Beyond Bitcoin: Reconsidering The Moral Economy And Reinventing Money
A New Monetary Perspective
Money is fundamentally broken and it has two core problems. Bitcoin addresses Money Problem #1. But we should start focusing on Money Problem #2. Readjusting our collective perspective will unlock much more value than Bitcoin alone ever could.
Before we explain Money’s Problems, let’s take a step back. Money is a tool. Tools are things that have purposes and utility. And it doesn’t make sense to say a tool is broken unless we have an idea of what it’s supposed to do. So, what is money supposed to do? This is a contentious question.
One can interpret the purpose of money charitably, or uncharitably. Here’s an example of an uncharitable interpretation: Money’s purpose is to let a small number of people wield huge power over a large number of people, with little accountability. (If this is the purpose of money, then it’s actually working great!) But we think there’s more to money than just this potentially ugly truth; and uncharitable interpretations aren’t very practical. They tell us little about how to actually make things better.
Here’s a charitable interpretation: money’s purpose is to help people collaborate at scale by rewarding virtue to individuals or a collective. This is much more attractive. It’s also much more practical, because it provides a North Star to steer towards. However, on this view, money is not working well. We will describe two problems that account for many of its shortcomings.
Let us begin to say, however, that this charitable interpretation isn’t crazy.
First, it is consistent with the thinking of money’s most famous fans. Ayn Rand, Milton Friedman, and other libertarians say that that money rewards people who serve others. Now, we don’t generally agree with those writers. But we don’t think they fundamentally mis-described money’s purpose. (They erred, rather, by being blithely utopian, ignoring the important ways that money Does Not Serve Its Purpose–more about this later.) Successful entrepreneurs do indeed sometimes try to discern and deliver what others want, and this service of others’ desires resembles virtue. By rewarding that, money can facilitate collaboration at scale.
Second, the charitable interpretation of money’s purpose is also consistent with more “leftish”, Keynesian perspectives. Keynes saw that restrictions on the money supply often harmed societies, among other reasons because self-interested private money-holders were unable to profit from and/or coordinate around the maintenance of crucial, virtuous public goods such as infrastructure and job training. (During the Great Depression, bankers were too scared uncreative to deploy capital, so the economy stayed frozen.) Thus, creating a lot of money at the printing press could facilitate large-scale virtuous collaboration.
So maybe we can all de-jaundice our eyes and agree on Money’s Purpose.
Yuval Noah Harari makes an interesting complementary point. He says that religion helps people collaborate at scale by giving them a shared set of values. Ordinarily, I wouldn’t let you borrow my mule unless I knew you personally or had collateral. But if I believe in the story of Jesus, and I believe that you do too, then I’ll let you borrow my mule with no collateral even if I just met you, because I am confident that we both subscribe to a value system that precludes mule-stealing. This greatly expands the circle of people with whom I can collaborate.
Well-functioning money works similarly. It gives us confidence about strangers’ values. For example, I do not know Delta Airlines’ maintenance crews. But I’d literally bet my life that they do their jobs well, because–like one true-believing Christian recognizing another–we believe that Delta’s shareholders and executives value money, which they will lose if planes start crashing.
For better or worse, similar examples persuaded many people of the wisdom of capitalism during the 20th century. But I don’t think we should remain unduly impressed by these examples. Even though it has accomplished some impressive things, money also has clear problems and it’s time to demand more from what is arguably society’s single most important institution.
Money Problem #1: State Control
Money Problem #1, well known to Bitcoiners and longtime holders of Venezuelan currency, is that money’s value depends on the actions of centralized states that issue it. Bitcoin and other cryptocurrencies address Problem #1 by creating confidence in popular, easily-transmissible stores of value that are independent of state power.
But let’s scrutinize Problem #1 before closing the book on it. Is it really a bug rather than a feature, and if so why? I can think of roughly three accounts of the Problem with the state’s role in money. Even if they don’t match your thinking, they’re important because they inform other peoples’ thinking. Let’s call them:
The Miser’s Account
The Pacifist’s Account
The Moralist’s Account
The Miser objects to the state’s role as money-backer because she feels it gives the state a particular illegitimate power: the power to devalue her money by printing more. She sees this as theft. (If states had stuck to the Gold Standard–guaranteeing that all printed money was backed by gold–the Miser would have far fewer worries about state-backed money.)
The Pacifist has a different worry. She notices that even though modern state money isn’t backed by gold, it’s still backed by something else: violence. The dollar has value because the United States Government has guns, which it uses to arrest tax evaders and, sometimes, invade other countries. The Pacifist would like to keep her hands clean of money backed by threats of violence.
The Moralist has a subtler worry: that states just aren’t exercising their powers and responsibilities very well. Her view is more moderate than those of the Miser and the Pacifist. In the Moralist’s eyes, the state’s powers of money printing and coercion are not necessarily illegitimate — after all, decent governments sometimes use these powers to good effect. Yet, states are pretty flawed. Maybe we can do better.
