Fermat's Library | Ideal Money and Asymptotically Ideal Money annotated/explained version.

Ideal Money and Asymptotically

Ideal Money

Revolutionary or Evolutionary Changes

or Reforms of Systems of Money

Our topic is focused on an ideal, specifically on “Ideal

Money”, and it is not hard to see that there are naturally

different routes by which a system of money might become

either improved or might become, in some senses, more

degraded and less worthy of praise. Change can come at a

stroke, like when Alexander cut the Gordian knot, or it can

come in a gradual fashion, through many smaller steps, and

this latter can be classed as the pathway of “evolutionary

change”.

It is easy to illustrate cases of “revolutionary” reform

or change in systems of money. A good example came in 1717

when Isaac Newton, supported by George II, fixed the value

of the local UK currency to a precise amount

of gold that defined the value of the currency (the “pound”)

in such a way that it was immediately recognizable

throughout the Continent (of Europe) as of a fixed value

in relation to generally accepted standards (of the time).

(And this was the origin of the “gold standard”.)

Another example of revolutionary change was when

Argentina attempted to establish an internationally

respectable system of money by means of a “currency board”.

(This attempt failed conspicuously, but the failure was

rather similar to a bankruptcy event involving an ordinary

commercial bank which simply turned out to have insuffic-

ient “capital”.)

When the use of paper and printing was developed in

China that made possible a “revolutionary” change, namely

the introduction of paper money.

Jacques Rueff, F. A. von Hayek, and R. Mundell are

notable scholars and economists who have particularly

contributed to the theories of how a system or systems of

money might be improved in an effectively revolutionary

fashion. For example there has been a quite dramatic

improvement in the (internationally perceived apparent)

quality of the money used in the countries of Italy and

Greece simply because they have moved through the revol-

utionary transition of renouncing the use of the lira

or the drachma and have accepted the use of the newly

established “euro” unit.

Evolutionary Changes and Relevant Teachings

On the other hand (from the case of “revolutionary”

changes) there is often the possibility that a system

of money may gradually improve in quality, either through

somewhat accidental circumstances (like a very favorable

trade balance) or through the learning of good teachings

of applicable varieties.

A series of American economists have been notable

through their contributions which have enhanced the under-

standing of how systems of money actually function and

particularly of how the dollar (US) and its value have been

interacting with the relevant factors of influence. There

has always been some “populist” thinking in the USA which

can encourage ideas about money that are not well based

in any scientific sense. And the teachings of some of the

notable economists have sometimes given a more scientific

perspective on the areas where the “populist” viewpoints

have been influential.

M. Friedman acquired fame through teaching the linkage

between the supply of money and, effectively, its value.

In retrospect it seems as if elementary, but Friedman was as

if a teacher who re-taught to American economists the

classical concept of the “law of supply and demand”, this in

connection with money.

We can also note at this point that the understanding of

the effects of the uncontrolled behavior of all the various

“users” of a domestic money is the inclusive category of

description into which the notable contribut-ions of a

series of American economists can be recognized.

F. Kydland, R. Lucas, E. Phelps, and E. Prescott are

notable American economists who have contributed to the

better understanding of issues arising in the area of

theories of “macroeconomics”. Without arguing for a direct

constitutional reform of the status quo of the dollar

in the USA they have contributed much enlightenment in

relation to the interactions between intelligent categories

of the “users” of currencies (or in particular the dollar)

and “the central authorities” (of central bank, treasury,

state institutions, executive and legislative government).

The evolving recognition of the fact that the “users” of

a currency become like players in a game and have opt-ional

strategies by means of which they will be able to seek to

optimize according to their own particular econ-omic

interests leads to the recognition that the tasks

of central planners and managers, of a state, are not

as simple as if they had only to herd flocks of sheep.

Thus the “users”, like the managers, can be viewed as

players in inter-active games. In particular, with this

perspective, it is natural to think of the users as having

“expectations” in relation to the future value of the

domestic currency, compared either with real assets, for-

eign currencies, or indices of costs. These expectations may

or may not be “well-founded” or “rational” but they will

inevitably guide or influence the choices made by

the “users”.

General Considerations and History

The special commodity or medium that we call money

has a long and interesting history. And since we are so

dependent on our use of it and so much controlled and

motivated by the wish to have more of it or not to lose what

we have we may become irrational in thinking about

it and fail to be able to reason about it as if about

a technology, such as radio, to be used more or less

efficiently.

We present the argument that various interests and

groups, notably including "Keynesian" economists, have sold

to the public a "quasi-doctrine" which teaches, in effect,

that "less is more" or that (in other words) "bad money is

better than good money". Here we can remember the classic

ancient economics saying called "Gresham's law" which was

"The bad money drives out the good". The saying of Gresham's

is mostly of interest here because it illustrates the "old"

or "classical" concept of "bad money" and this can be

contrasted with more recent attitudes which have been very

much influenced by the Keynesians and by the results of

their influence on government policies since

the 30's.

Digression on the Philosophy of Money

It seems to be relevant to the politics of state

decisions that affect the character of currency systems

promoted by states that there are typical popular attitudes

in relation to money. Although money itself is merely an

artifact of practical usefulness in human societies and/or

civilizations, there are some traditional or popular views

associating money with sin or immorality or unethical or

unjust behavior. And such views can have the effect that

an ideal of good money does not seem such a good cause

as an ideal of a good public water supply. There is also,

for example, the Islamic concept which has the effect

of classing as "usury" any lending of money at interest.

(Here we can wonder about what sort of inflation rates might

have been typical for any major varieties of money, such as

Byzantine money, at the times actually contemp-oraneous with

the Prophet Mohammed.)

In general, money has been associated in popular views

with moral or ethical faults, like greed, avarice, selfish-

ness, and lack of charity. But on the other hand, the

existence of money often makes it easy to make valuable

donations of philanthropic sorts and the parties receiving

such contributions tend to find it most helpful when the

donations are received as money!

But the New Testament story about "money changers" being

driven from the Temple illustrates clearly the idea of

putting the clearly mundane and possibly "unclean" utility

of money at some distance from where that money would

presumably continue to be received when used as a vehicle

for donations.

Economics has been called "the dismal science" and

it is certainly an area of studies where "the mundane"

is appropriately studied.

And philosophically viewed, money exists only because

humanity does not live under "Garden of Eden" conditions and

there are specializations of labor functions. So we

are always exchanging, mediated by money transfers, the

differing fruits of our varied forms of labor.

