Is “money” a public resource?
Cryptocurrency enthusiasts will scoff at even asking this, as if we are drinking Monopoly-money Kool-Aid. Money is private property, after all. However, the question is worth seriously considering at least to answer with more academic precision if only to remain firmly negative.
In response to us noting that the Bank of International Settlements seems to believe that money is a “public good, ” George Selgin concluded on Twitter: “I would argue that the notion of money as a ‘public good’ is an unfounded claim that serves as a “debate stopper”: by uttering those magic words, experts hope to avoid having to defend state monopolies.” Mr. Selgin’s sense of humor is enlightening [i].
Taking a rigorous look at the problem of governing the use of a common-pool resource (CPR), Elinor Ostrom presents a classic of political philosophy, “Governing the Commons.” [ii]. We do not intend to use the following as a way to elude a consideration of private property that is subtly opposed to it. We treat the exercise as an interesting analytical tool, not as a means to sneak in an argument that is subtly hostile to it. As Ostrom herself points out, her book’s title is misleading in this regard, as she means by “governing” more akin to “making decisions regarding” than “enforcing a decided-upon rule,” as the cognates of “govern” would predict.
Return of the irrefutably determined resources like Gold and Bitcoin
The author’s thesis, presented here in such an inadequate manner that does it no justice, is that there is a great deal of common-pool resource problems that are, in theory, and in practice, more easily solved without government intervention and without even the use of force at all, but rather with effectively established communities, relations, and incentives. Additionally, government intervention tends to exacerbate the same problems, ignoring alternative and likely already existing methods in an arrogant manner.
In fact, in the book’s very last page, Ostrom laments what seems to her to be the default instinct of her academic colleagues in first, and often only, thinking of a government solution to any collective action problem. She writes,
“The models that social scientists tend to use for analyzing CPR problems have the perverse effect of supporting increased centralization of political authority. First, the individuals using CPRs are viewed as if they are capable of short-term maximization, but not of long-term reflection about joint strategies to improve joint outcomes. Second, these individuals are viewed as if they are in a trap and cannot get out without some external authority imposing a solution. Third, the institutions that individuals may have established are ignored or rejected as inefficient, without examining how these institutions may help acquire information, reduce monitoring and enforcement costs, and equitably allocate appropriation right and provision duties. Fourth, the solutions presented for “the” government to impose are themselves based on models of idealized markets or idealized states.
“We in the social sciences face as great a challenge in how to address the analysis of CPR problems as do the communities of people who struggle with ways to avoid CPR problems in their day-to-day lives.”
So now that we know how money is a common-pool resource, in what sense might it be considered as such? Rather than moving from barter to capital, the social utility of money is realized by growing the resource, and that resource needs to be cultivated, nurtured, grown and replenished, not stripped! Here it would be helpful to clarify how Ostrom defines a common-pool resource and how she differentiates it from a “public good.”
“The relatively high costs of physically excluding joint appropriators from the resource or from improvements made to the resource system are similar to the high costs of excluding potential beneficiaries from public goods. This shared attribute is responsible for the ever-present temptation to free ride that exists in regard to both CPRs and public goods. There is as much temptation to avoid contributing to the provision of public security or weather forecasts. Theoretical propositions that are derived solely from the difficulty of exclusion are applicable to the provision of both CPRs and collective goods.
“But one’s use of a weather forecast does not subtract from the availability of that forecast to others, just as one’s consumption of public security does not reduce the general level of security available in a community. “Crowding effects” and “overuse” problems are chronic in CPR situations but absent in regard to pure public goods. The subtractability of the resource units leads to the possibility of approaching the limit of the number of resource units produced by a CPR. When the CPR is a man-made structure, such as a bridge, approaching the limit of crossing units will lead to congestion. When the CPR is a biological resource, such as a fishery or a forest, approaching the limit of resource units not only may produce short-run crowding effects but also may destroy the capability of the resource itself to continue producing resource units. Even a physical resource, such as a bridge, can be destroyed by heavier use than was allowed for in its engineering specifications.”
There is again the potential to blur the lines between what is and what is not clearly and truly private property. However, a logical analysis of money forces us to move beyond its “ideal qualities” – beyond semantics, then reality – and realize that, in reality, money has always been both private property and influenced by the “subtractive” behavior of others who free ride in a manner that is obviously harmful for the well-behaved.
