Seems like a good opportunity to talk about UBI. I’ve always wondered how it would work at a national scale. You’re changing everyone’s current position by the same amount. But of course that increase has different implications for your life depending on how close to zero you are.
On the other hand. UBI doesn’t change the hoover that’s vacuuming value upwards. So does UBI simply result in greater value moving from the gov’s budget to corporations?
Hi Avery, the first point to grasp is that when you 'airdrop' equal numbers of tokens onto unequal balances it does have the effect of making the balances relatively more equal. To understand this point, imagine an extreme scenario where you have two balances, one with 1 unit and another with 10 units. The ratio is 1:10. If you then drop 10 units onto each the balances go to 11 and 20, so now the ratio is 5.5:10. If you drop 80 units onto both now, it goes to 91 and 100, aka. a ratio of 9:10. So, dropping equal numbers of tokens onto unequal balances eventually erodes the inequality in the balances towards equality.
In the case of a large-scale modern money system, a UBI wouldn't be done by airdropping new money like this though. What will happen is that a government will first pull money out of balances via taxation, and then spray it back out in equal quantities to everyone. Assuming the taxation is progressive, it reduces the balances of the richest in society first, before then doing the 'airdrop' onto everyone
This, though, doesn't mean there won't be pricing effects. The big thing to consider in UBI is whether the shifting landscape of balances inspires various private sector actors to increase their prices, for example, thereby neutralizing aspects of the gain that someone experiences in their account
It seems to me that the big thing to consider politically is when the BI isn't so U.
When governments inevitably say "well obviously we aren't going to pay it to illegal immigrants/criminals/X that we disapprove of". I'm concerned that suddenly it might look a whole lot like a locked storeroom full of food and ale.
For sure. Well, in many ways UBI is an alternative mode of distributing welfare (albeit it's a relatively untargeted form of welfare), and as such it comes with many similar issues in deciding who qualifies or not, along with the various forms of bigotry that can accompany that
Just to add to my last comment, in this piece I've glossed over the dynamics of government money issuance, and focused rather on private sector players. To use the language from 5D money (https://www.asomo.co/p/5d-money-part-1), I'm heavily focussing on the 'horizontal plane' here, but the story gets more complex when we look into the 'vertical' dimensions of issuance (i.e. if we were to imagine the government as the 'captain', it's more like they say 'If you want protection from my anger, you must hand over tokens to me that I also happen to issue, but to get these you must first hand real resources to me'. Once those tokens are in circulation, and become entrenched on the 'horizontal' plane of interaction between everyone else, then the 'captain' can begin messing with redistributing them, and stuff like UBI can be debated).
In reality, though, in the metaphor used in this piece, the captain figure is actually more like a private sector capitalist who uses control of capital goods and infrastructure to extract tokens. So, I probably shouldn't mix up the metaphor, and should write a different piece with some new characters to explore the state's interaction with the private sector
I'm a real novice mind when it comes to economics and am trying to wrap my head around much of what you've written here. Have you ever, or would you ever, do a piece on a specific type of so-called "green" or "renewable" energy development and the economics of this. I'm doing some grassroots activism to protect my west coast from Offshore Wind development, and although I have the environmental aspect of it covered, I'm interested in learning more deeply about the loads of subsidies required for these massive industrial projects. Of course, the rate payers pay for this, and the loans are taken from our taxes. I would love to hear some of your thoughts on this stuff. As an anthropologist, I'm sure you can appreciate the level of cultural disconnect when we talk about the Earth as a "resource" to be extracted from. Obviously, we've gotten ourselves in a conundrum when we extract faster than Earth can replenish and waste faster than Earth can absorb. It seems so obvious, yet almost impossible to clarify to someone who believes that we've done a great job as a civilization. As someone working with my local tribes, it's clear how so much of economics is how we've been groomed to think about Earth and our relationship to Earth.
People with skills have an ability to trade time for resources.
Money is a middle man that facilitates trade, but loses value over time due to inflation. Resources lose value over time due to entropy such as food decaying or cars rusting. Skills gain value every time they are used, developed, and taught.
Power can be balanced within the system when people with skills come together. A world without money would likely still require trade, but everyone would need to know basic skills to survive.
These skills would ideally be learned before the monetary system collapses, theoretically speaking.
I found this a really useful development of the concept that money is debt. The value of these explanations, it seems to me, are in demonstrating the core simplicity of something that appears mind-bogglingly complex.
The complexity, of course, comes from the system and its dynamics that trade on the appearance of complexity to gain power. So instead of a more healthy reciprocal dynamic some actors seek a permanent and ever-increasing imbalance. They are able to lever the power of others - politicians in particular - to achieve this end offering a small share in this imbalance as a carrot. What is not always perceived is that there is a stick attached to the carrot. But now we’re straying into the anthropological bit…!
Hi Richard, I'd say this is the first layer of the concept of money-as-debt. To explore the broader picture would also require diving into the issuers of modern money - the state and the banking sectory - but I wanted to do this piece as one piece of the overall puzzle
The whole question of dropping money unequally on people is interesting.
We have just experienced a case of that in the US where everyone under a certain income level was sent a stipend to help them when businesses were closed due to Covid.
That caused a spike in inflation because there was more money available to buy goods and services. Prices went up and people who were struggling to buy groceries before the pandemic are now struggling even more since the pandemic payments have stopped.
Economists are saying that inflation is returning to the normal range, but core inflation in the US does not include the price of groceries and energy.
Now some voters are trying to decide which party will help them by making groceries and energy more affordable, while other voters are trying to lower taxes and pay down the national debt.
Hi Ken, I'd love to say there was an easy answer to this, but the dark arts of predicting the interaction between money stimulus, production and inflation etc is complex, as is the task of trying to identify where inflation stems from. What I would say is that I'm inherently sceptical of most pundits who claim to have easy answers to that, and it would take me months to work through the circuitry of an economic system to feel confident in any particular assessment, so I'll probably be too late to help US voters!
Yea, I get that. I agree that it should balance wealth on paper, I'm just wondering if the scales would actually be tipped in favor of those with lower income. Capitalists vacuum money upwards from the purchasing power of the rest of the country, and they're quite good at it and always getting better. If you increase that purchasing power, might they just get richer and richer? In other words, with a UBI does the increase in value flux to capitalists outweigh the increase in their taxes directed towards UBI? This is what I was trying to get at when I said that UBI might just end up diverting money from the government to capitalists...