Welfare Economics

A related topic, which we can't fully consider in a

few paragraphs, is that of the efforts to be made by the

national state and society in general for dealing with

"social equity" and concerns for the general "economic

welfare". Here the key viewpoint is methodological, as we

see it. HOW should society and the state authorities seek to

improve economic welfare generally and what should

be done at times of abnormal economic difficulties or

"depression"?

We can't go into it all, but we feel that actions which

are clearly understandable as designed for the purpose

of achieving a "social welfare" result are best. And in

particular, programs of unemployment compensation seem to be

comparatively well structured so that they can operate in

proportion to the need. And public works projects allow the

wealthy to pay through taxes to provide jobs for workers and

these can produce valuable works if the projects are well

planned.

Money, Utility, and Game Theory

In the sort of game theory that is studied and applied

by economists the concept of "utility" is very fundamental

and essential. Von Neumann and Morgenstern give a notably

good and thorough treatment of utility in their book (on

game theory and economic behavior). The concept of utility

(mathematical) does indeed predate the book of Von Neumann

and Morgenstern. And for example, as a concept, mathemat-

ical utility can be traced back to a paper published in 1886

in Pisa by G. B. Antonelli.

When one studies what are called "cooperative games",

which in economic terms include mergers and acquisitions

or cartel formation, it is found to be appropriate and is

standard to form two basic classifications:

(1): Games with transferable utility.

(and)

(2): Games without transferable utility

(or "NTU" games).

In the world of practical realities it is money which

typically causes the existence of a game of type (1) rather

than of type (2); money is the "lubrication" which enables

the efficient "transfer of utility". And generally if games

can be transformed from type (2) to type (1) there is a

gain, on average, to all the players in terms of whatever

might be expected to be the outcome.

But this function of money in generally facilitating the

transfer of utility would seem to be as well performed by

the currency of Zimbabwe as by that of Switzerland.

Or the question can be asked "How do 'good money' and

'bad money' differ, if at all, for the valuable function

of facilitating utility transfer?". But if we consider

contracts having a relatively long time axis then the

difference can be seen clearly.

Consider a society where the money in use is subject to

a rapid and unpredictable rate of inflation so that money

worth 100 now might be worth from 50 to 10 by a year from

now. Who would want to lend money for the term of a year?

In this context we can see how the "quality" of a money

standard can strongly influence areas of the economy invol-

ving financing with longer-term credits.

And also, if we view money as of importance in connec-

tion with transfers of utility, we can see that money itself

is a sort of "utility", using the word in another sense,

comparable to supplies of water, electric energy or

telecommunications. And then, if we think about it, we can

consider the quality of money as comparable to the quality

of some "public utility" like the supply of electric energy

or of water.

"Keynesians"

The thinking of J. M. Keynes was actually multidimen-

sional and consequently there are quite different varieties

of persons at the present time who follow, in one way or

another, some of the thinking of Keynes. And of course SOME

of his thinking was scientifically accurate and thus not

disputable. For example, an early book written by Keynes was

the mathematical text "A Treatise on Probability".

The label "Keynesian" is convenient, but to be safe

we should have a defined meaning for this as a party that

can be criticized and contrasted with other parties.

So let us define "Keynesian" to be descriptive of a

"school of thought" that originated at the time of the

devaluations of the pound and the dollar in the early 30's

of the 20th century. Then, more specifically, a "Keynesian"

would favor the existence of a "manipulative" state estab-

lishment of central bank and treasury which would contin-

uously seek to achieve "economic welfare" objectives with

comparatively little regard for the long term reputation

of the national currency and the associated effects of that

on the reputation of financial enterprises domestic to the

state.

And indeed a very famous saying of Keynes was "...in the

long run we will all be dead ...".

A Critique of the Science of the Keynesians

It is difficult to make a criticism here because

so much of the scientific research work, particularly

of American economists, in the years since, say, "the

thirties", has been in the area of the study of the topic

called "macro-economics" and most or almost all of this work

has a "Keynesian" orientation.

I think there is a good analogy to mathematical theories

like, for example, "class field theory". In mathematics a

set of axioms can be taken as a foundation and then an area

for theoretical study is brought into being. For example, if

one set of axioms is specified and accepted we have the

theory of rings while if another set of axioms is the

foundation we have the theory of Moufang loops.

So, from a critical point of view, the theory of macro-

economics of the Keynesians is like the theory of plane

geometry without the axiom of Euclid that was classically

called the "parallel postulate". (It is an interesting fact

in the history of science that there was a time, before the

nineteenth century, when mathematicians were speculating

that this axiom or postulate was not necessary, that it

should be derivable from the others.)

So I feel that the macroeconomics of the Keynesians

is comparable to a scientific study of a mathematical area

which is carried out with an insufficient set of axioms. And

the result is analogous to the situation in plane geometry,

the plane does not need to be really flat and

the area within a circle can expand hyperbolically as a

function of the radius rather than merely with the square of

the radius. (This picture suggests the pattern of inflation

that can result in a country, over extended time periods,

when there is continually a certain amount of gradual

inflation.)

The missing axiom is simply an accepted axiom that the

money being put into circulation by the central authorities

should be so handled as to maintain, over long terms of

time, a stable value.

Instead of this one can observe, in the context of

the popularity of "Keynesian" orientations, that it is

considered extremely undesirable that there should ever

occur a period of deflation (where wages and prices might be

forced to decrease) but that continual inflation is an

acceptable consequence (of whatever actually causes it under

the effective circumstances of the actual "manage-ment" of a

national money system).

Looking backwards, in the period of time between 1717

and 1931 the Bank of England actually had to operate with

the axiom accepted that we are viewing as comparable to

Euclid's "parallel postulate". The theory of what can be

done, in central banking, with a money value axiom being

in effect is not an empty theory but this is an area which

seems hardly to have been studied at all since the advent of

"the Keynesians" in "the thirties".

Another aspect of "Keynesianism", in relation to scien-

tific themes, is that it seems to me to be very much like

a school of medical theory and to be oriented towards

"therapeutic" procedures. But often a school of medical

practice can be criticized from one or another point of

view. For example, "What are the long term consequences

of the continued application of the procedures of therapy?"

The Machiavellian Perspective

A serious study of the phenomena of paper money or

coinage as issued by state authorities would not be comp-

lete without consideration of a Machiavellian analysis

of the "con games" that arise whenever the quality level

of a money may seem different to different types of

appraisers. And Machiavelli is very notable as an early

"non-mathematical" game theorist (!!).

