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Author Topic: Grand Unified Monetary Theory  (Read 3474 times)
benjamindees
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October 04, 2012, 06:50:23 AM
Last edit: October 04, 2012, 12:16:15 PM by benjamindees
 #1

Aristotle laid out his qualities of good money as follows:

  • Durability
  • Portability
  • Divisibility
  • Consistency
  • Intrinsic Value

Those are all fine and well.  But they are all specific, physical qualities, which only provide for the aspects we truly value in money.  So what are these, more general aspects that Aristotle's qualities provide?

  • Durability
    • Protection against loss
  • Portability
    • Ease of transport
    • Protection against theft
  • Divisibility
    • Ease of exchange (liquidity)
  • Consistency
    • Protection against counterfeit
  • Intrinsic Value
    • Protection against market failure

So, by induction, these are the major aspects that any good money should have:

  • Protection against loss
  • Ease of transport
  • Protection against theft
  • Ease of exchange (liquidity)
  • Protection against counterfeit
  • Protection against market failure

How, then, does Bitcoin provide for these fundamental aspects?

  • Protection against loss
    • As digital information, Bitcoins can be copied and backed-up in multiple places at once.
  • Ease of transport
    • Bitcoins can be transferred across the globe within minutes via the internet.
  • Protection against theft
    • Bitcoins can have extremely high value-density, and can be protected with wallet passwords and multiple signatures.
  • Ease of exchange (liquidity)
    • The 21 million Bitcoins can currently be divided into 2.1 quadrillion Satoshis, and theoretically near-infinitely.
  • Protection against counterfeit
    • As a 128-bit ECDSA key pair, a Bitcoin key is nearly impossible to counterfeit; and this protection can be extended if this ever changes.
  • Protection against market failure
    • The Bitcoin network is the largest supercomputer in existence, and would require either 51% control of this network, or extensive, coordinated internet failure to break.

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October 04, 2012, 07:16:22 AM
 #2

I don't think you are using market failure in the appropriate sense. And intrinsic value isn't necessary, it just has to have consensus value. Nothing has intrinsic value, it is just what people agree is valuable.

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October 04, 2012, 08:45:18 AM
 #3

In the economic sense, a "failed" market is a less-than-perfectly-functional market.  Obviously Bitcoin does not provide perfect protection against market failure.  It cannot regulate externalities the same way governments do, for instance.  But it is competitive, is relatively information-transparent, is resistant to external threats, operates with a minimum of both public goods and middle-men, and enables rational self-government, which is one of the best defenses against externalities.

As a medium of exchange, Bitcoin is probably the medium most resistant to market failure in the history of money.

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October 04, 2012, 12:20:20 PM
 #4

Airstotle eh, can you give more info on this reference?  Thanks Smiley 
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October 04, 2012, 03:34:41 PM
 #5

Where is scarcity? Or in other words, a limited quantity and being hard to get more.

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October 04, 2012, 03:50:35 PM
 #6

Airstotle eh, can you give more info on this reference?  Thanks Smiley 

Oops, I mean to quote this.  I got it from this article, but the reference seems to trace back to Schumpeter's History of Economic Analysis, pp 59.

Where is scarcity? Or in other words, a limited quantity and being hard to get more.

Quote
This fourth point brings up the point of scarcity, which is in essence a matter of intrinsic value.

I see scarcity as being contained within protections against counterfeit and market failure.

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October 04, 2012, 04:10:08 PM
 #7

I see scarcity as being contained within protections against counterfeit and market failure.

I don't.

The same article says

Quote
Paper currencies only derive their "value" from what is known as legal tender laws, which are in essence a threat of legal prosecution, and or force, if they are not accepted as money for payment.  ... The governments that sponsor them have essentially unlimited power in their ability to create new supplies.

When using Bitcoin or gold/silver as currency, you don't have unlimited supply even if your life depends on it. Because of the algorithm, miners need to do the work to get new coins and same thing goes for gold coins; someone has to actually go, dig, process and mint the metal into coins.

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October 04, 2012, 05:31:40 PM
 #8

In the economic sense, a "failed" market is a less-than-perfectly-functional market. 
No, in an economic sense, a market failure is a situation that leads to less than optimal results due to the shortcomings of the concept of a market itself. Naturally these situations are very rare, but include things like pollution and other externalities. On an economics board, you'd do well to use the jargon properly.

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October 04, 2012, 06:42:34 PM
 #9

Grand Unified Monetary Theory? That would be the essence of money:

Money is information. That's all it is. Who owes what to whom.

The perfect money is neither inflationary, nor deflationary, it is not scarce, nor is it abundant, it just is.

Any monetary approach up to date cannot reach this perfection. All have to make compromises.

