Eric--there HAS been a great advance in economic theory. Have you read Piketty? And it's because this dorky guy knows how to make magic with metadata, not because his primitive male brain is more altruistic. And outlier economist Richard Smith has just published his dynamite book on the end of capitalism as a theory cum ideology.
On Wed, Jul 22, 2015 at 4:37 PM, David Eric Smith <desm...@santafe.edu> wrote: > Hi All, > > I was going to try to write something brief that avoided ideological > questions (which I have no wish to get involved in on email threads), and > said something I hoped would be useful that follows from being careful > about consequences of mechanism. But it looks like it turned into a TLDR. > Rather than just dump it, I guess I will send with the TLDR caveat. > > I do think that there is an interesting economics to be thought about > here, and I don't know how much of it is being done. It seems to me to > bear on questions of economic theory that are poorly developed. It would > be nice if the resurrection of disputes about regulatory mechanism and > goals, raised by bitcoin et al., were a gateway into a conceptual advance > in economic theory. > > <Anyway...> > > > 0. Let me not talk about "digital currencies" in general, because they can > have different properties that matter. Let me instead refer to bitcoin, > because its particular algorithm which designs in limits of supply-rate is > the starting point for the line in I want to take. > > 0a. Let me also suppose that the bitcoin algorithm performs as specified, > and that it has the cryptographic security features specified. That > permits a discussion of what a specific defined algorithm can or can't do > socially. > > 1. With those assumptions, I think the main mechanistic feature is that > bitcoin becomes a kind of not merely digital cash, but more particularly > digital gold. The important mechanistic consequence being that the > mechanisms for altering its supply are extremely limited (hoarding by > powerful agents), compared to any form of money that has a fiat element, or > to any form of credit in variable supply. Indeed, bitcoin is > more-gold-than-gold, in that the supply rate of gold involves unknown > factors, such as discovery or extraction innovations, whereas the supply > rate of bitcoins follows a defined algorithm. The power to run cycles of > the algorithm may involve unknowns, but they are probably of a slightly > more limited range than the power to extract gold. > > 2. We are, of course, off the gold standard, in part, because governments > (and by proxy, societies), have decided they want regulatory flexibility > over the money supply that gold makes impossible. Who decided, why they > decided, whether their motives are noble or sinful, is of course another > infinite tree of emails, which I will not open because I am a mechanic. > > 3. HERE AN OPINION: I THINK the reason any digital currency with these > properties is appealing is that there are groups within society who either > don't like the forms of regulatory control that governments have over other > available monies, or they don't like the ways those controls are used. > (This is the way I think "mechanism specifies a large part of the > available incentives"). For simplicity and brevity, I will lump several > other things in with regulation-proper. Other social forces that come with > centrally-controlled monies include the concept of legal tender and > taxation (as Gary rightly emphasizes). I lump these with regulation > because they are in a sense the context that makes regulation possible, > even though they are different. We could use off-line currencies > (cigarettes, tea, bits of paper with Elvis's unforgeable signature, jade) > as money, and if we did, the government's ability to regulate its own > currency and thereby influence economic conditions would be diluted or > eliminated. Therefore governments promise to give legal protection to > exchanges transacted in their tender, and not to others. In addition to > regulatory control, by directing the economy through their money, they can > increase the amount on which they claim taxes owed, and although this is a > separate problem of identification and enforcement from regulation, it does > depend on the magnitude of trade that goes via the money system. > > 3a. I believe there is some overlap in the discourse of those who > advocate bitcoin-like digital currencies and those who want to go back onto > the gold standard, though the two groups are not identical. If I don't > mis-read, that is part of the evidence for my claim 3. above. > > 4. Back to mechanism: If the above are correct, then any sub-system of > the economy that depends on a bitcoin-like digital currency will be subject > to the stresses that come from an inflexible-supply money such as gold, and > those will need to be addressed somehow. You may not like the way your > government practices monetary policy for its money, but I think there is > reason to believe that if you respond to that by shifting into a currency > where that (or any comparably flexible) monetary policy becomes impossible, > you will re-live some of the problems that led to the current situation. > Hence one should recognize that a different response would be to try to get > some control over your government and improve its monetary policy if you > genuinely understand that the current methods are broken and you have a > better algorithm. If you don't know how to do that, then you have admitted > that the world contains HARD PROBLEMS and THINGS WE DON'T UNDERSTAND. I > often favor that conclusion, in many areas. > > 4a. What this means, if bitcoin operates within a system that also has > flexible government currencies, is an interesting question. It sounds to > me like a question with the flavor of a public-goods problem. The presence > of a parallel digital cash will dilute any government's ability to provide > flexibility that can be used for regulatory