I've always seen this as the real reason why the rich don't want to increase taxes: it reduces the purchasing power of their customer base, diverting power away from businesses and towards the gov.
Well, this is a question that applies to any form of stimulus really. If the UBI were 'taxation financed' (i.e. a government first sucked money out before pushing it out as UBI), then theoretically there's no increase in total purchasing power, but there is a relative redistribution of that purchasing power, so the whether the UBI acts as a stimulus or not would depend on the relative position of people receiving it (aka. how likely are they to actually spend any new income). But yes, capitalism at a generic level is set up with circuits that require people to spend in order for firms to extract profits. This probably warrants a lot more investigation :)
“‘Billionaire’ then, doesn’t refer to a property residing in a single person in a vacuum. It refers to a property residing in the relations between that person and everyone else. It’s this differential that creates that ‘suction’.”
Good article. One thing I am left asking is what is the formal definition of the unit credited. This is crucial because that alone will determine the nature and scope of "monetary" relationships between the different individuals, individuals and the rest of the group as well as vis-à-vis some standard of "value". Moreover, without such a definition we cannot determine whether or not the "money system" is stable (active or passive), unstable (active), which is paramount to delimiting the nature and scope of effects (destabilising, neutral or stabilising) of the "money system" (a mere economic component) on the "economy" as a whole.
We have done much work in this regard worth your review and assessment see:
Why don't you like the construction of the EURO? The ECB's charter clearly states that EURO banknotes are the only legal tender, which thankfully makes it clear that deposits are NOT a means of payment. This means that the definition of money is no longer a secret, because banknotes are something (a legal item) that must be handed over when there are debts in which money is needed to settle a claim. The fact that the handing over of money takes place in the depths of the central bank system does not mean that it can simply be replaced by any "money surrogates". Unfortunately, this misconception is widespread.
In the entire body of legislation on the EURO, there is no mention of the EURO having a value, only that it is needed to establish or cancel debts. The "value concept" emerges later, when it comes to keeping the exchange rate of the EURO to a basket of goods largely constant. However, this is not an intrinsic property of the EURO, but an external aspect that does not relate to the definition of the EURO.
Of course, people are used to believing in something like the "value of money". This is a widespread emotional attribution that relates the utility of what can be bought with the help of money to money. For everyday use, this idea is sufficiently functional, but as an analytical construct it is a disaster. This is essentially because money does not necessarily have to be seen as an absolute measure of value, but rather as a relative measure of value, where the question of the "value of money" no longer arises at all.
Georg Simmel described it like this in his monumental work "Philosophy of Money":
"Since there is a constant relationship between the quanta of one factor and those of the other, the magnitudes of one determine the relative magnitudes of the other, without there having to be any qualitative relationship or equality between them. This breaks the logical principle that seemed to make the ability of money to measure value dependent on the fact of its own value." Simmel (1907)
In other words: as soon as one frees oneself from the value hypnosis of money, all the contradictions that arise from the assumption that money must have a "value" disappear into the nirvana of misinterpreted emotional attributions, and one's view is clear for the essential questions.
First, the euro symbol is used to denote both banknotes and account entries and since that symbol is not formally defined neither can banknotes or account entries denoted by that symbol be defined. That is apart from the fact that declaring the euro banknotes as "legal tender" in no way serves as a formal definition, declarations are not definitions. Finally, the definition of legal tender is a specialisation of "money" or "medium of exchange" which again are not defined independently of "money".
To define the euro we need a formal ontological definition and in order to use € units in any mathematical expression applied to any other common reality other than itself, we need it to be a decidable ontological definition. We have none of that.
As for your statement that the euro is not value, we agree but only in terms of intrinsic properties. However, when euro units are "needed to cancel debts" and are subject to "supply" and "circulation" then they are conferred an arbitrary purely conventional utilitarian "value" as like an object or commodity like token.
So, the mere claim that the euro is not defined as value has to be substantiated by how it is used and implemented i.e. if it is in practice transferable and dependent on supply and circulation, then the claim is empty.
Furthermore, the fact that the euro is "supplied" and dependent on circumstantial circulation renders it useless as a measure of generic value. BTW relative value is only possible in terms of well defined units, which economics and finance categorically don't provide.
I don't think the question of defining a symbol is relevant. A symbol can come into being when you take a piece of paper and a pen to draw a line or a pattern on it. Then a symbol is in the world. You can ask yourself why it looks like this and not another way, but such questions are metaphysical. If this symbol is applied to a forgery-proof data carrier, this data carrier becomes a distinguishable thing that can also be transferred. Then you give this thing a registration number and declare it legal tender. This is how the construction of the EURO looks and there are no definition problems because this thing is not endowed with any properties. It is simply there. And it does not need any definition other than the distinguishability of whether a banknote is valid, i.e. issued by the central bank, or not. This declaration is legally watertight, you will not find any way to characterize it as logically defective.
These banknotes are legally a thing that can be transferred by agreement and handover. This legal transaction requires a contract that involves the handing over of precisely specified things, whereby usually at least one side has to hand over a means of payment, while the other side hands over another object, called a commodity. Contracts create obligations that usually refer to means of payment, but are not themselves a means of payment. For example, the obligation between a bank and its customer - the deposit - refers to means of payment without thereby becoming a means of payment itself.
And this indicates that money, understood as a means of payment, is not an obligation, but an (artificially created) thing that has just as much reality and existence as a cow or a table. That is also the crucial point: it is not about the definition of a means of payment, but about its existence. And as soon as it exists, it can become the object of obligations and therefore (!) it is then passed from hand to hand. Of course, one can think metaphysically about why a thing exists - but what for?
A symbol used in mathematical expressions or even just propositional logic either has or doesn't have a definition assigned. To apply those expressions to any domain or reality meaningfully they must be unequivocally defined in terms of that domain or reality. Period.
All your assertions about legal tender and means of payment are ontologically unsound using circular definitions. I suggest you study how things can be meaningfully defined.
It seems that the mental error that keeps being made is that people keep reverting back to treating the unit of AcCount as if it is an item of value. This failure to truly know how to do abstract representation of value is a constant theme amongst humans that attempt record keeping systems using abstract units. It seems that the actual process of a formal convocation about the formal establishment of the specifications for such a unit, along with the subsequent acceptance of a 'standard' for this purpose is missing in the entirety of the historical record. The ramifications from this are staggering and observed all around us. And we should all be able to conclude that what has gone heretofore, from the conceptual to the follow-on structural, cannot be made to work.
