The text below is a composite of several articles written by Greg.
URL = http://onthespiral.com/pages/about-me-rxCDk
Great series by “Greg” in a posterous blog in which he makes some great points and a fundamental critique of many alternative currencies, especially those that belief a demurrage-based design will solve all problems:
(Note from Michel Bauwens: though I feel it’s better to more carefully distinguish between transactional markets, recicprocal gift economies, and non-reciprocal commons contributions, the following introduces very insightful distinctions regarding money and non-money mechanisms, for dealing respectively with logics of scarcity vs. abundance)
Expanded Freedom/Self-Direction:
“When discussing the “free market” we often overlook the restrictions built into the transactional model. Yet, a transactional market is by its nature a contractual market. Once a contractual relationship is entered into, both parties are obligated to follow through. This restricts the freedom of all parties and leads to inefficiency in the form of negotiation before the fact and potential litigation after the fact. This potential for conflict also creates the need for legal standards that restrict the scope of individual freedom further.
Gift markets avoid litigiousness by eliminating contractual obligations altogether. In a gift market, producers seeks potential reward rather than contracted compensation. Market participants sacrifice guaranteed compensation for the freedom to contribute however they wish and the ability to reach a much wider audience. Psychological research and empirical observation both evince the fact that once basic needs are met, the ability to pursue intrinsic goals is more motivating than additional (monetary) compensation. To the extent that this is true, productive effort will be drawn away from transactional activity and towards platforms based on reciprocal voluntary gifting.
Simplicity:
The previous point implies that participation in gift economies is simple. Rules and laws are replaced with looser social conventions. Barriers to entry are eliminated. Meritocracy is facilitated because value can be provided without prior agreement on compensation, providing new entrants the opportunity to demonstrate value without accessing gatekeepers. Friction is reduced at the cost of increased uncertainty, however uncertainty is more easily coped with as reduced friction allows for increased experimentation and entrepreneurialism. This simplicity enables efficient redeployment of effort from the transactional market to the gift market.
Lack of Competition from Incumbent Currencies:
The transactional markets are wedded to traditional state-issued currencies. Efforts to innovate on the transactional model will be hamstrung by the need to convert people away from traditional currencies. On the other hand, gift markets are ripe for innovation because there are no incumbents. Social capital has to date gone largely unmeasured and the demand for a compatible accounting system is apparent. Innovation in this area will meet little push-back from traditional incumbent players as most will fail to recognize abundance based accounting systems as currency per se. This ability to innovate without resistance will continue to increase the appeal of these markets.
These three characteristics will increasingly attract new participants into informational gift economies and draw productive effort away from transactional markets.” (http://onthespiral.com/why-the-gift-economy-will-grow-unnoticed)
“I want to introduce the term “asymmetric accounting” to describe systems that record and track the provision of value rather than the volume of money transacted. Asymmetric accounting mechanisms are congruous with the reality that freely given advice or knowledge can be just as valuable as purchased knowledge. Such systems would not require a market price in order to recognize value creation and provision. In taking this broader view, asymmetric accounting reconciles our economic notions with the reality that value exists independent of whether its recipient is obligated or able to provide equal compensation.” (http://onthespiral.com/my-story-about-the-future-of-money-asymmetri)
Citing Alan Rosenblith:
“What’s most important about this new mode of production is that it is NOT about the quid-pro-quo, something-for-something social contract. The primary motivation for participation is intrinsic rather than extrinsic. Therefore, in the most fundamental way, this new currency will NOT be based on the quid-pro-quo social contract. This is difficult for us to conceive of since all modern money is based on the assumption that producers of value should be incentivized with rewards as determined by the market. Even most alternative money substitutes simply recapitulate this basic pattern. The logic of the quid-pro-quo market goes something like this “I’ll provide my service at $50/hour but not $30/hour, and if you can afford it, you are worthy of my time.”
Instead, these new currencies will be about making it easy to find the right place to put one’s own efforts based not on extrinsic reward, but on intrinsic value. In other words, where will my efforts be the most fulfilling to me and most in harmony with my community? This is about right placement, and about being in economic communication with people all around the globe.” (http://alanrosenblith.blogspot.com/2010/09/currency-design-possibilities.html)
Greg continues:
“How would this accounting be accomplished? The challenge is to devise non-invasive mechanisms of value recognition. “Non-invasive” implies that these mechanisms should not create the expectation of reciprocation. Consider for example – How do you react when someone approaches you with a “free” offer at the entrance of a store or on a crowded commercial street? If you are anything like me, you quickly avoid these overtures altogether. You realize that the offer is not really free, that there is an implied expectation. Even if the initial token is free, the goal is to create an implicit obligation.
