Thank you Merle, I like Piketty, and I like that book, as well as commentary he has given on responses to debt in European history and with respect to Greece today.
I probably use the word theory in a way that is different than you intend here, but that's fine. How I would use a word is neither important nor interesting enough to be worth consuming public bandwidth over. All best, Eric On Jul 23, 2015, at 2:39 PM, Merle Lefkoff wrote: > 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/# >> >> >> >> -- >> 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 > ============================================================ > 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
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