[ExI] lotta splainin to do

Mon Nov 21 22:47:39 UTC 2022

Spike,
Money is a really fascinating subject.
I'm interested in the topic of Econophysics (my name on reddit is
Econophysicist1 and you can see there some of my earliest models on BTC
price that have been correct for the last 10 years).

Even before the advent of money the idea that people could specialize in a
particular activity (making an axe for example, that even during the stone
age was not something everybody could do or do well) and then exchange this
good with somebody else that was specialized in some other activity (making
clay pots) was incredibly revolutionary and the core foundation of
civilization.

Money sounds ridiculous when explained as an hallucination as you said.
Really is an agreed upon convention like many other things in our human
society such as social status, marriage, titles, property in general. Even
owning something tangible as a piece of land is based on a convention.
Geometry is called such because it was used for the first time to establish
how much land, geo, somebody owned and then put on paper or papyrus or clay
tablet "officially" how big a piece of land owned by somebody was to show
then to others in case a dispute happened.

Also among the earliest forms of writing there are clay tables counting the
number of sheep a shepherd owned. Probably they were used as an early form
of token to allow for transactions of some kind. Money as token came pretty
early on in human civilization even so called primitive societies had some
form of money like uncommon shells and other relatively rare tokens that
indicated the value of the exchange between parties. There is a polynesian
tribe that uses these huge stones that are not even moved around as a form
of money.

https://en.wikipedia.org/wiki/Rai_stones

Ownership of the stones is an agreed upon convention among the local
people. One wonders why you then need a stone to signify the value at all
given it is a useless intermediary object (that cannot even be moved
around), but maybe the human mind needs to think you "own" something solid
and not just an idea.

 Small tokens as coins are much more practical because you can carry them
around (I guess the polinesian tribe mentioned above would argue that is
also the problem with coins, they can be stolen while it is more difficult
for huge stones). The use of metals (that were precious in general, even
more common ones as bronze) was a great idea because metal had a value
beyond convention because you could make tools and weapons with it. Among
the first coins we have bronze weights that were basically small ingots.
Romans used these ingots called aes signatum (signed bronze), to
distinguish it from just a normal ingot. I guess being signed gave a
particular value (so you didn't need to weigh it every time) and indicated
as an "official" form of tender.

Precious metals like silver and gold were eventually used because they were
both rare, didn't decompose easily and had also religious and magical
power.
Ancient civilizations like the Egyptians or Babylon didn't have coins but
used precious metals and small ingots as a form of currency.

Coins in general are a relatively new concept. The oldest known coin is the
Lydian Lion that was created in Asia Minor around 600 BC. China came with
the same idea more or less at the same time independently (as far as we
know).
While Romans didn't invent coins, in fact basically copied their Magna
Grecia neighbors, they contributed immensely in making the concept a
universal concept. I know a little about coin history because I do collect
them. I have several Roman coins (only silver because the gold ones are so
expensive, you can buy a car with some less expensive ones). I do have a
few gold solidus from the Byzantine era.
The Roman understood your conundrum, Spike.

How do we give value and trust to these coins and why coins vs just a piece
of metal like the Egyptians did?

You would think the value of the coins comes from the precious metal, and
that is true up to a point. For sure it is more true for a coin than a
banknote, given the banknote material is more or less worthless.
The problem with thinking the value just comes from the metal is that in
any transaction you should actually weigh the coin and also make sure the
coin is made mostly of the material it is supposed to be made of (bronze,
silver, gold). If you had to buy a piece of land that cost 1 M denarius
(the silver Roman coin) then good luck in doing all that testing.
The State did this work for you and assured a coin had a standard weight
and it was pure up to a given value.

You basically TRUSTED the Roman state to give the literal stamp of approval
(the officer in charge of the Mint would put his face and name on the coin
to take responsibility for the purity of the coin during the Republican era
and then the Emperor himself did that during the Empire times).