Resource inflation brings cascading problems
In response to the above, Lawrence White suggested that money balances are not a common-pool resource, since Alice cannot spend Bob’s and vice versa, except without clear appropriation. We agree, and, in fact, think this clarification bolsters our own claim. The institution of money is a common-pool resource, in much the same way that fish are a common-pool resource, despite the fact that fish caught by fishermen are clearly private property. In essence, money is the institution of balances, the institution of money is a common-pool resource. Depletion need not be taken literally. Obviously, we are not talking about the physical coins or notes depreciating, although that would have the opposite effect. We mean that the utility of the institution depletes with inflation. If we do not care about the depletion of fish stocks, why should we care about their depletion? Fishing would be a common-pool resource without any incentive to deplete stocks, so there would be no need for effective governance if there was no incentive in the first place to deplete the stocks.
What is seigniorage if not the depletion of a common-pool resource by a nefarious “crowder?” What is gold mining if not a less nefarious and admittedly costly activity (so not exactly “free riding” either) but nonetheless a depletive interaction with a common-pool resource? And what is this common-pool resource if not something ultimately psychological and reliant on subjective value? Is it not an implicit consensus amongst economic actors to use the same language in their economic exchange?
If seigniorage is the exploitation of a common-pool resource, then a nefarious “crowd” is causing the depletion;” apart from being less nefarious and admittedly costly (so not exactly “free riding”), what is gold mining if not a depletive interaction with a common-pool resource? In the end, this common-pool resource is psychological and subjective, so why is it a common-pool resource at all? The use of the same language in economic exchanges is not an implicit agreement among economic actors, is it?
Providing feasible long term solution with Bitcoin
Bitcoin is the logos of the internet. Money, however, is a logos. Among all the logos, Bitcoin is the best. It is by far the most difficult language in which to lie in economics. The most straightforward way to dispel modern Monopoly-money theory, albeit in a highbrow manner, is to suggest that the monopolists and a variety of larping crypto-influencers believe money is a public good, but this is incorrect. It is a common-pool resource. Case closed.
UTXOs (unspent transaction output) are not money. Neither are coins, nor balances, nor even the UTXOs themselves, but instead the consensus about economic behavior and reality they capture. Money is literally a common-pool resource. And what money is or should be is, therefore, a common-pool resource problem. We don’t consider it a philosophical stretch or an authoritarian backdoor. There is no better solution than Bitcoin to the problem of managing a common-pool resource, by extension the most important enabling technology.
In this respect, money certainly differs from, say, a mug, which is a far more prosaic private good. By using Allen’s mug, Sacha is evidently prevented from doing likewise. The good is rivalrous. To prevent Allen from using his mug, Sacha can steal it, break it, etc (thereby entering into a tort obligation). The nature of money occupies a nebulous middle ground between 100% rivalry and 100% nonrivalry; if Allen prints his own money, Sacha is unlikely to notice since Allen hasn’t stolen his coins, and the case is clearly different from Allen printing Sacha’s mug. Sacha’s money is still at stake, since it is not the tokens themselves that matter but the consensus they represent. In other words, money is not a private good, but a resource that belongs to all. [iii]
Why is this the case? Can we explain this connection deeper by understanding money, capital, or Bitcoin, or are we just seeing a coincidence? In many previous excerpts like this article, the seeds of an answer seem to have been sown. It is essential that stocks and flows be distinguished, not only for the sake of clarity, but also for a practical appreciation of how they interact and contribute to capital creation.
Tampering of the system eliminated by definition
Many authors emphasize the crucial role that local, individual, actionable knowledge plays in forming a dynamic consensus as reflected in market prices. Scholars demonstrate how capital, the more complex and evolved form of money that reaches out to larger markets, is such a vital component of economic and social well-being mechanisms of social and legal consensus — it is necessary to act on this information and crystallize productive capability beyond mere handiwork and barter.
Determining Bitcoin as a language discusses the fundamental notion of Bitcoin as a precise algebra. Since Bitcoin is a language that it is nearly impossible to tell economic lies in, it is arguably (and possibly inarguably) the best one. It was predictable and inevitable that the ones not treated with a long-term outlook would suffer disaster and ruin.
According to our understanding, and in the interest of simplicity, the “answer” to the question posed is that money has a unique property as a social institution – as a resource common to everyone – that may be philosophically tantalizing in its significance. To flourish locally, there must be a maximally universal consensus. By mandating synchronization, it enables autonomy. Uncertainty continues to spread everywhere, as it is banished within its delineated domain. Additionally, it offers itself up as a ballast, encouraging uncertainty. No spiritual or religious authority is intended in any way, nor is this meant to be sarcastic, but we must admit it is very clear to us as to why a series of realizations could be said to have metaphysical significance.
Our focus will be on the bare bones of economic localism instead of exploring the potential spiritual significance of these claims. When taken out of its emotional context, this claim centers on the notion that money by way of capital brings individuals closer to the whole; making them more responsible, more productive, and more able to make more purposeful choices. This is not something that can be commanded from above.
