Hayek – P2P Foundation https://blog.p2pfoundation.net Researching, documenting and promoting peer to peer practices Sun, 21 Oct 2018 11:51:47 +0000 en-US hourly 1 https://wordpress.org/?v=5.5.15 62076519 Personal currencies: Hayek’s wet dream or Spaghettinomics? https://blog.p2pfoundation.net/personal-currencies-hayeks-wet-dream-or-spaghettinomics/2018/10/26 https://blog.p2pfoundation.net/personal-currencies-hayeks-wet-dream-or-spaghettinomics/2018/10/26#respond Fri, 26 Oct 2018 08:00:00 +0000 https://blog.p2pfoundation.net/?p=73258 Over the years I’ve come across a few proposals that any person or entity should able to issue their own currency, and I’ve always struggled about what that would mean and how it would work. This is relevant for recursive currency systems like the Credit Commons in which theoretically any member could create a currency... Continue reading

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Over the years I’ve come across a few proposals that any person or entity should able to issue their own currency, and I’ve always struggled about what that would mean and how it would work. This is relevant for recursive currency systems like the Credit Commons in which theoretically any member could create a currency as part of a larger monetary ecosystem. Recently I’ve been thinking these through and I think the benefits are outweighed by the drawbacks.

For many currencies to coexist there needs to be an exchange rate between each currency and each other currency, which means either they are literally convertible into a different unit as miles are convertible to kilometers, or that there is a market enabling all currencies to be bought and sold for each other.

It always seemed to me that the whole point of a currency was that it was a shared reference point with a stable value in relation to goods and services, and that a personal currencies would be neither shared nor stable. Furthermore it would be very hard for the market to assess the value of each person’s promises.

There is plenty of monetary theory and historical experience around having multiple issuers of say, dollars. Many cryptocurrency advocates see themselves as implementing Hayek’s proposal for competing currencies. He believed that the most trusted currency provider would beat the competition and the least trustworthy would go out of business, and thus that the free market would give the users of money the highest quality money. I think a regime of personal currencies is an order of magnitude more complex than each bank issuing its own notes.

The Distributed ledger version of Ripple indicated how this might be done by granting every user the possibility to guarantee their friends’ IOUs. Everyone member’s promise was its own asset class or currency, and it provided an automated market for every possible pair of currencies. But the system would never work because any liquidity there might be for my promises of dollars would be spread thinly across many markets.

This was the problem the Bancor Protocol solved albeit with a token-based approach rather than using IOUs. Any user could issue any number of tokens and ‘connect’ them to other tokens in a pool with a common reserve token. The first currency could then be traded with, meaning exchanged for and priced against, the other tokens in the same pool, and therefore for tokens in other pools connected to that pool. Pools would be recursively connected until every token could be traded with every other across a tree structure just as I described in the credit commons white paper. The total number of markets was only the number of pools rather than one for each possible currency pair. Each pool could use its reserve to buy or sell tokens instead of needing a counterparty, meaning all the tokens could be liquid. This was an engineering achievement, and it forces us back to the question of why we thought everyone should issue their own token. It seems to work as a medium of exchange if you have an app connected to a blockchain, but what about other monetary functions? Its not standard of value because all token values are shifting with supply and demand, and its poor a store of value, having no intrinsic worth and only one guarantor.

So beyond those I have three major criticisms of massively multiplayer tokenomics.

The first is that doesn’t nothing to address the balance of trade problem which naturally occurs in any economy where different regions produce and consume different amounts. A money system needs to be explicit about how trade imbalances are handled. Receiving reserve tokens is like being given a interest-free credit which has to be repaid; it enables you to buy stuff from the wider markets, but you still have to sell stuff back to those markets. Economics has been contorting itself to get around the problem that some areas are more (economically) productive than others, and areas do not naturally import as much as they export. Rather what usually happens (see the Eurozone and the globalised dollar) is that the surplus countries start lending their surplus currency to the deficit countries at interest, and a trade imbalance eventually becomes an unmanageable debt leading to poverty and loss of sovereignty. If we are interested in social justice, we have to solve the problem of trade imbalances. There are basically 3 ways:

  1. Political arrangements, investment from surplus areas to increase production in deficit areas, also maybe curbing or diverting consumption in surplus areas.
  2. Debt forgiveness / grants from surplus areas to deficit areas
  3. Block all trade when the trade becomes too imbalanced.