The Moralist’s Account Makes The Most Sense
I think the Miser and the Pacifist both make serious errors.
The Miser’s complaint that “inflation is theft” ignores that governments do not promise not to inflate. Rather, they ask their currency-holders to accept the possibility of inflation, and in exchange give them a guarantee that they will accept the notes in discharge of many vigorously-enforced obligations. If you don’t like this deal, you don’t have to take it: you can hold your savings in baseball cards, and trade those in for banknotes at tax time.
The Pacifist, too, stands on shaky ground. Money makes no sense unless it can buy things. And every real world-thing of value that money buys depends on unspoken threats of coercion–from the discharge of a tax obligation, to a claim of property in land, to a loaf of bread. The question cannot be whether there is any coercion in the supply chain, because the answer is always yes. The question is whether that coercion is parsimonious, just, and legitimate.
Which leads us back to the Moralist. Hers is the most sophisticated account of Money Problem #1: fiat money’s ability to facilitate virtuous collaboration at scale depends largely on the quality and legitimacy of the issuing government behind it. So if we can build more legitimate, more sensitive, more democratic money issuers, who wield the inflationary power better than governments, we should! Such issuers might be able to better identify the public good, thus rewarding virtue more accurately than either states or markets can. Likewise, they might bind communities into closer and richer collaborations. They could help money work better.
Money Problem #2: Moral Monoculture
Bitcoin addresses Money Problem #1. It gives us a reliable, transmissible store of value that doesn’t depend on any state. This is quite something. But it addresses the Misers’ and Pacifists’ accounts of the Problem more than the Moralist’s.
Building from her earlier argument, the Moralist might identify a second shortcoming in money. Money Problem #2 goes something like this: It is complicated and difficult to place the power of money issuance into the hands of dynamic, diverse, and deserving non-state institutions. But doing so could cause an explosion in money’s ability to serve its Purpose.
Money’s value at once depends upon and extends the power of the institutions that issue it. Imagine that some really bad institution, like a drug cartel, started issuing Narco Bucks. It’s pretty clear that you shouldn’t buy, accept, or use that currency. If you did, you’d be bootstrapping from the cartel’s ill-gotten power, and enhancing its leverage to do more harm by issuing more.
(Don’t forget: Money’s Purpose is to help people collaborate at scale by rewarding virtue. Empowering bad issuers is clearly at odds with this.)
In a certain light, Bitcoin seems to cleanly sidestep this problem by not having an issuer. But this isn’t the whole story. Because no one can mint more Bitcoins, the holders of Bitcoin at any given time simply are the de facto issuers of the currency. This just transforms the holders of the currency — a fairly arbitrary set of people and institutions — into the empowered institution. This may or may not be terrible. But at best, it’s regressive in that it empowers the already-powerful.
Let’s peel back one more layer. In questioning whether money-issuing institutions deserve their power–whether they are legitimate–one of the main characteristics we might object to is their very large scale.
State fiat money, for example, arguably steamrolls diversity, and neutralizes some of the virtuous dimensions that we’d like money to have, by placing everyone’s commercial doings against the background of the same mega-institution. Whenever anyone holds or accepts US dollars, they are entering into a relationship with the United States. But the huge scale and impersonal nature of the United States government desensitizes us to that fact. Our currency choices would better express our values if they placed us into relationships with knowable institutions.
What if there were a much greater diversity of knowable currency-issuing institutions? Think how much more richly your economic decisions would express your values, for example, if you could ask the ice cream vendor to accept the coin of your local church. Every institution could effectively have a monetary policy, instead of just a fiscal policy.
This might sound ridiculously complex, but I don’t think so. We can easily build tools to help people keep track of all their different currencies. It will bind communities together more meaningfully and give them a radical new tool to be more self-sufficient.
Some people might object that everyone will just “translate” the value of every local currency into a global one anyway. But I’m not sure. Instead, we may head into a world in which globally-poor communities can enhance their ability to cooperate locally (and therefore also raise their global standing) through currency issuance by key local institutions.
It is even more exciting when you consider the possibility of institutions expressing their values through programmable rules affecting the dynamics of their currencies. Your currency-issuing Local Church, for example, might have rules that would forbid Church Bucks from being swapped for Narco Bucks; or that would permit Local Church authorities to confiscate Church Bucks remotely, under certain circumstances. And if this doesn’t sound attractive, opt out: hold dollars or Bitcoins instead. Church Bucks would permit a particular community to bind itself more closely through shared values.
In the world we are describing, where you can mix and choose from countless currencies — that choice has moral significance. Using Narco Bucks would be irresponsible, while using Church Bucks might or might not be. Interestingly, the reason for this has to do with the different ways that the cartel and the church actually interact with the real world —and in how they treat people. The issuing powers, like governments, have relationships with other institutional and human actors. The character of those relationships helps determine the justifiability of supporting them by using their currencies.
