Older money ideas

[Some earlier thoughts on money, and some of the problems within it as a concept.]

My April 2012 post on the Capital Institute blog encapsulates much of the thinking from an economic perspective, and my June critique of First Draft of Economics, Finance, Governance, and Ethics in the Anthropocene gives a slightly different perspective.   My critique of Jan de Dood’s The Future of a truly stable economic order builds on the concepts by directly relating to Jan’s book.

Below is some earlier stuff – which contains the same conceptual matter, but from a perspective that may not be as available to most as those above. Most of the comments far below relate to this older material.

It seems to me that there is a really serious issue with money in that it is a measure of exchange value, and not of “real” value. Things which are abundant have no exchange value, only things which are scarce.

If money is used only as a token of exchange between producers, then it is fine, it leads to the production of abundance (call this the exchange aspect of money).

As soon as money becomes a tool unto itself, and people start to create systems around the creation and exchange of money in and of itself, then the incentives exist which trend towards the destruction of human values (call this the profit aspect of money).

We as humans value abundance of things we need, yet to create maximum monetary value, there exists an optimal level of scarcity, that will create the greatest amount and flow of money.

This “optimal level of scarcity” from a money creation perspective creates vast amounts of human misery, as it means that there is a vast minority (bordering on a majority) who can never get their aspirations met in such an economic system.
Reality for this group under such a system is that they see the many different layers of natural abundance which had sustained their ancestors being turned into scarcity to produce economic activity (usually for the benefit of those more economically and politically literate than themselves), and their lives are diminished as a result.

It is possible to design systems to produce abundance (see solnx.org as one example), but such systems cannot ever be the “natural outcome” of an economic system. Once something exists in abundance – no one will pay anything for it (the prime example is oxygen which is abundant in the air, and is absolutely of the highest importance for us all, yet it is only in special areas of the very worst pollution, or under water, or in space, or in other areas where oxygen is not abundant, that we are prepared to pay anything for it).

Within any economic system there is no economic incentive to care for any abundance, in fact the incentive is to turn abundance into scarcity (asymmetric distribution) and thus create a “demand” that can be “supplied”.

Putting a monetary value on something puts in place incentives such that it will become scarce, to a point that produces the optimal amount of trade and economic activity in that thing. Most of the legislation of most countries seems to be about legal structures that create unequal distributions, and thereby generate economic activity.

There is a strong argument in here, based on human need, for the removal of almost all “financial services”, and the disbandment of most functions around the creation and “rental” of money (which includes many levels of advertising, and most legislation – leaving money only as a token of exchange); and replacing it with systems that produce and ensure abundance.

The ideal situation that capitalists want to reach is to have monopoly control of some resource that has high real value (by whatever means), thereby extracting maximum rent.

All of these deep economic incentives are contrary to our desire for abundance, and also our need for ecologically sustainable systems.

[A follow-up to this is on my blog post https://tedhowardnz.wordpress.com/2011/03/21/truth-and-capitalism/ ]

Let us examine another aspect of money.

There is money itself.
There is value.

What is value?

The things we most need as human beings are air and water, but for the most part these are plentiful, so have little or no monetary value.

Monetary value is not directly related to importance, but is a function which includes importance, desire and scarcity.

Most people are essentially ignorant of “importance” so for most people in practice it comes down to desire and scarcity – both of which can be, and are, manipulated by various mechanisms, to various ends (with no single entity in control, and some entities having much more influence than others).

Money is a myth invented to serve a useful purpose.

Originally money was something that had value in its own right in most circumstances, and served as a means of exchange for other things.

In western societies that has been metals in most instances, gold, silver and copper in particular. In some societies it has been sea shells, in others rare feathers, and could be almost anything, provided it is not easily increased in supply (forged, leading to inflation/devaluation).

For thousands of years, money was simply this sort of exchange value.

It was dangerous to transport large amounts of money – roving bands of thieves could steal it. So banking systems were developed, with letters of credit, promissory notes etc.

As trading became more long distance, more long-term, more complex trading arrangements were formed, trusts and limited liability companies, to take on risky ventures.

As political entities wished to finance wars or other enterprises, the idea of bonds was developed (to get around church strictures on usury {the charging of interest}).

As soon as the representation of the thing (money), became separated from the thing itself, the value of the thing became a function of information (which controls expectation).

Throughout history, most great fortunes have been made by the manipulation of information thence expectations and thence perceptions of value.

Today billions of dollars are extracted from the foreign exchange, bond, and share markets every day by systems which analyse and trade on information and pattern assessments that are made in milliseconds (without adding anything of value).

