Topic: Pegasus Island: Thought experiments on the nature of money and economies. (Read 2316 times)

Universities have their own coming storm to deal with ... the rising tuition costs aren't sustainable.

Forsooth, despite its present relevance, the university lecture will have been forsaken within but one generation.  

It's funny, you can think of Google (in place of currency) and information (in place of trading goods) for islands that want to stay informed of other islands. I also see this as a problem with modern information: Google acts as an intermediary but starts diverting more and more searches to its own properties, to make themselves $$, or else they can include you in their results if you pay them $$ (Adwords). In that way Google becomes a reification of the natural curiousity we have to search one another for information. In a generation we might all be almost completely dependent on Google instead of the historical oral tradition of passing down vital cultural information.

/ end tangent

The scenario you described is not low demand, there are still demand for those sparkling wines

In reality, it is very likely that Alice is producing sparkling Californian wines and Bob is producing is sparkling Canadian wines and Keiko is producing sparking Hokkaido wines and they all compete on the international wine market and there will be a price war to drop their price even below the production cost. And there is a race to drop the production cost and shipping cost further by using robots and drone delivery, and fire more workers, just because the winner could sell a bit more wine and get some fiat money

Worse than that, since both Alice and Bob and Keiko could get loan from their bank, the ability to defeat their competitors will depends on how long they could sustain the operation at a loss (the loss is coverd by a long term loan). After 5 years of price war, eventually Alice and Bob are out of business because the Japanese central bank gave Keiko 1 billion dollar loan, helping her to occupy 90% of the international wine market, so that future human would mostly drink wine from Japan  

 
  
I won't deny that bitcoin has a massive network effect going on right now, but let's consider other historical examples where massive network effects have been disrupted by superior/different ideologies or technologies.  
  
Consider the Myspace disruption by Facebook.  Social media was just starting out and right as Myspace began to take off, here comes Facebook with a competing but fundamentaly superior product that totally destroyed MySpace.  
  
Consider how the US Dollar came out of nowhere to become the reserve currency for the world (despite our little country only being a few hundred years old).  
  
Consider how the Super Nintendo owned the video game market in the 1990's but the Playstation came along and obliterated that lead (and then lost it to the Wii).  
  
Consider how the Muslim religion spread with fervor a thousand years ago, despite Christianity already having hundreds of years of a "network effect".  
  
Consider the fact that you are now reading and participating in a thread by the famous americanpegasus, despite the fact that no one had ever heard of me a few years ago.  

I am not a realist: I do not hold "profit" to have an objective existence. "Profit's" existence, for any particular person, is specifically that which it has come to occupy for them. (I will proceed in accordance with this belief.) Profit is a degree whereto one's perception of value - as it is manifest as a response to an exchange - deviates from that of another. Moreover, it is one such degree that is held to be to correspond to one's having secured itself against some calamity.

Proof only exists in purely axiomatic systems (e.g., mathematics). Empirical systems have but evidence, since observation must be assumed to be veridical (should one aim to avoid solipsism). Therefore, you have not proven  anything (that genuinely corresponds to the observable universe). Furthermore, your hypothetical is so far abstracted from reality that its meaningful connections to reality, if any, are not at all apparent (which, according to your criticism of my use of language, is entirely the fault of yourself).

Regardless, I have shown that - at least, within the context of your hypotheticals - reality has to be framed around money (perhaps, via a plutocratic hyperreality) for it to be anything but an instrument of augmenting the abuse of scarcity to one's (perhaps, a plutocrat's) advantage.

This sounds great and im holding XMR since ages ago, but I still think there's no way Monero will ever surpass BTC. BTC's network effect it's too strong at this point, and the powers that be will love a public, non-anonymous-by-default blockchain. Unfortunately, i think Monero may become the #1 coin used in darkweb or something, but not mainstream.

Even in a modern society, imagine Alice produces californian sparkling wine, and sells them for $10/bottle to Bob. Bob buys 100 bottles, pays a $10 dollar shipping fee and sells them for $12 dollars/bottle in Japan. Then 100 people buys Bob's wine.

Alice made money, Bob made money, and the 100 people made money because otherwise they would have to pay $20 dollars to get that bottle of sparkling wine shipped to them. So in effect, they each saved 8 dollars.

True, trading profit both party, as long as there is division of work and unfulfilled demand

In modern society, very often majority of the demand is fulfilled, each producer are dumping excessive goods in an attempt to get most liquid assets (usually money) from the other, then it does not benefit anyone

Profit is an accounting term after the arrival of money, and it is based on an assumption that money have constant value, which is not true, it is not necessary to support economy activities. Economy is driven by demand, and its root is desire

Of course, if you use time as a unit of value, then your statement is almost true. Exchange happens because each participants could save more time from it. But not everyone is profit-seeking and I guess majority of people are not

lol, just give up. It has nothing to do with the "scotsman fallacy". What it is, is proof by contradiction. I've shown cases where your argument is invalid, and therefore it is invalid. Again, it has nothing to do with the argument to begin with even if what you said is internationally logically consistent.