A multicurrency economy may have benefits regarding the issuance of currency and choice of which currency to use, but it obscures this balance of trade problem, especially when money is represented as variable value tokens. The Bancor approach uses a solid theory called the price-specie flow mechanism. The theory says that surplus areas’ currencies become stronger and deficit areas’ weaker, and therefore as trade becomes imbalances, prices change and surplus areas are encouraged to import and deficit areas export – essentially that with a free market in currencies, prices will automatically adjust to affect supply and demand to balance the trade. Unfortunately while the theory is solid, many economists say that in the real world there are many other factors affecting trade and this mechanism has little effect. Also it was never supposed to work for tokens but for a gold standard. So massively multiplayer tokenomics will be no more socially just than other money systems on this score.

My second criticism is that the distribution of risk/reward is very unclear. From time to time token issuers will go bust and the value of their tokens fall to nothing. Others will increase in value. Instead of holding money the purpose of which is to retain a known amount spending power, each user would hold a portfolio of assets whose value would be constantly changing. Every transaction would involve a choice and a negotiation of which tokens to transfer. This can be done automatically, or the user can use their own knowledge of the token issuers and their own assessment of what each token is worth or will be worth. In Bancor where demand is artificial, token values might not reflect any reality. The risk and reward is essentially randomly distributed except insofar as people know each others’ business and take the time to acquire and dump tokens they know about.This table shows who takes the risk in different monetary systems.

description issuer risk
Fiat money Commercial banks, backed by deposit insurance and bailouts in emergencies risk to the taxpayer, reward to the bank in the form of interest
Self-issued currency / Free banking Prominent institution such as local producer, bank or government bearers of the invalidated notes/tokens
A mutual credit where everyone has credit and debit limits everyone with a deficit everyone via inflation and/or surplus accounts as liquidity drys up.
A Ripple like system but with one currency. everyone the individuals who backed the defaulter, to the extent that they backed them.
Bancor tokens everyone The other currencies in the group who backed the defaulter, in proportion to the number of reserve tokens they hold.

My third criticism is usability. I can’t imagine a massively multiplayer token system working with cash; an app would be needed to price everything. The total amount in your wallet would need to be re-calculated hour by hour, and if you wanted to decide for yourself which tokens to spend and which to save, you would either have to configure your wallet or fiddle a lot just as you would if your pocket was full of coins from different countries. What you gain in usability, you would lose in knowledge and control over what was really going on in your wallet.

I’m also concerned that massively multiplayer token systems might not behave as their designers suppose.

Imagine you issued some tokens, but the more you spend them, the lower their price/purchasing power. You would much rather hold other people’s tokens than spend your own. It is very like borrowing money at interest Without mortgage tax relief distorting the picture, anyone would spend their savings before borrowing money because it is cheaper.

That means the only currencies circulating will be those issued by players currently in deficit. Meaning half the players’ token issuances are unnecessary. I see a lot of parallels with the fiat money system:

  • the medium of exchange will consist entirely of the credit of the deficit traders, and currencies belonging to surplus traders will be not be needed.
  • surplus traders have more spending power than deficit traders, equivalent to interest earned on fiat savings
  • deficit traders have less spending power than par, equivalent to interest paid on fiat debt
  • a trader who spends all his tokens without earning them back, effectively defaults on his debt, to his guarantors – in this case his neighbours

But unlike the fiat money system

  • Our credit is determined by agreement with our neighbours not by the bank but
  • We now have many currencies in our wallets
  • Currencies purchasing power is constantly changing – we need to consult and app every time we want to know the price of something

My final concern is about competition between currencies. Hayek was keen that different institutions like banks should compete to provide exchange media and store-of-value services to the market. But most complementary currencies are designed by communities for their own use. If they were to compete against each other they might make a more ‘efficient’ economy, if anyone cares to unpack that assertion, but at the expense of exacerbating trade imbalances, and eroding each other’s sovereignty.