control or stabilization, and > thus will put further stress against the money system and monetary policy > through which that fiexibility is provided. Conversely, the regulated > money will be providing "elasticity" (as the economists call it) that the > digital cash lacks, perhaps buffering some of its tendency to transmit > shocks through the economy, which a pure-digital (or pure-gold) system > would generate in severe forms. That is a public service that, because its > worth is hard to put a good metric on, it would be hard to charge a fee > for, even if the holders of the digital cash weren't a bunch of ideological > libertarians hell-bent on getting out of paying any fees or even admitting > that they are the recipients of the services of publicly provided goods. > > 4b. In one way, a digital-gold-only system working within a fiat-currency > system resembles a country that remains on the gold standard, operating in > an international arena in which other countries also use fiat-monies, > fractional-reserve banking, and other such modern mechanisms. In another > sense, however, the two must be different. There was a period when the > question of whether or not to use fractional-reserve banking as a mechanism > to vary money supply was under active experimental exploration. London did > it; it was forbidden in France, Germany, and Russia. The result was that > what wealth could be accumulated by the powerful in France, Germany, and > Russia was all deposited in the London banks. There are those who claim > this was an important factor in the rise of England as a world economic > power. See the bullet point below re. Lombard Street. So in a sense, > selective forces seem to advantage systems with more flexibility over those > with less. If one wants to argue that a digital-gold layer is like one > country among many, one would have to ask why it has the capacity to > free-ride on the buffering services of other currencies, to what extent > this has analogues in extant international trade, and what would then keep > the digital-gold system from being driven out of usage, as seems to have > happened to other banking systems in the international arena. > > 5. How your money works immediately brings in the question of what your > credit system is and how it relates to your money. In fiat systems, both > money supply and credit supply are variable. I believe all societies are > relentlessly driven to provide variability somewhere, and if they can't get > it from the money, then it puts more stress on variability of the credit. > If they do have variable money, then they have one of the classic problems > of how variation of the money supply should be linked to variation in > supplies of credit. Switching the two is called the "monetization of > credit". It was the problem addressed in the 19th century by the "Real > Bills Doctrine", finally put into a semi-functional form by Adam Smith, and > beautifully discussed in Walter Bagehot's book Lombard Street: > http://www.econlib.org/library/Bagehot/bagLom.html > RBD worked okay for almost a century of the Marine Merchant economy, but > eventually became too simple to handle modern credit markets. What to do > afterward became the subject of intense (and often, it seems to me, > non-sensical) debates between the Monetarists in Chicago (see Friedman: > Essays in Positive Economics > > https://www.google.co.jp/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CC4QFjACahUKEwjl0LWf2-_GAhWGH5QKHbB2Crw&url=http%3A%2F%2Fwww.socjologia.amu.edu.pl%2Fisoc%2Fuserfiles%2F40%2Ffriedman-1953.pdf&ei=Mw-wVaXrBYa_0ASw7angCw&usg=AFQjCNEOoVQxqz3Op2NBhHQ_spu1U8_Plg&sig2=9yIIdz9crsuof9E6s9juQA&bvm=bv.98197061,d.dGo > ) and the Keynesians of one or another generation. > > 6. BACK TO AN OPINION: I think the reason we face may of these problems is > that they are hard. Money is, among other things, a component in many > mechanisms to solve complicated coordination and information problems. It > also gives permissions and thus frames the forms of available incentives. > Inevitably it therefore becomes a component in social power structures. > What its roles can be socially depend on what its institutional and > mechanistic features are (tautologically). I would find an analytic > discussion, which understands that distinction, and then addresses the > different parts, talking about which things we have empirical grounds to > think we understand, and which should be viewed as confusions, interesting. > > <\Anyway...> > > Eric > > > > > On Jul 23, 2015, at 3:23 AM, Nick Thompson wrote: > > Hi Merle, > > Can you give one or two sentences to suggest why it interests you? > > N > > Nicholas S. Thompson > Emeritus Professor of Psychology and Biology > Clark University > http://home.earthlink.net/~nickthompson/naturaldesigns/ > > *From:* Friam [mailto:friam-boun...@redfish.com] *On Behalf Of *Merle > Lefkoff > *Sent:* Wednesday, July 22, 2015 1:30 PM > *To:* The Friday Morning Applied Complexity Coffee Group < > friam@redfish.com> > *Subject:* [FRIAM] Interesting Link > > http://www.coindesk.com/coin-center-bitcoin-advocacy-launch/# > <http://www.coindesk.com/coin-center-bitcoin-advocacy-launch/> > > > > -- > Merle Lefkoff, Ph.D. > Center for Emergent Diplomacy > Santa Fe, New Mexico, USA > merlelefk...@gmail.com > > > ============================================================ > FRIAM Applied Complexity Group listserv > Meets Fridays 9a-11:30 at cafe at St. John's College > to unsubscribe http://redfish.com/mailman/listinfo/friam_redfish.com > > > > ============================================================ > FRIAM Applied Complexity Group listserv > Meets Fridays 9a-11:30 at cafe at St. John's College > to unsubscribe http://redfish.com/mailman/listinfo/friam_redfish.com > -- Merle Lefkoff, Ph.D. President, Center for Emergent Diplomacy Santa Fe, New Mexico, USA me...@emergentdiplomacy.org mobile: (303) 859-5609 skype: merlelefkoff
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