From: baumbach@atmel.com (Peter Baumbach)
Date: Thu, 21 Oct 93 23:32:54 PDT
To: pmetzger@lehman.com
Subject: Re: Backing
Message-ID: <9310220047.AA29472@bass.chp.atmel.com>
MIME-Version: 1.0
Content-Type: text/plain


"Perry E. Metzger" says:
> Not a cryptography message -- sorry but I thought I had to discuss it...

But it is, if digital cash is your interest.  There may be more than one
way to think about money.
> 
> Peter Baumbach says:
> >  Isn't a finite source of backing a problem since it rewards those who
> > hoard it?  
> 
> No. It punishes those who hoard it -- they don't get interest on their
> money.

Where does this interest come from.  If you have a 100% backed currency
with a finite supply, those who hoard it can't lose.  If there is a 
total of 20,000 tons of gold in the world, and you own 1 ton, then don't
you own 1/20,000 of the worlds wealth.  As long as the total wealth of
the world increases, doesn't your wealth increase along with it?
> 
> >  If neither Alice or Bob have a backed currency, does that mean they
> > cannot trade?
> 
> Depends if they consider what the other has to be of value. Its all up
> to them.

If Alice needs her street cleaned and Bob can do it, and if Bob needs
some food prepared and Alice can prepare it, a currency is unneeded
for their trade.
> 
> >  Has anyone invented a workable "barter currency"?
> 
> I don't see what the point would be. Why not just deal in a medium of
> exchange? 

Continuing with Alice and Bob, let's add Carl.  If Carl needs his freezer
repaired and Bob can repair it, and Bob wants some vegetables and Carl
can supply them, a currency is still unneeded.  Suppose, however, Alice
wants the vegetables, but has nothing to offer Carl, a "barter currency"
would solve her need.  Alice pays Carl for the vegetables.  Carl pays
Bob for repairing his freezer.  Alice pays Bob for cleaning her street.
Bob pays Alice once for the vegetables, and once for her to prepare them
to his liking.  A small economy becomes facilitated.  Useful stuff has
been done without dealing with any outside parties.  Why should some of
these people own gold before their economy can function?

If Alice kicks over a stone and finds a nugget of gold, why should she
be any richer.  She hasn't done anything for anyone, except maybe
devalue the gold that everyone else already owns.

Gold makes a good currency because it be can't be created by those who
have done nothing of value for anyone else. (A government ;-)  Gold makes
a poor currency when it prevents the economy I describe above from existing
since none of the participants have any.  What medium of exchange can
Alice, Bob, and Carl use?  The answer to that, I would call a "barter
currency"

> 
> > Can I.O.U.'s be created such that they work like money?
> 
> Sure. Thats what banknotes are.

Your method requires another participant to the transaction.  Everyone
must trust that the bank doesn't print more banknotes than it can honor.
Also, what is the banknote an I.O.U. for? Gold?

An I.O.U. for particular services or goods are hard to use as a currency
since you may wish to trade with someone who does not know the person
whos name is on the I.O.U..  Carl might give Bob an I.O.U. for fixing
his freezer: "I Carl owe the holder of this I.O.U. two bushels of carrots."
It would be hard to give this in payment to someone who does not know
the quality of the carrots or the trustworthyness of Carl.
> 
> Perry
> 
> 
I have just been learning about call and put options on stocks.  If I sell
a call option, I am agreeing to sell a certain amount of stock at a certain
price at any time in the future until the option expires.  These options
behave something like the "barter currency" that I wish to have invented.
People trade these options instead of trading in the stocks.  Now if only
my broker would accept an I.O.U. for two bushels of carrots in payment
for ...

Peter Baumbach
baumbach@atmel.com