A gold coin or bitcoin is just a user interface to money. A tool. That's all it is. A tool to store and transport this information.

Ideally, money would be invisible. Like any great tool that's not in the way of your workflow. Imagine a giant, all-knowing computer system that tracks all transactions and economic activity. If you tell it you want that car, it can tell you exactly how many more days you'll have to work in your current job to earn it.

Of course, such a computer system would be quite dystopian. Bitcoin is information money too, but compromises to enable better privacy by emulating a scarce commodity.



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October 04, 2012, 10:51:02 PM
 #10

So what are these, more general aspects that Aristotle's qualities provide?
  • Durability
    • Protection against loss
  • Portability
    • Ease of transport
    • Protection against theft
  • Divisibility
    • Ease of exchange (liquidity)
  • Consistency
    • Protection against counterfeit
  • Intrinsic Value
    • Protection against market failure


Durability has to do with a currency in use and is not about loss protection. It's more about expiration. Like when the orange you traded for a brick starts to mold or the ink on your $10 bill starts running. It is about the destruction of the currency, not generally about losing it  (dropped wallet on the street, wiped bitcoin wallet).
Portability has nothing to do with protection agains theft. It is about how easy it is to have it on you and use it.
Divisibility is not about liquidity or ease of exchange, it about the possibility to use fractions of the currency.
Consistency is not about counterfeiting, it is about fungibility. That 1 unit of currency has the same value everywere and can be swapped for any other one unit of currency.
Intrinsic value is not about protection against market failure, it is about the various effects that intrinsic value has.

I think you should just make your own new list instead of shoehorning them into aristotles set of ideas.
Demand for properties of a monetary system do change you know.
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October 05, 2012, 10:13:58 AM
 #11

Durability has to do with a currency in use and is not about loss protection. It's more about expiration. Like when the orange you traded for a brick starts to mold or the ink on your $10 bill starts running.

Okay... still sounds like loss to me.  Are you generally concerned about others destroying their Bitcoins, and the effect it has on you or "the currency"?  If so, why?

Quote
Portability has nothing to do with protection agains theft. It is about how easy it is to have it on you and use it.

And what about currencies that were not really portable at all?  Were they just bad money, or perhaps is portability not a specific requirement?



Quote
Divisibility is not about liquidity or ease of exchange, it about the possibility to use fractions of the currency.

Is there some other reason, besides liquidity or ease of exchange, that you would want to use fractions of a currency?

Quote
Intrinsic value is not about protection against market failure, it is about the various effects that intrinsic value has.

Such as?

Quote
I think you should just make your own new list instead of shoehorning them into aristotles set of ideas.
Demand for properties of a monetary system do change you know.

I am not "shoehorning" anything.  I am expanding upon and generalizing Aristotle's ideas.  I tried to make this clear.
And, no, general truths do not change.  That's the entire point of seeking them out, of studying philosophy, economics, of science even.


Money is information. That's all it is. Who owes what to whom.

So, what does my owning a Bitcoin tell me about who owes what to me?  How about a dollar?

I agree that money is information.  But it isn't information about debt.  It is information about supply and demand of scarce resources.

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The perfect money is neither inflationary, nor deflationary, it is not scarce, nor is it abundant, it just is.

Yes, I agree with this.


In the economic sense, a "failed" market is a less-than-perfectly-functional market.
No, in an economic sense, a market failure is a situation that leads to less than optimal results due to the shortcomings of the concept of a market itself. Naturally these situations are very rare, but include things like pollution and other externalities. On an economics board, you'd do well to use the jargon properly.

Frankly, given the rather spectacular inconsistencies in the multiple schools of modern economic thought, I think I'd prefer to use words based on their regular, English meanings.  And since I'm making more of a philosophical, rather than economic, assertion, perhaps you can just pretend that "market failure" has a more generic meaning than the technical meaning you might usually proscribe to it?

If not, well, then here's my argument.  I disagree that "market failure" is a natural consequence of "shortcomings of the concept of a market itself."  I think, rather, that it is a natural consequence of something else, force and fraud, intentional harm, ie. crime.  In my view, calling this "market failure" is a complete abuse of the language, newspeak even.

Let's say we decide to meet at the coffee shop to exchange Bitcoins for fiat, and you decide to rob me of my fiat instead.  Would you call that a failure of the market for Bitcoins?  No.  That's crime, something "the market" doesn't even pretend to protect against.  Since we were in a coffee shop when the crime occurred, is it a failure of the coffee shop to protect against crime?  No.  The "concept of a coffee shop" doesn't include "protection against crime" any more than the concept of a market does.  It's a failure of something else, morality, government, individuals, society perhaps, but not "the market" or "the coffee shop".