Unbiased ownership rights are the key
Hernando de Soto’s advocacy of coherent and consistent legal recognition of property helps reconcile our rejection of economic universals with our prior endorsement of his advocacy. His goal is to better enable capital, but there is of course a tension here. Considering a total lack of legal property is certainly a universal phenomenon, more than one dimension is likely to be at play.
Although it may seem like a fudge, we are convinced that de Soto’s point is far better understood as saying that a property right must exist, not that a particular scheme of property rights must exist. In the absence of true bottom-up behavior, property, capital, and any other abstraction of economic behavior must be invisible – or in the case of top-down phenomena, they must enable bottom-up shaping and utilization as much as possible. The recognition and legitimate enforcement of property rights by a nonlocal authority might be extraordinarily helpful[iv] Lee J. Alston, Gary D. Libecap, and Robert Schneider make this point well in their article “Violence And The Assignment Of Property Rights On Two Brazilian Frontiers,” which suggests,
“Title also adds value to land. Formal, state-enforced title represents the most secure form of property rights to land. Title signals government endorsement of an individual’s land claim; that is, with title, ownership is enforced by the courts and the police power of the state. Under these circumstances, title provides claimants with the long-term security of ownership and collateral necessary to access formal capital markets for land-specific investments. Formal, enforced title also reduces the private costs of defending claims, such as private marking and patrolling of claims, because the state assumes many of those responsibilities. Finally, by signaling government recognition of current land ownership, a title increases the exchange value of land by widening the market. Those buyers from more distant areas, who may have higher-valued uses for the land and access to capital markets, have the assurance that the land exchange contracts will be recognized by the courts and enforced by the state. Absent title, land exchange occurs in more narrow markets among local buyers and sellers who are similar with informal local property rights arrangements. These regional practices typically are not enforced by the courts or understood by potential buyers from more distant areas.”
Essentially local matters are being endorsed by the state in this way. It is, however, important to realize that what is being advocated for is not the state dictating what constitutes and does not constitute property rights, but a subtly different recognition by the state of this locally-existing and locally-known and understood fact: what specific person owns what specific parcel of land. Additionally, the goal is to reduce defense costs so as to disincentivize violence and to promote capital formation. Alston, Libecap and Schneider add a few pages later,
“In general, exclusive rights to land provide the collateral necessary for farmers to access capital markets; promote land-specific investment by providing long-term security of ownership; reduce the private costs of defending the claims; and increase the exchange value of land by widening the market. When inherent land values are low and not changing rapidly on the frontier, informal tenure arrangements are appropriate, and violence is unlikely. Such arrangements are of minimal cost and serve to demarcate individual claims and to arbitrate local disputes.”
Ideally, enforcement would follow in the form of credible threats of violence that add value to the landowner precisely on the basis of extending to would-be violators of this right beyond the locality. Exactly how these threats manifest is not of economic concern. The aim of all of this is, therefore, to widen the market for this capital good beyond the locality also. This is very minimally a “top-down” enterprise, and is absolutely not a high-modernist one, to once again borrow from Scott’s “Seeing Like a State.”
This excerpt is from a passage of the book that contains vivid passages and complex and detailed analyses; that of the effects of the 19th-century experiment in “scientific forestry” in what is now Germany. Scott is describing the depletion of a valuable resource, not through malice but rather through incompetence, and in particular the kind of arrogance Scott tackles so extensively in the book.
As such, it would appear that its advocates think that they can completely reorganize complex systems at will, despite only having macroscopic knowledge, at best. This would seem to be scientism, except for its application to fields that are not entirely scientific, but rely instead on practical expertise and heuristics. On so-called “scientific forestry,” Scott writes,
“Only an elaborate treatise in ecology could do justice to the subject of what went wrong, but mentioning just a few of the major effects of simplification will illustrate how vital many of the major effects bracketed by scientific forestry turned out to be. German forestry’s attention to formal order and ease of access for management and extraction led to the clearing of underbrush, deadfalls and snags (standing dead trees), greatly reducing the diversity of insect, mammal and bird populations so essential to soil-building processes. The absence of litter and woody biomass on the new forest floor is now seen as a major factor leading to thinner and less nutritious soils. Same-age, same-species forests not only created a far less diverse habitat but were also more vulnerable to massive storm-felling. The very uniformity of species and age among, say Norway spruce also provided a favorable habitat to all the ‘pests’ which were specialized to that species. Populations of these pests built up to endemic proportions, inflicting losses in yields and large outlays for fertilizers, insecticides, fungicides, or rodenticides. Apparently the first rotation of Norway spruce had grown exceptionally well in large part because it was living off (or mining) the long-accumulated soil capital of the diverse old-growth forest that it had replaced. Once that capital was depleted, the steep decline in growth rates began.”