The issuer of a state-sponsored "legal tender" is

comparable to the person of "Il Principe" in the writings of

Machiavelli. And the Prince (in the Machiavellian sense)

naturally has a circle of advisors and counselors (some

of whom may be qualified to be called macroeconomists or

economists).

The advisors to the Prince will typically find it easier

and more strategically wise not to criticize the fundamental

structure of the Prince’s provision, for his Principality,

of a specific medium usable to facilitate exchanges of

utility. And financial institutions, in the Principality,

may have become adapted over time periods like at least a

generation or maybe of several generations to the specific

characteristics of the money system, perhaps the “legal

tender”, that is provided in the Prin-

cipality.

If the (effective) position of being the Prince is

rotating or like a political office with a “term limit” then

it can easily happen that one Prince will want to spend

heavily, on his own most favored projects, before the next

Prince will come to power with his own quite different

agenda and perceived system of preferences for state

expenditures and taxation. And a current Prince may not

infrequently be able to spend additional money without

immediately raising taxes, thinking to leave that burden

to his successor and to his successor’s (legislative)

Government. (And also such a Prince can naturally think that

if his successor finds that the Treasury is relatively bare

of resources and that tax income is limited that that

successor will be discouraged from heavily spending on his

own pet areas (which might be viewed as undesirable from the

viewpoint of the current Prince).)

Thus, viewed in this fashion, systems of economic

foundations (for labor, business, and exchanges) that have

actually many areas of deficiency compared with the ideal

possibilities (which can be imagined by consideration of

foundations of a more ideal quality); these systems can yet

persist over long time periods in a manner similar to that

of the persistence of political and governmental systems

that are ultimately judged to have been of an inferior

or unfavorable sort.

From 1917 to 1989 (dating to the fall of the “Berlin

wall”) an economic system existed in Europe that, arguably,

failed to efficiently motivate human entrepreneurial labor

through a system of materially valuable rewards to the

(entrepreneurial) workers.(In the future Socialism may,

possibly, find a good solution for the problem of providing

motivation for innovative works of practical value.)

And we can’t really logically assume that human

civilization has found the ultimate ideal of forms of social

government in the times of the twentieth century. (One can

imagine a future form of government where a highly advanced

automaton (or array of computers) would function like the

office of a City Manager with the human input

to the government passing through the analogue of a City

Council.)

Ideal Money

Our proposal is that a preferable version of a general

system for the transferring of utility, thus a "medium of

exchange", would be structured so as to provide a medium

with a natural (and reliable!) stability of value. And this

stability of value would be particularly of benefit in

connection with contracts or exchanges involving long time

periods for the complete performance of the contract or

exchange.

Classically, when gold or silver was used as the basis

of a standard for exchanges, that objective was consequent-

ly achieved (even though neither of these two "precious

metals" would be, in fact, perfectly stable in value by

comparison with the other). The existence of a standard

provided comparative certainty contrasting with the

gamblers’ situation that results when a lender must lend

money without much of an assurance that in 30 years the

value of it will not have been greatly eroded by inflation.

Thus, faced with such value uncertainties, mortgage lenders

must learn to lend, if they are lending their own money,

at sufficiently high interest rates so as to have a fair

chance of winning their gamble against inflation!

We published a paper entitled "Ideal Money" in the

Southern Economic Journal (in 2002) and it was essentially

the text of a keynote lecture that we gave on that topic at

the meeting of the Southern Economic Association in Tampa,

Florida. Of course, necessarily, on a topic with such a

universal relevance to human affairs, it is difficult,

really, to say something new. But there can be novelty

in the details and in terms of the context and the times.

Our key proposal was/is that an index that can be called

an ICPI or "Industrial Consumption Price Index" could be

employed as a basis for the standardization of

the value of money. This proposal is for an index based

on the international prices of specific goods. For example

like the prices for silver or copper as recorded daily

at London.

The commodities or utilities or services for which their

international prices could be used in an ICPI index should

be wisely chosen so as to avoid those that might have

comparatively rapidly changing prices. Exactly how an index

should be constituted cannot be specified at this point but

it can be noted that the problem of constituting a suitable

index is quite analogous to that of constituting index

measures for the prices of "Industrials" or "Trans-ports" or

"Utilities" like Dow Jones has long had for the stocks

traded on the New York Stock Exchange. But of course one

doesn’t expect the value measure of a "basket" of

commodities to rise as much, over long times, as the value

of the Dow Jones Industrials index has risen in the past.

We also observed that a method of calculation could be

employed that would use "moving averages" to achieve that

the money value being defined would vary as smoothly and

gradually as practicable with the passing of time.

But now we want to mention another possibility that

arises because of the present day circumstances that are

relevant to the international interactions of the various

national currencies. It could be very difficult, and a slow

process, to set up such a practical and useful system of

conventions as the international metric system of measures

(of length, volume, and weight). So it should not be

expected that reform and progress, in the area of systems

of money, will be very easily achieved.

Nowadays we see some new areas of competition between

different major currencies of the world since the euro has

come into existence and the psychological climate in which

the "central bankers" are operating is recently changed by

the theme that is next described.

The Confessional of Targeting

It was the observation of a new "line" that has

become popular with those responsible for "central banking"

functions relating to national currencies that gave us

the idea for the theme of "asymptotically ideal" money.

The idea seems paradoxical, but by speaking of "infla-

tion targeting" these responsible officials are effectively

CONFESSING that, notwithstanding how they formerly were

speaking about the difficulties and problems of their

functions, that it is indeed after all possible to control

inflation by controlling the supply of money (as if by

limiting the amount of individual "prints" that could

be made of a work of art being produced as "prints").

This popularity of the line of "inflation targeting"

seems to have started in New Zealand, which is the place,

among the USA, Canada, Australia, and New Zealand, which had

the most depreciated dollar. And we can note also that New

Zealand was hardly a place where any crisis of poverty

really forced them to not maintain the value of their dollar

but rather just a place where "Keynesian" thinking was

probably very influential.

If now we think of a world of a number of major curren-

cies and with all of these provided by central authorities

that operate under some sort of a ritual of "inflation

targeting" then, as things evolve, what SHOULD the targets

be?

It is only really respectable that there should not be

an arbitrary or capricious pattern of inflation, but how

should a proper and desirable form of money value stability

be defined?

