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Money as information-- wealth literacy

This is a reposting of a "meme-of-the-week" that I wrote as preparation for an open money conference in early 2008 on the now defunct open money Ning site.  I'm reposting it here because has a number of very important ideas that are foundational to the MetaCurrency project.


Since we are claiming that a fundamental open money meme is that money is information, then a number of things should follow from that. What follows are two representations of such a consequence. I've created both a visual table, as well as a narrative to go along with it, that describe another way of thinking about what open money is trying to achieve: wealth literacy. [Please note that by literacy I don't mean it in the broad sense (i.e. being well versed in a subject matter) but rather I mean literacy in it's literal meaning, i.e. the capacity to read and write!]

Evolution of LitteracyWhen I was growing up in Ecuador, I remember being in the marketplace where I saw a man sitting at a table with a pen and paper. He was listening to a customer and was writing away like mad. I remember not understanding what that man was selling. Was he composing a poem on the spot? I couldn't imagine the visibly poor customer wanting a poem. So I asked my parents who told me that he was selling the writing itself; that the customer was illiterate and needed to send a letter and so would pay the man to write the letter. I remember being amazed by this at the time, but then forgot about it pretty quickly. This story comes back to me now that I've come to understand that almost all of us in the world are doing exactly the same thing as those illiterate customers I saw in my youth. We are illiterate and don't even know it. We don't recognize that there is a form of "writing" we hire others to do for us but could learn ourselves. This form of writing is the writing of wealth acknowledgments, and what we call it is money.

Okay, that's a big claim, isn't it: Money is a form of writing. So let me walk you through how this is so. The writing that you are reading has one central purpose: to extend the range of transmission of ideas both through space, but more importantly through time. Writing fixes ideas so they can travel great distances and through time. This capacity is based on a collective community action, that of holding a shared agreement on the meanings of arbitrary symbols. You should already be getting the idea of how money could be a form of writing. It serves a structurally almost identical purpose, that of extending the range of transmission of something through space and time. Also, its capacity to do so is based on a very similar collective community action. Money allows us to transmit well-being across distance and time, and this capacity is based on a community action of holding a shared agreement on the meaning of symbols. But in the case of money what is symbolized is value.

How does money allow us to transmit well-being across time and space? It's a simple story that is easily understood by examining the most basic system of transmitting well-being: barter. If I raise chickens and you grow carrots, and we barter a dozen of my eggs for 5 pounds of your carrots, our mutual well-being is increased because both of us are better off. But notice that the well-being of the situation isn't in the carrots or the eggs themselves, because if I were also growing carrots, or you were also raising eggs, then we couldn't make an exchange that makes us better off! The central act of a barter exchange is haggling, or coming to agreement on the relative value of what is to be exchanged. The determination is that it's 5 pounds of carrots, not 3 or 6, that you'll give me for my dozen eggs. Let's call that act the wealth acknowledgment. To barter is to acknowledge the wealth that we will both gain by doing the exchange and then making it. Money stands in for that wealth acknowledgment when one party doesn't actually have something that will increase the other's well-being directly. So if you happened to raise chickens as well as grow carrots, I could acknowledge the wealth I receive from your carrots by using something rare, like a shell, or some shiny metal that everyone in the community agrees is a token of something "valuable." You then could take that wealth acknowledgment token to a third party who would give you something you want. Thus could my capacity to produce well-being by raising eggs be transmitted through time and space.

But why do I call this process a form of writing? In the writing of ideas, the first and simplest solution is to draw a picture of the idea you want to convey. The first writing systems were pictographic. In pictographic forms of writing, the symbols are not arbitrary at all. They are directly representational. Though this form of writing certainly achieves the central purpose of writing, transmitting ideas over distance and time, it is has some pretty big practical problems. The first is that it's quite hard to express abstract concepts. What is a drawing of "belief" or of the pronoun "you"? Of course you can always choose a picture of something that might invoke the abstract concept (i.e., hands together praying = believer?), or just pick something arbitrary for the harder words. But this has a very interesting side effect. It means that in strictly pictographic forms of writing it's very easy to learn to read (and probably to write) simple nouns. But to learn to write the more complex words is quite a task because you have to memorize each separate arbitrary symbol. It was a huge step in the evolution of civilization to jump to regularized systems of arbitrary symbols. Humans did this in two ways, through ideograms and alphabets.

Now we can return to money. My central claim is that the reason we don't see that money is a form of writing is because as we have currently structured it, it's still a "pictographic" form of writing. Even our modern paper and electronic money, as abstract as it seems, is still actually a "pictogram" of value. It's not a true abstraction. To draw the analogy explicitly: if I want to transmit the idea of a carrot, I can draw the picture of a carrot. This will surely transmit the idea because the carrotyness is directly represented in the drawn shape. Now if I want to transmit the value of a carrot, I can similarly use something that will directly represent the value of the carrot. The easiest and most directly representational concept of value is that which is rare, or scarce; thus the choice of the rare shell or the precious metal. Again: The "Idea of Carrot" is transmitted by visual representation of the carrot's shape. The "Value of Carrot" is transmitted by a material representation of the carrot's scarcity.