So, I'd prefer to use the term "market failure" to mean exactly what it says, failure of the market, rather than failure of the concept of a market to be so expansive as to include every possible human action.  If I'm going to posit a "concept of a market" at all, it would be a complete fool's errand to try to make it dependent upon all the stars in the universe aligning in order for it to function properly and not be deemed a "failure".

That's why I tend to view the concept of a "market" as one of voluntary exchange in good faith between reasonably self-interested individuals, rather than some mystical all-encompassing pseudo-religion capable of solving all human problems.  Externalities can and should be relegated to some other mechanism, the justice system or similar, since I also disagree with your assertion that externalities are "very rare".  But that's for another post.

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October 05, 2012, 11:05:23 AM
 #12

So, what does my owning a Bitcoin tell me about who owes what to me?  How about a dollar?

I said it already. Bitcoin would be just a user interface to money. A tool. That's all it is. A tool to store and transport this information. It's an UI instead of the OS. Many n00bs confuse these two things.  Tongue

You're right, owning a Bitcoin doesn't tell you anything about these things. That's why it is not perfect money, as I said. As soon you resort to such a commodity, you've already lost a great deal the accuracy and efficiency that the all-knowing computer-system has.

Gold would be just a commodity like any other in such a system. Same with Bitcoin as a digital commodity, it may or may not still find some purpose.

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October 05, 2012, 11:10:38 AM
 #13

No offense benjamin, but your post does reek of shoehorning bitcoin sound bytes into the "grand unified theory". Like, for example, the concept of intrinsic value is dubious enough as it is, then you somehow manage to attribute this value arising from a viable attack on the network.

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October 05, 2012, 12:40:32 PM
Last edit: October 05, 2012, 04:15:01 PM by mobodick
 #14

Durability has to do with a currency in use and is not about loss protection. It's more about expiration. Like when the orange you traded for a brick starts to mold or the ink on your $10 bill starts running.

Okay... still sounds like loss to me.  Are you generally concerned about others destroying their Bitcoins, and the effect it has on you or "the currency"?  If so, why?

I am not concerned, this is your list.
To me, the term 'loss' would include things like theft and i'm sure that was not the direction that Aristotle was heading with this.

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Portability has nothing to do with protection agains theft. It is about how easy it is to have it on you and use it.

And what about currencies that were not really portable at all?  Were they just bad money, or perhaps is portability not a specific requirement?
He WAS indeed talking about practicality and in his eyes these big coins were bad money as they would not flow easily through society.
It has nothing specific to do with theft, it applies to all uses of the currency.

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Divisibility is not about liquidity or ease of exchange, it about the possibility to use fractions of the currency.

Is there some other reason, besides liquidity or ease of exchange, that you would want to use fractions of a currency?
It allows for a smooth change in price.
Today a chicken is worth 1 coin.
Tomorrow, a chicken costs 0.97 coin.
How will you pay for this chicken if the coin is not divisible into, say, cents?
Again, this is about the practical use of the currency.
Things like liquidity and ease of exchange are related to the widespreadidness of the currency and are not dictated by it's divisibility.
And to become widespread it is essential that the currency be practical in several ways, according to aristotle.
And divisibility makes the currency more practical.

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Intrinsic value is not about protection against market failure, it is about the various effects that intrinsic value has.

Such as?
Such as that even if the market collapses you are left with something (the physical part of the currency) that has some value of its own.

People tend to trust such currency easier and are more eager to use such a currency.
This actually adds to liquidity and ease of exchange.

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I think you should just make your own new list instead of shoehorning them into aristotles set of ideas.
Demand for properties of a monetary system do change you know.

I am not "shoehorning" anything.  I am expanding upon and generalizing Aristotle's ideas.  I tried to make this clear.
And, no, general truths do not change.  That's the entire point of seeking them out, of studying philosophy, economics, of science even.

Yes you are. You're desperately trying to distill things you think are important now from things written by aristotle.
What you do wrong is that you only consider his points without considering the direction of those points.
So i still think that you should make a list based on what is needed now instead of trying to find a way to transform these old ideas because now is a completely different situation than aristotles times.


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October 05, 2012, 02:09:04 PM
Last edit: October 05, 2012, 02:20:35 PM by Mageant
 #15

I don't think you are using market failure in the appropriate sense. And intrinsic value isn't necessary, it just has to have consensus value. Nothing has intrinsic value, it is just what people agree is valuable.

I think with instrinsic value it is meant that you can use the "money" for itself even if nobody will trade you for it.
For example, wheat has been used as money in ancient times. If nodobdy would trade your wheat you could always eat it yourself. Thus wheat as money always has a minimum intrinsic value.
Gold also has an intrinsic value. You can use it to make jewelry or electronics.