Rapid inflation is easily measured, on a national level,

by a domestically defined "cost of living" index. So if the

cost of living, as measured by another agency than central

banking authorities, were not rising (when expressed in

terms of the domestic money) then one could feel assured

that there was not inflation.

However this requirement is actually a little too strong

(for a properly good money worthy to be called

of "ideal" type)! It is actually quite natural for the

calculated "cost of living" to be rising, even when meas-

ured, say, in terms of gold, whenever there is so much

technological progress that the people in an area, without

working harder, are lifted to a higher standard of living by

the rapid progress, as if each human would become the

beneficiary of the assistance of 3 robot helpers to do

the work of his livelihood.

So in the last years of the era of the gold standard the

"cost of living" measures were gradually rising, in

“advanced countries”, but it was not appropriate to view

that as indicating inflation since the money was not losing

value in relation to alternative options for "treasure

hoarding", (such as gold!).

To be quite respectable, in a Gresham-advised sense,

money needs only to be AS GOOD as other material commod-

ities that might be hoarded. It does not really need to be

so good (as time passes) that the cost of living statistic

should remain constant.

But "inflation targeting", unless all major currencies

would (somehow!) be able to be adopting and really employ-

ing the same target rate, would still provide the oppor-

tunity for "connoisseurs of quality" to rank the currencies

in hierarchies of gradations of quality (like bond rating

agencies rank the debt of commercial enterprises or like

other rating agencies comparatively appraise various

insurance companies). Those really having lower planned

inflation rates would naturally be seen as superior in

quality. (We should note that the INTERNATIONAL perspective

relating to a currency is not how it relates to domestic-

ally measured costs in its home country but how it compares,

on the international markets, with other currencies and

commodities.)

What inflation targeting does is to open up the possib-

ility that somehow the various major currencies may evolve

to develop stability of value. And in this sense there could

be "asymptotically ideal money" in that an evolving trend

could lead to the value stability that would consti-tute a

major improvement in quality.

Currencies in Competition

It is observable that certain types of financial

enterprises, such as large internationally operating

insurance companies, tend to migrate to national homes where

the national currency is of at least comparatively higher

quality (such as, e. g., Switzerland).

In the near future there may be a smaller number

of major currencies used in the world and these may stand in

competitive relations among themselves. There is now

the "euro" and the inflationary tradition of the Italian

lira seems to be past history now. And there COULD be

introduced, for example, a similar international currency

for the Islamic world, or for South Asia, or for South

America, or here or there.

And if "inflation targeting" were used as a "line" by

the managers handling all of these various internationally

prominent currencies then there would arise interesting

possibilities for comparisons between these major curren-

cies. Each of the currencies managed thusly would have

its officially recognized status in terms of inflation

as measured by the domestic index of costs of the state

of the managers. But also, and this is what is more sig-

nificant from an internationally oriented viewpoint, the

various currencies would have rates of exchange so that they

could be realistically compared in terms of their actual

values.

And so the various currencies managed with "inflation

targeting" would be comparable by users or observers who

would be able to form opinions about the quality of the

currencies. And what I want to suggest is that "the public"

or the users, those for whom a medium of exchange functions

as a basic utility, may develop opinions that are critical

of currencies of lower "value quality". That is, the public

may learn to demand better quality of that which CAN be

managed to be of better quality or which can be managed

to be of the lower quality observed in so many of the

various national currencies in the 20th century.

So we can imagine the evolutionary possibility of

“asymptotically ideal money". Starting with the idea of

value stabilization in relation to a domestic price index

associated with the territory of one state, beyond that

there is the natural and logical concept of internationally

based value comparisons. The currencies being compared, like

now the euro, the dollar, the yen, the pound, the Swiss

franc, the Swedish krona, etc. can be viewed with critical

eyes by their users and by those who may have the option of

whether or not or how to use one of them. This can lead to

pressure for good quality and consequently for a lessened

rate of inflationary depreciation in value.

Illustrating these optional choices that the public, the

users of a money, may have, the people of Sweden recently

had the opportunity of voting in a referendum

on whether or not Sweden should join the euro money bloc and

replace the krona by the euro and thus use the same currency

as Finland. The people voted against that, for various

reasons. But it cannot be irrelevant whether or

not the future quality of a currency is really assured

or whether instead that it depends on the shifting sands

of political decisions or the possibly arbitrary actions

of a bureaucracy of officials.

The voters in the U.K. are expecting to have the

opportunity to vote in a referendum relating to the

adoption, for the U.K., of the euro (which is already

adopted in Ireland). Here they have a dramatic conflict,

since the pound was the original currency of "the gold

standard", with its value pegged to gold in 1717 by Isaac

Newton (who was then Master of the Mint).

In recent years the pound has had a comparatively good

rating with regard to inflation, inferior to the rating of

the Swiss franc but superior to most currencies of the

world. So the British have the alternatives of accepting

adoption of the euro when first voting, or after a delay, or

never.

We can legitimately wonder how the speediness of its

adoption or delays in its adoption might affect the poli-

cies operating to control the actual exchange value of the

euro. The constitutional structure of the authority behind

the euro is of the "paper money" character in that nothing

is really guaranteed as far as the value of the euro is

concerned. But this is typical of all currencies used in the

world nowadays.

Of course when a currency, for a time, does have a

specification of its value beyond that simply depending

on supply and demand for a fiat money, like the money of

Argentina had a peg to the U.S. dollar a few years ago, then

international observers can wisely distrust the reliability

of such a stabilization of its value. Such forms of value

definition are not necessarily unsound, particularly when a

small economy, like that of Panama, links its currency to

that of a larger area like that of the USA. But it is

obvious that this sort of thing puts a (paradoxical) burden

on the foundation of the currency that is used as a

reference basis.

For example, if all sorts of non-European countries

decided to define the values of their currencies as on a par

with the euro, without actually joining into any system of

cooperative regulations associated with that, then

the effect of that would seem likely to destabilize the

stability of the euro if it would otherwise be highly stable

and of good value quality.

Insurance Companies,

Commercial Banks, and State Banks

It can be difficult, psychologically, for good patriots

to appreciate the comparison, but state banks, or whatever

issues the money used in a state or in a group of states,

are logically comparable to good or bad commercial banks

or to good or bad insurance companies.