When money is our only accounting system and transactions are the only ubiquitous means of reciprocation, we are condemned to this state of affairs. We avoid generosity in order to avoid the obligation to reciprocate. Internet social platforms create new possibilities. Anyone can hit a Like button, or subscribe to a blog, or amplify a message. These actions record the recognition of value without requiring any exchange of scarce currency. Over time, accumulated statistics begin to delineate who has provided value in the past and who is likely to provide value in the future. These first experiments with social media will develop eventually into comprehensive tools that record the creation and provision of value in many forms.
These tools will reframe our notions of for-profit and non-profit, enabling more subtle distinctions that better describe new business models. The coarse distinction between for-profit and non-profit is only necessary when our notions of value preclude non-monetary value. “For-profit” becomes a misnomer when many businesses dedicate funds to charitable ventures while many others simply fail to generate monetary returns. Ultimately what we mean by “for-profit” is: Seeking symmetric exchange. Seeking to be compensated to a degree commensurate with the value of the products or services delivered and the costs of their production. When the monetary system assumes that all exchange is transactional and symmetric, then a new category, “non-profit”, is required for ventures that don’t fit this description. But, these distinctions are not as clear as legal distinctions would lead us to believe. Some ventures truly seek symmetric compensation while other ventures, to varying degrees, disproportionately benefit some stakeholders over others: Google is a for-profit corporation funded by investment and ongoing revenue, yet stills outputs far more value to users than it will ever gain in revenue (monetary input) Government institutions are non-profit yet, in many cases, deliver far less value in output than is allocated to them as monetary input Volunteer organizations generally consume very little monetary input and yet often create significant value as output Current accounting methods treat $1 million of Google employee salary as equal to $1 million of public employee salary, irrespective of the value produced by these disparate endeavors. Furthermore, volunteer organizations, to the extent that they avoid monetary transactions, are accounted for as if they provides no economic value at all.
Asymmetric mechanisms will remedy these anomalies, providing a more subtle and granular interpretation of value. As they become more comprehensive, our economic notions will become more consistent with reality and our markets, broadly conceived, will better encourage value creation in all its disparate forms.” (http://onthespiral.com/my-story-about-the-future-of-money-asymmetri)
Key thesis by “Greg”: Interest exists because of the underlying conditions of scarcity, not just from monetary design:
1.
“Interest is the price paid for the use of borrowed money. Money itself does not pay interest…this is money functioning as stored of value, value lent by one party and borrowed by another that can be exchanged for productive assets. The need for borrowing implies scarcity. Therefore we can infer that interest is truly the price paid for accelerated access to scarce resources. Like all prices, an interest rate is a market signal that enables efficient allocation of these scarce resources – in this case resources being allocated through time, between consumption and investment. This analysis implies two preconditions for the existence of interest:
2.
“This (demurrage) proposal only addresses the currency system without resolving the economic conditions that lead to interest. It seeks to “design” currency without reference to the characteristics of the underlying market it must serve as a proxy for. Whereas the gift economy creates compatibility with new types of abundant value creation, demurrage currency emulates a world of scarce resources – becoming more scarce (depreciating) over time.
Given that our current monetary system exhibits behavior quite similar to proposed dumurrage currencies, we can speculate as to whether such a system would in fact provide a “disincentive against hoarding money.” What we observe currently is that people do avoid hoarding cash…but instead of circulating that money they transfer (hoard) their savings into investments – assets that serve a productive function and appreciate over time. The net result is that inflation (demurrage) does nothing to discourage the accumulation of wealth, which is presumably the true goal of demurrage proponents.
What does this mean for interest in future monetary systems? Interest will persist so long as scarce resources persist and market participants endeavor to shift their consumption of those resources through time. Interest will diminish in importance to the degree that productive abundance facilitates a shift away from transactional currency altogether.”
3.
“The examples used by Rushkoff and others like him all come from societies where financial investments are not available. These are societies where there are only two choices – consumption or saving. In modern society we have a third option – investment…and investment provides a financial return because it uses scarce resources in the present to produce more scarce resources in the future.
