Re: The Economy Of Plenty

Eliezer S. Yudkowsky (
Fri, 12 Sep 1997 01:18:16 -0500

Anton Sherwood wrote:
> Eliezer Yudkowsky writes
> : ... Essentially, you have to get rid of money and replace it with
> : a barter system. We *can* do this now because we have enough computing
> : power to institute "complex barter" systems. [...]
> : Complex barter is too hard to keep track of - without computers,
> : heh heh heh - which is why we have money, to transform every transaction
> : into a simple barter. By "money", we here mean something with artificial
> : value, rather than universal units of exchange. A complex barter system
> : can still have standardized units of valuation.
> So you'd abolish money *and* keep it. Wonderful.
> Or did you just mean abolish fiat money? No argument here.

No, I'd *obsolete* money. By money, I mean not merely gov't fiat money, but
any unit of exchange which is declared, by public or private authority, to
have non-intrinsic value, or value pegged to a product which fluctuates in
demand. A unit of exchange has substance; a unit of valuation is simply a
measuring tool. Compare a meter-stick and a meter. Do you really want to
measure a building in "meter-sticks", or speed in "kilometer-sticks/hour"?
And every time you want to find out how tall something is, you can *only* use
meter-sticks; and if you want to tell someone else how tall something is, you
have to give him a bundle of meter-sticks. Don't forget that the meter-sticks
shrink and expand at random!

> : What would be accomplished by this? Well, one of the economic design
> : flaws leading to our current problem is - more than I can finish this
> : sentence with. Here's what happens. Person A, who builds widgets,
> : builds 100 widgets. B through K also build 100 widgets. Unfortunately,
> : there is only a market for 1,000 widgets total. But 1,100 have been built.
> : The standard capitalistic reply at this point is that G, who isn't very
> : good at this, goes out of business. There are only two problems: First,
> : G can't get another job,
> Then G is in deep doodoo anyway when widgets are made obsolete!
> Why did G get into this business?

A money-based economy, or simple-barter economy, under the pressure of
technological stress, will malfunction in such a way that the supply of labor
outpaces demand to a greater extent than it should. Hence, G can't get
another job because there *are* no jobs.

> : and more importantly, that's NOT what actually happens! Instead, the
> : price of widgets drops.
> In the short term. In the long term, G goes out of business.
> No contradiction.

No, *everyone* goes out of business. It's not just G's widgets that are dropping!

> : Like a brick. They trade widgets for cigar bands on a one-to-one basis.
> : The result is that not even E, who's the best, can make a living - much
> : less G.
> You can't predict how much the price drops, because any drop may make
> some other use for widgets economical, at which point it drops no further.

This is the conventional, neat, mathematical, rational-agents economics
theory. It fails utterly when met by experiment. Have you heard of the
dollar that was auctioned off for $3.12?

> Can the total price for all widgets fall? I don't think so:
> if the old price was $N, we know that any number of widgets over 1000
> is worth at least $1000N to the buyers; if the supply of widgets goes
> to 1100, they're *still* worth $1000N, so it seems to me that the price
> can't fall below $10N/11.

Wrong. Without the stabilizing force of private futures contracts, there
exists a "catastrophe effect", or "punctuated equilibrium", or
"discontinuity", or "attractor boundary" (in case you're familiar with any of
these terms). If demand outpaces supply, then widgets are worth what buyers
are willing to pay: $100. If supply outpaces demand, then widgets are worth
what sellers are willing to accept: $10. Since neither sellers nor buyers are
altruistic, and a $10 loss on selling at $10 is better than a $20 loss on not
selling at all, the price of widgets can drop below the levels necessary for survival.

> : In an ideal world, this overproduction would simply raise standards of
> : living. Really. Think about it. There are more widgets for everyone!
> : Hooray! Again, ideally, food would be overproduced. So the price of
> : food would drop as well. The price of everything would drop, and widgets
> : would be dirt cheap, but so would be everything else, and A and E and G
> : and K would all be rich.
> :
> : The problem is that production of food is out of sync with production of
> : widgets. The current economy was BUILT ON SCARCITY. Everyone, everything,
> : is centered on the idea that supply is always slightly less than demand.
> Yeah, if "demand" means the number you get if you ask everyone "How
> many widgets could you use if they were free?" and add them all up.
> To an economist, demand is a (decreasing) function of price.

I suppose that's why they call it the dismal science. Demand is a smoothly
decreasing function of price, but price is not a smooth function of demand:supply.

> : If one - and only one - field shifts to a massive-supply model, that field
> : suffers. It's like being the only cooperator in a world of defectors.
> : You need a massive shift.
> :
> : And again, the existence of money is the problem. Not private property!
> : I'm not saying that. The problem is money instead of barter. See, in a
> : barter system, you can establish valuations that can outlast supply and
> : demand, or at least weather the turbulence created by switching to an
> : Economy of Plenty. Suppose that we declare one widget to equal one
> : hamburger in value.
> Price controls?!

