Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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A New Currency? Equity Savings Accounts.

Currencies Decided By Committee, or Self-Balancing?

Volume of cases easily overwhelms American courts. It is illustrative to see how they protect themselves, at least as an example of how any deliberative process isolates itself whenever the volume of emergencies swamps its ability to respond. Civil cases between contestants differ somewhat from criminal cases between the state and a criminal, but both similarly slow down rate-limiting processes in order to keep themselves functional. Numerous steps are imposed to slow even a hearing of grievance in court. The key to the multi-step approach is to demand sequential due process instead of allowing numerous steps to proceed simultaneously. The costliness of attorneys transforms a convoluted process into an expensive one, so long delays at each step are part of the discouragement dance. It costs the state money to hold trials in marble palaces, so protection of the defendant can also be viewed as attempts to convert trials into settlements, thereby reducing the caseload of the court. By contrast, the voluminous transactions of trade demand iron-clad guarantees of payment, instantaneously. A million dollars can change hands as a result of a few words over the telephone. Your word is your bond, and God helps you if you default on it. Computerized transactions have eased this contrast somewhat, but the fact remains that slowness cripples trading, and essentially no excuses are tolerated. Business hates rules, hates procedures, hates anything which threatens delay, and therefore recoils at anything which might get a committee involved.

This commonplace is such a vital point it deserves elaboration. When a buyer and a seller meet to conduct business, the buyer prefers the goods to the money, while the seller would rather have the money than the goods. Both come away feeling better after the transaction, so the more transactions handled, the more profitable each will be. The impatience of the businessman deserves respect. Therefore, automatic rebalancing is greatly preferred to haggling. Automatic rapid rebalance is almost invariably more profitable than decision-making by a committee. Ultimately, automatic monetary standards will be greeted warmly by traders. The technical problem is to find a non-consumable but valuable monetary standard which unlike gold has a non-capricious volume, and unlike a formula, requires no tedious calculation. You can make any system a little better, but if it only has these two characteristics, it's likely to be as good as it will get.

Accordingly, it is here suggested we have a look at creating an index fund of the common stock of all the currencies of participating nations and use it as a monetary standard until it seems safe to eliminate nations as middle-men entirely. It would represent a gain of real value in the world, fluctuating automatically with smaller changes of opinion in the economic world, and unconsumed by using it. Everyone in the world would be able to follow its movements by big-data computers, minute by minute. Its use would undoubtedly be good for trade, although its effect on political thinking might only emerge from experiment.

The political point was long ago established by the experience of gold-carrying Spanish galleons. If a ship sank in a storm, the gold was gone. So massive international trade only began to flourish when gold certificates were substituted for the real thing, probably by Robert Morris. If the paper certificate got lost, the gold was still in the vault and new certificates could be issued. This important advantage of paper money over articles of intrinsic value must be acknowledged and minimized. It lessens the accidental risk, but it impairs the ability of debtors to conceal a weakened fiscal condition. In situations where paper money is mainly supported by military power, it could be argued that increased transparency encourages military threats. Consequently, it is deflationary to the degree that nations (ultimately, individuals) would default on their debts, and some third party might have to hold the certificates in order to guarantee them. The third party would expect to be paid for the service. Negotiation and technology might solve the problems, but there would be problems, both real and imagined.

Originally published: Sunday, February 19, 2017; most-recently modified: Monday, May 13, 2019