Money, Money, Money

A longer-than-fits-in-the-margin response to a comment on the last post:

How do you make money, the symbol of exchange-value, properly match the actuality of exchange-value?

Have a fully backed currency (eg gold) and do really nasty things to anyone who so much as thinks of the possibility of maybe theoretically devaluing (read: cheating) it.

Not only no, but hell no.

What is a currency? Well, it’s a medium of exchange, a unit of account, and a store of value, each of which has its own requirements. To function as a reliable store of value requires, inter alia, that its value remain stable across time.

This has generally proven problematic for both fiat and commodity (i.e., including “backed”) currencies. But first, let’s look at what that definition actually means. A single unit of currency is nominally a quantum of exchange-value, representing 1/[money supply]th of total exchange-value. So what’s total exchange-value?

Answer: total exchange-value is the production of the entire economy denominated in that currency; all the goods and services which people are willing to trade for using it.

To be a reliable store of value implies that what yesterday’s unit exchanged for today’s unit will also exchange for, and that tomorrow’s unit will exchange for what today’s unit exchanges for. To make this happen, ceteris paribus, the money supply must precisely track total exchange-value.

(There are obvious complications in accounting for this, inasmuch as it should, for example, avoid changing the value of money due to secular expansion and contraction of the economy, but should not attempt to compensate for, for example, decreases in prices due to, say, increased resource availability or improvements in total factor productivity. Which is to say, you have to carefully separate authentic shifts in value from those which are merely caused by your own scarcity mismatching. But let us assume away these complications for now.)

This is problematic for fiat currencies partly because figuring out total exchange-value is a hard problem (we do it, for example, mostly by looking at long-term price changes after the fact and applying a bugger factor by eyeball), but mostly because governments find it very hard to resist the urge to screw around with monetary policy. And inflation is awfully convenient if you get to keep the seigniorage, since it essentially functions as a stealth asset tax.

Aurifer was built to solve the former problem; the latter one? Well, that one is hard unless you happen to have people who really, really love money to put in charge and prevent it from being debased.

This is really problematic for commodity currencies, though, because you can’t control the money supply at all. What you have is what you get, and the value of your currency wanders all over the map just like the price of every other commodity. As Robert Houghton mentioned in the previous post’s comments, the experience of the Spanish post-Mesoamerican conquest is instructive, as their gold-glut-driven hyperinflation is the perfect go-to example for “but though we had plenty of money, there was nothing our money could buy”.

Which is to say: properly-managed fiat (which isn’t really fiat at all, because it is backed by something, just something abstract – which is what really backs all currencies, in the end – but I digress) may not be the best game in town for a reliable store of value, it’s just the only game in town.

Electronic currencies can be messed with, and the only reason the Eldraeverse gets away with it is because the guys obsessed with things like the rule of law, property rights and such also just so happen to be the top dog.

Technically, the Empire gets away with it because they just so happen to have the aforementioned money-lovers and a friendly fiscal god, not to mention the real check-and-balance, a free market in currencies rather than a de jure or de facto state monopoly.

The rest of the Worlds may, and indeed does, vary.

(We shall avoid making jokes about the volatility of the one mercury-based currency out there, or the stability of those based on (radioactive) power metals.

But we shall take a moment to note that the ergcred goes into crisis with every new power-plant megastructure that comes on line, the Bantral labor-hour [back when the People’s State was a going concern] traded externally for rather less than Chthonic Railway tokens, the linobir bloodnote’s worth depends on which clan issued it and what they’ve killed recently – as is its physical makeup, more often than not – the gAu’s value is inversely proportional to distance from the Core Markets, and the Kameqan thal is worth EXACTLY WHAT LORD BLACKFALL SAYS IT IS.)

IRL, gold will probably do just fine if the population keeps growing to keep pace (roughly) with the amount of gold out there (don’t forget, hardly anything reacts with / corrodes it). The Eldraeverse is often just a tad more utopian however.

Though mind you, the energy cost of stripping a planet / solar system / whatever of all its gold is going to be pretty high, perhaps even to the point where it’s not cost-effective to do so. The highest figure I’ve seen for gold on Earth is ~2.5 million tonnes (the lower figures are under 10% of that however), discounting the estimated 20mt in ocean water (GLHF filtering all that though)… combine that with the likelihood of finding much gold in asteroids (probably low, assuming denser asteroids tend to form / hit planets earlier than lighter ones), and there may not be THAT much [insert rare metal here] available.

This turns out not to be the case.

The best estimates I’ve seen for mined gold through all human history is on the order of 180,000 tonnes, with the USGS estimating that there’s maybe 50,000 more to mine, with some awaiting discovery on top of that. Not counting currently unexploitable sources like ocean water or mining the planetary core.

Let’s look at one particular example right here in our solar system: 16 Psyche. That particular asteroid is a nickel-iron metallic (i.e., probably chunk of the core of a protoplanet), and as such is much higher grade ore for both iron and all the other metals amalgamated into it than anything that exists on Earth now, and probably ever. It’s also about 120 miles across.