But we've already seen that in the transmission of ideas, we don't actually have to use something that looks like the carrot to write about the carrot. Do any of these letters look like a carrot to you? C A R R O T. (Uh-oh, the A) The same is also true for money. We don't actually have to use something material that is as scarce as a carrot to transmit the value of a carrot. This is how: instead of using the scarce metal as the wealth acknowledgment token, I could simply write down on a slip of paper that I have received the well-being value of a pound of carrots from you and I promise to give similar value to someone else in the community some time later. That slip of paper then becomes the wealth acknowledgment token. This is a kind of IOU wealth acknowledgment. But note that it really it isn't an I-owe-you--it is an I-owe-us. As long as people make good on their promises, this system will work identically to one in which we use a rare thing as the token. Because the underlying truth is that they are both just tokens. The practical differences in the two systems, however, are quite amazing. On the one side, as already mentioned, if the members in the community using the IOU tokens are apt to cheat or lie by not producing as promised, the system will quickly fail. On the other, the community that chooses to use a rare commodity limits its capacity to transmit well-being to the total amount of the rare token chosen! This is a surprising consequence. In fact the evolution of money from gold coins to the electronic bits of today is all about the dynamics of these two facts. Humanity has a much greater potential to create well-being (and thus the need to transmit it) than there is a good match of something rare to represent the value of all that well-being. The whole mechanics of the federal-reserve bank adjusting interest rates is all about trying desperately to match the scarcity of the tokens to the amount of well-being being generated by the economy so that those tokens will continue to retain their "value" (as something scarce). (The fact of inflation is proof that it's not systemically possible to really do that according the rules we've set up for conventional money.)

But more importantly, using these purely symbolic tokens allows us to transmit forms of wealth that aren't readily encodable with material scarcity. An example of this is reputation. If I engage in a transaction with a given seller, part of the value of that interaction depends on the integrity of the seller. Sellers get reputations for integrity or lack thereof. That reputation is not encodable in scarce objects. It doesn't diminish as it is used. So how could I acknowledge the seller for that well-being using money? I can't, really, though we sometimes try. But, with a symbolic token, we can. We call such tokens ratings. Along with giving the seller of carrots my IOU, I could also give him or her a rating of 5 out of 5 integrity stars. We are all familiar with this process on eBay. We know how it works there to transmit that form of wealth to other people, and thereby generate a marketplace with increased trustability. Just as in the case with conventional money transmitting the "value" of the scarce carrots, the rating score transmits the value of the integrity of the transaction, both of which are part of the wealth these token systems are in place to generate at the social scale.

Ok, so by now the mapping should be pretty clear. Money is a form of writing. It's writing that acknowledges wealth generation. But money is stuck in a primitive "pictogram" form. So what could be the "alphabet" of money that could get it unstuck? How do we jump to an informational rather than representational form of money? Let's look at the development of the alphabet to see if there aren't any lessons there for us. Well, the alphabet is a systematic method for representing all possible words. And it's really terribly simple. All you have to do is learn the mapping of 26 letters on to all the phonemes that we speak, and you're done. All of a sudden you can transmit any concept you can speak. Even a child who gets the phoneme mapping partly wrong and writes: "I had a scarry jream last night" is actually succeeding in the fundamental goal of transmitting the concepts over space and time! So what's the equivalent trick for money? What simplified systematic method is there for representing all possible forms of wealth acknowledgment? At first the problem seems impossible. So let's break down this analogy: in the case of writing we first had to identify the phonemes that are the common parts of all our spoken words. So what are the phonemes, the common parts, of all wealth acknowledgments? Here's a list to start with:

 

  • There is a declarer of the wealth acknowledgment (the purchaser)
  • There is an accepter of the declaration (the seller)
  • There are units of measure ($, pounds of wheat, kwH, "stars")
  • There is a statements of acknowledgment in the units of measure ($2, 10lb, 500kwh, 5 out of 4 stars)
  • There may be specific conditions on making declarations and acceptances (see below for examples)
  • The aggregate history of acknowledgments may be meaningful to making future acknowledgments (balances, credit-history, overall-rating)

 

With these components we can describe in the abstract what a wealth acknowledgment will look like. It will have a form that basically looks like this:

A declares that B has provided a measure C of wealth D and, optionally, some conditions E were satisfied.

Some simple examples:

Anne declares that Bob has provided her one hour's worth of massage.

Albert declares that Bertha has provided $80 worth of skilled labor, and (satisfying the "credit-limit" condition of this currency) Albert's declaration/acceptance balance does not exceed $10,000.

Amy declares that Bert's musical performance was a 4 out 5 stars performance.

Andrew declares that Bertram provided $100 worth of rare stamps, and rates the transaction as 3 out of 5 stars for slow shipping.

Acme, Inc. declares that it has received the benefit of putting 10,000 lb of carbon into the commons, and (satisfying the "carbon-limit" condition of this currency) Acme's declaration monthly average is not more than 20,000 lb.

So these if these A, B, C, D & E are our phonemes, then our alphabet will be a set of symbolic forms that can represent items from those slots. The open money platform simply formalizes these slots, in the same way that the letter B is a formalized representation of some sounds. The open money formalizations for

A & B: are the open money account names in a namespace

C & D: are the data fields, (i.e. amount/description)

E: is the currency specification language (a programming language in which to state things like credit limit = $10,000)

So where does all this leave us? The move from pictograms to an alphabet is a phase shift that resulted in a whole new landscape of possibility. It's a simplification that allows for universal literacy, which is the fundamental precursor of democracy, among other things. There is another phase shift awaiting us which can lead to literacy in this other form of writing. This phase shift likewise will result in another whole new landscape of possibility, one that has the potential to solve the great wealth dilemmas or our age, most pressingly that of creating an economic system that doesn't destroy the commons. When we learn to make our own wealth acknowledgments, instead of just passing around the tokens created by someone else, like getting a letter written for us in the marketplace, then, just as democracy gave us political self-governance, we might achieve economic self-governance.