Philip Davis, still a Professor Emeritus of Applied Mathematics, Brown University talked about the psychological relationship between the possession of virtual money and the ownership of real property, a very live topic and the subject of a recent Tomorrow’s Transactions podcast with the artist Heidi Hinder, and ended up flagging the “law of unanticipated consequences”, with which I am wholly in sync. Money is such a complex nexus it is particularly vulnerable to this law and there is (bizarrely) an inevitability about it. Just as tally sticks were invented as a mechanism for deferred payment but the market mutated them into a store of value and then a means of exchange, who knows what the market will do with Bitcoin.
Paul Kocher, President of Cryptography Research, said that breaking a cryptosystem is far more difficult than robbing a physical bank but potentially far more profitable (I’ll blog about this soon). Paul was, and still is, one of the world’s greatest experts on cryptography. He went on to predict that the first multibillion dollar heist would occur before the year 2010. I’m not sure whether that happened or not. It may have happened and remained a secret. After all, banks have lost billions to “rogue traders” and who’s to say that these were accidents? Publicly-reported “heists” are still in the millions or tens of millions. [Paul’s prediction dates from an era when the people who robbed banks didn’t work for them.]
Chris Gregory, then Professor of Anthropology and Archeology at the Australian National University (ANU) and now a Reader in Anthropology at the same institution, said that gold will remain as the sovereign form of money for as long as war between people remains a possibility. At first I thought this was a depressing comment, being as it is a reflection of the ongoing narrative of man’s inhumanity to man. But it also represents, I think, a streak of profound conservatism about money. I do find myself, turning to anthropologists when I want to obtain a deeper understanding of the complex inter-relationship between money and technology (which is why I’ve just recorded a podcast with Professor Bill Maurer, who leads the Institute for the Study of Money and Technology at UC Irvine). Therefore I read the comments of Jack Weatherford with. Jack is the Professor of Anthrolopology at Macalester College said that “If we take the long view of history, money was not necessary until very recently. Soon — though not in our lifetime — the money phase of history will pass, and money as we know it will be become one of those quaint curiosities of the past”. Wow. Jack wrote The History of Money, one of the more well-thumbed volumes on the topic on my bookshelf and he has a wide and well-informed perspective. He went on to say that “Already cash has become the domain of poor people and poor nations” and…
With the many new forms of money, the difference between barter and money systems will become blurred. The electronic money world looks much more like the neolithic world economy before the invention of money than it looks like the market as we have known it in the past few hudnred years.
I don’t think this is a crazy as it first sounds. A neolithic barter system based on networks of trust couldn’t scale into an economy of cities and settlements beyond kinship groups but the arrival of the internet changes the dynamic again as Sam Lessin, Head of the Identity Product Group at Facebook, pointed out in his talk at the Unconference. With an effective identity infrastructure (which is needed to build a trust and reputation management infrastructure on top) it is certainly possible to imagine rapidly resolved “barter chains” removing the need for money as an intermediary in transactions.
Paul Krugman, then Professor of Economics at MIT but now at Princeton (here’s his New York Time blog), made four particular comments that I want to remark on. After all, if you’re going to disagree with someone in public, you might as well choose to argue with one of the world’s leading economists on a subject he knows everything about. So here goes…
- There will be a distinction between electronic cash and electronic money because of the need for small transactions where neither the buyer nor seller want the buyer’s creditworthiness to be an issue.
I used to think that this was true, but I don’t any more. The “internet of things” and always-on connectivity have eroded the cost differential between the two.
- There will not be a universal currency for a long time. There is a big advantage to separate currencies providing price stability in different parts of the world.
I don’t think there will be a universal currency ever. It doesn’t make sense in economic terms, let along technological or social or political or business terms.
- Corporations will not issue their own currency.
I’m not so sure about this. If there are going to be more than fiat currencies, the corporations are obvious issuers of transactional medium of exchange currencies. Whether they can deliver a store of value is harder to predict, given that corporations don’t (in the great scheme of things) last that long.
- What everyone wants is an anonymous, reliable means of exchange; given a chance, they will always prefer one backed by a government. “One can imagine that a system of purely virtual money might be subject to severe instabilty”.
Everyone? I don’t. And I think a lot of people say they want anonymity (when what they really want is privacy) only because they haven’t really though it through. Do you really want to live in a society where all transactions are anonymous?
So I’m in the tough position of disagreeing with one of the world’s leading economists on a subject that he knows far more about than I do. Gulp. All I will say is that the nature of the medium of exchange is a topic that has undergone accelerating change in response to new technology. Talking of new technology, Marvin Minsky, then Professor of Computer Science at MIT and now still at the MIT Media Lab, said that
With fast computers and huge memories, we could have a nonlinear database that would better understand what each person has and wants. Then, by using complicated game theory-related computations, it might turn out that in general everyone would get more (in terms of their personal values) for the goods that they are willing to “sell”.
There is a link between Marvin’s deductions from the technology roadmap and Jack’s comments on society, but we’ll come back to those shortly. Marvin went to make some comments about the relationship between cash and crime.
Currency, except for small change, will disappear. [It pretty much has already].
Yes and no. Almost all British currency is electronic (the cash “in circulation” is a fraction of the money supply). The US is on a similar road to cashlessness Peak cash is behind us. In time, cash will vanish from polite society. Yet rump cash will be hard to eradicate and its erosion will take some time.
Taxes will be lower because of the vast amount of uncollected tax today.
A man after my own heart. Given that somewhere in the region of a fifth of the economy in developed countries is untaxed and outside the formal financial system, the tax burden falls pretty heavily on us remaining wage slaves, and as the post-crisis tax burden climbs, so will the call for some reform. Marvin goes on to reinforce my point in the comments about Paul Krugman’s view, by say that:
The system of electronic currency will never be acceptable unless the laws protecting privacy are greatly strengthened.
Strengthening the laws is one thing, but on the whole I would prefer to strengthen the cryptography. As I’ve said a thousand times, I want to depend on mathematics, not ombudsmen. Here, I think, there is cause for optimism. Were we to decide to implement private payment systems, the technology to do so is well-known and well-understood.
Naturally, we will want the private payment system of the future to built from open source and assembled under public scrutiny to see that the “privacy dial” is set at a democractically-accountable level. Hence the warning from Robert Sapolsky, still Professsor of Neuroscience at Stanford University, who said that “The very perfection of the identification system will guarantee urban myths about guys bankrupted when some techno-schnook stole their pheromone signature and racked up huge bills buying antique CDs for the Madonna centennial”. I’d like to that that we can design payment systems that hinge on
Ultimately, I think I most closely align with Jack Weatherford’s line of thinking, which is in a way unsurprising. Jack is a thorough scholar of the history of money and must have therefore had some pretty well-formed ideas about where it is going. Hence I find his vision both plausible and appealing.
In the future, everyone will be issuing currency.– banks, corporations, credit card companies, finance companies, local communities, computer companies, Net browsers and even individuals. We might have Warren Buffett or Bill Gates money. The future will produce thousands of forms of currency. Some of them will be based on commodities such as gold, land or sugar. Others will be shares in institutions or corporations, and many will simply be based on faith and performance.
I think the pressures of technology will continue the well-established trend of decentralisation and reduce central control, supporting Jack’s vision against more conservative scenarios.
These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers
Thanks for making a range of substantive points. So much of the ‘future of money’ discussion is not actually about money at all but about hi tech payment systems.
I also look forward to an era of competing currencies but I worry that the cartel which controls legal tender money won’t take too kindly to competition. They are allegedly trying to take us towards one world currency!