The iron alone is worth about $10 quintillion, before we even start looking at the gold and other precious metals. Ain’t no population can fuck fast enough to keep pace with that.

(On one hand, I might be stacking the deck a little since 16 Psyche is by far the biggest metallic asteroid out there. On the other hand, it’s a quintillion-dollar motherlode of the kind of ore that makes smelters do the dance of joy that is sitting right there, right now, just waiting to ruin incautious commodity traders’ whole decade, and there’s no point in pretending it ain’t.)

tl;dr When I wrote that the Age of Space was accompanied by the price of gold dropping to around where the price of iron used to be, and the price of iron zeroed out, I wasn’t just pulling numbers out of my ass.

(In-‘verse, when they want to drive this point home to people from peripheral worlds, they take them to see Celestial Mechanics, ICC’s main gravity tractor. The one that uses about 10% of Earth’s entire historical gold production – or a little over twice the total US gold reserves – neatly divided into kiloton slugs, as ballast.

This is assuming they didn’t get the point when some scruffy free trader filled his hold with exotic native handicrafts in exchange for the spare set of trimming weights that’d been slopping around the ship’s locker since ever, for a cool 10,000% profit margin.)

Fully backed (and crypto-) currencies are also nice in that nobody has central control over them when it comes to policies like printing money. Oh sure, you could have built up a secret stash of gold/BTC/etc, but that’s not nearly as easy as typing a few numbers into a computer to create new money. Plus, someone might (a) realise this, and factor your secret stash into the market prices, (b) steal it, or (c) destroy it (insert Bond reference here ).

That same quality, though, makes them lousy stores of value, because without the ability to match the money supply to the total exchange-value, you end up with either inflation, or deflation, or worse, both. Cryp has its virtues in terms of fiscal stealth, and as an investment, but it sucks as currency, because it fails one of the major purposes of the stuff.

Finally, stuff like gold has the handy trait of working at much simpler tech levels, for want of a better phrase. If that Carrington Event fries an eldrae colony’s electronics and they’re out of touch for a year (I’m sure they have fancy solutions, but it’s the principle not the specifics I’m concerned with), gold will still work just fine.

The solution is called “use the coinage as coinage without verifying it for the moment”. It’s not like the Empire wasn’t using gold, etc., coinage for centuries before anyone invented practical electricity.

But they were also aware that what gave that currency its value wasn’t the metal, it was the little engraving saying “By Our Imperial Word, One Esteyn”. Now that’s a promise you can take to the bank.

But it turns out that creating a liminal hyperintelligence that indwells your currency such that it can regulate its own value from a fiscally omniscient perspective works modestly well

I’m just a bit dubious about how this might work across anything more than planetary distances. Surely lightspeed lag would cause problems if this currency is seeing a lot of use? “Fiscally omniscient” sounds iffy to me.

There is FTL communication available, note (see “tangle channels”), but the important thing to make this work is that the instance-syncing can keep up with the speed of economic transactions. Where there’s light-lag, Aurifer’s instances updating each other is slower, but so is transaction clearing, so it can still keep up.

10 thoughts on “Money, Money, Money

  1. Didn’t quite expect THIS from my comment, whew 🙂 . All right then…

    Answer: total exchange-value is the production of the entire economy denominated in that currency; all the goods and services which people are willing to trade for using it.

    According to whom? You’re willing to pay £1 for that sandwich but I think it’s worth £0.50, and the hungry fellow behind you will pay £2 for it. What is the value of the sandwich? That depends on which of us you ask, because value is a subjective thing.

    This even applies to when it says “By Our Imperial Word, One Esteyn”, because, for sake of argument, I think those sneaky imperial overlords are manipulating things and [insert lots of conspiracies here]. Doesn’t matter if what I believe is true or false, or if I’m acting rationally or not.

    (Incidentally, there’s a difference here between the value of the currency – which is in my head – and the trustworthiness of the currency, which is somewhat more objective – even if I don’t think esteyns are worth half of what most people believe them to be worth, I can still trust the powers that be when they say that one esteyn = one esteyn.)

    Maybe it’s just me, but trying to make individual units of currency equal 1/nth of the total exchange-value of the economy seems like a very top-down and centralised model. That Jackson Pollock “art” is worth £100 million according to Aurifer, that sandwich is worth £1 not £0.50 or £2, and so on. This HAS to be the case if you’re going to arrive at a total exchange-value, no?

    The iron alone is worth about $10 quintillion, before we even start looking at the gold and other precious metals. Ain’t no population can fuck fast enough to keep pace with that.

    Winks Challenge accepted 😛 .

    I get your point of course, but colour me sceptical as to whether the occasional 16 Psyche or similar will have more than a medium term effect on a major gold-backed space economy:

    The miners husband the resources carefully, like DeBeers & diamonds.
    The miners can’t find anyone to give the iron away for free (!) to, because they didn’t do (1) and so there’s a glut on the market.

