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.

Trope-a-Day: Real Money Trade

Real Money Trade: The problem is that it’s hard to define what qualifies as “real money” versus “game money” when the Mythic Stars MMO alone has an internal economy bigger than some respectably-sized planets.

The logical consequences of this apply in full, including the follow-up to the city guards dragging your character in for stealing someone’s gold (if done outwith the parameters of the game by cheating means, etc. – obviously game theft is fair, um, game) being the game looking up your physical identity and having the local constabulary drag you off for an unsympathetic judge to explain grand theft to you in a prolonged and inconvenient manner.

Gold farming is SRS BZNS.

Snippet: Non-Identical Values

“The greatest and most misleading heresy of my field is the conflation of value with exchange-value.”

– Academician Teidal Ellestrion,
Economist Excellence,
Imperius Professor of Fiscal Econometrics (Commercial University of Seranth),
Director of the High Guild of Coin and Credit,
Aurarch Emeritus of Éävalle

 

Question: Good Economics

Out of curiosity, what would be the eldraeic critique of the idea of “Good Economics” as expounded on in the Book of Life, particularly as contrasted with Classical Economics?

(http://www.thebookoflife.org/good-vs-classical-economics/)

It’s a category error, plain and simple. Ironically, a lot of the things they complain about are examples of the exact same category error.

Economics, saith the Academician, is a science. It is to the laws governing utility, value, and exchange-value as physics is to the laws governing gravity, electromagnetism, color, and flavor. It’s a purely descriptive discipline, which is eo ipso amoral, in the same way that while how you use electricity or gravity may involve ethical choices, neither Newton’s nor Faraday’s laws have any ethical significance per se. Is, not ought.

What they’re talking about, with regard to making judgments of worth and dignity and so forth, with regard to what people want, what people want to want, what people ought to want, and what people ought to want, is the province of various other fields, like ethics, and aesthetics, with a side order of culture and religion, and whole bunch of bare-assed personal preferences on the side… exactly none of which goal-driven behaviors are economics, any more than all the ways sophonts have found to move mass and charge around to useful ends are physics, because neither of them talk about goals. They’re about how, not about what.

…and the irony is that when they talk like this:

But if next year, the wrestling society spends a record 11 billion, it is cause for praise: demand is growing, which is always good, irrespective of what it is actually demand for.

“Work is regarded only with respect to its financial status.”

Profit is, too, assessed only in terms of quantity. So long as one stays within the law, classical economics is neutral on the issue of how it is produced. To make profit from running a casino is no more or less admirable, no better or worse, than to make it by designing and constructing  beautiful streets of small houses.

The classical view is neutral about GDP. A society as a whole is assumed to be doing well so long as GDP is growing irrespective of the kinds of activity that lead this to happen. People might be working endless hours, the beauty of the countryside might be despoiled, but all that counts is whether the financial numbers are going up; anything else is irrelevant.

…this is the same category error ascribed to the “classical” side, in which people are assigning ethical and aesthetic qualities to phenomena which no more have them than gravity does. To say that increased demand for X or the greater profitability of Y is good or bad or better or worse in an ethical or aesthetic sense (vis-à-vis a limited utilitarian sense) is the same kind of damn nonsense as saying “more things falling down is (morally) better”.

(Of course, we have the whole mess called normative economics, which an Imperial economist would consider nonsense on stilts.

To such extent as it is merely a discussion of what one ought to want, it isn’t economics, as above. To such extent as it isn’t, it makes about as much sense as writing down your idea for how gravity ought to work and expecting results. You don’t get to have normative views on natural laws unless you’re in the reality-construction business, and if anything, the laws of economics are probably less tractable than those of physics that way.)

 

A Weapon Too Terrible To Use

CONFIDENTIAL (RED) / EYES ONLY GLITTER TARNISH
EXCHEQUER INTERNAL

Welcome, operative of the Imperial Exchequer.

If you are reading this document, it is because you either have need to know for, or have independently discovered, the weaponizability of the currency validation system.

To recap: the modern esteyn possesses full verifiability against counterfeiting, since every individual currency unit possesses an embedded cryptographic signature incorporating its denomination and serial code. This applies to both physical currency, in which this signature is embedded in v-tag format, and to money of account; an esteyn-denominated account must record not only the quantity of money contained therein, but the unique cryptographic signatures of each esteyn-unit stored. In either case, such units can be verified as genuine by an authentication exchange conducted across the Imperial Banking & Credit Weave.

We retain the ability to generate new cryptographic signatures and to invalidate old signatures at will. This latter facility is used principally by the Office of the Mint when replacing worn-out, damaged, or lost physical currency, and by the Office of Currency and Values, when adjusting the total money supply (i.e., to draw down the money supply, the OCV invalidates the signatures of selected esteyn-units presently in the general account of the Exchequer).

The realization you may have come to is simply that we do not require possession of a group of esteyn-units in order to invalidate their signatures; we merely require their serial codes. As such, we can invalidate any quantity of esteyn, anywhere in the galaxy “by remote control” – revoking its status as legal tender and a store of value, and rendering it useless in transactions anywhere in the legitimate economy.

This capability has never been used.

It is conceivable that one day we may receive an executive order to weaponize this functionality for use against terrorists, slavers, rogue polities, criminal organizations, or others misusing Imperial currency. It is, naturally, far more flexible than seizure of accounts (possible in Imperial banks or those of close allies only) or transactions (which requires that said transaction clear directly through the Imperial Banking & Credit Weave) inasmuch as it can revoke any esteyn-units, even those instantiated as physical cash. For these reasons, we retain the technical capability.

However, the projected economic effects of exercising this capability would be very severe. Much of the galactic market can be modeled as imperfectly trusting, irrational, and/or panic-prone, and the use of this capability would undoubtedly lead to an immediate external market crash, extending into a medium-to-long term depression. As a matter of policy, the Exchequer considers this a circumstance to be sedulously avoided.

As a final note, while the existence of this capability is not a secret (note the classification level of this document) since it is readily comprehended by anyone who makes a sufficiently adequate study of the relevant public protocol definition documents, the Exchequer chooses not to advertise its existence widely in the sight of economic knowlessmen. As such, you should consider it sensitive data, not for casual public dissemination.

 

Trope-a-Day: We Will Spend Credits in the Future

We Will Spend Credits in the Future: While somewhat played straight out towards the Rim Free Zone with its ergcred, a currency whose name is never abbreviated at the front, for the most part we will spend exvals in the future.  (See: Global Currency).

This may have something to do with the way that those proposing currencies named “credit” were, somehow, all accidentally lynched by rampaging mobs of accountants who knew exactly where this would end up. Like the trope example says:

“So as you can see, on 10 June we credited 35 credits to your line of credit and debited 7 credits from your debit card. Then we debited 8 credits from your line of credit and credited 14 credits to your debit account.”

 

Labor Theory of Value

(I was going to post the next chunk of Before the Phoenix today, but it’s not quite ready yet. So, here’s a quick wee thing instead…)

In the Conclave of Galactic Polities, Ambassador llin-Terl-an of the Palnu Sodality put forward a measure – supported by others of the Socionovist Association – proposing a system of voluntary interpolity fund transfers for the support of those individuals deprived of employment by imported cornucopia and other “industrial magic” automation technology.

Speaking for the Empire, Presiding Minister Calis Corith pointed out that his polity had, by the definitions contained within the proposal, all-pervasive deployment of industrial magic and an employment rate of zero, and thanked those supporting the proposal for stepping forward to financially ease the citizen-shareholders’ negative-value labor deficit at what would surely be a great cost to themselves.

The measure was tabled for further study.

– from the Imperial Infoclast