On the other side of the coin they were Gods and Goddesses. This was not by
chance. The entire operation of minting the coin was called Moneta, which
was an epithet for the Mother Goddess, wife of the Gods of Gods, Juno. The
Temple of Juno Moneta is actually where the minting operations actually
happened and it was considered a religious activity.

In other words money was sacred, approved and supported by the Gods
themselves. Romans were basically stamping "In Gods we trust" on their
money before anybody else. You trusted Roman coins because the Gods
approved it and probably punished anybody that would do bad things with
such money like counterfeiting it (that happened often even if punishment
would be very severe, like death for example).

Anyway, gods or not, the trust in Roman money came from the fact they were
a super power and using Roman coins allowed you to be part of that vast
economy that spawned 3 continents. They continued to be used as a currency
even after the fall of the Empire and in far places like India and China.
Now these coins are worth much more than their value in the metal they are
made of. A roman coin was about 4.5 g of gold that is about 250 dollars but
some of the gold coins sell for tens of thousands or even 100 of thousands
of dollars. What is going on there? Where does the value come from? It is
not just rarity because the price of gold Roman coins now is given by the
somehow arbitrary stuff like how well the coin is preserved (that is not
linked to the material of the coin but some subjective artistic value)  but
also even more arbitrary like the Emperor under which the coin was minted
and so on. If I was super rich I would want to own some of these gold coins
because it is amazing to have a piece of history in your hand but you can
do that by owning a silver one that you can get for a few hundred dollars.

Part of why the Empire fell (many causes worked together really) actually
came from the fact that the State started to be actually one of the bad
actors by using less and less of the precious metals to which the coin
value was pegged to so they could stamp more coins to support the huge
Roman armies. They used less precious metals (mixing it with less precious
ones) and then still called the coin with the same money implying same
value as before. Bad idea.

Look at this chart:

https://commons.wikimedia.org/wiki/File:Fineness_of_early_Roman_Imperial_silver_coins.png

It was a bad move because the trust in the State in its fundamental
function to guarantee the value of the coin went down as people discovered
what the State was up to and merchants took things in their hands by
changing the price of goods and this created huge inflation on all kinds of
goods and great economical and social instability ensued.

This was a common problem with the late Roman empire and not sure why was
never fully addressed going back to stamping good finesse coins. I guess it
was too tempting to produce shitty coins (also problems with getting the
precious metals in the first place given the primitive mining capabilities
of ancient societies). This also explains the obsession with finding
Eldorado when the Spanish found the New World.

Scholars published entire books and articles on this subject.
Eventually it took the US to over do the Romans in losing trust with the
citizens, when they decided to unpeg the value of dollars from gold. Now
the money value is just completely arbitrary just in the hands of a state
that doesn't always do the good for the people. When criticizing crypto,
people say it is not backed by anything if you think about the dollars (the
king of all fiats) is backed just by a promise of a State that this piece
of paper (or actually a digital record in the bank) is worth something.
Considering also the fact that the US literally produces billions of
dollars on a regular basis from thin air not sure why we trust the dollars
at all. It is pretty weird if you think about it. I guess the dollars is
still a way to participate to the vast economy of the US and its allies and
commercial partners (basically the entire world) and that is good enough,
but the fact the dollars is more imagination and convention than Roman
coins or crypto (given that BTC at least is finite) is very clear.

So you see the problem of what you should trust or not regarding money is
an ancient one and actually something crypto is trying to address. Remember
the idea about crypto is that you should trust NOBODY when it concerns your
money because with crypto (in theory and this is not achieved yet) you
don't need to, it is supposed to be a trustless system.
I will write more in the following post.

