This is the fifth article in a series. The previous ones are
I don’t want to represent myself as a guy with all the answers. More to the point, I value skepticism and uncertainty deeply. Caution and a sense that things can go wrong is important. I’ll talk a lot about trust here, and it’s important too, but doubt is a core value for me. Anyone who says they have the final answer to all our economic problems is either shortsighted or dishonest.
Americans have not faced a currency crisis in living memory. We collect dollar-spewing securities for our retirement and accept dollars in exchange for things. We accept that inflation is a fact of life, and we try to protect ourselves against it. But we don’t really worry about what currency we’ll use to fund our retirements. We imagine the dollar will always be there.
That’s trust. We trust in the operation of our currency and our economy. We trust it like the air we breathe. Literally: we’re a little concerned about air pollution, but most folks don’t get bent out of shape about it. We’re a little concerned about the economy, but most folks don’t plan to stop accepting dollars anytime soon.
I said it before: money is an agreement. And the foundation of all agreements is trust. When the agreement fades into the background of our consciousness, it’s a sign of trust. When it jumps to the foreground, usually that’s because the trust is being questioned.
If we want to operate our own currency, we must deal with the problems that could violate trust or call it into question. We must take responsibility for a host of issues, so people can trust its operation:
technical integrity: any system needs to be correct, secure, and reliable. It’s not ok when you can’t get your money because a system’s down. It’s not ok when people can hack the system and steal it from you, or create it arbitrarily. It’s not ok when your personal information is shared or exposed without your knowledge or consent. There are a lot of really basic issues that you only think about when something breaks. We need to think all of them through and address them reasonably well before anything breaks. ‘Good enough’ is a very high standard.
economic integrity: in a monetarist system, the money supply needs to grow (and shrink) with the value produced by the economy. That relationship needs to be protected, or either inflation or deflation will result.
In Greco’s you standard, the currency is backed by various issuers within the system. They have an interest in sustaining a high level of trust in their currency. Doubt in a particular issuer may or may not lead to doubt in the entire system. They need to issue only as much as they can stand behind. That can be regulated.
If the amount a merchant is allowed to issue is based on circulation through their account, we will need mechanisms to ensure that there is real value being exchanged. A pair of fraudsters could pass money back and forth between accounts to drive up their circulation and increase what they can issue. This would only have short-term benefits for them, but that short-term mentality is known to occur in human beings, and it would be a liability for the rest until they figured out what was happening. Better to prevent it.
In a commodity-based system, any accounting of a commodity needs to match the supply of the actual commodity being traded. Again, that relationship must be guarded.
operator integrity and transparency: it’s been said that the best way to rob a bank is to own one. That also applies to currency operators. There are probably a million scams you could run by issuing your own money. Any currency operator who won’t talk about that possibility openly is not someone you should do business with.
A system is only as good as the people who operate it. There’s no way around that. You have to trust some human beings, be they bankers or currency operators. Currency operators must keep a very high standard of conduct. They must be subject to the same rules as the rest of the merchants working in the economy. That includes any rules they enforce. They may need to establish independent authorities to ensure the perceived and actual integrity of the system they operate. Additionally they must keep open and transparent records of their own transactions so trust in the entire system can be sustained in the community.
cultural integrity: Any system that depends on feedback from its participants needs that feedback to be fair. Any Web 2.0/true information age-currency system is going to use such feedback. That system needs to allow a community to judge the value its members provide fairly.
timing and government interference
I’ve said it elsewhere. I think what I’m proposing is legal, at least in the US. That doesn’t mean it has to stay that way. If such a system were successful and spread virally and rapidly, I would not be surprised to see opposition from government and various vested interests. The question is, could it improve people’s lives and self-determination enough that they would stand up for it? Could we make such opposition politically un-viable?
The success of any currency project started right now would be a matter of luck. There are a number of needles that must be threaded. The one thing that gives me confidence is the fact that anyone who protects the old system will be paid in its currency: dollars. And if the dollar system is as corrupted and weak as it appears to be, something will have to break out and take its place. I have a few ideas about what that should look like, but that doesn’t mean my vision will win this particular lottery.
I’ve quoted Milton Friedman elsewhere: “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”
There are a lot of ideas one could support this way, and a lot of possible reactions of the government to their spread in a crisis. If we can manage to enable people to sustain and improve their lives in the presence of a crisis, I wouldn’t assume hostility.
Though one other danger might be co-opting: government entities might join a you standard system, but would need to abide by its rules. If, for example, some municipality (or nation) were to legislate some special status for itself (for example, like the equivalent of legal tender), it would undermine trust in the whole system. That should be resisted. Perhaps interest-based lending is useful for some things: financing wars comes to mind.
possible outcomes right now
So if you were starting a currency project now, I’d imagine there would be several possible outcomes:
facebook success: you build something that navigates the obstructions listed above and succeeds massively, taking over the world. This could be great news for you or anything you built, but questionable at a systemic level. It might replace an old intellectual monopoly with a new one, unless it supported a variety of monetary models. It might also establish a real business monopoly too, unless it was based on an open federation of services, like email;
local success: what you build doesn’t take over the world, but it does succeed on a local level. It helps that local community survive the coming transition, and serves as an example of community self-sufficiency;
good failure–communities learn new tools: the Netscape outcome. Your partial success invites more effective competition, that effects the change you set out to make. You don’t get to take over the world, but maybe your ideas do.
The other risk here is that the design space for currencies is much broader than the design space for browsers, so maybe your ideas take over, but maybe someone else’s ideas do. Maybe their ideas are better than yours, but maybe not. The best man does not always win;
good failure–career transition for you: the Marc Andreesen (founder of Netscape) outcome. For something big to happen, individual people have to take risks. Their expectations matter. So, even if you try and fail, you care about what happens to you. This is the individual version of the ‘good failure’ story above: what you build doesn’t quite work out, but it has a big influence. At the end of the process, you’re no longer just a coder (or whatever role you had before): you have changed the world and you have a new role in it;
bad failure: total fizzle. Your ideas don’t catch on, the transition happens, no lessons are learned, or the wrong lessons are learned. The new economic world has none of the tools you built. You must make your way in it with the rest of us, with the same resume you had before.
All this is predicated upon the belief that risks associated with establishing an alternative system are smaller than the risk of doing nothing. That’s a belief I do espouse. Of course the power elite might respond to the viral breakout of an alternative system with a heavy hand. But by the time such a system got on their radar, the idea of an agreement based, community-initiated system would have spread dramatically. So if (when) the shit hits the fan, they’ll have new tools in their back pocket. They’ll have an alternative to heading for a bunker in the countryside. They’ll have a civilized choice.
Doing nothing seems to me like the bigger risk. The current system is an intellectual monopoly, and it’s showing its flaws, and it seems to be producing catastrophes every few years, and they’re getting bigger as time goes on. Maybe utter collapse will come when Congress fails to raise the debt ceiling in August. Maybe it will come when Greece or Portugal or Spain defaults. Maybe it will be the catastrophe after that.
Or maybe utter collapse isn’t coming at all. Maybe we’re just witnessing the acceleration of a system that produces catastrophes by its design. Maybe people need to just get tired of it and take matters into their own hands.
The most important thing is education: people need to understand that it’s possible. It’s possible for them to take charge of the way they account for the way they produce value. It’s possible, and here are some ways to do that.
The next thing is trust. They need to learn to be trustworthy to each other. They need to learn to rely on each other, and build a web of trust that doesn’t rely on some distant authority with its own problems. The bottom line is this: when people build trust together, they can build wealth together.