But the challenge in this so called 'modern age' is to offer proof of all this using the very analytical tools of the 'modern' -logic and Applied Math.
How can we expect any society to reach its highest and fullest capacity while still using the inherited illiteracy we all are using for abstract representation of value?
Marc Gauvin points out that a valid definition of money that is unequivocal is missing so far in human history. Former President of the FR Bank in Minnesota, Kocherlakota, proves the current definitions to be "vacuous" and asserts that the function of money is as a unit of measure/bookkeeping.
In Kocherlakota's words:
"My argument demonstrates the vacuity of the three standard explanations of the role of fiat money in an economy: money acts as a store of value, a medium of exchange, and a unit of account....The traditional explanations for the presence of money in an economy are more descriptive of its functions than explanatory. The true explanation for money's presence is that money is a record-keeping device."
So, you can see that at the core conceptual level of thinking about money we still have to get the concepts right in order that the system can actually serve its functional purpose. When we have the courage to correct this basic error the populace can free itself from its past and enter into a new paradigm.
"Finance" as in the 'supply of units of measure' is a nonsensical thought process when the function of measure itself is truly understood.
How many other units of measure are "supplied"?
from Marc Gauvin at the MSTA
Is this correct?
Let A ≥ 0 be the annotated value of goods/services transacted
Let B ≥ 0 be the independent value attributed to the annotation of value i.e. "money"
Proof
If A > 0 and B > 0, then A+B ≠ A
Therefore for any A, A = A + B if and only if B = 0 !
End of Proof.
The proof shows that if both the annotation of value (A) and the independent value attributed to the annotation of value (B) are greater than zero, then the equality A = A + B can only hold if B is equal to 0. This implies that an annotation of value cannot be treated as a valid measure if it is considered a commodity with an independent value greater than zero.
So, apply this to the entire field of finance.
How can we expect any society to reach its highest and fullest capacity while still using the inherited illiteracy we all are using for abstract representation of value?
Marc Gauvin points out that a valid definition of money that is unequivocal is missing so far in human history. Former President of the FR Bank in Minnesota, Kocherlakota, proves the current definitions to be "vacuous" and asserts that the function of money is as a unit of measure/bookkeeping.
In Kocherlakota's words:
"My argument demonstrates the vacuity of the three standard explanations of the role of fiat money in an economy: money acts as a store of value, a medium of exchange, and a unit of account....The traditional explanations for the presence of money in an economy are more descriptive of its functions than explanatory. The true explanation for money's presence is that money is a record-keeping device."
So, you can see that at the core conceptual level of thinking about money we still have to get the concepts right in order that the system can actually serve its functional purpose. When we have the courage to correct this basic error the populace can free itself from its past and enter into a new paradigm.
"Finance" as in the 'supply of units of measure' is a nonsensical thought process when the function of measure itself is truly understood.
How many other units of measure are "supplied"?
from Marc Gauvin at the MSTA
Is this correct?
Let A ≥ 0 be the annotated value of goods/services transacted
Let B ≥ 0 be the independent value attributed to the annotation of value i.e. "money"
Proof
If A > 0 and B > 0, then A+B ≠ A
Therefore for any A, A = A + B if and only if B = 0 !
End of Proof.
The proof shows that if both the annotation of value (A) and the independent value attributed to the annotation of value (B) are greater than zero, then the equality A = A + B can only hold if B is equal to 0. This implies that an annotation of value cannot be treated as a valid measure if it is considered a commodity with an independent value greater than zero.
What Kocherlakota is doing is on the one hand trivial, and on the other hand wrong. Nobody denies that the properties of money are not suitable as a theoretical basis for a functioning monetary theory. The fact that this ontological imposition is still found in the textbooks of this world is certainly worthy of criticism, but it is just knocking down a straw man. It does not lead to any special insights.
Unfortunately, things start to get wrong with his own explanation. First he speaks of fiat money and by this he necessarily means the means of payment (paper bills) that are brought into existence by the central bank. Paper-bills have neither value nor memory, because you cannot tell from a banknote why it is in the cash register it is in, where it is going or where it came from. A paper-bill is extremely unsuitable for taking on any kind of memorization function, it simply has no logfile.
But that means that Kocherlakota must refer to debt relationships when he speaks of memory. Debt relationships such as loans certainly have a memory because they memorize the obligations for payments over a set period of time. However, debt relationships are not means of payment, but rather refer only to due claims (or liabilities). But Kocherlakota is in good company (e.g. with the positive money movement) in this regard, because there are hardly any economists who are able to recognize the difference between debt relationships and means of payment, let alone explain it.
Renee, you have not addressed the central idea about the contradiction inherent in a unit of measure for the representation of value in other things holding 'value' unto itself as called out by and represented by itself.. What say you to that?
What, in your analysis and verbiage then, constitutes "a functioning monetary theory" ?
Thank you for the factual follow-up question, which keeps a discussion open.
The question of the value of money always arises when it is conceived as a medium of exchange, because as an intermediate medium of exchange it does not provide any direct benefit of its own. The discussion is decades old and one cannot say that it has reached a satisfactory result. Kocherlakota has at least recognized that the monetary system has something to do with "memory", even if his approach is still influenced by the medium of exchange theory.
I will try to briefly explain what function a monetary system actually performs. Adam Smith not only described exchange but also analyzed the division of labor as a central economic figure. Division of labor means that many people produce a common result, which is then offered on the market. In Smith's pin example, it is clear that the compensation for the individual's labor input does not consist of pins. However, one can assume that the production is sold for something, so that the compensation for the individual consists in a claim to this consideration, which is relative to his input.
In a grain economy, this would be a share of the harvest, in a monetary economy, it is a share of the sales proceeds. However, employees tend to be risk-averse, so that contractual wage payments are then made and the entrepreneur must hope that the residual profit is high enough to adequately compensate him as an organizer and risk taker. This in turn means that the production costs are predetermined, which, together with the profit mark-up, determine the sales prices.
This means that input and output prices are linked by price calculation, because this determines the lower limit of the prices of goods. Sales prices are therefore determined according to the monetary units used to produce them, which ultimately means that prices do not measure any kind of "value", but the expenditure in monetary units that has previously been spent. It is therefore not necessary for money to measure value, because all money has to do in the form of sales revenue is to cover the costs of production and the calculated profit.