The issue of strip mining of capital is evidently at play and need not be harped on, but there is an even more insidious undercurrent: The forest is just a little, little part of “the economy,” if it can be considered one at all. And everything else is surely at least as complicated.
In this regard, the reader should now be able to grasp some of the depth of the folly of economic planning, as this has become a continuing norm under the dominant regime of political economy. This is what happens to a single forest when scientism is given a go, so imagine what this would mean for the whole planet, with multiplied irrelevant data, fresh high-minded arrogance, and the greatest isolation from natural negative feedback.
Integrating blockchain technology to economics
Due to the universal nature of time, money gives a universal consensus of value. It may be the only such economic universal. All else is local, heuristic, practical, individual and creative. In economics, controlled experiments are not possible, and uncontrolled experiments cannot be measured consistently. Anyone who claims otherwise is a charlatan.
A study of economics is, at best, the combination of four distantly related disciplines: logic, statistics, social theory and history. To be honest, the final three represent several different ways of approaching the same task: a practical analysis of real economic behavior, distinguished only by the intellectual toolkit used. The first we might call exclusively theoretical analysis of abstract economic behavior. Practicing them rigorously and with sufficient humility produces clearly useful knowledge. But none are science. Economics makes no predictions. It might generate wisdom but it does not generate facts.
In this article we have focused mainly on alternating between applied logic and historical analysis, with what little social theorizing we offer tending to be outsourced to the likes of Ostrom and Scott. This is not because we have a problem with statistical analysis, but out of intellectual honesty: Neither of the authors has relevant academic training in this field, nor did either of them have anything to contribute on this topic.
Part of the thesis of this extract is that Bitcoin will, slowly but surely, gradually then suddenly, bring us back to an understanding and practice of economics in which the scientism just described will be acknowledged to be ludicrous, and will be impossible to enact besides. The future is bright; the future is orange.
Future of cryptocurrency based monetary system
But to look forwards, we ought to first look backwards. Some elements of Bitcoin are unprecedented, for sure. Hopefully the discussion that follows on sovereign digital identity and programmable money will make this apparent and undeniable. It is also important to recognize that the ideas of sound money, low time preference, heuristics, localism, methodological individualism and the like are very ancient. They may be the oldest ideas of all. In the common law, the English language, the King James Bible, and William Shakespeare’s works, they are reflected in the world’s oldest continuously surviving cultures. Predicting how the very old and the very new will interact is no easy task. In fact, it is very unlikely to be able to see the future, and we do not claim to be able to do so. In any case, speculating is fun, and the more lucrative a future is, the more fun it is.
On one hand, Bitcoin’s effects are too complex to be described with a simple analogy: We are on the brink of a new renaissance. Art and culture will thrive once again as we cherish the culture of late Middle Ages Florence and Venice to this day. But we do strongly predict what we might call a capital renaissance. Bitcoin will make us lower our time preferences. Everybody. Whether we like it or not. In all its forms, capital will be nurtured, replenished and grown when we take it seriously.
Although the material contained in this article was prepared based on information from public and private sources that tokenwell24-7 believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and tokenwell24-7 expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
[i] “CBDCs: An Opportunity for the Monetary System,” BIS Annual Economic Report 2021, https://www.bis.org/publ/arpdf/ar2021e3.pdf.
[ii] Cited in multiple earlier extracts but all pointing to the following more in-depth treatment!
[iii] The reader may also be interested in pondering that this schema readily debunks so-called “intellectual property.” The standard defense of this legal regime, although clearly never openly advertised as such, is to imply that “ideas” are common-pool resources, even though they clearly are actually public goods, as ought to be clear from the analysis presented in the main text. Even though this error essentially follows from definitional sloppiness, the proponents nonetheless immediately go further with their slipshod analysis and demand what Ostrom specifically cautions against, even if they had previously been correct in their starting assumption, that the only way to save society from catastrophe is to make these common-pool resources private goods that belong to the government, on which legalized monopolies may then be issued to favored patrons. Continuing this train of thought is outside the scope of this extract, but curious readers are encouraged to source “Against Intellectual Monopoly” by Michele Boldrin and David K. Levine, as well as the many writings and talks of Stephan Kinsella, of which a natural starting point might be, “Against Intellectual Property,” Journal of Libertarian Studies, https://cdn.mises.org/15_2_1.pdf.