And it is observable that internationally operating

commercial banks or insurance companies can be favored by

being based where the conventional money is of relatively

higher quality. The same principle also applies to the

business of "investment banking" which is a differentiable

specialty function of commercial banks or other financial

companies.

Savings, Savings Institutions,

and Savings Rates

Another area where money quality is very relevant is

in relation to the "savings rate". How will individual

decision makers behave with regard to options for thrifty or

more “spendthrift" behavior? It is arguable that the larger

classes, in the sense of economically differentiated

population strata, should be able to employ thrift options

that are not extremely complex in character. And if the

quality of the money is really good then simply to save

in terms of the ordinary medium of exchange is at least a

practical first step. So thus the existence of good money

may naturally promote a higher "savings rate".

The history of "savings banks" and "credit unions" seems

to illustrate social and economic developments that occurred

during the time of stable money values of the gold standard

era. Thus forms of financial institutions came into

existence in the climate of "good money" which would not

have evolved were the money of an obviously unstable value.

The process of capital investment by means of which

enterprises prepare to have the competence for making

successful products in the future naturally relates to

the processes recognizable as involving savings decisions by

individuals and households. And it can become as if

paradoxical, when the official "savings rate" is found

to be low, how the investment processes are occurring.

The truth may be that the mass of the citizens of a state

with an apparently advanced economy can become actually

comparable to the people of an area being developed by

colonialists and thus not be a leading force in relation

to the advancement of the national economy.

Investment Strata Theory

There is a "classical" or traditional concept that

influences investment decisions by "run of the mill"

investors and which, ultimately, derives from the history of

varieties of money which seemed, at least for a time,

to have relatively stable value (per unit of the currency).

So middle-class investors are often advised by their

investment advisers to invest "conservatively" when they

become older and have, presumably, reduced life expectan-

cies.

There are traditional concepts of "safer" or "more

speculative" channels for the investment of savings.

If a counseled investor seems to have a reduced "life

expectancy" then, typically, this investor will be counsel-

ed to invest "conservatively", perhaps in government bonds,

rather than "speculatively", (like in land or commodities or

stock market issues).

BUT this standard variety of advice could be VERY BAD

advice if the domestic money were like the money in

Argentina, or Thailand, or Zimbabwe, during the times

of recent national currency crises.

Should "Conservative" Investing be Possible?

Here is the related issue of social policy, or of "good

social policy" (if there can be, practically, a question of

good or bad concerned with the availability of investment

options).

It is not simply an issue concerned with the options

to be available to individual human citizens or residents.

We can observe that provinces, municipalities, or institu-

tions deriving from these may have needs for investment.

These needs may derive from assets which are acquired at one

time but which are expected to be spent gradually over

future times.

The Differential Strata (If They Exist)

A money usable as a "medium of exchange" obviates the

comparative complexity of transactions needing to be

achieved by barter. And beyond that, a money with a

respected stability of value provides a basis for a

practical simple means for achieving "storage of wealth"

which could be of great practical value to institutions

or other entities that need to preserve reserves of assets

over time periods of gradual expenditures.

In principle, a corporation operating in one country

COULD keep its reserve assets in an "exported" form. For

example, Toyota, operating in China, could keep all its

reserves overseas in yen, rather than in RMB/Yuan currency

accounts or bonds, etc. But if the Yuan of China seemed

to have as much basic stability of value as the yen then

wisdom might dictate another course than that of exporting

the reserves to the yen sphere.

Analogously, it is easy to imagine Nestle' with similar

options.

Traditional Themes Relating to Investments

There has been the phrase "gilt-edged bonds" repre-

senting a category of bond investments of the highest

quality level. But now, in fact, if we think about this

we see that the phrase derives historically from the times

of the existence of the "gold standard" and thus from the

times of currencies having stable values in a quite mean-

ingful and quantitative sense.

When the debenture bonds of the sovereign state itself

have become, really, a very speculative area for investment

there have been introduced options, like "treasury inflat-

ion protected securities" or "TIPS". But this actually

introduces, for investment, a speculative area, since the

investors must GAMBLE on the comparative merits of TIPS-

category bonds with lower coupon rates and standard bonds

offering higher paper rates!

Our Opinion

We think it is ultimately desirable, for the State

relating to a national society, to have institutions that

favor and cultivate the possibilities of reinvestment, in

the national economy, especially by the intelligent actions

of institutions which may themselves be of the type favored

by the State with exemption from taxes on "income" or

"profits".

Economists have learned that higher levels of technol-

ogy or of industrial or agricultural arts derive from long

histories of the "feed-back" of earned assets into the

components of the economy forming the capacity for

production at comparatively higher levels of technology,

science, or arts.

So we argue that if the possibility of "conservative

investments" is made easy or easier that this will favor the

re-investment processes that will favor comparative economic

advancement.

Relations to Law and Contracts

A concept that we thought of later than at the time

of developing our first ideas about Ideal Money is that

of the importance of the comparative quality of the money

used in an economic society to the possible precision, as an

indicator of quality, of the contracts for performances

of future contractual obligations.

We have noted, as a matter of general theory, that money

provides the practical means for the “transfer of utility”

and that the distinction between “games with transferable

utility” and “games with non-transferable utility” (or TU

and NTU games) thus is naturally linked with the matter of

whether or not there is available the means of money

transfers to facilitate a good cooperative game solution

(which could be that of a relatively simple game of

bargaining).

But when there is the dimension of time also, incorpor-

ated into a contract for exchanges (such as for example a

mortgage contract, or an annuity contract with an insurance

company, or a contract for services to be performed over

an extended period of time) then the quality of the money

unit in terms of which the contract is written makes a big

difference in the level of certainty of the contract terms.

Uncertainty perturbing the issue of the effective

meaning of a contract is comparable to and analogous

to a climate of lawlessness that would make contracts,

in general, unreliable.

It is reasonable to expect that were the quality of a

national currency very high (in terms of the stability of

the value of the currency unit) then that interest rates on

mortgages or on the national debt would become compara-

tively low (as “rational expectations” would interact with

investment options for mortgage and investment bankers).

If there were only the alternatives of two varieties

of money of which one of them would depreciate in value,

compared with the other of them, AT A CONSTANT RATE, then it

would be reasonable to expect that REAL interest rates, say

for mortgages, could be the same whichever money were used.