Once securitized investment enters the equation the demurrage logic breaks down. A market participant who previously had to choose between consumption or depreciating savings, now chooses between consumption, depreciating savings or appreciating investments. This choice simply shifts hoarding in currency to hoarding in investment products. This is exactly what we experience today, inflation (depreciating currency) does not lead to accelerating consumption; instead it leads to investment in inflation protected assets.” (http://onthespiral.com/the-role-of-interest-in-future-monetary-syste)
URL = http://onthespiral.com/pages/about-me-rxCDk
Contents[hide] |
Citation
"I am finding myself increasingly surprised and dismayed at proponents of alternative currency who propose and promote systems that fundamentally offer very little change from our current system. In most cases these “alternatives” are simply non-governmental versions of the same transactional-scarcity model. The majority of innovation occurring currently is in inherently abundant informational goods and there is an intrinsic incompatibility between scarce transactional currency and abundant goods. This creates a ripe opportunity for a new model of value accounting that is itself abundance based."Text
Beyond alternative currencies: towards asymmetric account systems for gift-based marketsGreat series by “Greg” in a posterous blog in which he makes some great points and a fundamental critique of many alternative currencies, especially those that belief a demurrage-based design will solve all problems:
(Note from Michel Bauwens: though I feel it’s better to more carefully distinguish between transactional markets, recicprocal gift economies, and non-reciprocal commons contributions, the following introduces very insightful distinctions regarding money and non-money mechanisms, for dealing respectively with logics of scarcity vs. abundance)
First Argument: We are Moving from Transactional to Gift-based Markets
“Greg” on three reasons why the evolution towards gift-based, instead of transactional, markets is inevitableExpanded Freedom/Self-Direction:
“When discussing the “free market” we often overlook the restrictions built into the transactional model. Yet, a transactional market is by its nature a contractual market. Once a contractual relationship is entered into, both parties are obligated to follow through. This restricts the freedom of all parties and leads to inefficiency in the form of negotiation before the fact and potential litigation after the fact. This potential for conflict also creates the need for legal standards that restrict the scope of individual freedom further.
Gift markets avoid litigiousness by eliminating contractual obligations altogether. In a gift market, producers seeks potential reward rather than contracted compensation. Market participants sacrifice guaranteed compensation for the freedom to contribute however they wish and the ability to reach a much wider audience. Psychological research and empirical observation both evince the fact that once basic needs are met, the ability to pursue intrinsic goals is more motivating than additional (monetary) compensation. To the extent that this is true, productive effort will be drawn away from transactional activity and towards platforms based on reciprocal voluntary gifting.
Simplicity:
The previous point implies that participation in gift economies is simple. Rules and laws are replaced with looser social conventions. Barriers to entry are eliminated. Meritocracy is facilitated because value can be provided without prior agreement on compensation, providing new entrants the opportunity to demonstrate value without accessing gatekeepers. Friction is reduced at the cost of increased uncertainty, however uncertainty is more easily coped with as reduced friction allows for increased experimentation and entrepreneurialism. This simplicity enables efficient redeployment of effort from the transactional market to the gift market.
Lack of Competition from Incumbent Currencies:
The transactional markets are wedded to traditional state-issued currencies. Efforts to innovate on the transactional model will be hamstrung by the need to convert people away from traditional currencies. On the other hand, gift markets are ripe for innovation because there are no incumbents. Social capital has to date gone largely unmeasured and the demand for a compatible accounting system is apparent. Innovation in this area will meet little push-back from traditional incumbent players as most will fail to recognize abundance based accounting systems as currency per se. This ability to innovate without resistance will continue to increase the appeal of these markets.
These three characteristics will increasingly attract new participants into informational gift economies and draw productive effort away from transactional markets.” (http://onthespiral.com/why-the-gift-economy-will-grow-unnoticed)
Second Argument: Therefore, we need Asymmetric Accounting systems to uncover non-reciprocal value creation
Greg:“I want to introduce the term “asymmetric accounting” to describe systems that record and track the provision of value rather than the volume of money transacted. Asymmetric accounting mechanisms are congruous with the reality that freely given advice or knowledge can be just as valuable as purchased knowledge. Such systems would not require a market price in order to recognize value creation and provision. In taking this broader view, asymmetric accounting reconciles our economic notions with the reality that value exists independent of whether its recipient is obligated or able to provide equal compensation.” (http://onthespiral.com/my-story-about-the-future-of-money-asymmetri)
Citing Alan Rosenblith:
“What’s most important about this new mode of production is that it is NOT about the quid-pro-quo, something-for-something social contract. The primary motivation for participation is intrinsic rather than extrinsic. Therefore, in the most fundamental way, this new currency will NOT be based on the quid-pro-quo social contract. This is difficult for us to conceive of since all modern money is based on the assumption that producers of value should be incentivized with rewards as determined by the market. Even most alternative money substitutes simply recapitulate this basic pattern. The logic of the quid-pro-quo market goes something like this “I’ll provide my service at $50/hour but not $30/hour, and if you can afford it, you are worthy of my time.”
Instead, these new currencies will be about making it easy to find the right place to put one’s own efforts based not on extrinsic reward, but on intrinsic value. In other words, where will my efforts be the most fulfilling to me and most in harmony with my community? This is about right placement, and about being in economic communication with people all around the globe.” (http://alanrosenblith.blogspot.com/2010/09/currency-design-possibilities.html)
Greg continues:
“How would this accounting be accomplished? The challenge is to devise non-invasive mechanisms of value recognition. “Non-invasive” implies that these mechanisms should not create the expectation of reciprocation. Consider for example – How do you react when someone approaches you with a “free” offer at the entrance of a store or on a crowded commercial street? If you are anything like me, you quickly avoid these overtures altogether. You realize that the offer is not really free, that there is an implied expectation. Even if the initial token is free, the goal is to create an implicit obligation.
