From: wcs@anchor.ho.att.com (Bill_Stewart_HOY002_1305)
Date: Thu, 19 Aug 93 16:51:31 PDT
To: plmoses@emoryu1.cc.emory.edu
Subject: Fiat currency: Re:  Electracy: Evil Revisited
Message-ID: <9308192239.AA06169@anchor.ho.att.com>
MIME-Version: 1.0
Content-Type: text


(Most of this is diatribe, and I wasn't sure whether to Cc: cypherpunks,
but there's some relevance to creating digital currency near the end.)

Paul Moses writes:
> Sorry, but today's currency system is anything but a democracy.  Thank God.
> It works because it is entrusted to a COMPETENT elite. 

Gack, sputter, foo, bletch!

The currency system works so *badly* because it's trusted to an elite
who can abuse it for their own power and enrichment.
It works as well as it does because currency *is* a market,
so it's subject to the usual price (all the market will bear)
and power is subject to the usual limits (overabuse leads to revolution),
and the elite is competent enough to know how much it can get away with.
Yes, an incompetent elite is usually worse (e.g. the old Argentina or Israel),
and democratically controlled fiat currency is inherently incompetent
(the Golgafrinchians in HHGTTG declaring leaves to be money, etc.,
and their current US version, the Populist Party.)

But fiat currency, anywhere, any time, can always be abused, and eventually is.
Hard currency, such as gold, or silver, is subject to market fluctuations,
but there's some inherent value, and a fair amount of local stability.
Consumable commodity currencies, such as tobacco, alcohol, cows, and grain, 
have their obvious drawbacks, but they're very useful in pre-industrial 
societies (including the US up to the mid-1800s), and use reappears in
badly trashed economies (immediate post-WWII Germany, when the alternative
was fiat scrip deutschmarks, which were rapidly being printed and inflating.)

In all of the non-fiat systems, the value of the "currency" is variable,
but *you* decide what value *you* place on it, relative to the market.
In fiat systems, *somebody else* (maybe "everyone", maybe an oligarchy)
decides not only what value they place on it, but what value YOU must place on it.
It's backed, not by trust, but by theft and threat of violence or default;
witness the US confiscations of gold and legal tender laws, or the current 
Russian replacement of old rubles with limited quantities of new ones.

Non-fiat soft currencies, including Green Stamps, private banknotes, etc.
work ok because the issuers realize they are subject to the constraints
of the market, so they have to maintain the goodwill of their customers,
either through backing with harder currencies, goods or services, 
or through expectations of future backing with them.  That's easiest to
maintain if you're a provider of services, or if you're (for example)
providing a convenient storage/exchange of other currencies.

In addition to US and other government fiat currency, I also use
a variety of private currencies - checks and credit cards,
which are agreements to provide quantities of real silver money,
(or substitute Federal Reserve private banknotes instead); New York Subway Tokens
and New Jersey freeway toll tokens, which are agreements to provide services;
Joe's Coffee Pot money, which is an agreement to provide addictive drugs :-).
I know and trust Joe, and he'll either provide the coffee out of the
accumulated coffee profits, or his own pocket, and I'd only be out a buck
if he defaults anyway.  I somewhat know and distrust the New York and New Jersey
transportation bureaucracies, but they'd take too much political heat if
they defaulted, and the price for their services never decreases :-),
so I'm willing to risk 1-20 bucks, and tokens are a bit cheaper than cash in NJ.
I use credit cards mainly for convenience; merchants are willing to
give me stuff in return for my signature on a credit card bill
because they trust the credit card provider to generally pay up.
Merchants in the US generally accept US traveller's checks, because they
can get cash for them cheaply and quickly; merchants in Central or Eastern Europe
either didn't take them, or gave me less than face value for them.

If we're going to start using digicash, and want people to accept it in
return for goods and services, we either need to back it with services
(like email or remailing or software support or freeway tolls), or we need
to back it with other-currency transport/delivery/storage services the way
credit cards and travellers checks do, or find some other reason for
people to want the digicash and trust its value-stability.


> [Elitist stuff about mob rule under democracy, deleted]

I agree with most of what you say there.  I'd be happy to have a system
where the public could BLOCK new legislation, or get rid of old legislation,
but just not make new stuff; the catch is how to implement it in a way
that doesn't get the positives and negatives mixed up.

		Bill Stewart