And that is what was addressed in the quote from Simmel. It may be that the "value" of the input for a production and the "value" of the output that was generated with it correlate with each other. But that does not mean that the money spent on production has to reflect "values", because it only matters that enough monetary units flow back through the sale of the product. At this point, one can remember the saying: "Capitalism knows the price of everything and the value of nothing!"
If you imagine this as an equation of two fractions, where the values of the input (left) and the values of the output (right) are at the bottom, then the left numerator contains the production costs and the right numerator contains the revenues, with the additional condition that the revenues are higher than the costs. With a linear scaling, the quotients remain unchanged, which means nothing other than that if production costs increase, sales must increase accordingly. The use of resources also increases on the one hand, and the production result increases proportionally.
And that ultimately means that money does not have to reflect values at all, but actually operates autoregressively in a certain way. The fact that this is not a circular argument is due to the time dimension, since production precedes the sale of goods, with goods being tools for attracting monetary units. Nobody thinks about what "value" a product has for the buyer, especially since values also differ intersubjectively - which ultimately also applies to monetary units.
I hope I was able to make my criticism of the concept of seeing money as an (absolute) measure of value understandable, even if there is not nearly enough space for it. It is of course possible to argue that freeing money from a value content means a reduction in the complexity of economic processes. Although on the one hand, that is correct, but on the other hand, it makes the economic system operable because individual preferences are mapped onto a simpler standard (in the sense of a surjective function).
In my opinion, the attempt to develop an objective or subjective theory of value is a dead end in theory building. However, I could imagine that the interesting approach you advocate could be much more useful with this correction (relative instead of absolute) than it is so far.
Kocherlakota provided formal math proofs that are anything but trivial. They prove that the only possible (rational) function of (fiat) money is as a record keeping device i.e. your balance is a form of memory of your transaction history. At no point does he state that "banknotes have memory", that assertion is categorically false.
"money is a record-keeping device", exactly, but what does it record? It records differentials from trade. Trade of what? Trade of stuff, of resources or capital... and labor as capital. When those 8 people land on the island, how does the first person 'buy' or acquire as private any of the common resources for trade? You cannot begin Game A economics (distributing credit units based on the trade of stuff) since nobody owns the stuff yet. The ONLY way to begin this game, which is what Capitalism is, is for someone to capture for free some piece of the commons as theirs, as private now without any purchase. If we say the Commons are owned collectively by the eight, then that would be theft, so how do you begin to play that game without theft? You can't. Ownership of common resources as private represents unearned privilege since it confers free credits for doing nothing. The islanders would always be fighting for the privilege of being 'owners' instead of workers. Why confer credits based on ownership and exchange of the stuff? Why not distribute the credits equally via UBI and on the basis of work done instead? That is what we at Common-Planet.org are proposing and trying to build on. This new monetary system we call Creditism, because it is not based on debt-money buying and trading of stuff, but credit directly for working and participating in society.
Maybe you missed the first two line of my response above, because only you are talking about "differentials from trade" and then going off into "ownership."
I said nothing along these lines. Would you like to read again?
You and Gauvin both emphasize the lack of a 'proper' definition for money. However, I question whether a formal definition should be our primary focus. Isn't understanding the tool's purpose and functionality more crucial?
While definitions can be helpful, they don't necessarily need to precede everything else. My aim is to share insights about potential new approaches to currency and accounting systems. If you'd like to define this 'currency' unit, you're welcome to do so, but it's not a prerequisite for our discussion.
What are the minimum and necessary logical properties of money required for it to perform its prescribed function/purpose and what is the set of properties it cannot also have for it to perform the prescribed function/purpose. That is what a correct decidable (intensional) definition is. This is important for when terms are systematically applied to determine logical outcomes that need to be validated according to some independent common reality or domain.
So we cannot say money does X until we have defined money in terms of X or anything else that has a demonstrably determinate relation to X.
The purpose of currency is to exchange it for a good or service in the market. What do you assume its purpose is or should be? The nature of how this currency is created, flows, and deletes, ultimately determines its complete formal description.
I'm not interested in going in circles with you and Marc. He only makes statements to make himself sound smart, with the sole purpose of getting others to read 'his' stuff and never taking the time to read what others have written and to inquire about their work. If he and you take the time to read the link I shared, I'm glad to continue the dialogue, otherwise, I'm not interested in wasting my time on definitions of the currency, when what is more crucial is how it relates to real capital resources and how that determines the economic structure.
Do you see the contradiction and the problem with the expectation that one must 'possess' units in order to interact?
In the mutual credit/TimeBank (bookkeeping) system no one is left out, no one 'needs' currency. Those who need goods and services may have a 'negative' entry in their acCount, but those who provide those goods and services have positive acCount entries..........and no one is constrained from interaction based on a "shortage" of units. The community can have a shortage of genuine resources or even energy to "do" (think about weekends and the desire to only 'work' so much). But they can never "run out" of 'money' any more than they can run out of inches or gallons!
This is really interesting, and I like the point that you make that really, it's all underpinned by force, if you don't pay Jeff Bezos what he says you owe for your Amazon parcel, ultimately you will be forced to by the State, courts etc. So Jeff Bezos is riding on the power of individual Nation States to keep his empire afloat, all the while having the audacity to avoid paying tax to them.
I would also note that this ties in very firmly with the Master/Slave dynamic. We buy this crap because we think we need it, because he via his advertising convinces us we should. But, without us Bezos wouldn't have his yacht, which he now thinks he needs to prop up his status. So who's the master and who's the slave? I think there are analogies to the Roman Empire which I explore in my latest essay on SS.
Seems like a good opportunity to talk about UBI. I’ve always wondered how it would work at a national scale. You’re changing everyone’s current position by the same amount. But of course that increase has different implications for your life depending on how close to zero you are.
On the other hand. UBI doesn’t change the hoover that’s vacuuming value upwards. So does UBI simply result in greater value moving from the gov’s budget to corporations?
Hi Avery, the first point to grasp is that when you 'airdrop' equal numbers of tokens onto unequal balances it does have the effect of making the balances relatively more equal. To understand this point, imagine an extreme scenario where you have two balances, one with 1 unit and another with 10 units. The ratio is 1:10. If you then drop 10 units onto each the balances go to 11 and 20, so now the ratio is 5.5:10. If you drop 80 units onto both now, it goes to 91 and 100, aka. a ratio of 9:10. So, dropping equal numbers of tokens onto unequal balances eventually erodes the inequality in the balances towards equality.