Sorry if it is a long one but I think this is the type of medium where we
can have this interesting convo without being restricted to a certain
number of words.
If some people in the list are not interested they don't have to read but I
do enjoy this convo with you, Spike.
It is thought provoking.
Giovanni

On Mon, Nov 21, 2022 at 10:42 AM Mike Dougherty via extropy-chat <
extropy-chat at lists.extropy.org> wrote:

> On Mon, Nov 21, 2022, 11:14 AM spike jones via extropy-chat <
> extropy-chat at lists.extropy.org> wrote:
>
>>
>> Oh I have become so cynical I just hate myself!  Or not, but if someone
>> can
>> talk me out of that dark line of reasoning, I am all eyes.
>>
>
> You really shouldn't give anyone your wallet.   Even with fiat currency,
> you are participating in a mass hallucination for how money works.  Your
> "dark line of reasoning" is a matter of spin.  I don't have a problem with
> spin, it's pretty useful if/when you understand it.  (and yeah, i mean
> figurative and also the literal physics property... which maybe is easier
> to understand because it's more fundamentally consistent than the
> figurative kind)
>
> So I have a stack of paper that I can exchange with merchants for actual
> stuff (fuel for my body, fuel for my car, other zero-sum resources, kk?)
> and when I have too big of a stack of paper I am worried that someone could
> bonk me on the head and take my stack.  Banks are ostensibly more
> bonk-resistant, so I give them my stack with the understanding that they
> will give it back when I request it.  There is already so much inherently
> wrong with the assumptions in that transaction that some have sought to
> right the wrong via cryptocurrency - mostly by assuming nothing, improving
> transparency, and employing crowd-source authentication of transactions
> (that's what mining actually is, yeah?)
>
> Since I was ok [sic] with the bank holding my money, I am less likely to
> get bonked by a bad-guy (though fees and such are small bonks from the bank
> itself, but what'r gonna do?)  I am ok [sic] with, for example, paypal
> holding a wallet with a few cryptocoins.  I was already relying on paypal
> to do transactions with web merchants, with the expectation that they would
> act as another layer of security between the unknown level of trust that is
> the merchant and direct access to the stack of money that i keep at the
> bank.  I accept the risk of paypal stealing my crypto along with the risk
> of paypal stealing the stack of fiat right out my bank.  For that matter, I
> also accept the risk of my bank also refusing to return my money.
>
> I also have to understand the risk associated with even having the stuff
> that money buys. We have a whole system of checks and balances to keep
> civilization from collapsing into a primitive fang & claw competition for
> stuff.  Those known as "preppers" assert that collapse is imminent.  I
> appreciate the sentiment but continue to (in this case) literally buy-into
> the mass hallucination of an economic watering hole that is stable enough
> to predict and anticipate.  I guess what I'm suggesting here is that if we
> aren't going to accept the terms and conditions of the social contract for
> civilization, we have more difficult problems to DIY solve (without any of
> the economy of scale that a group's convention would afford)
>
> My main concern for a crypto-backed credit card mechanism is that the
> volatility of 'value' means I will have to pay too much attention to the
> currency of currency.  It's bad enough that I still have in mind what a
> pizza "should" cost as of 20 years ago and haven't really caught up my
> mental model with recent increases in costs and inflation.  Imagine that a
> pizza today is 1 pizzacoin.  Due to a shift in supply/demand, the same meal
> is 2 pizzacoin.  I had budgeted 1 pizzacoin per day and thanks to the
> variable store of value, I can no longer afford the remainder of the week's
> meals.  Maybe Elon will tweet an offer to exchange powerbricks for
> pizzacoin and they'll adjust relative to pizza that 1 meal will cost only
> 0.5 pizzacoin.  In that case, should I purchase a week's worth of pizza
> before the pizzacoin bubble bursts again?  Is the pizzacoin itself a better
> store of value than the pizza itself?  If I can predict the rate of change,
> I can win on pizza futures.  The biggest problem here is the instability of
> the coin - for the whales like Elon have too much influence on the exchange
> rate.  Perhaps this is a new problem to solve?  We could design a coin with
> a very low volatility, but then it would not offer the opportunity to 'get
> rich' by exploiting that volatility.
>
> I guess we have to decide what kind of coins we want to control us.
>
>
>
>
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