You haven't given a clear, concise and UNDERSTANDABLE statement/description of what it is you are trying to argue. "About money" is not an argument.

And a word of advice: I hope you don't talk like this in real life. Besides, language is a means of communication. If you can't communicate your message clearly to the intended audience, it isn't the fault of the audience, but your own fault for not being smart enough to communicate effectively.

The amount of time it would have taken for Alice and Bob to acquire anything would be infinite, after already starving and dehydrating to death.

In regards to your point that they may have been able to exchange the goods at a higher price, first of all, let's assume you're right. How does that in any way invalidate my point? Or johnyj's point? (which was the original post that started the debate). It seems that you are, in an effort to sound smart, typing extremely convoluted sentences that has nothing to do with the posts you're arguing against.

But even ignoring the fact that your arguments have nothing to do with the topic, your arguments are flat out illogical. Why do you assume that they could've exchanged the goods at a higher price? If Bob and Alice both needs 4 hours' worth of food and 4 hours' worth of water to survive, neither will be willing to let go of more than 4 hours' worth of each resource no matter what medium of exchange your using, whether that is barter or through fiat, bitcoins, gold, or anything else. They are not going to agree to starve to death.

But they will happily exchange 4 hours' worth of their resource for another essential resource they need, because it will allow them to survive, and they still have enough of the original resource they worked for for themselves. Both Alice and Bob would make such a "fair" transaction, because they would both benefit from it, or die otherwise.

If everyone considered the "opportunity costs" of possibly being able to exchange goods at a higher price, there would never be any trade happening. It's simply neither practical, nor optimal. For example, go to any local corner store, and look at the pricing of their items. Then go to Walmart. Are they the same? Or is it more expensive at the corner store? Clearly people do buy at the corner store; or else it would go out of business. So why doesn't Walmart raise all their prices? They're losing out on opportunity costs!

Of course it's fairly obvious that Walmart would earn a greater profit operating the way they do now. Oh, and don't try to bring in extraneous arguments like "Well, the corner store is closer to the 80 yr old's home, and has locational advantage." Not relevant.

1. "the amount of time it would have taken Alice and Bob to acquire them after having starved and dehydrated respectively" (username18333)

2. " to acquire [food and water]" (username18333)

3.a) Exchanging the goods at a higher price.
3.b) No.
3.c) No.

Money allows all of us to speak a common language of resources and effort, and by focusing on specific sub-areas it lets our entire species become more productive in ways that would be impossible before. 
 
Consider: if we all have to hunt, fish, get water for ourselves... almost none of us will have free time to design new technology and wonders. 
 
But with civilization, and specialization, we are left with more free time to pursue ever loftier goals.... better shelter, tools, entertainment, etc.  Now take this example out to its logical conclusion: 
 
What will be more effective: 100 tribes of ten people each.... with each tribe having its own money? 
 
Or one single united tribe, all speaking (valuing) a common currency allowing the 10,000 person tribe to truly become far more than the sum of the parts. 
 
And lastly, consider our 7 billion strong civilization.  At the present, many amazing discoveries and wonders are impossible to pursue because a lot of our talent is locked up just trying to survive day to day... imagine how incredible it is going to be when we all speak the same 'language' of money.  When the entire world can instantly and easily transact with itself, we are going to see a second Renaissance and industrial revolution.  We are still going to have the same 7 billionish people, but we are going to suddenly feel the productivity of what feels like 40 billion all contributing in ways that were impossible before. 
 
It's going to be an amazing ride.

An extremely convoluted argument is not necessarily a good argument.

"Neither Alice nor Bob forsook that quantity of time"
Which quantity of time? For what? Alice did in fact spend a whole 8 hours gathering drinking water, while Bob did in fact spend a whole 8 hours hunting for food. That time was spent.

What opportunity costs are you talking about? That Alice could have gathered drinking water for 4 hours, proceed to travel for 2 hours to the hunting grounds, and hunt for another 4 hours, to get what she needed?

Or that Bob could've hunted for 4 hours and proceed to travel 2 hours to the river, and spend another 4 hours gathering water in order to get what he needed?

You did not account for opportunity costs: each of those items were "worth" (futureofbitcoin) - to use your phraseology - the amount of time it would have taken Alice and Bob to acquire them after having starved and dehydrated respectively. However, neither Alice nor Bob forsook that quantity of time. So, the assurance of profit deprived each participant of what they "needed" and assured them only of what they already had in (at least, relative) excess.

Money extrapolates such deprivation to international markets.

People just don't want to believe in an idea that there is a solution out there, which thrives on the idea that two people can profit individually without any one of them suffering any loss. Money could be specific but value cannot be specific, 2 people can value same commodity differently because of the intensity of their wants, the more marginal value it has to them.

I don't see how what johny said has anything to do with what you said. Did he say anything about profit?

That said, Imagine Alice works for 8 hours to find and bottle clean water.

Bob spent 8 hours hunting for food.

They exchange 4 hours' worth of water for 4 hours' worth of food. They both profit, because without food, Alice would starve to death, and without water, Bob would die from dehydration.