The powers that be over Bitcoin issuance (holders and miners) have relationships with other institutions and humans too. But those relationships are inconsistent, impersonal, and often blind. Reasonable minds can differ about whether this is a feature or a bug, but it would clearly be interesting if more richly-textured relationships were possible.
This is yet another reason why on-chain identity is so important. It would allow cryptocurrency issuers to formalize their relationships with other institutions and entities on-chain — for example through non-plutocratic (i.e, non-coin-driven) governance systems. This would allow the character and reputation of issuing authorities to be coherently judged even if, unlike cartels, governments, and churches, they had no off-chain relationships or reputation.
Irregular Networks With Monetary Policies: A Big Deal
You might be reading this and thinking “Sure, blockchain technology could help the old idea of complementary currencies”. But despite a rich history for this idea, that has never truly taken off. And even though Ethereum has been around for the better part of a decade, making it easy for anyone to issue a currency, we haven’t really seen tokens successfully used in this way. So why are we writing this article in 2021?”
Well, we believe the potential of complementary currencies has long been severely underestimated. And there are good reasons not to be surprised if these particular floodgates are only just beginning to crack open. First, cryptocurrencies have until recently been extremely hard to understand and use, so they’ve only been useful as fairly-static stores of value and for a narrow band of applications, and but mass comprehension will sooner or later enable much more vigorous uses in regular commerce. Second, as we’ve already suggested, proof-of-human identity systems allow cryptocurrencies to be governed both non-centrally and non-plutocratically. Let’s pick apart this second point — it’s important.
Until recently, the supply of every complementary currency was controlled by either: (1) one or several definite institutions (like Berkshares, or the earlier Church Bucks example), or (2) some sort of wide-open plutocracy (like Bitcoin).
Definite institutions have had the advantage of being:
coherently embedded in social contexts;
and the disadvantages of being:
cheap to manipulate (or regulate).
Open plutocracies, on the other hand, have had the advantages of being:
expensive to manipulate (or regulate);
and the disadvantages of being
abstracted from social contexts.
Proof-of-human systems, for the first time ever, will allow best-of-both hybrids between these two kinds of structures. That means currencies will be issued by coherent networks of accountable humans, capable of voting and governing themselves non-plutocratically (and so strategically pursuing concerns other than simple greed) — all without having any particular institution(s) as a point of failure. Such networks could be formal or informal, with infinitely different systems of determining membership and governance, pursuing an infinite array of ends.
This sort of thinking and alignment of incentives can enable new types of sustainable human/blockchain hybrid systems, such as decentralized energy grids, and agri-permaculture deployments capable of long-term management. This concept of “dexgrids” (decentralized grids) of human networks will be a pivotal part of the crypto narrative going forward.
And armed with the power of currency issuance, we can expect some such networks to become extraordinarily powerful. Here’s why: accepting a particular network’s coin in exchange for your labor will come to be seen as a gesture of allegiance to that network. So the networks whose conduct advances popular values will always be able to mobilize a lot of labor. And some networks will become very clever in maximizing the amount of labor they can mobilize by ensuring not only that outsiders have an incentive to join the network, but also that insiders have an incentive to supply labor to one another (e.g., through demurrage). Such coordination will serve not only to support the value of the coin in terms of other currencies, but also to accomplish ambitious, complex goals in the real world. The governors of Bitcoin and other extant permission-less cryptocurrencies simply cannot coordinate in that way — and the mind boggles at what would be possible if they could.
We should not be surprised if, in the coming years, some networks like this come to rival nation states as actors on the international stage.
Money is about aiding collaboration at scale. But many important kinds of collaboration that aren’t possible at a scale of billions of people become possible at a scale of millions, thousands, or dozens. Currencies operating at those scale levels will open the floodgates for new endeavors. Moreover, money is about rewarding virtue. But because money puts its holder in a morally-significant relationship with its issuer, very widely-held currencies subtly enforce a kind of moral uniformity. This makes it harder for communities to define and articulate their particular, non-global virtues. This is a deep vein of collaborative human potential that new monetary technologies can unlock.
Much of this is already possible and in the works. But so much more will become easier when we get used to proof-of-unique-human systems letting us interact on Sybil-free blockchain environments, i.e., where each user only controls one account. For building decentralized institutions that express human values depends on being able to interact democratically as Humans, instead of plutocratically as Piles-Of-Tokens. A new generation of unconventional decentralized networks organized to mobilize labor in this way might accrue enormous power.
Bitcoin solves Money Problem #1. Ethereum and other smart contract platforms, combined with proof-of-unique-human systems, have already given us the basic tools to solve Money Problem #2. This leads us to this inevitable conclusion: it’s going to be a wild decade.
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