In the case of a large-scale modern money system, a UBI wouldn't be done by airdropping new money like this though. What will happen is that a government will first pull money out of balances via taxation, and then spray it back out in equal quantities to everyone. Assuming the taxation is progressive, it reduces the balances of the richest in society first, before then doing the 'airdrop' onto everyone
This, though, doesn't mean there won't be pricing effects. The big thing to consider in UBI is whether the shifting landscape of balances inspires various private sector actors to increase their prices, for example, thereby neutralizing aspects of the gain that someone experiences in their account
That's the big thing to consider numerically.
It seems to me that the big thing to consider politically is when the BI isn't so U.
When governments inevitably say "well obviously we aren't going to pay it to illegal immigrants/criminals/X that we disapprove of". I'm concerned that suddenly it might look a whole lot like a locked storeroom full of food and ale.
But that's another story!
For sure. Well, in many ways UBI is an alternative mode of distributing welfare (albeit it's a relatively untargeted form of welfare), and as such it comes with many similar issues in deciding who qualifies or not, along with the various forms of bigotry that can accompany that
Just to add to my last comment, in this piece I've glossed over the dynamics of government money issuance, and focused rather on private sector players. To use the language from 5D money (https://www.asomo.co/p/5d-money-part-1), I'm heavily focussing on the 'horizontal plane' here, but the story gets more complex when we look into the 'vertical' dimensions of issuance (i.e. if we were to imagine the government as the 'captain', it's more like they say 'If you want protection from my anger, you must hand over tokens to me that I also happen to issue, but to get these you must first hand real resources to me'. Once those tokens are in circulation, and become entrenched on the 'horizontal' plane of interaction between everyone else, then the 'captain' can begin messing with redistributing them, and stuff like UBI can be debated).
In reality, though, in the metaphor used in this piece, the captain figure is actually more like a private sector capitalist who uses control of capital goods and infrastructure to extract tokens. So, I probably shouldn't mix up the metaphor, and should write a different piece with some new characters to explore the state's interaction with the private sector
Hi Brett,
I'm a real novice mind when it comes to economics and am trying to wrap my head around much of what you've written here. Have you ever, or would you ever, do a piece on a specific type of so-called "green" or "renewable" energy development and the economics of this. I'm doing some grassroots activism to protect my west coast from Offshore Wind development, and although I have the environmental aspect of it covered, I'm interested in learning more deeply about the loads of subsidies required for these massive industrial projects. Of course, the rate payers pay for this, and the loans are taken from our taxes. I would love to hear some of your thoughts on this stuff. As an anthropologist, I'm sure you can appreciate the level of cultural disconnect when we talk about the Earth as a "resource" to be extracted from. Obviously, we've gotten ourselves in a conundrum when we extract faster than Earth can replenish and waste faster than Earth can absorb. It seems so obvious, yet almost impossible to clarify to someone who believes that we've done a great job as a civilization. As someone working with my local tribes, it's clear how so much of economics is how we've been groomed to think about Earth and our relationship to Earth.
People with skills have an ability to trade time for resources.
Money is a middle man that facilitates trade, but loses value over time due to inflation. Resources lose value over time due to entropy such as food decaying or cars rusting. Skills gain value every time they are used, developed, and taught.
Power can be balanced within the system when people with skills come together. A world without money would likely still require trade, but everyone would need to know basic skills to survive.
These skills would ideally be learned before the monetary system collapses, theoretically speaking.
Thanks for sharing Thyme
I found this a really useful development of the concept that money is debt. The value of these explanations, it seems to me, are in demonstrating the core simplicity of something that appears mind-bogglingly complex.
The complexity, of course, comes from the system and its dynamics that trade on the appearance of complexity to gain power. So instead of a more healthy reciprocal dynamic some actors seek a permanent and ever-increasing imbalance. They are able to lever the power of others - politicians in particular - to achieve this end offering a small share in this imbalance as a carrot. What is not always perceived is that there is a stick attached to the carrot. But now we’re straying into the anthropological bit…!
Hi Richard, I'd say this is the first layer of the concept of money-as-debt. To explore the broader picture would also require diving into the issuers of modern money - the state and the banking sectory - but I wanted to do this piece as one piece of the overall puzzle
Brett,
The whole question of dropping money unequally on people is interesting.
We have just experienced a case of that in the US where everyone under a certain income level was sent a stipend to help them when businesses were closed due to Covid.
That caused a spike in inflation because there was more money available to buy goods and services. Prices went up and people who were struggling to buy groceries before the pandemic are now struggling even more since the pandemic payments have stopped.
Economists are saying that inflation is returning to the normal range, but core inflation in the US does not include the price of groceries and energy.
Now some voters are trying to decide which party will help them by making groceries and energy more affordable, while other voters are trying to lower taxes and pay down the national debt.
Any thoughts on how to help voters decide.
Ken
Hi Ken, I'd love to say there was an easy answer to this, but the dark arts of predicting the interaction between money stimulus, production and inflation etc is complex, as is the task of trying to identify where inflation stems from. What I would say is that I'm inherently sceptical of most pundits who claim to have easy answers to that, and it would take me months to work through the circuitry of an economic system to feel confident in any particular assessment, so I'll probably be too late to help US voters!
Thanks for responding :)
Yea, I get that. I agree that it should balance wealth on paper, I'm just wondering if the scales would actually be tipped in favor of those with lower income. Capitalists vacuum money upwards from the purchasing power of the rest of the country, and they're quite good at it and always getting better. If you increase that purchasing power, might they just get richer and richer? In other words, with a UBI does the increase in value flux to capitalists outweigh the increase in their taxes directed towards UBI? This is what I was trying to get at when I said that UBI might just end up diverting money from the government to capitalists...
I've always seen this as the real reason why the rich don't want to increase taxes: it reduces the purchasing power of their customer base, diverting power away from businesses and towards the gov.
Well, this is a question that applies to any form of stimulus really. If the UBI were 'taxation financed' (i.e. a government first sucked money out before pushing it out as UBI), then theoretically there's no increase in total purchasing power, but there is a relative redistribution of that purchasing power, so the whether the UBI acts as a stimulus or not would depend on the relative position of people receiving it (aka. how likely are they to actually spend any new income). But yes, capitalism at a generic level is set up with circuits that require people to spend in order for firms to extract profits. This probably warrants a lot more investigation :)
Stupendous.