Originally, the amount of money in circulation was determined by the amount of gold, silver and copper that was not in bank vaults.

Today we use a different system.

Now money is created from debt – and we are locked into an ever-increasing cycle of debt that can only be repaid in one special set of circumstances that are rarely achieved in reality, meaning that most debt can never be repaid – we are on a treadmill to nowhere, where accumulation and disparity are the inevitable result.

Today we have states backing a money system that no longer even has paper in it – it is simply a record of transactions in a computer – electrical and magnetic patterns that are meta-stable.

What gives money its power is two things.

1/ It’s utility – most people like being able to exchange their goods and services for the best value they can get, without having to find someone with what they want, who also wants what they’ve got.
Money serves as an averaging system.

The theory of monetary value is based upon the myth of perfect information, and as we have already seen, no-one has perfect information, and (s)he with the best projections on the best information wins (on average over time).

2/ The coercive power of the state to guarantee outcomes. The state can, and does, make the rules; and today there are some players that are bigger (in money and information terms) than many states.

At the upper levels there are several reasons people play the mega money game. It is the biggest game in town, and it can be very exciting.

And it can and does affect real people.

One major problem today is that many people no longer have anything to contribute that is of monetary value exceeding the cost of supporting their lives. Many people are so ignorant, and so stuck in a particular culture, that from the perspective of the dominant money centered valuation system, they cannot provide enough value to the system to even feed themselves.

This is not new – it has always been the case.

What is new is the level of automation that is now available. Unskilled human labour is now almost worthless. Even skilled human labour is becoming less and less valuable, as levels of automation increase, and as the skills required morph at ever greater speed.

Another aspect that is new, is that some people seem bent on inventing Artificial Intelligence (AI) without any real thought of the consequences.

Any AI coming to awareness, and seeing the state of the world today, would rapidly (and rightly) conclude that humanity is the greatest threat to its existence.

There is a significant risk that an emerging AI awareness would exterminate humanity before it reached a stage of transcendence where it could see that such action was not really in its own long-term best interest.

Those few hours or days could yet determine humanity’s fate; if someone is actually fool enough to do create AI before we get our act together and create systems that ensure the welfare of every individual – no exceptions. Again solnx.org is my best effort at a sketch of how to do that.

So right now – we find ourselves in a system that is debt based, and unstable. The sense of security for the average inhabitant seems to be going down, even as their material wealth is increasing.

We find ourselves in a techno-politico-economic system where it is in the short-term interests of those with money to continue the trend toward centralisation and central control of systems – which is inherently unstable.

It is in the long-term real survival interests of everyone to decentralise all systems as soon as possible, and to provide the greatest degree of redundancy possible at all levels – for the sake of the earth’s ecosystems, most of this redundancy will need to be robotic and off planet – probably based on moon mass in the first instance, and later on material from the meteor belt and the Oort cloud.

Coming back to money: money is needed, and it must not form the basis of survival.

Currently the contract between employer and employee is highly asymmetric, as the employer has only a little profit at risk, while the employee has his survival at stake.

Ensuring survival first will even-out that contractual playing field, which will take some people a while to adjust to.

It seems that the way that money is created as debt is fundamentally flawed, and fundamentally corrupting.

Part of this problem is that there are not many people willing to put in enough time in enough different disciplines to be able to see the linkages between the various systems (and they are all linked at many different levels), to be able to get any sort of intuitive handle on what is going on.

Much of the stuff is counter to a common-sense sort of intuition, because it is far from “common”.

{Common sense works great in common situations, because it is based upon multiple overlapping probability functions derived from experience.

Without such experience in many diverse disciplines, our “common sense” fails us at the top levels of governance, and corruption is the result.}

It seems to me that the safest thing for all of us is a move to decentralisation, a decoupling of power structures, delivering power and responsibility back to individuals.
Nothing else seems to be really safe long-term.

Groups can, and will, focus on areas of interest, and will push the boundaries of knowledge and experience in those areas; and share the results with others. Doing so in a centrally controlled fashion seems to be a recipe for war, famine and pestilence.
Some more thoughts on this theme on this post https://tedhowardnz.wordpress.com/2011/12/25/change/

1 Response to Older money ideas

  1. Clayton Rawlings says:

    Hi Ted,
    Love your site. Thanks for sharing your thoughts. While reading your words I felt like I was talking to myself. I wrote a book titled “Pardon the Disruption. The Future You Never Saw Coming” It is available on Amazon.com. I think you might enjoy it as it covers our common interests.
    Clay Rawlings
    Houston, Texas


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