    Long term, 16 Psyche WILL be mined out (…of existence?), and the population will have grown to the point that its inflationary effect is more or less gone.

    = = =

    The rest I think is pretty minor, and I think I’ve gone on long enough anyway 😉 .

    • aybe it’s just me, but trying to make individual units of currency equal 1/nth of the total exchange-value of the economy seems like a very top-down and centralised model. That Jackson Pollock “art” is worth £100 million according to Aurifer, that sandwich is worth £1 not £0.50 or £2, and so on. This HAS to be the case if you’re going to arrive at a total exchange-value, no?

      It is, at the very least, not just you (though it could well be just the two of us). It seems that either you have to live with inflation / deflation, or else try to “stabilize” values by resorting to the other great economic sin of price fixing (which is what pegging the currency value to a basket of goods ultimately boils down to, really — the difference between fixing a commodity’s price in a given currency and fixing the value of the currency itself to a given commodity is, at least in my view, ultimately a distinction without difference, a matter of semantics).

      Add to that that fixing the values of particular goods (no matter how broad the “basket”) to a currency while at the same time allowing those goods’ marginal values to fluctuate relative to one another opens you up to the possibility of intransitive preferences, and thus getting your economy Dutch-booked.

      • First, see above: it’s not a centralized computational process, it’s just a way to read the numbers that the invisible hand outputs.

        Second, a hint: if it was merely fixing the currency value to a basket of commodities, how did it come to happen that the price of post-scarcity commodity goods has fallen all the way to “post-scarcity” levels?

        (You should re-read and consider the implications of the parenthesized paragraph nine.)

        • I’d venture to say that I’m more aware of the implications than you are — that the fact that “[Y]ou have to carefully separate authentic shifts in value from those which are merely caused by your own scarcity mismatching” which you blithely assume away is a much larger factor than you give it credit for, and that being able to do so with any accuracy requires the ability to See the Future — not merely in a probabilistic predictive sense, but in an absolute, foreordained-knowledge one.

          • But the Transcend can see the future in a absolute, foreordained-knowledge sense. They can, and do, use Tangle to communicate with themselves in the past to convey; and they don’t change the state of the universe in the process, because the universe is block.

            And the pages they link to.

            So it seems perfectly reasonable to me that between that and the whole being-a-hyperintelligent-AI-partially-made-of-the-constituents-of-the-economy thing, it should be perfectly possible to, if not reach, approach asymptotic perfection for values close enough to “perfect” for most intents and purposes.

          • Yeah, you’re gonna have to justify that one.

            It’s an computationally intractable problem for us because it simultaneously requires superhuman general intelligence and the ability to perform rapid analysis of vast quantities of information, but only in a quantitative sense; you don’t need to predict the future at all, or use any kind of hypercomputation, for that matter. Everything you need to know to perform this task is implicit in information available in present-time.

    • Ah, but all those individual $1s and $2s and $0.50s are just values, not exchange-values; bid/ask requests, not prices. You don’t get an exchange-value until there’s willingness to exchange, and therefore agreement between seller and buyer.

      Or, to put it another way, individual valuations are pure-subjective and individual, but in glorious free-market economy exchange-values are computed for you by the Invisible Hand wherever supply meets demand; it’s the rather more objective market-clearing price.

      Total exchange-value, therefore, is what you would get if you took a snapshot of the market at a given moment and added up all the market-clearing prices multiplied by the units of goods and services they’re attached to. (In theory. In practice, you can’t get things to stand still while you count ’em, which is why they have a liminal hyperintelligence to figure this out accurately on the fly.)

      No centralization here, you’ll note: the exchange values and so transitively the aggregate exchange-value are determined by the market, which is close to the ultimate bottom-up discovery process. Aurifer’s not deciding on prices; its job is merely watching what they are.

      (And then, like any responsible commodity manager, adjusting supply versus demand.)

      As for the latter: I note that DeBeers don’t have their monopoly any more. Everyone in a cartel is incentivized to break the cartel; good luck playing King Canute with that forever.

    • Winks Challenge accepted 😛 .

      Ahh, you’re hoping that if you’re rich enough, “agressively self-replicating blight” will seem impolite and you’ll be merely classed as eccentric?

  2. I do want to take a moment to point out that the notion of currency as having a constant, indestructible value is not without inherent problems of its own, as pointed out by one of the fine folks at ( )

    Specifically, Freiwirtschaft views the current monetary system as inherently flawed. Their point is that goods lose value through attrition, decay or perishability, while money does not and does generate compound interest. This gives capital owners an unfair advantage over owners of material goods, which incentivizes hoarding and speculation and therefore disturbs normal commodity exchange. This is an old idea of Proudhon’s; Gesell rejects his mutualist approach in favor of replacing the currency system by Freigeld or “free money”, which is supposed to decay just as commodities do. This is supposed to boost investment, because what else can you do with your money except invest it? The claim that this decaying currency was “hard” is based in Gesell’s view that the current monetary system was inherently deflationary. In this sense, Freiwirtschaft is the polar opposite of goldbuggery.

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