But the pattern to be expected when there is money that

decreases in value compared with “real value” measures is

that this continuous devaluation IS NOT AT A CONSTANT RATE

(and the phenomenon of “surprise inflation”, which has been

much discussed by economists, is to be expected). (So of

course, expected, it won’t be entirely a “surprise”, but

yet, when “Keynesian” policies are strongly in effect, one

must rationally expect inflation but also a degree of

difficulty for precisely and quantitatively predicting that

inflation!)

Ideal Global Money, the Concept

It is not a new concept in economic theory, that there

could be material benefits whenever a number of separate

currencies would be replaced by a single money. This caught

the eye of John Stuart Mill, in particular.

But with a benefit there may also come the reverse

of benefits and it is logical for human advisors of human

societies to be wary when the world, in 2008, seems not

yet ready for a globally effective federal government

comparable to those operating on national levels in Berne or

Washington.

My opinion is that if it were too easy to set up a form

of “global money” that the version achieved might have

characteristics of inferiority which would make it, compar-

atively, more like a relatively inferior national currency

than like any of the more praiseworthy national or imperial

currencies known to historical records.

But there is a good prospect for avoiding the estab-

lishment of another, possibly deceptive, currency of infer-

ior quality. Here I think of the possibility that a good

sort of international currency might EVOLVE before the time

when an official establishment might occur.

We can observe that, in the world, that there continue

to exist varieties of areas where religion, language, laws,

and customs are quite variable. And one can suspect that

indeed it is somewhat in the nature of Man and his cultures

that this variableness is typical.

So my personal view is that a practical global money

might most favorably evolve through the development first of

a few regional currencies of truly good quality. And then

the “integration” or “coordination” of those into

a global currency would become just a technical problem.

(Here I am thinking of a politically neutral form of a

technological utility rather than of a money which might,

for example, be used to exert pressures in a conflict

situation comparable to “the cold war”.)

A process analogous to this occurred when a number of

European countries passed first through EFTA, then through

the EU, then into an “exchange rates stabilization” and then

into the structure of “the euro” (which is based in

Frankfurt).

Another topic to consider is that if a few large-scale

currencies are interacting then that the agencies (or

states) responsible for each of these currencies might

benefit by holding certain amounts of currency reserves

in terms of the other major currencies. And also the

authority managing one currency might calculate an appro-

priate index to define the standard value for that currency

by using the observed values of the other major world

currencies. (We mentioned before the use of less volatile

values in connection with “smoothing out” the calculations

of a normative ICPI index that would define a standard value

for a currency.)

At the present time it can observed that the currency of

China has a value stabilized in relation to an index based

on the values of other currencies. So in the future it could

be that the currency sponsored by Japan or by

the Southeast Asia Economic Cooperation Area might become

stabilized in value with the aid of an index including the

value of the currency of China.

Evolution of Customs and Opinions

In a large state like one of the "great democracies"

it is reasonable to say that the people should be able,

in principle, to decide on the form of a money (like a

"public utility") that they should be served by, even though

most of the actual volume of the use of the money would be

out of the hands of the great majority of the people. But

most typically the people would expect to be served by their

elected representatives and not to make most of the relevant

decisions in a direct fashion.

If it becomes a matter of strong and definite prefer-

ences that the money used should have definite character-

istics of quality then, in principle, the people can demand

that. For example formerly there was the drachma and now

there is, in Greece, the euro instead of that. And the

people seem to be pleased with the change.

So the quality of the medium or media of exchange that

is/are used can be improved, if the improvement is really

desired. Here we speak of quality in the sense of Gresham or

like a bond rating agency.

But the famous classical "Gresham’s Law" also reveals

the intrinsic difficulty. Thus "good money" will not

naturally supplant and replace "bad money" by a simple

Darwinian superiority of competitive species. Rather than

that, it must be that the good things are established

by the voluntary choice of human agencies. And these resp-

onsible agencies, being naturally of the domain of polit-

ically derived authorities, would need to make appropriate

efforts to achieve such a goal and to pay the costs that are

entailed before their societies can benefit. And the

benefits would come from the improvement in the quality

of this public utility (money) which serves to facilitate

the game-theoretic function of "the transfer of utility".

An example of an efficiently working global reform

(at least in relation to electronic manufactures) is the

metric system, with its central Bureau located near Paris.

And this is an example of a system of yardsticks where

inflation is currently NOT in fashion!

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!

An Inquiry Into John Nash's Proposal For Ideal Money

This writing explores a special essay and lecture series by John Nash entitled Ideal Money. John Nash

is already well known for redefining our understand of economics through various game theory related

work. The Nash Equilibrium is one of the most widely cited solutions ever put forth yet Nash didn't

receive wide recognition for the significance of this contribution until nearly 40 years later. Our initial

lack of understanding however did not deter Nash from continuing to provide many valuable solutions

to incredibly difficult to solve problems while he waited for while he waited for the rest of the world to

realize the value of his insight. This essay argues that Nash's proposal is on a level of significance far

above his early work and is in fact the totality of the entire insight Nash had in the 60's at the time he

wrote his early ground breaking work.

20 Years of Lectures and Writing on the Subject of Ideal Money

Ideal Money has many different versions of the argument Nash put forth almost none of which are well

known to anyone including academic professor studied in the field of economics. Many of these

versions can be found on Nash's homepage hardly hidden among different folders that are available for

public view. Each lecture or writing uses different metaphors and examples that use different economic

events of our history or recent times to explain the concept of Ideal Money in different ways. One such

paper was published in the Southern Economic Journal and this paper varies drastically with the other

papers and lectures that are available. Nash presented the subject in a way that would be difficult to

grasp with out the collective context of most or all the works.

The Origins of the Concept of Ideal Money

Nash said in an interview that the basic concept for Ideal Money came to him in the 60's when he fled

to Europe. His biography suggests that at this time he was having delusional episodes. One such

“delusional” from this time was that he was running around suggesting that the governments,

communist and anti-communist alike, were colluding against the people and that he was going to be

our “savior”. On the one hand such behavior would obviously be seen as extremely narcissist and

paranoid, on the other this writing will show not only did Nash never abandon this view, but its quite a

logical observation to make:

The Keynesian implicitly always have the argument that some good managers can do things of

beneficial value, operating with the treasury and the central bank, and that it is not needed or

appropriate for the citizenry or the “customers” of the currency supplied by the state to actually

understand what the managers are managing, what exactly they are doing and how it will affect the

“pocket book” circumstances of these “customers.”