Love this:
“‘Billionaire’ then, doesn’t refer to a property residing in a single person in a vacuum. It refers to a property residing in the relations between that person and everyone else. It’s this differential that creates that ‘suction’.”
I originally considered calling this article 'A Billionaire isn't a Person. It's a web of relations'
Good article. One thing I am left asking is what is the formal definition of the unit credited. This is crucial because that alone will determine the nature and scope of "monetary" relationships between the different individuals, individuals and the rest of the group as well as vis-à-vis some standard of "value". Moreover, without such a definition we cannot determine whether or not the "money system" is stable (active or passive), unstable (active), which is paramount to delimiting the nature and scope of effects (destabilising, neutral or stabilising) of the "money system" (a mere economic component) on the "economy" as a whole.
We have done much work in this regard worth your review and assessment see:
1) Risk without Austerity: https://bibocurrency.com/index.php/downloads-2/19-english-root/learn/292-risk-without-austerity-fallacy
2) The Power of Transaction type A: https://tinyurl.com/yxce6txz
Why don't you like the construction of the EURO? The ECB's charter clearly states that EURO banknotes are the only legal tender, which thankfully makes it clear that deposits are NOT a means of payment. This means that the definition of money is no longer a secret, because banknotes are something (a legal item) that must be handed over when there are debts in which money is needed to settle a claim. The fact that the handing over of money takes place in the depths of the central bank system does not mean that it can simply be replaced by any "money surrogates". Unfortunately, this misconception is widespread.
In the entire body of legislation on the EURO, there is no mention of the EURO having a value, only that it is needed to establish or cancel debts. The "value concept" emerges later, when it comes to keeping the exchange rate of the EURO to a basket of goods largely constant. However, this is not an intrinsic property of the EURO, but an external aspect that does not relate to the definition of the EURO.
Of course, people are used to believing in something like the "value of money". This is a widespread emotional attribution that relates the utility of what can be bought with the help of money to money. For everyday use, this idea is sufficiently functional, but as an analytical construct it is a disaster. This is essentially because money does not necessarily have to be seen as an absolute measure of value, but rather as a relative measure of value, where the question of the "value of money" no longer arises at all.
Georg Simmel described it like this in his monumental work "Philosophy of Money":
"Since there is a constant relationship between the quanta of one factor and those of the other, the magnitudes of one determine the relative magnitudes of the other, without there having to be any qualitative relationship or equality between them. This breaks the logical principle that seemed to make the ability of money to measure value dependent on the fact of its own value." Simmel (1907)
In other words: as soon as one frees oneself from the value hypnosis of money, all the contradictions that arise from the assumption that money must have a "value" disappear into the nirvana of misinterpreted emotional attributions, and one's view is clear for the essential questions.
First, the euro symbol is used to denote both banknotes and account entries and since that symbol is not formally defined neither can banknotes or account entries denoted by that symbol be defined. That is apart from the fact that declaring the euro banknotes as "legal tender" in no way serves as a formal definition, declarations are not definitions. Finally, the definition of legal tender is a specialisation of "money" or "medium of exchange" which again are not defined independently of "money".
To define the euro we need a formal ontological definition and in order to use € units in any mathematical expression applied to any other common reality other than itself, we need it to be a decidable ontological definition. We have none of that.
As for your statement that the euro is not value, we agree but only in terms of intrinsic properties. However, when euro units are "needed to cancel debts" and are subject to "supply" and "circulation" then they are conferred an arbitrary purely conventional utilitarian "value" as like an object or commodity like token.
So, the mere claim that the euro is not defined as value has to be substantiated by how it is used and implemented i.e. if it is in practice transferable and dependent on supply and circulation, then the claim is empty.
Furthermore, the fact that the euro is "supplied" and dependent on circumstantial circulation renders it useless as a measure of generic value. BTW relative value is only possible in terms of well defined units, which economics and finance categorically don't provide.
I don't think the question of defining a symbol is relevant. A symbol can come into being when you take a piece of paper and a pen to draw a line or a pattern on it. Then a symbol is in the world. You can ask yourself why it looks like this and not another way, but such questions are metaphysical. If this symbol is applied to a forgery-proof data carrier, this data carrier becomes a distinguishable thing that can also be transferred. Then you give this thing a registration number and declare it legal tender. This is how the construction of the EURO looks and there are no definition problems because this thing is not endowed with any properties. It is simply there. And it does not need any definition other than the distinguishability of whether a banknote is valid, i.e. issued by the central bank, or not. This declaration is legally watertight, you will not find any way to characterize it as logically defective.
These banknotes are legally a thing that can be transferred by agreement and handover. This legal transaction requires a contract that involves the handing over of precisely specified things, whereby usually at least one side has to hand over a means of payment, while the other side hands over another object, called a commodity. Contracts create obligations that usually refer to means of payment, but are not themselves a means of payment. For example, the obligation between a bank and its customer - the deposit - refers to means of payment without thereby becoming a means of payment itself.
And this indicates that money, understood as a means of payment, is not an obligation, but an (artificially created) thing that has just as much reality and existence as a cow or a table. That is also the crucial point: it is not about the definition of a means of payment, but about its existence. And as soon as it exists, it can become the object of obligations and therefore (!) it is then passed from hand to hand. Of course, one can think metaphysically about why a thing exists - but what for?
A symbol used in mathematical expressions or even just propositional logic either has or doesn't have a definition assigned. To apply those expressions to any domain or reality meaningfully they must be unequivocally defined in terms of that domain or reality. Period.
All your assertions about legal tender and means of payment are ontologically unsound using circular definitions. I suggest you study how things can be meaningfully defined.
It seems that the mental error that keeps being made is that people keep reverting back to treating the unit of AcCount as if it is an item of value. This failure to truly know how to do abstract representation of value is a constant theme amongst humans that attempt record keeping systems using abstract units. It seems that the actual process of a formal convocation about the formal establishment of the specifications for such a unit, along with the subsequent acceptance of a 'standard' for this purpose is missing in the entirety of the historical record. The ramifications from this are staggering and observed all around us. And we should all be able to conclude that what has gone heretofore, from the conceptual to the follow-on structural, cannot be made to work.