I'm not sure if Bitcoin has an intrinsic value. At the most basic level Bitcoin is a system of recording and sending unique tokens over the Internet. So it does have a core usefulness, more useful than small slips of paper with ink on them. Still, you can't really do anything with those tokens other than trade them.

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October 05, 2012, 04:18:57 PM
 #16

I don't think you are using market failure in the appropriate sense. And intrinsic value isn't necessary, it just has to have consensus value. Nothing has intrinsic value, it is just what people agree is valuable.

I think with instrinsic value it is meant that you can use the "money" for itself even if nobody will trade you for it.
For example, wheat has been used as money in ancient times. If nodobdy would trade your wheat you could always eat it yourself. Thus wheat as money always has a minimum intrinsic value.
Gold also has an intrinsic value. You can use it to make jewelry or electronics.

I'm not sure if Bitcoin has an intrinsic value. At the most basic level Bitcoin is a system of recording and sending unique tokens over the Internet. So it does have a core usefulness, more useful than small slips of paper with ink on them. Still, you can't really do anything with those tokens other than trade them.

I disagree.
When market value plummets and only the intrinsic value is left, i'd rather have a milion paper slips then a milion bitcoins.
For one, you can isolate your house with paper slips.
You can also burn them for heat.
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October 05, 2012, 07:31:52 PM
 #17

I think with instrinsic value it is meant that you can use the "money" for itself even if nobody will trade you for it.
For example, wheat has been used as money in ancient times. If nodobdy would trade your wheat you could always eat it yourself. ...

I disagree.
When market value plummets and only the intrinsic value is left, i'd rather have a milion paper slips then a milion bitcoins.
For one, you can isolate your house with paper slips. You can also burn them for heat.

Or you can wipe your a$$ for a couple of months, although not sure if they're that comfortable. Smiley

Anyways, I completely agree with Mageant definition of intrinsic value.

The interesting thing is that the intrinsic value is usually waaaay lower than the face value, therefore does it really matter? In case of a complete crash you could wipe your a$$ with your stash of $100 bills but compared with what they could have bought before the crash. Is it any comfort in having that "option"?

Same thing with Bitcoins ... they have 0 value if no more electricity or system crashed but even if I could get something out of them it, the intrinsic value would be insignificant compared to face value.

Intrinsic value? Meh, whatever ...

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October 06, 2012, 06:14:43 PM
Last edit: October 06, 2012, 07:09:32 PM by Roger_Murdock
 #18

I don't think that "intrinsic" value (i.e. a non-monetary use) is a requirement for a good currency.  It was probably important to the evolution of money, i.e. it's hard to imagine the first money not having "intrinsic" value.  And it was also important traditionally as a way to ensure scarcity (which is what really matters).  Paper notes have very little "intrinsic" value, but if they were backed by a scarce commodity like gold, that would (theoretically) operate as a constraint on the power of the issuer to debase the currency by printing ever-increasing quantities.   But you don't really care if money has a non-monetary use. In fact, having a non-monetary use almost seems inefficient, because when the commodity is being used as money it's less likely to be put to its other uses. Imagine how much cheaper gold would be for electronics applications and jewelry if there were no monetary demand driving up its price. I'm sort of making the same argument I made about whether good money should be tangible:

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Why should we apologize for the fact that Bitcoin is intangible (in the sense that it's non-corporeal)? That's a huge advantage. Until we invent cheap and reliable teleportation, you can't spend corporeal things at a distance. Sorry goldbugs, but gold is not particularly well-suited for the information age. Corporealness was never important in and of itself. It was simply the price you had to pay to eliminate counter-party risk. Until now.

Having "intrinsic" value (which basically just implies that money is a commodity rather than fiat) was another one of the "prices" we had to pay to eliminate counter-party risk, but Bitcoin manages to eliminate it without paying that price. Gavin Andresen stated that Bitcoin was "almost the Platonic ideal of money." And I agree. Money is really just information. It's a way of keeping score of who has produced but not yet consumed and about the relative scarcity of particular resources, etc.  

So not only is Bitcoin "real money," it's the realest money yet.
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October 06, 2012, 07:16:32 PM
 #19

I don't think that "intrinsic" value (i.e. a non-monetary use) is a requirement for a good currency.  It was probably important to the evolution of money, i.e. it's hard to imagine the first money not having "intrinsic" value.  

I think you're quit right here.
I would like to add that in times where there was no global economy the intrinsic value of stuff like gold made it more universal.
You could always find people that valued gold and you could do that completely without regard of any face value the gold seems to carry.
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October 06, 2012, 09:10:34 PM
 #20

Intrinsic value in currencies has the benefit of preventing inflationary policies from destroying it for political purposes

My attempt at adding to the bitcoin-using marketplace: https://bitcointalk.org/index.php?topic=171843.0
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