I see this as analogous to how the “Bolshevik communists” were claiming to provide something much

better than the “bourgeois democracy” that they could not deny existed in some other counties. But in

the end the “dictatorship of the proletariat” seemed to become rather exposed as simply the dictatorship

of the regime. So there may be an analogy to this as regards those called “the Keynesians” in that while

they have claimed to be operating for high and noble objectives of general welfare what is clearly true

is that they have made it easier for governments to “print Money”.

So I see the Keynesians as in a weak sense comparable to the “Bolsheviks” because of the support of

both parties for a certain “lack of transparency” relating to the function of government as seen by the

citizenry.

How Can We Define (A Stable) Metric For Value

Understand value is not easy which is really a symptom of not having a stable metric for it. This is

something we can begin to understand by thinking about how we evaluate money and commodities on

markets that give us price signals for them. In other words we might ask how we can objectively

evaluate government issued fiat of any given nation. If, for example, we are to compare the Euro to the

US dollar we might observe at some period of time that the exchange rate for Euro's is falling. This

might be an indication in a loss of value, however, if the price of the Euro is rising in relation to the

Venezuelan Bolivar this might suggest not that the Euro is necessarily losing value but that both the US

dollar and the Euro are increasing in value but simply that the US dollar is increasing more or faster

than the Euro.

Because each of the currencies have floating exchange rates in comparison to each other, and each

central bank that issues these currencies has their own policy and control over inflation, no currency

real functions as a longer term stable comparison for value.

However, we can suggest that measure a given currency versus a basket of other currency prices would

be a more objective valuation than the comparison to just one currency. This is a comparable

observation to how central banks measure and target inflation

…its was the observation of a new “line”…for “central banking” functions relating to national

currencies that gave us the idea for the study of “asymptotically ideal” money.

The idea seems paradoxical, but by speaking of “inflation targeting” these responsible official are

effectively CONFESSING…that it is indeed after all possible to control inflation by controlling the

supply of money (as if by limiting the amount of individual “prints” that could be made of a work of art

being produced as “prints).

How would they do this? The means for measuring inflation that they would naturally use would be a

“cost of living” index relation to domestic prices within the territory of the state.

On a domestic level an aggregate of different prices helps provide and reasonably objective measure for

comparing the inflation of a respective money. The argument Nash paints is based around a comparable

concept Nash calls and ICPI. The ICPI would be an optimally chosen basket of international prices

which would provide an international bases for value comparison.

Isn't Gold Stable In Value?

Historically at times gold has provided a reasonably stable basis for value although it is said we were

never truly on a gold standard. At the end of WWII the world much of the world moved on a de facto

gold standard in which the US pegged their currency to gold in what is known as the Bretton Woods

Agreement. This standard lasted until the 70's when the US abruptly abandoned the standard and the

world was forced to follow suit to what we have now which is a floating exchange system.

Gold does have drawbacks as Nash notes:

Nowadays, however, few would propose a return to the actual use of simply the metal gold as a

standard, for the following reasons.

(i) The cost of mining gold effectively does depend on the technology. Recent cyanide leaching

techniques have made it possible again to profitability mind gold at formerly abandoned sites in

the U.S. so that it is now a big producer. However, the unpredictability of the cost is a negative

factor.

(ii) The location of potential gold-mining locations may not be “politically appealing.” so it would

seem undesirable to make a political choice to enhance the economic importance of those

particular areas.

(iii) There is some negative psychology about gold such that even if it were the most logical

choice after all, the unpopularity of the idea could be very obstructive.

Nonetheless one would expect gold to be a component of Nash's ICPI

The Misappropriation of Nash's Theoretical ICPI

The ultimately launched concept of “ideal Money” become possible when I conceived of a practical

basis of a standardization of the comparison of the value of the currency with an appropriate standard

of ideal.

It seems not many people have been exposed to the bulk of Nash's argument and often people

mistakenly believe that Nash suggested we should peg our money to a politically constructed ICPI.

Although the ICPI is the basis for the special insight it is not itself a solution as Nash's points out

because it would be need to be adjusted over time and this introduces the possibility for political

pressure:

We can see that times could change, especially if a “miracle energy source” were found, and thus if a

good ICPI is constructed, it should not be expected to be valid as initially defined for all eternity. It

would instead be appropriate for it to be regularly readjusted depending on how the patterns of

international trade would actually evolve.

Here, evidently, politicians in control of the authority behind standards could corrupt the continuity of a

good standard.

However Nash makes a special observation and here we show that pegging our money to an ICPI was

NOT Nash's proposal:

It seems possible and not unlikely, however, that if two states evolve towards having currencies of 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.

Understanding the Purpose of Defining a Theoretical ICPI

Nash's ground breaking solutions and papers are well known for a very special flare. He solves

problems from angle his peers admit they would never have thought to think from and his solutions

often have what initially seems to be leaps of logic. Often years later when we fully understand his

work we can work through the logic to see that its all there but rather it was just so paradigm shifting it

seems like there could be no bridging explanation.

Ideal Money works like this. It is basically mathematical induction. It's like building a form for a

bridge and then once the final keystones are in place the bridge holds on its own no longer needing the

form.

Nash's argument in a nutshell is that although we cannot design a money that is perfectly stable in value

it can be said that money that does approach stable value can necessarily be said to approach a limit

that WOULD BE comparable to an optimally chosen basket of commodity prices.

This observation in itself might not seems like a special or valuable insight.

But its what set Nash over the edge when we came up with it. It's also his life's work and something he

spent the last 20 years of his life giving lectures on.

What is the Significance of Nash's Insight.

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

ideal.

The significance of this idea is what you can extrapolate from it-not the idea itself. From this

viewpoint of observing that if money were put on a stage of competition in which it must compete to

survive we can begin to ask what is needed to create this phenomenon.

It's a lengthy and wordy paragraph but incredibly revealing further shows the genius of John Nash:

I think there is a good analogy to mathematical theories like, for example, “class field theory”. In

mathematics a set of axioms can be taken as a foundation and then an area for theoretical study is

brought into being. For example, if one set of axioms is specified and accepted we have the theory of

rings while if another set of axioms is the foundation we have the theory of Moufang loops.

So, from a critical point of view, the theory of macro-economics of the Keynesians is like the theory of

plane geometry without the axiom of Euclid that was classically called the “parallel postulate”. (It is an

interesting fact in the history of science that there was a time, before the nineteenth century, when

mathematicians were speculating that this axiom or postulate was not necessary, that it should be

derivable from the others.)

