Fermat's Library | Ideal Money Version 4 annotated/explained version.

Asymptotically Ideal Money

After writing and speaking on a concept of "Ideal Money" which

was itself arrived at after many years of meditation I now have also thought

of a parallel concept which relates to political realities, psychology

influencing the actions of politicians and voters or citizens, and which

provides a concept of what may actually transpire in the evolution of customs

and culture (as it were) relating to money.

The ultimately launched concept of "Ideal Money" became possible when I

conceived of a practical basis for a standardization of the comparison of the

value of the currency with an appropriate standard or ideal. And the key to

that was the idea of an ICPI or (international) "Industrial Consumption Price

Index". (That is thus like the U.S. CPI which controls Social Security payouts

but is adapted to relate to industrial producers rather than to individuals

and it is envisioned as being essentially dependent, by choice of its

definition, on costs that are very global in nature, like, for example, the

cost of oil from OPEC and other producers or the cost of platinum, tungsten,

or nickel.)

But one cannot logically feel confident of the adoption internationally of

an ideal system of currency or currencies in an achievement analogous to the

achievement of the metric system or of "the euro". Such a result would

necessarily have a political content since it is the states that control and

supply the various currencies that are in use at the present time. And

projects requiring political support may be difficult to achieve or

comparatively easy to achieve depending on elements of "political reality"

which may differ considerably from the actual merits or lack of merits of the

projects (as evaluated from, say, a scientific or economic or

medical viewpoint).

So it occurs to me to think that that which is not achieved by

a grand action of establishment by "fiat" may alternatively tend to

come into existence as a consequence of a process of evolution. And

of course, after a certain degree of progress by "evolution" the

rest of the progress could possibly be realized by a convention or

a process of "fiat".

Currencies of Improving Quality

From the viewpoint of parties domiciled outside of the territory

of where a specific currency (such as, e.g. the currency of Brazil) is

established the "quality" of that currency is evaluated according to the

reasonable appraisals of the probabilities of loss in value of

the unit of that currency, particularly in comparison with other currencies

and also in comparison with alternatives available for

use for "storage of value", like gold or commodities in general.

The more that the probabilities of loss seem to be large the more

that currency will be evaluated as of "low quality".

On the other hand, "Keynesian" central bankers or associated and

advising economists, WITHIN the state responsible for the currency

in question (such as, e.g. Brazil), may be arguing that they should

have and use methods of operation that will tend to act in varying

degrees at various times to increase the supply of the currency and

thus cause, ultimately, declines in its value. They may argue that these

actions, in which they have some discretionary options, are beneficial for the

general welfare within the territory of the state (e.g., Brazil).

Whether or not the options exploited by "Keynesian" central bankers and

advisors are beneficial to the general welfare in the corresponding

territories (e.g., Brazil) it is very clear, game theoretically, that they

give those who can act on these options ADDITIONAL STRATEGIES that they

otherwise would not be likely to have available. So it is also plausible that

psychologically the having of these options would seem to be very desirable in

contrast to their renunciation.

So I want to suggest now the possibility that, within the context

of varieties of currencies which are of the type typically found nowadays and

since the time of the influence of "the Keynesians" (and after the time of the

formerly used "gold standard" or other forms of currency linked to a value

standard), there is some real possibility that the typical "rate of

depreciation" of currencies may tend

to decrease. Thus there may evolve more disillusionment with the "Keynesian"

methods that tend to cause to exist a continual (sometimes intermittent)

deterioration in the internationally observable value

of a specific national currency. (This would apply to "the euro" also, as if

that were effectively the currency of an "United States of Europe".)

The actors on the stage of the drama formed by the actions that

determine the trends in the value of a national currency are themselves

players in a game and they can be rationally viewed as such. The theme

of "rational expectations" naturally enters. Those who ARE NOT in

control but who ARE naturally concerned with the expectations for the

value trend of a national currency cannot be wisely assumed to be

entirely naive and unable to form "rational expectations" regarding

the currency. So the (possibly) "Keynesian" players in this game have

natural opponents (or co-players, beyond zero-sum perspectives) who

are interested in not being themselves "outsmarted" by those who

control the options that determine, say, the quantity supplied of

the national currency.

Signs of Attitudes (Among Central Banking Authorities)

On the web page of the Swedish State Bank there appears a sort

Of speedometer measuring the rate of inflation. The fact that this appears

indicates several things about the psychology of the responsible authorities

there. One of these is that they have the concept that the government can

choose policies to control the rate indicated and that varying consequent

results (as regards the value

of that rate of depreciation (of the value of the currency)) may be achieved

as a result of various conceivable choices of policy. (In the case of a poorer

nation it might seem more likely that the authorities would not usually seem

to have any ability to control the rate of inflation, as measured modulo the

domestic currency of that poorer nation.)