Adding these few thoughts up, it seems to me that a system of personal currencies isn’t fundamentally different to what we have now, though it could be much worse since manipulation would be much easier and injustices would all be obscured by unreliable exchange rates. It would democratise credit but there are much simpler and more accountable ways to do this.

A balance needs to be struck somewhere between one world currency a global monetary policy and near-zero risk, and personal currencies which require artificial liquidity and have no fixed value at all. It is as if anyone had the right to crown themselves king, and be sovereign over themselves. Great but somebody still has to clean the toilet every week. More currencies doesn’t mean more sovereignty, more credit, or more wealth, but it does mean more complexity and less liquidity.

After all, isn’t the whole point of a medium of exchange, like a sovereign realm, that it is something shared and agreed and standardised by a community?

Photo by Thomas Hawk

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How a Universal Basic Income could Fire the imagination https://blog.p2pfoundation.net/how-a-universal-basic-income-could-fire-the-imagination/2017/10/09 https://blog.p2pfoundation.net/how-a-universal-basic-income-could-fire-the-imagination/2017/10/09#comments Mon, 09 Oct 2017 08:00:00 +0000 https://blog.p2pfoundation.net/?p=67857 Martin Kirk is Co-founder and Strategy Director for The Rules. They work on challenging root causes of global poverty and inequality and climate change, but specifically through a narrative lens.  They look a lot at psychology, cognitive linguistics, network theory, that sort of thing, to try and get into the deep narratives and deep logics and assumptions... Continue reading

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Martin Kirk is Co-founder and Strategy Director for The Rules. They work on challenging root causes of global poverty and inequality and climate change, but specifically through a narrative lens.  They look a lot at psychology, cognitive linguistics, network theory, that sort of thing, to try and get into the deep narratives and deep logics and assumptions and frames that constrain and dictate our responses.  They are also doing a lot of work around Universal Basic Income (UBI). An interview by Rob Hopkins.

Could you say for somebody who hasn’t come cross the concept of a universal basic income, could you give them it in a nutshell?  What is UBI?

UBI is basically an idea that says everybody, simply by virtue of being alive, gets an income that gives them enough to survive, if not thrive, and that’s one of the debates.  There are lots of different people talking about it right now from across the political spectrum.  This is one of the things that makes it an interesting idea, or an idea that’s worth engaging with right now, because it’s an idea that’s emerging.  It’s formulating, so it’s not settled.

Martin Kirk. On a Skype with someone else…


There are lots of different ideas around lots of different conceptions.  There’s not a clear single narrative about it yet, although it’s rapidly forming.  It’s being talked about in terms of everything from reducing the size of government and the welfare state, in the way of just getting rid of all the social services and replacing them with a basic income, right through to people talking about it as a way to redesign the money system and effect fundamental transformational change to the root drivers of many of our problems, like infinite GDP growth.

So it can take you from that very simple ‘reduce government’ right through to ‘change the economic system’.  I think this is one of the reasons it’s getting a lot of people excited.  There are pilots going on all over the place. Just this last week or two the Scottish government announced its plans to run some pilots.  But they’ve been running global north, global south, for a while.  It’s actually an idea that’s got a very long history.

Thomas Paine talked about it as a negative income tax when he was writing in the 18th century.  Hayek and the neoliberals were actually talking about it as an idea when they started formulating their ideas in the 1940s and 1950s.  So it’s got a long history.  But it’s in the last 3, 4 years it’s really started to break into the mainstream, have a bit of a resurgence, and one of the reasons that’s being driven is this conversation about automation.