So I feel that the macroeconomics of the Keynesians is comparable to a scientific study of a

mathematical area which is carried out with an insufficient set of axioms. And the result is analogous to

the situation in plane geometry, the plane does not need to be really flat and the area within a circle can

expand hyperbolically as a function of the radius rather than merely with the square of the radius. (This

picture suggests the pattern of inflation that can result in a country, over extended time periods, when

there is continually a certain amount of gradual inflation.)

The special axiom is again not necessarily novel until we begin to flip the perspective. Nash highlights

it here:

The missing axiom is simply an accepted axiom that the money being put into circulation by the central

authorities should be so handled as to maintain, over long terms of time, a stable value.

The Problem With Central Banking

Central banks aren't evil. Most people that suggest banks are immoral don't understand the purpose of

central banking. Central banks adjust the money supply via inflation rate policies in order to reflect

economic growth (or decline of growth). Central banks usually favor slight inflation, however, this

attitude can change depending on political and economic circumstances.

Stability of value is the general goal but a predictable rate is sometimes favored over perfect instability

in order to serve exports and imports needs. If the value of a currency begins to rise especially in

relation to other relevant currencies then export number suffer. If exports are expected to fail and the

economy will suffer central banks will often devalue their currency in order to make exports cheaper

for foreign buyers.

The contrasting views between the search for an internationally stable metric of value and the want to

increase inflation to spur economic growth somewhat highlights what is known as the triffin dilemma:

The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-

term domestic and long-term international objectives for countries whose currencies serve as global

reserve currencies.

The currencies in the world don't really compete in a way that makes them strong over time rather

different respective nations are sometimes and often in a race to devalue. In contrast devaluing a

reserve currencies such as the US dollar is said to be has its own ramifications. So there is pressure

both ways to not seek stability of value even if in the long run it would be optimally for all nations.

What is the Importance of a Stable Metric For Value

We tend to think of currency as a medium of exchange for value. But this function can be viewed a

side product of our wanted for effective value comparison. When the metric for value changes

however money no longer serves this purpose.

Nash explains the importance of a stable unit of value with this example:

Consider a society where the money in use is subject to a rapid and unpredictable rate of inflation so

that money with 100 now might be worth 50 to 10 by a year from now. Who would want to lend

money for the term of a year?

From a short term individual view the the importance of money seems to be everyday transactions

however the real problem we face as a global economy is how to get on to the same incorruptible value

standard.

Bitcoin as the Premise of Nash's Proposal

From the perspective of Nash's insight we extrapolate ever aspect of bitcoin as a catalyst for the

evolution of our money system's towards what would be comparable in stability to an optimally chosen

basket of commodity prices (ICPI). What is needed is the introduction of an internationally traded

currency or commodity that is as good or better than other alternatives available. This is exactly what

Nash calls for:

I think of the possibility that a good sort of international currency might evolve before the time when

an official establishment might occur.

Here I am thinking of a politically neutral form of a technological utility.

To be quite respectable, in a Gresham-advised sense, money needs only to be AS GOOD as other

material commodities that might be hoarded.

Bitcoin is widely held to function as a form of value storage for much of the same reason that gold has

historically played this role. Not necessarily the scarcity of supply but the relation of the supply to the

cost of mining which bitcoin effectively mimics. Bitcoin provides a fairly stably and predictable

measure of value which the markets can rely on as an inflation hedge. Nash even perfectly predicts

bitcoin's inflation schedule which decrease by half every 4 years:

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?

As bitcoin becomes more relevant and traded for my currencies across more exchanges central banks

will find themselves competing with bitcoin for relevance. As customers of fiat the citizens will natural

put pressure on central banks to print money of a higher quality in regard to stability of value just as

Nash predicted 20 years ago:

The currencies being compared, like now the euro, the dollar, the yen, the pound, the swiss franc, the

swedish kronor, etc. can be viewed with critical eyes by their users and by those who maybe have the

option of whether or not or how to use one of them. This can lead to pressure for good quality and

consequently for a lessened rate of inflationary deprecation in value.

The ultimate result of this phenomenon is that our money systems will hit the ceiling of idealness that

Nash describes as being comparable to an ICPI (again without ever implementing an ICPI). These

allows us to return to his original claim that otherwise competing governments and their respective

central banks effectively collude against the peoples best interests. Nash's claim that he would solve

this problem is actually rational:

…this standard, as a basis for the standardization of the value of the international money unit, would

remove the political roles of the “grand pardoners,”…

This insight is what causes Nash to declare:

...a process of political evolution might lead to the expectation on the part of citizens in the “great

democracies” that they should be better situated to be able to understand whatever will be the monetary

policies which, indeed, are typically of great importance to citizens who may have alternative options

for where to place their “savings”.

Notes On The Difficulty of Traversing Nash's Argument

Much of Nash's work is difficult to understand. He is well known for unapologetically putting forth

solutions with seemingly little explanation. Ideal Money however was an insight Nash felt would not

go over particularly well with those that traditionally held the monopoly on money printing:

The script or plan for my talk linking the “ideal money” with the choices and actions of “thrift” or

“savings” by persons or by “economic agents” was influenced by concerns that it would be wise not to

speak too incautionsly of “the Keynesians” when the times are such that massive public opinions

maybe supporting actions by which a state administration can act without going through the

parliamentary processes to write new legislation.

So in the rush of political campaigns and elections (for example in the USA) it is difficult to sell a

national monetary policy which, if followed consistently on a “long run” level, would result in the

specific nation state existing as if on a higher level of economic civilization.

(For example, Sweden and Argentina might be usable, over a long time comparison, to represent

comparable “economic civilizations”.)

Therefore, I had arranged for 2012 to talk more cautiously in relation to whatever would impact with

“the Keynesians” and with the political interest relating also to the scholarly factions allied with (or

forming) “the Keynesians”.

And this caution carries over naturally to 2013 also.

I am speaking about a research project that is not fully complete since I have not yet written up and

submitted for publication any paper or papers describing the work. Also the details of what axioms to

use and how to select the basic set theory underlying the hierarchical extension to be constructed are

not fully crystallized. I have also a great fear of possible error in studying topics in this area. It is not

rare, historically, for systems to be proposed that are either inconsistent or that have unexpected

weaknesses. So I feel that I must be cautious and proceed without rushing to a goal. And this

psychology of fear has also inhibited me from consulting other persons expert in logic before I could

feel that I had gotten my own ideas into good shape.

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