When money is our only accounting system and transactions are the only ubiquitous means of reciprocation, we are condemned to this state of affairs. We avoid generosity in order to avoid the obligation to reciprocate. Internet social platforms create new possibilities. Anyone can hit a Like button, or subscribe to a blog, or amplify a message. These actions record the recognition of value without requiring any exchange of scarce currency. Over time, accumulated statistics begin to delineate who has provided value in the past and who is likely to provide value in the future. These first experiments with social media will develop eventually into comprehensive tools that record the creation and provision of value in many forms.
These tools will reframe our notions of for-profit and non-profit, enabling more subtle distinctions that better describe new business models. The coarse distinction between for-profit and non-profit is only necessary when our notions of value preclude non-monetary value. “For-profit” becomes a misnomer when many businesses dedicate funds to charitable ventures while many others simply fail to generate monetary returns. Ultimately what we mean by “for-profit” is: Seeking symmetric exchange. Seeking to be compensated to a degree commensurate with the value of the products or services delivered and the costs of their production. When the monetary system assumes that all exchange is transactional and symmetric, then a new category, “non-profit”, is required for ventures that don’t fit this description. But, these distinctions are not as clear as legal distinctions would lead us to believe. Some ventures truly seek symmetric compensation while other ventures, to varying degrees, disproportionately benefit some stakeholders over others: Google is a for-profit corporation funded by investment and ongoing revenue, yet stills outputs far more value to users than it will ever gain in revenue (monetary input) Government institutions are non-profit yet, in many cases, deliver far less value in output than is allocated to them as monetary input Volunteer organizations generally consume very little monetary input and yet often create significant value as output Current accounting methods treat $1 million of Google employee salary as equal to $1 million of public employee salary, irrespective of the value produced by these disparate endeavors. Furthermore, volunteer organizations, to the extent that they avoid monetary transactions, are accounted for as if they provides no economic value at all.
Asymmetric mechanisms will remedy these anomalies, providing a more subtle and granular interpretation of value. As they become more comprehensive, our economic notions will become more consistent with reality and our markets, broadly conceived, will better encourage value creation in all its disparate forms.” (http://onthespiral.com/my-story-about-the-future-of-money-asymmetri)
Third Argument: Demurrage-based currencies cannot solve this shift towards abundance logic
Greg:Key thesis by “Greg”: Interest exists because of the underlying conditions of scarcity, not just from monetary design:
1.
“Interest is the price paid for the use of borrowed money. Money itself does not pay interest…this is money functioning as stored of value, value lent by one party and borrowed by another that can be exchanged for productive assets. The need for borrowing implies scarcity. Therefore we can infer that interest is truly the price paid for accelerated access to scarce resources. Like all prices, an interest rate is a market signal that enables efficient allocation of these scarce resources – in this case resources being allocated through time, between consumption and investment. This analysis implies two preconditions for the existence of interest:
- Scarce resources
- Varying temporal preferences for consumption
2.
“This (demurrage) proposal only addresses the currency system without resolving the economic conditions that lead to interest. It seeks to “design” currency without reference to the characteristics of the underlying market it must serve as a proxy for. Whereas the gift economy creates compatibility with new types of abundant value creation, demurrage currency emulates a world of scarce resources – becoming more scarce (depreciating) over time.
Given that our current monetary system exhibits behavior quite similar to proposed dumurrage currencies, we can speculate as to whether such a system would in fact provide a “disincentive against hoarding money.” What we observe currently is that people do avoid hoarding cash…but instead of circulating that money they transfer (hoard) their savings into investments – assets that serve a productive function and appreciate over time. The net result is that inflation (demurrage) does nothing to discourage the accumulation of wealth, which is presumably the true goal of demurrage proponents.
What does this mean for interest in future monetary systems? Interest will persist so long as scarce resources persist and market participants endeavor to shift their consumption of those resources through time. Interest will diminish in importance to the degree that productive abundance facilitates a shift away from transactional currency altogether.”
3.
“The examples used by Rushkoff and others like him all come from societies where financial investments are not available. These are societies where there are only two choices – consumption or saving. In modern society we have a third option – investment…and investment provides a financial return because it uses scarce resources in the present to produce more scarce resources in the future.
Once securitized investment enters the equation the demurrage logic breaks down. A market participant who previously had to choose between consumption or depreciating savings, now chooses between consumption, depreciating savings or appreciating investments. This choice simply shifts hoarding in currency to hoarding in investment products. This is exactly what we experience today, inflation (depreciating currency) does not lead to accelerating consumption; instead it leads to investment in inflation protected assets.” (http://onthespiral.com/the-role-of-interest-in-future-monetary-syste)
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