Now the possible area for evolution is that if, say, an inflation

rate of between 1% and 3% is now considered desirable and appropriate

in Sweden, then, if it is really controllable, why shouldn't a rate

between 1/2 % and 3/2 % be even more desirable? (The rate measured by

the swedish speedometer is determined in relation to a domestic CPI

calculated for Sweden.)

Signs of the Times (Among National Currency Authorities)

Comparatively very recently a few countries in South America and

Central America have adopted schemes that put them in positions

analogous to those of Luxembourg and Liechtenstein with regard to the

provisions for their domestic currency. Here Argentina and El Salvador

can be mentioned. They are adopting (at least temporarily) expedients

that put the value of their domestic money on a fixed relation to the

U. S. dollar. And of course Panama has had such a situation for a long

time previously.

This is not "ideal money" because the U. S. dollar is not an ideal

standard for money value. But the countries adopting such expedients

thus offer their citizens, at least for as long as they manage to or

choose to continue it, a deliverance from a typical past tradition

of national currencies of even less stable value than that of the

(historically observed) U. S. dollar.

But if, for example, all of the countries of the world would base

the value for their national currencies on the value of the british

currency then this situation would appear singular and unstable, while

it was not so singular for a lot of countries to base their currency

value on gold.

So the United Nations building can be in New York and the IMF and

the IBRD institutions in Washington, DC, USA, but these historical

facts do not make the U. S. dollar a good standard of value which the

managers of currency systems in other countries could justifiably

exploit to permanently fix the relative values of their national

currencies.

The metric system does not work because french chefs de cuisine

are constantly cooking up new and delicious culinary creations which

the rest of the world then follows imitatively. Rather, it works

because it is something invented on a scientific basis and in fact,

after Waterloo, it was not first accepted in France but rather in

The Netherlands.

Price Indexes in General

Various states calculate some sort of a CPI or measure of the

"cost of living" for inhabitants of their territory. It is possible

that "globalization" and in general trends leading to more non-local

sources for basic needs like food and clothing will have the effect

of making CPI indices calculated in different states tend to become

concordant. Of course the effects of taxes can be very complicating

in relation to comparisons of distinct national CPI indices.

It seems possible and not unlikely, however, that if two states

evolve towards having currencies or more stable value as measured

locally by national CPI indices that then also these distinct

currencies would tend to evolve towards more stable comparative

relations of value.

Then the limiting or "asymptotic" result of such an evolutionary

trend would be in effect "ideal money" but this as a result achieved

without the adoption of anything like an ICPI index as a basis for

the standard of value.

Tax Revenues Complications

It is very well known among economists who study "macroeconomics"

(or the large scale picture of a national economy) that inflation, of

itself, produces the effect of varieties of taxation.

On the one hand owners of state obligation securities (bonds,

notes, etc.) find that the value of their holdings are reduced as the

"true" value of a unit of the domestic money is reduced by inflation.

So they are as if taxed on their holdings. And on the other hand,

if the state has established a form of "capital gains tax" then

the effect of inflation is to add an amount to whatever would be calculated as

the "capital gain" on property held for a time and

then sold. A nominal gain can even be created by inflation where

a "true value" measure would have fairly determined a loss.

Then these considerations make clear, for example, that if, say,

the state finances of Xland operated stably with a capital gains tax

and with stable "targeted inflation" of 2.5 % annually than that there

would be a loss of state revenues if the inflation rate were reduced

to zero. That is, there would be a loss that could be expected in the

area of the capital gains tax revenues.

So we can see that for the government of a state, acting on its own

independently of other states, to rationally contemplate the evolution of the

inflation rate for its currency towards zero there are clearly some very

relevant considerations relating to tax revenue expectations.

Psychological Considerations

A truly "Machiavellian" regime can rationally scheme to make the

citizenry of the state FEEL well served (at least for a relatively

short time period) independently of whatever might be most truly best

for them (as seen from an "Olympian" viewpoint). Here it can be noted

that if there is gradual inflation then there should tend to be more

and more "millionaires" as a fraction of the population. If instead

there were fewer and fewer of these then that might conceivably impact

negatively on the psychology of the citizenry.

It is also notable that there has been an overall sense of always

increasing human per capita wealth, globally, as technological advances

continue to modify the nature of the global economy. But consider the effect

of measuring wealth purely in terms of square miles owned per capita of the

earth's land surface. If each Hopi tribesman owns x by this measure and each

Navaho tribesman owns y by the measure then, with global population steadily

increasing, should they feel happy or sad?

Perhaps humanity will REALLY arrive at increased wealth if we can

successfully colonize lands beyond Terra, like the surfaces of Mars,

the Moon, and some asteroids. (But of course we could not illogically

claim ALREADY to own the whole Solar System at least, so it is clear

that psychological alternatives enter here also with regard to the

issue of the "true" evaluation of per capita wealth.)

Possibly the full psychological effect of human "ownership" of the

surface of Mars would not be realized until that area had been divided

into plots regarded as the private property of specific corporate or

personal owners!

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