Some notes towards a new money

After a conversation with Eleanor Saitta at Truth and Beauty.

First: why? Well, it’s because the money we have is clearly inadequate. It embodies too many perverse incentives: specifically, it engenders a desire to hoard it rather than to use it; it provides too easy a metric for point-scoring, and easy metrics become ends in themselves; it’s very easily gameable and algorithmically manipulable; and it accumulates unevenly, which is to say accumulation accelerates the more of it you already have. Which is clearly counterproductive.

So, here’s my rough-cut proposal for a system which would remedy those problems – it’s designed to be used at first as a local currency, on the lines of LETS, to be used amongst a largeish (virtual) community rather than for transactions between strangers, and certainly not for savings accounts. I’ve been thinking of it as Fleuristy, because it flowers and falls, and because that means we can call the currrency units florins. It’s entirely digital native, because that gives us better tools for understanding and managing the money supply than any other currency has had.

The most important feature of the economy is that the total amount of money in it is aggressively limited – when it goes over the threshold (a multiple of the number of users, with some constraints & random factors to prevent gaming the system) that triggers a jubilee. All accounts are reset to a medium-low level, and all outstanding debts are cleared.

Since the jubilee will pretty much always take more money out of the system than it puts in, we need a faucet as well as a drain. That’s community funding, and it works like this.

When Aaron makes a payment to Balqis, he can choose either to fund it from his own account, or to submit it for community funding. If he takes the first choice, it goes through as usual – Aaron ends up with less money, Balqis ends up with more, the total remains constant.

But if Aaron takes the second option (either because he doesn’t have the funds himself, or because he thinks this is a transaction that will benefit the community, or for some other reason) then it will get submitted to a public forum for moderation, with Aaron’s pitch for the funding. If it gets more up-votes than down-votes, it gets funded, which is to say Balqis gets her money and nobody loses it; the total increases. If it doesn’t, or if it goes 48 hours with no votes either way, the transaction fails.

New users start with a zero balance, but will get marked up to the same medium-low balance as everyone else at the next jubilee, or may get a community grant if someone wants to propose that.

As far as score-keeping goes, everyone has three numbers: current balance, lifetime amount received, and lifetime amount spent. Either the last two, or the difference between them, are publicly visible, with leaderboards. (Opt-out leaderboards, that is. Not everyone wants to compete.)

This system tries to embody reputation (using lightweight but persistent identity management – my preference would be for Twitter authorization) and focus on transactions rather than balances. It stops hoarding, since jubilees are unpredictable – the only thing you can usefully do with your money is spend it or give it away. It won’t entirely stop the acceleration effect, but by preventing large balances (unless the system gets stuck in a very inequal state – and even then there are ways for the users to fix it) it will limit the effect severely. It isn’t gameable without intelligent human intervention, since any community-funding request which looks either machine-generated or boring will inevitably draw a community backlash.

Getting it off the ground won’t be an economics problem; it’ll be a community-cultivation problem. One thing the Internet is very much not lacking is people with surplus value looking to exchange it with each other. Some of the numbers will need fine-tuning, but the only way to do that is to try it.

Comments, perceived problems, elaborations on the basic system?

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2 Comments

  1. James Harlow
    Posted December 12, 2011 at 12:59 pm | Permalink

    Hello, perceived problem comment I’m afraid. :)

    The jubilee event has a number of problems. It guarantees the existing behaviour of recessions and expansions–in the period just before a jubilee, everyone is frantically trying to spend money, so you have an economic expansion. As soon as the jubilee hits, people will stop spending money, and you’ll get a recession. (This isn’t *really* worse than the existing system, but it’s a lot more volatile, which is a problem if you want your system to e.g. pay direct debits.)

    Because of this, people are incentivized to hedge–they will want a guarantee that their money will be worth *something* tomorrow, even if it’s worth less today. They start creating futures–a very simple future is “I’ll give you E1000 tomorrow, unless we jubilee, in which case I’ll give you 0.1% of my money”. I think you’ll find it impossible to stop this. Unfortunately, you don’t even need to be incentivized to do this–future-trading agents will always end up wealthier (on average) than non-future-trading agents. Over time, the agents who develop more sophisticated algorithms for determining the expected value of money in the next (say) day, which either eliminates the jubilee (if almost everyone plays the hedge game) or systematically biases wealth to agents who’re willing to engage in financial games (which is I think the behaviour you’re trying to eliminate in our current system).

    There are a number of hacks that you can do to the system to make it harder to make futures, but the hacks make the money worse (in the Gresham’s Law sense of the word), and better (ditto) money will replace it.

    The second is the problem of the community funding. I am a lot less optimistic than you that this will work well–I think California’s budget-by-ballot experience tells us that a community doesn’t necessarily think well at spending the community’s money. Even if you disagree, the simplest way to get a funding proposal to pass would be to add a clause saying that the benefactor of the proposal would give every upvoter a share of the funds. The entire community is then incentivized to upvote the proposal, and in fact anyone who doesn’t upvote every proposal with that clause loses out relative to the ones who do.

  2. Somhairle
    Posted December 12, 2011 at 1:13 pm | Permalink

    Thank you for that!

    I do see the issues with the jubilee cycle, but that only arises when people know it’s coming. Under this plan, it could happen at any point, without warning – since nobody would find themselves at zero balance or even very low afterwards, there shouldn’t be any risk to doing that.

    The futures-trading issue is an interesting one, and one I’ll have to think about the implications of – thank you for bringing it up!

    Regarding incentives to upvote – hmm. I’d hope that the threat of bringing on a jubilee by inflating the system unnecessarily would restrict the number of large funding suggestions, but of course I might be wrong. I hadn’t been thinking of it in terms of spending the community’s money, but I probably should.

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