But the challenge in this so called 'modern age' is to offer proof of all this using the very analytical tools of the 'modern' -logic and Applied Math.
How can we expect any society to reach its highest and fullest capacity while still using the inherited illiteracy we all are using for abstract representation of value?
Marc Gauvin points out that a valid definition of money that is unequivocal is missing so far in human history. Former President of the FR Bank in Minnesota, Kocherlakota, proves the current definitions to be "vacuous" and asserts that the function of money is as a unit of measure/bookkeeping.
In Kocherlakota's words:
"My argument demonstrates the vacuity of the three standard explanations of the role of fiat money in an economy: money acts as a store of value, a medium of exchange, and a unit of account....The traditional explanations for the presence of money in an economy are more descriptive of its functions than explanatory. The true explanation for money's presence is that money is a record-keeping device."
https://www.minneapolisfed.org/research/qr/qr2231.pdf (pages 2-3)
So, you can see that at the core conceptual level of thinking about money we still have to get the concepts right in order that the system can actually serve its functional purpose. When we have the courage to correct this basic error the populace can free itself from its past and enter into a new paradigm.
https://mrcenter.info/Doc/ConferencePapers/2020/MRC%202020%20A%20systems%20approach%20to%20money_4122020%20rev2_17.01.2021.pdf
researchdatabase.minneapolisfed.org
"Finance" as in the 'supply of units of measure' is a nonsensical thought process when the function of measure itself is truly understood.
How many other units of measure are "supplied"?
from Marc Gauvin at the MSTA
Is this correct?
Let A ≥ 0 be the annotated value of goods/services transacted
Let B ≥ 0 be the independent value attributed to the annotation of value i.e. "money"
Proof
If A > 0 and B > 0, then A+B ≠ A
Therefore for any A, A = A + B if and only if B = 0 !
End of Proof.
The proof shows that if both the annotation of value (A) and the independent value attributed to the annotation of value (B) are greater than zero, then the equality A = A + B can only hold if B is equal to 0. This implies that an annotation of value cannot be treated as a valid measure if it is considered a commodity with an independent value greater than zero.
So, apply this to the entire field of finance.
How can we expect any society to reach its highest and fullest capacity while still using the inherited illiteracy we all are using for abstract representation of value?
Marc Gauvin points out that a valid definition of money that is unequivocal is missing so far in human history. Former President of the FR Bank in Minnesota, Kocherlakota, proves the current definitions to be "vacuous" and asserts that the function of money is as a unit of measure/bookkeeping.
In Kocherlakota's words:
"My argument demonstrates the vacuity of the three standard explanations of the role of fiat money in an economy: money acts as a store of value, a medium of exchange, and a unit of account....The traditional explanations for the presence of money in an economy are more descriptive of its functions than explanatory. The true explanation for money's presence is that money is a record-keeping device."
https://www.minneapolisfed.org/research/qr/qr2231.pdf (pages 2-3)
So, you can see that at the core conceptual level of thinking about money we still have to get the concepts right in order that the system can actually serve its functional purpose. When we have the courage to correct this basic error the populace can free itself from its past and enter into a new paradigm.
https://mrcenter.info/Doc/ConferencePapers/2020/MRC%202020%20A%20systems%20approach%20to%20money_4122020%20rev2_17.01.2021.pdf
researchdatabase.minneapolisfed.org
"Finance" as in the 'supply of units of measure' is a nonsensical thought process when the function of measure itself is truly understood.
How many other units of measure are "supplied"?
from Marc Gauvin at the MSTA
Is this correct?
Let A ≥ 0 be the annotated value of goods/services transacted
Let B ≥ 0 be the independent value attributed to the annotation of value i.e. "money"
Proof
If A > 0 and B > 0, then A+B ≠ A
Therefore for any A, A = A + B if and only if B = 0 !
End of Proof.
The proof shows that if both the annotation of value (A) and the independent value attributed to the annotation of value (B) are greater than zero, then the equality A = A + B can only hold if B is equal to 0. This implies that an annotation of value cannot be treated as a valid measure if it is considered a commodity with an independent value greater than zero.
So, apply this to the entire field of finance.
What Kocherlakota is doing is on the one hand trivial, and on the other hand wrong. Nobody denies that the properties of money are not suitable as a theoretical basis for a functioning monetary theory. The fact that this ontological imposition is still found in the textbooks of this world is certainly worthy of criticism, but it is just knocking down a straw man. It does not lead to any special insights.
Unfortunately, things start to get wrong with his own explanation. First he speaks of fiat money and by this he necessarily means the means of payment (paper bills) that are brought into existence by the central bank. Paper-bills have neither value nor memory, because you cannot tell from a banknote why it is in the cash register it is in, where it is going or where it came from. A paper-bill is extremely unsuitable for taking on any kind of memorization function, it simply has no logfile.
But that means that Kocherlakota must refer to debt relationships when he speaks of memory. Debt relationships such as loans certainly have a memory because they memorize the obligations for payments over a set period of time. However, debt relationships are not means of payment, but rather refer only to due claims (or liabilities). But Kocherlakota is in good company (e.g. with the positive money movement) in this regard, because there are hardly any economists who are able to recognize the difference between debt relationships and means of payment, let alone explain it.
Renee, you have not addressed the central idea about the contradiction inherent in a unit of measure for the representation of value in other things holding 'value' unto itself as called out by and represented by itself.. What say you to that?
What, in your analysis and verbiage then, constitutes "a functioning monetary theory" ?
Thank you for the factual follow-up question, which keeps a discussion open.
The question of the value of money always arises when it is conceived as a medium of exchange, because as an intermediate medium of exchange it does not provide any direct benefit of its own. The discussion is decades old and one cannot say that it has reached a satisfactory result. Kocherlakota has at least recognized that the monetary system has something to do with "memory", even if his approach is still influenced by the medium of exchange theory.
I will try to briefly explain what function a monetary system actually performs. Adam Smith not only described exchange but also analyzed the division of labor as a central economic figure. Division of labor means that many people produce a common result, which is then offered on the market. In Smith's pin example, it is clear that the compensation for the individual's labor input does not consist of pins. However, one can assume that the production is sold for something, so that the compensation for the individual consists in a claim to this consideration, which is relative to his input.
