationships and money “cold”:

“From Marx and Engels’s statement that ‘no other nexus between man and man than naked self-interest, then callous cash-payment,’ to Tonnies’ ‘in Gesellschaft every person strives for that which is to his own advantage and affirms the action of others only in so far as and as long as they can further his interest,’ to Weber’s alleged movement from the communal relationship ‘based on the subjective feelings of parties… that they belong together,’ to the more impersonal interest-based associative relationship, to Sebastian de Grazia’s view that the contemporary commercial ‘competitive directive’ requires us to reduce all affective relationships, to Fromm who argues that capitalism at least, and perhaps all modernity, leads us to treat each other as machines—we find in all these sources and their many epigones expressed the idea of the modern cold society” (Lane 1978, p. 453).

A warm society is based on a material community: unity of place and time of life, joint action and joint possession of the basic conditions of life—a forest, a river, a field. Warm societies are those of personal communication, passion, repute and rumors. A cold society is based on an abstract community: the unity of socio-cultural order and ideas, that is, on impersonal communication, money and private property.

Historically, the more specialized the activity and the active power, the more fragmented the socio-cultural order is. This can be seen in the division of property rights. Internal effects are those results of an activity that are appropriated by the subject of the activity, and external effects (that is, externalities) are results that are appropriated by someone else. James Meade described externalities using the example of farmers who grow more apple trees and neighboring beekeepers who benefit from increased nectar sources. Increased sources are the external effects of the farmers’ activity on the beekeepers. This example shows that externalities occur when one economic unit benefits from the actions of another at no cost to itself. Meade called these the “unpaid factors of production” (Meade 1952, pp. 56-7). Externalities can be either positive (goods) or negative (evils).

In a traditional economy that was based on common possession, the growing of apple trees and the keeping of bees were combined within one unit. In this case, externalities did not arise or they were appropriated by the unit itself. An external effect occurs only when the farmer and the beekeeper run private enterprises, that is, when the rights to apple trees and the rights to bees are divided between them.

The beekeepers’ benefits can also be transformed into property rights if they have to pay for the use of the increased nectar sources. The increase in meanings requires as its condition the division of effects and property, but such a division in turn requires more complex cooperation and more complex administration: the evolution of private property shows that rights cannot be completely divided. There always remains an indivisible residual, resulting from the uncertainty of the environment, from the fact that such a division itself requires expenditure.

Man lives under uncertainty, unpredictability of events; his activities are aimed at overcoming uncertainty, at ensuring that reality serves human needs and that needs correspond to reality. Unpredictability arises from the action of natural forces and other people, as well as man himself: sometimes man surprises himself. Armen Alchian suggested starting with the uncertainty of the environment and human motives when building an economic model:

“It is straightforward, if not heuristic, to start with complete uncertainty and nonmotivation and then to add elements of foresight and motivation in the process of building an analytical model. The opposite approach, which starts with certainty and unique motivation, must abandon its basic principles as soon as uncertainty and mixed motivations are recognized” (Alchian 1950, p. 221).

However, the approach that starts with uncertainty does not consider that the entire coevolution of humans and meanings is directed towards overcoming it. “…Humans have a ubiquitous drive to make their environment more predictable” (North 2005, p. 14). Culture-society never acts in a state of complete uncertainty, as it always has a certain stock of meanings. Humans resolve uncertainty through meanings and bear the associated costs. In other words, the amount of uncertainty that must be eliminated from an event in order to obtain a fact can be measured by the cost of action. To understand what costs must be expended, we can refer to the five types of uncertainty identified by Douglas North:

“1. Uncertainty that can be reduced by increasing information given the existing stock of knowledge. 2. Uncertainty that can be reduced by increasing the stock of knowledge within the existing institutional framework. 3. Uncertainty that can be reduced only by altering the institutional framework. 4. Uncertainty in the face of novel situations that entails restructuring beliefs. 5. Residual uncertainty that provides the foundation for ‘non-rational’ beliefs” (North 2005, p. 17).

Accordingly, several types of costs can be distinguished. First, there are technological / transformation costs. As we have seen, people discover patterns in the natural and cultural environment (habitat and domus) through causal models, that is, knowledge. Current technological expenses reduce the uncertainty within the existing knowledge stock. But sometimes, to reduce uncertainty, it is necessary to increase the stock of knowledge, that is, to invest in technology.

In addition to technological costs, there are inevitably costs for coordinating activities and making decisions. We call them organizational and psychological costs, respectively. Organizational expenses and investments are losses caused by distrust and injustice, which require activities to create and maintain institutions and change the existing institutional framework. Psychological costs are losses caused by prejudice, false beliefs and indecision, which require actions to change the belief structure, motivate and stimulate.

Organizational and psychological costs thus differ from technological costs. In the new institutional economics, organizational and psychological costs are summarized under the term transaction costs. Although transaction costs are defined as the costs of running institutions, they also include the costs of decision-making (cf. Coase 1988, p. 6; Richter and Furubotn 2005, p. 12). In what follows, we will always keep this dual nature of transaction costs in mind.

“Residual uncertainty” that cannot be eliminated by spending and investing is the basis for irrational beliefs and profits. Uncertainty has a dual nature. On the one hand, it is a necessary condition for the existence of profit. If everyone knew everything, no one could make a profit. On the other hand, “in the presence of uncertainty—a necessary condition for the existence of profits—there is no meaningful criterion for selecting the decision that will ‘maximize profits’” (Alchian 1950, p. 212). Profits are always based on chance and their size is always random.

Profit is an uncertainty that is integrated as an inherent part in the process of self-reproduction of culture-society; therefore profit is also a meaning. Like any meaning, profit cannot always be “maximized” here and now: for its maximization, decisions by individuals are not enough, but socio-cultural evolution is required:

“There is an alternative method which treats the decisions and criteria dictated by the economic system as more important than those made by the individuals in it. By backing away from the trees—the optimization calculus by individual units—we can better discern the forest of impersonal market forces. This approach directs attention to the interrelationships of the environment and the prevailing types of economic behavior which appear through a process of economic natural selection. Yet it does not imply that individual foresight and action do not affect the nature of the existing state of affairs” (Alchian 1950, p. 213).

Hence, the self-reproduction of culture-society is built upon both certainty and uncertainty. The process of production, circulation and consumption of goods is a process of overcoming uncertainty. At the same time, as Robert Sapolsky shows, uncertainty is the very condition that makes cooperation between people possible. The prisoner’s dilemma can only be solved on the assumption that the players do not know how many rounds the game will have and therefore behave irrationally (cf. Sapolsky 2017, p. 634).