This is what’s getting a lot of the Silicon valley types, the Mark Zuckerberg’s and Bill Gates’, that’s drawing them into it.  I don’t know if you saw just this last week, Hilary Clinton in ‘What Happened’, her just released book said that she was a hairs breadth away from running on a basic income platform in the 2016 election.

But in her words they just couldn’t make the numbers add up.  Jeremy Corbyn has said that the Labour party in the UK is studying it as a policy option.  Richard Branson has come out and said this is almost probably inevitable at some point.  So it’s being practiced, it’s being trialled, there are endless debates happening, it’s picking up political media, social support.

Interestingly, the one group that hasn’t latched on to this, as much as I think they should do, is environmentalists.  There is a lot that could be done with a UBI that could really address the key issues that we’re concerned about. From the way money draws its value from natural resources and the natural capital base of the planet, and that can be addressed.  You can also address the concept of growth, if you take interest bearing out of the money system.  So it opens up all these sorts of interesting ideas.

The problem right now, as I said earlier, is it’s stuck in the welfare frame.  It’s a reductive thing.  If you’re interested in transformative ideas, this is one that’s worth getting engaged with right now as the narrative is forming.

How would it be financed?

Again, this is one of the big debates that’s happening.  It’s one of the big questions that automatically comes up, “how is it paid for?”  There is a range of options.  Right through from the Conservatives who would just pay for it by scrapping so many other services.  Conservatives in the US are talking about a basic income of $10,000 a year, which is way below the poverty threshold, and below the minimum wage threshold, but could easily be paid for out of existing tax revenue if you chopped off a lot of the health services, welfare programmes that already exist.  So you’ve got that on one side.

Then, somewhere in the middle, you’ve got people talking about it from a sort of dividend.  A lot of people refer to the ‘Alaska model’ here.  Alaska’s had a basic dividend, they call it a permanent dividend fund, for quite a long time now.  That’s paid for by fossil fuel receipts from Canada South oil, or Alberta actually, then there are profits that are ploughed back into a dividend that goes to every citizen.  So people are talking about whether it could be funded from a carbon tax, or some other form of commons based revenue.  That’s another middle ground way of paying for it.

On the far end, and this is the one that we’re interested in, particularly at The Rules, go away from the current money system completely and we say there’s a really interesting conversation to be had here about a cryptocurrency based UBI.  The technology for that is not quite mature but it’s coming and it’s coming much faster than people expect.  We will very soon have the option of using a cryptocurrency either as an alternative or a complementary currency to the fiat currencies we all use.

But if you get into that space, then the question of where does the money come from doesn’t apply there, because the money is automatically generated by a system.  It’s just deposited into people’s accounts.  There’s no central authority who’s governing that.  It’s just an automated system.  So you don’t have to ask the question of where will the money come from.

You’ve got that spread, right through from the small government, Conservative and libertarians, all the way through to the more radical, I’ll say ‘Left’, just as shorthand but it’s a little bit disingenuous to use just the Left-Right spectrum here because it’s more complicated than that.  But just as a reference point, the radical left.

The battle is being had right now.  The battle for the narrative.  Right now it’s being won, or it’s being dominated by, the centre and the right.  One of the reasons for that is the language that’s used.

Just think of the term, ‘Universal Basic Income’, every single one of those words, militates against a more transformative conception.  People don’t respond well to the idea of universal things, on the whole.  They immediately start thinking about, “Well, why is my neighbour getting stuff?  Why am I having to work and they’re gutting stuff for free?”  It triggers a competitive mind set in people, and outgroup thinking. So people automatically start to think about who is the outgroup and will they get more than I?  The fairness logic kicks in very quickly.  That’s not particularly helpful.