In a grain economy, this would be a share of the harvest, in a monetary economy, it is a share of the sales proceeds. However, employees tend to be risk-averse, so that contractual wage payments are then made and the entrepreneur must hope that the residual profit is high enough to adequately compensate him as an organizer and risk taker. This in turn means that the production costs are predetermined, which, together with the profit mark-up, determine the sales prices.
This means that input and output prices are linked by price calculation, because this determines the lower limit of the prices of goods. Sales prices are therefore determined according to the monetary units used to produce them, which ultimately means that prices do not measure any kind of "value", but the expenditure in monetary units that has previously been spent. It is therefore not necessary for money to measure value, because all money has to do in the form of sales revenue is to cover the costs of production and the calculated profit.
And that is what was addressed in the quote from Simmel. It may be that the "value" of the input for a production and the "value" of the output that was generated with it correlate with each other. But that does not mean that the money spent on production has to reflect "values", because it only matters that enough monetary units flow back through the sale of the product. At this point, one can remember the saying: "Capitalism knows the price of everything and the value of nothing!"
If you imagine this as an equation of two fractions, where the values of the input (left) and the values of the output (right) are at the bottom, then the left numerator contains the production costs and the right numerator contains the revenues, with the additional condition that the revenues are higher than the costs. With a linear scaling, the quotients remain unchanged, which means nothing other than that if production costs increase, sales must increase accordingly. The use of resources also increases on the one hand, and the production result increases proportionally.
And that ultimately means that money does not have to reflect values at all, but actually operates autoregressively in a certain way. The fact that this is not a circular argument is due to the time dimension, since production precedes the sale of goods, with goods being tools for attracting monetary units. Nobody thinks about what "value" a product has for the buyer, especially since values also differ intersubjectively - which ultimately also applies to monetary units.
I hope I was able to make my criticism of the concept of seeing money as an (absolute) measure of value understandable, even if there is not nearly enough space for it. It is of course possible to argue that freeing money from a value content means a reduction in the complexity of economic processes. Although on the one hand, that is correct, but on the other hand, it makes the economic system operable because individual preferences are mapped onto a simpler standard (in the sense of a surjective function).
In my opinion, the attempt to develop an objective or subjective theory of value is a dead end in theory building. However, I could imagine that the interesting approach you advocate could be much more useful with this correction (relative instead of absolute) than it is so far.
Kocherlakota provided formal math proofs that are anything but trivial. They prove that the only possible (rational) function of (fiat) money is as a record keeping device i.e. your balance is a form of memory of your transaction history. At no point does he state that "banknotes have memory", that assertion is categorically false.
"money is a record-keeping device", exactly, but what does it record? It records differentials from trade. Trade of what? Trade of stuff, of resources or capital... and labor as capital. When those 8 people land on the island, how does the first person 'buy' or acquire as private any of the common resources for trade? You cannot begin Game A economics (distributing credit units based on the trade of stuff) since nobody owns the stuff yet. The ONLY way to begin this game, which is what Capitalism is, is for someone to capture for free some piece of the commons as theirs, as private now without any purchase. If we say the Commons are owned collectively by the eight, then that would be theft, so how do you begin to play that game without theft? You can't. Ownership of common resources as private represents unearned privilege since it confers free credits for doing nothing. The islanders would always be fighting for the privilege of being 'owners' instead of workers. Why confer credits based on ownership and exchange of the stuff? Why not distribute the credits equally via UBI and on the basis of work done instead? That is what we at Common-Planet.org are proposing and trying to build on. This new monetary system we call Creditism, because it is not based on debt-money buying and trading of stuff, but credit directly for working and participating in society.
Maybe you missed the first two line of my response above, because only you are talking about "differentials from trade" and then going off into "ownership."
I said nothing along these lines. Would you like to read again?
You and Gauvin both emphasize the lack of a 'proper' definition for money. However, I question whether a formal definition should be our primary focus. Isn't understanding the tool's purpose and functionality more crucial?
While definitions can be helpful, they don't necessarily need to precede everything else. My aim is to share insights about potential new approaches to currency and accounting systems. If you'd like to define this 'currency' unit, you're welcome to do so, but it's not a prerequisite for our discussion.
What are the minimum and necessary logical properties of money required for it to perform its prescribed function/purpose and what is the set of properties it cannot also have for it to perform the prescribed function/purpose. That is what a correct decidable (intensional) definition is. This is important for when terms are systematically applied to determine logical outcomes that need to be validated according to some independent common reality or domain.
So we cannot say money does X until we have defined money in terms of X or anything else that has a demonstrably determinate relation to X.
OK, Remzi Bajrami. Then let's start with what you assume to be the "tool's purpose and functionality." What do you assume that to be?
I personally do not see what you have presented as "new". What is it that you are suggesting is 'new' in your assumptions about all this?
The purpose of currency is to exchange it for a good or service in the market. What do you assume its purpose is or should be? The nature of how this currency is created, flows, and deletes, ultimately determines its complete formal description.
I'm not interested in going in circles with you and Marc. He only makes statements to make himself sound smart, with the sole purpose of getting others to read 'his' stuff and never taking the time to read what others have written and to inquire about their work. If he and you take the time to read the link I shared, I'm glad to continue the dialogue, otherwise, I'm not interested in wasting my time on definitions of the currency, when what is more crucial is how it relates to real capital resources and how that determines the economic structure.
Do you see the contradiction and the problem with the expectation that one must 'possess' units in order to interact?
In the mutual credit/TimeBank (bookkeeping) system no one is left out, no one 'needs' currency. Those who need goods and services may have a 'negative' entry in their acCount, but those who provide those goods and services have positive acCount entries..........and no one is constrained from interaction based on a "shortage" of units. The community can have a shortage of genuine resources or even energy to "do" (think about weekends and the desire to only 'work' so much). But they can never "run out" of 'money' any more than they can run out of inches or gallons!
This is really interesting, and I like the point that you make that really, it's all underpinned by force, if you don't pay Jeff Bezos what he says you owe for your Amazon parcel, ultimately you will be forced to by the State, courts etc. So Jeff Bezos is riding on the power of individual Nation States to keep his empire afloat, all the while having the audacity to avoid paying tax to them.
I would also note that this ties in very firmly with the Master/Slave dynamic. We buy this crap because we think we need it, because he via his advertising convinces us we should. But, without us Bezos wouldn't have his yacht, which he now thinks he needs to prop up his status. So who's the master and who's the slave? I think there are analogies to the Roman Empire which I explore in my latest essay on SS.