No, a futures contract, silly. Sheesh, just because every other designed
economy has been interventionist and communistic, mine has to be too? I'm an Extropian!

> : Now, even if there are too many widgets, anyone who's made a widget can
> : still get a hamburger in exchange.
> >From whom? Blank-out, as Rand would say. You wave your hands and say,
> presto, a widget is worth a hamburger; for anyone who produces a widget,
> there's someone who'll be glad to provide a hamburger. Meanwhile all
> the hamburger-makers are scratching their heads and asking each other,
> Do *you* want another widget?? Omnisciently-mediated complex barter
> won't change that.

Before the existence of grain futures, farmers would dump their harvest into
the harbor. There was too much supply, and demand was too focused in time.
We deal with a similar but more subtle problem. And for the record, the
complex barter is not mediated by a central authority.

If the hamburger-makers don't *want* any more widgets, if the market is
saturated, then no additional output of widgets will improve living
conditions. In this situation, complex barter can (temporarily?) prevent a
widget catastrophe. Competition will take place along the lines of "who can
make the better widget?" G, however, will go out of business sooner or later.
Which is OK, because nothing would improve if he was in business.

> : G's widgets might rot, but that's better than all the widgets rotting.
> Irrelevant

Not at all; I am stating a causal fork. Ordinary economy->all widgets rot,
complex barter economy->G's widgets rot. Granted that we wish to minimize
rotting widgets, this constitutes an argument in favor of complex barter.

> : We'll assume, actually, the existence of some buffer, some temporary
> : charitable system, so that G remains in business for at least a month
> : or two - while the production of hamburgers increases also.
> But why does the production of hamburgers increase?

The hamburger-makers want to buy more widgets, or lots of other stuff.
Assured by their futures contracts that prices won't drop catastrophicly just
because they're being more productive, they can become richer in proportion to
their increased work.

> : We can also move up to establish a futures market - even better than
> : barter - for absolutely everything on the planet. Then even G's widgets
> : don't rot. Instead, everyone sells 91 widgets instead of 100 - which may
> : sound bad, but that's on a G-just-went-into-business model. If you assume
> : a technological overproduction, 91 widgets is just what they sold last
> : year. It's technological overproduction that's the problem, after all -
> : population expansion is self-correcting. So everyone has an extra 9
> : widgets to trade for whatever they want. Hopefully, someone besides
> : widget-makers is overproducing, so the surplus can all be traded around.
> If I understand you -- you cartelize the widget-makers, give each a
> quota of widgets to sell, to keep the price up; and then you tell them,
> go ahead and swap your excess widgets for anything so long as it's not
> money.

WHAT? NO! Not at *all*! No central authority is involved. People can still
write futures contracts for money; people dumb enough to do so will lose.
Nobody wants money; we want TVs, food, vacations... Why should I have to
worry about some currency fluctuation wiping out my vacation? If the
vacation-maker wants hospitalization and Internet access, and hospitals and
ISPs want widgets, we can set up a complex futures contract so I produce X
widgets and get a vacation in exchange. Everyone's happy. What quota? What
cartel? What central authority?

> Result: a speculator obtains the excess widgets by barter,
> and sells them for cash, undercutting the other widgets.

The widget makers may be undercut, but they can still sell enough to survive.
Futures contracts, remember? This is how you remove the catastrophic cliff
from the price<-supply:demand curve.

> : Eventually, everyone overproduces,
> Why?

Overproducing is buffered (by private contracts) from ill effect, and will
primarily result in your being rich. The existence of infrastructure for
certain types of stabilizing private contracts will shift the cost/benefit of
higher production. At present, this cost/benefit ratio is often negative
where it shouldn't be.

> : and those who produce the most wind up with the most of the overproduction.
> : So the system has two parts, really: One, a futures market (applied to
> : EVERYTHING) so that overproduction doesn't cause prices to drop, and two,
> : a complex barter system - whose necessity is kind of hard to put into
> : words, but... The value of a dollar is arbitrary. If a widget-future
> : involves $5 a widget, the value of the contract is affected by fluctuations
> : in the money supply as well as the supply of widgets. A widget-future
> : which involves trading one hundred hamburgers for one hundred widgets
> : may fluctuate all over the place in THEORY, but in practice, one hundred
> : hamburgers are what the widget-maker will eat this year. In other words,
> : the universal futures economy is very vulnerable to inflation, which a
> : complex-barter system will stop.
> Drop the neo-communism and stick to reforming money.

What neo-communism?

> You're onto something there. What if money is *defined* as futures?


> Have you read anything on competitive currency?

Currency is a mistake. It results in information loss. On the
capitalism-communism spectrum, currency is a communist affector relative to
barter, which is the primeval state of mutually beneficial exchange that
defines capitalism.

--       Eliezer S. Yudkowsky

Disclaimer:  Unless otherwise specified, I'm not telling you
everything I think I know.