The word ‘basic’ drags your brain down right down to the floor, and it leads you into questions like, “What’s the least possible we should be able to give people?  What’s the basic?  What’s the minimum?”  That’s a classic welfare type thinking, and it’s linked to all the concepts of the undeserving poor.  These people who don’t deserve what they get.  Their position is all of their own making.  So it opens up all those avenues of thought and logic.

‘Income’ is almost the worst, because income is widely understood to be something you receive in return for work.  That’s the definition of the word.  So actually we’re trying to talk about a system that separates work from income.  You’re using the word that means income for work.  So none of these on their own are prohibitive, but they are framing points.  They do lead you into a certain type of logic and they’ll push the conversation in a certain direction.  It’s a direction that is far more in line with the conservative thinking than the progressive thinking.  So we’re already hampered, we’re already ham-strung by the language.

So we have an uphill battle, but then when don’t we?!  Everything we do is an uphill battle against the system on some level or other…

So what would you rather call it?

We were going to test trial stuff.  We don’t have a specific name in mind but we know the conceptual domains that will be much more useful for us.  So community domains are much better than individual domains, and ‘universal’ gets you into more individualist thinking.

You could think about some sort of language around community.  Also people have a much stronger logic for the health of communities in some respects.  People understand that income coming into a community will strengthen it.  There’s a much more communitarian logic when you start talking in terms of communities.  It triggers that sort of logic much better.  So we should be looking at that sort of area.  We were going to do a process of trying to test a few different memes and framings and see which ones resonate.

The problem is, we spoke to a lot of the people who are big players in this field at the moment, and we made the judgement that the language is too embedded now.  We could be fighting that fight forever and make no progress.  If you’re looking for the efficient entry point into this narrative, trying to change that basic language probably isn’t going to serve you very well.  You’ve just got to suck it up and think about how else we can get in there.  Because it’s so widespread now, it’s used in so many different places, that horse has bolted already.  But if you wanted to take a clear eyed view of the challenge ahead of us, it’s worth thinking about these linguistic points.

So how could a UBI best be designed to most enable a renaissance of the imagination?  Why is it a useful tool for that?

Several reasons.  One, it’s a challenging idea, and you want challenging ideas.  You want ideas that take people one step beyond where they already are.  It’s very difficult to teach people an entirely new logic with one set of ideas, or one policy prescription.  But this one, just the very idea of everybody getting an income by virtue of being alive, is quite shocking.  Quite arresting for people.

On the face of it, it’s an engaging idea.  Even if the engagement is people going, “Well, how would you pay for it?”, it’s a negative response, but its still a response.  You’ve got an awful lot in your favour from a campaign perspective just there.  The struggle to get people’s eyeballs on your things is permanent with campaigners, so this one has got a built in advantage for that.  That’s the surface level.

Once you get into the deeper level with it, it gets even better though, because depending on how you frame it, and the framing is all important – as with everything, he who frames, wins. But if you can get the framing right, it invites people to rethink money.  It invites people to rethink power structures.  If I get a cryptocurrency that doesn’t come from a bank, that isn’t issued by my government or my local authority, suddenly I’m into questions of what are those authorities for?  I’m rethinking their role on quite a fundamental level.  So it gets you into questions of money.

It gets you into questions of power.  It gets you into questions of growth.  It gets you into all these rich fundamental areas of logic that capitalism relies on for its life force.  That’s one of the reasons that we really like it.  It’s got all the dimensions to it.

I think of it, you walk into a room and this room’s got 20 doors off it, and some of them are more fruitful than others to go down.  UBI offers you a lot of doors to go through in terms of where you can take people’s thinking and the narrative, or trigger people’s thinking and logics.  It’s not the only idea around of its kind around, but I don’t know many others that have this pure potential in them to get people thinking differently.

If it were introduced tomorrow, in what way might it catalyse a whole flourishing of imagination do you think?  There’s not many spaces left in modern life where imagination is really encouraged or really flourishes.  How would the introduction of a UBI address that?

