From: "Vladimir Z. Nuri" <vznuri@netcom.com>
Date: Thu, 28 Dec 1995 01:57:52 +0800
To: cypherpunks@toad.com
Subject: a new idea: stocks == currency
Message-ID: <199512270222.SAA01737@netcom6.netcom.com>
MIME-Version: 1.0
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I've been mulling over recent essays on digital cash by diverse authors
that have popped up here and elsewhere and I'd like to highlight a 
revolutionary new "meme" of high cpunk relevance I see emerging, which 
I've not seen promoted by any single author yet (although I have seen
some prominent cpunks argue the opposite).

the basic thesis is as follows. digital cash obviously leads to an entirely
new economic system in which the nature of routine future transactions may be 
radically altered. one of the chief alterations discussed ad infinitum on
this list is the rise of economic freedom from taxation etc.   however
there is another interesting theme that is worth exploring at length that
is at least as significant as this (bugaboo) taxation issue.

one might look at the modern world and suggest that there is an increasing
unification of currencies. the EU (European Union) is an example of this
"trend". however I'm going to argue the opposite and suggest that the
trend is toward increasing diversity of currencies. I believe we are
moving toward a new system in which explosively more "currencies" will exist
than do today.

where will these come from? answer: stocks. I believe that future company
stock will be considered a kind of currency issued by the company. when
you are buying and selling stocks, what you are really doing is buying
and selling currencies backed by different corporate entities. 

I have seen EH argue here and elsewhere that only a government has the
legal capability of creating a currency. his view is that a currency is
backed through *liability* that is enforced through laws. this is an 
interesting statist-flavor argument coming from a radical libertarian.

what I would propose instead is that what a government has is *credibility*.
this is the old "reputation capital" issue discussed here frequently too.
a government is a massive entity larger than many companies that uses its
full legislative "force" to back its currency.   in another word,
*trust*.

however, I don't believe there is fundamentally a major difference 
between a company and a government, particularly in this area.
(go ahead, flame me to oblivion for saying this, but I believe it is 
actually a very libertarian argument.) the only difference is in size
and influence. it seems to me when a private company issues "cash", the
basic principle is the same. the person who uses this cash is *trusting*
the entity that issues it to back it with whatever they say they are
backing with it. to use my stocks == currency analogy, the stock or currency
of that company is backed by that company's assets and profitability.

the interesting theme behind this is that it unifies the entire economic
picture. suddenly the difference between currency and a stock tends to
blur when stocks

1. can be exchanged readily
2. there is no government intervention/regulation in the exchange
3. middleman ("stockbroker" etc.) costs are minimized
4. (other similar elements yet to be identified)

note that all these things appear to be the inevitable trend of uniting
an economic system with cyberspace.

--

my view of all this is somewhat blasphemous. the current system
says that we have to have a government entity called the SEC to ensure
that stocks are safe for those who invest in them. however, what I am
suggesting is that a free market can actually devise its own methods of
sorting out bogus from valid currency/stocks without government intervention.
in fact, in my opinion that's precisely what investment advice is. this
is exactly analogous too to the way that capital "naturally" moves away
from unstable currencies and economies (of course capital does not do it,
but the intelligent human forces that guide it amount to this basic effect).

hence what I am proposing is a sort of currency spectrum. stocks are
high risk but greater profit, and currency is low risk (stable) but
subject to inflation or loss of value. they are two ends on a 
currency spectrum. and what I am proposing is that in the future, this
currency spectrum will tend to emerge out of economic transactions in
cyberspace. 

this currency spectrum will be recognized as a basic function of
the cyberspatial economy. this economy will evolve overall to cut  out
middlemen and anything that decreases cash value. hence, you will see
things such as companies offering their own cash (stock) directly to 
"consumers" without the large overhead associated with today's stock market 
(which will be considered a rather backward way of running an economy in the
future because of the horrendous dissipation of capital involved in merely
moving it from place to place).

--

in the end, the government and various bankers lose their economic
monopoly on "creating" cash, which affords them no end to manipulative
capabilities. governments will compete with all other entities that desire
to create cash systems. cash will move where governments and entities most
"respect" it. oppressive tax laws etc. will be considered a lack of "respect" 
for cash.

I know that the opposite trend seems to be happening: an increasing clampdown
on "black cash". I think this may actually succeed in the short run, but
the eventual movement of the economy is toward unrestrained cash in the
same way there is a clear movement to an unrestrained cyberspace. there
may be "blips" or "disturbances" on the way, but they'd merely be anomalies.

my own view is that governments are either legitimately created or they
are not ("consent of the governed" etc.). 
if they are legitimately created and maintained, then people will continue to
support them even when it seems they have the choice not to (such as
evade taxes). if they are not supported, then they are not legitimate.
putting one's money where one's mouth is is the ultimate test of legitimacy
in our reality. that is, support of a government by its people is the
ultimate test of its legitimacy, and the the ultimate test of support
is *cash*transferred*. no amount of policemen thugs pointing machine
guns at tax protesters attempting to intimidate the entire population
will change this basic reality imho.

in fact I believe that many systems of today that are based on intimidation
are going to dissolve as cyberspace becomes more prevalent. the scientology
battle is a good example of this. before the internet their litigious
intimidation tactics may have succeeded (and arguably did). however the 
tactics are becoming increasingly discredited in my view. 

but I am not saying this will happen without a struggle. I believe this
will be the ultimate conclusion after a lot of turbulence and perhaps
even bloodshed.

--

today we think that cash moves around the world very readily, in the blink
of an eye. but I suggest that today we actually have tremendous amounts
of "friction" that are dissipating economic value of "currencies" merely
as it moves through the system (the stock market would be one example).
looking only at today's *cash* systems, indeed there is low friction, but
when considers that *stocks* are actually cash, then our overall economic
system is quite backward. cyberspace will act as a sort of 
economic lubricant of the highest degree in decreasing this friction.

I will debate intelligent opposition to these ideas in this essay, but
frankly I think what I describe is a reality that is going to emerge 
completely independent of my own promotion or anyone else's opposition.
the famous Gilmore quote is that "cyberspace sees censorship as a defect
and routes around it" has an analogy in the economic realm: 
"cash sees the middlemen as a defect and routes around him". inflation is
one example of instability or lack of resiliency (a defect) of a currency. 
it can be seen as the exact opposite effect the growth of a stock is: loss 
of economic capital due to dissipation.

I imagine one of the main claims against my essay will be as I anticipated
above: only governments have the force and power necessary to back a 
currency. but I believe this is an anti-libertarian view. it suggests
that cash only works when the government is involved, and the force
associated with that government is employed as a means of keeping the
system in check. can one have an economic system not based on mandatory
obeisance to a government? I think it is clear to most on this list
such a thing is not only possible but advantageous, desireable, and 
preferrable.

the "trust" that a person places in a company stock is absolutely no
different, in essence, from that placed in a currency of a government--
only the scale and the participants are different. I don't really believe
that the legal framework associated with a government is what holds 
commerce together. there are many situations where companies simply
eat their losses even when they are in the "right" legally and could
sue and win.

cyberspace will tend to prefer "anticipation" to legalities. in other
words, it will tend to prefer to develop systems that anticipate failure
(such as currency crashes) before they happen. courts will be seen as the 
absolute last resort for any kind of arbitration. in my view this has 
already happened today.