There’s no such thing as a quick silver bullet solution that’s going to take people from bad logics to good logics, to ecological logics overnight.  One of those reasons is because our entire language locks us into a financial producer/consumer logic.  So accept the basis that our environment is anything but neutral right now.  It’s dis-incentivising our spending time on the imagination, on community, on following passions.  We all have to work for our income, so we have to do what’s required of us, not what is necessarily our passion.

Just think of the idea – what would you do with your life if you had the freedom to live, not a rich, but a materially safe and comfortable life, without working?  What would you do?  Without having to go to an office?  You might choose to, and that’s great, because some people love work of that sort.  But you wouldn’t necessarily need to.

So now you’re moving beyond a situation where our lives are focused around work and income and provision for ourselves, and focused much more on the idea of living.  A lot of people go straight to, “Well, people will just be lazy.”  But that’s not true.  All the evidence suggests, of course some people, a small number of people will choose not to work, not to do anything and sit around watching TV all day, but those people do a lot of that anyway.  They are not the majority of us in society.  The majority of us get a lot of value from our work, from being productive, from engaging with our communities, from engaging our minds and learning.

Those are the stuff of life for a lot of us.  So once you even take one step away from the absolute imperative into work, into wage work I should say rather, all manner of things can change.  But I don’t think we can predict exactly what will happen if that’s the case.  We’re going to become almost like a leisure society over the next 50-100 years, particularly as automation kicks in.

We’ve got plenty enough wealth, and even when automation kicks in, there will be plenty enough generating capacity for everybody without needing to grow the capital supply infinitely.  So the whole paradigm we’re going to be living in is going to change over the next decades.  The concept of work is going to change even if we don’t implement something like universal basic income.  But if we do, if we get ahead of the curve of automation, if we start to release people from the imperative of wage labour, I think we’ll find a number of magic things happen.

What happens if we move to automation without a UBI?  We end up with lots of people who have no work – the implications are really quite alarming, am I right?

They’re quite dystopian.  But I can’t imagine any government will allow that.  If you want to stoke social unrest, no better way to do it than have millions of people unemployed wandering around being desperate.  So as lay-offs happen from automation, governments are going to respond in one way or another.  They’re not going to want masses of unemployed people wandering around feeling disenfranchised.

I’m not sure we’re going to be facing that sort of future, because it does not serve the interests of the current power structures.  If you look at the way a lot of the Silicon valley people talk about UBI, what they’re actually talking about is a different business model for themselves.  They’re not thinking about it in terms of different economic systems.  They’re not thinking about it as a social justice move towards an environmentally sustainable future.  They’re thinking, “How can we make sure people still have money to buy our services when they don’t have jobs to go to because of the automation that we’ve triggered?  How can we keep our consumer base, a consumer base?”

This is the minefield of this conversation. And obviously, Mark Zuckerberg writes a manifesto and makes one speech at a Harvard commencement session and suddenly he’s the poster child for UBI.  That’s why this is such a fraught area right now, as these people weigh on into it and are dominating the environment, forming the narrative, setting the frame.  So the rest of us have to step up a bit, and make sure their conception doesn’t win.

You mentioned that UBI is potentially a very powerful tool environmentally.  Would it not, just giving people more money, would they not just be buying more iPads, going on more holidays?

Consume more?  Yeah, absolutely.  That is a risk, but it’s not a guaranteed outcome.  There are ways you can mitigate it.  If we go down the cryptocurrency route, you can easily, as easily as walking, build in certain rules into that system, that strongly incentivise local trading.  Dis-incentivise global supply chains, dis-incentivise buying from distant, therefore abstract, people in environments.  So that’s one thing you can do if you take a cryptocurrency route to not kick off lots of negative consumption.  There are a range of things you can do, but this is something to keep an eye on.


Cross-posted from Rob Hopkins’ blog. Click here for more stories  and perspectives on Universal Basic Income.

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