Value is not necessarily the same for everyone, you can have situations where everyone profit.

Profit mandates one receive more value than it (i.e., that one) produces. Money enables one to delude another as to profit's pre-/absence within an economic "exchange" (johnyj).

Regarding "All money is a scam" claim, it does not necessary to be so

If Alice works 8 hours and exchange her products with Bob's products, which also cost 8 hours to produce, there is no scam involved, just fair trade. Similarly, if the cost to produce certain amount of money is similar to the value of the product those money can purchase, then it is also fair trade. This means, if the amount of goods that need money to trade increases, the cost of producing money should also increase. Bitcoin is a perfect example of the fair trade principle

Yes, Monero addresses have a viewkey that can be given out to allow someone to view the contents of an address without the ability to spend them.  This is pretty much the final masterstroke in the system, because it allows for anonymous digital currency and tax/regulatory compliance as well.  
  
Taxes would work fine on the island if the people voted them in.  They would simply say that everyone had to reveal how many gems they had every year and then part with 5% of those to the village Wisemen.  
  
But, with the gems system (Monero) if someone doesn't want to reveal all the gems he/she holds, you're going to have to conduct an investigation to prove they are withholding; you don't automatically know thanks to privacy.  
  
This is how it should be. 
 
If you demand that public officials and government workers get paid only in public money, that's what we have bitcoin for.

So the island would be a libertarian 0% taxes paradise I guess? Because no one would bother with it when the blockchain is 100% obfuscated. And dont get me wrong I love privacy, but I think people that are serving public jobs should have their money movements 100% transparent. Does Monero allow for switching between complete anon to transparent? Because BTC will eventually allow for that.

Here's further musings on our little island:  
  
Let's first consider the elitist position some of us take of our fellow humans not being the "brightest tools in the toolbox".  I've been around long enough to know there are a lot of different forms of intelligence, and each member of the species has different strengths.  Also, different forms of intelligence tend to regard each other with disdain.  There exists a practical form of 'smarts' that many of the computer-nerd/ADHD/creative types lack.  These individuals own farms, auto-mechanic shops, and do payroll for large corporations.  It is an organizational and detail oriented ability that is necessary to move along the gears of society.  Hell, even the person willing to slap together cheeseburgers behind a counter has value in that they don't mind manual labor.  
  
I find it important to realize that all members of the species are valuable as long as they are willing to expend effort to help/support others using their talents.  It's also important to realize that these talents can take many different shapes, and for some, those talents won't include abstractions of important concepts (like money).  Our 1000-person island would have many of the same dynamics.  Some of the 100 would immediately start designing shelters and devices to capture rainwater.  Someone would begin putting together weapons.  And some would just want to get their bare hands busy doing *something* to help the situation.  
  
Ingenuity, 'book-smarts', and creativity are important but don't exist without the manual labor to back it up.  We will leave for another time the labor-apocalypse that is coming with the advent of robotics because that will soon replace/enslave all of us (yes, even the creative types).  
  

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The Island Economy  
  
So containing our abstraction to just human interaction, and the 1000-person island, we extend the thought experiment to the following question: What makes a good economy on the island?    
  
Well, we want people advancing "society" and infrastructure.  This is going to include designing new tools and structures that will make life easier and more entertaining for our 1000.  It's also going to include those that provide necessary labor that brings in raw materials such as wood, food, and water.  And finally we will also have to consider those that provide social services: mothers who look after children, doctors who tend to the injured, and elders who arbitrate disputes between the residents.  
  
Individually, most of these 1000 people probably wouldn't survive long on the island: few will have a robust enough skill-set to create a comfortable and lasting life for themselves.  But together, the 1000 form a super-organism (like an ant colony) that has all the skills necessary to tackle the current challenges and prepare for future ones.  
  
Things we want to encourage:  
  

• Designing new technology
• Supporting colonists with sustenance, such as food and water
• Supporting existing infrastructure with repairs/maintenance
• Encouraging social bonds so that same genders feel amiable towards each other while opposite gender pairs mate to make new members.

 
The more intensely we can provide for all of these needs, the better the "economy" of our 1000.  What would a poor economy look like?  Remember that all of this comes back to money, and we need to imagine how a poor form of money might discourage progress.  
  

• No new research is being done  (because there is no financial incentive; no one is donating/paying for new tool/structure designs and engineers can't live off their designs... essentially, society is not rewarding creative behaviors by offering any compensation for them)
• No one is tending to the social/medical/spiritual needs of the tribe (if this occurs, once again, there is no incentive for anyone to take up the above tasks because they are not being rewarded with resources in a money-less society or they aren't being paid in the money-fluent society... this means that those qualified to do them will be too busy focusing on other survival needs)
• Mating is probably still happening because sexuality is a raw human instinct, but the young are not well looked after or cared for (to provide an optimal environment for the youth to discover their talents and become the best adults possible, all basic needs for sustenance need to be met and excess resources are needed)
• Supporting others with raw sustenance (this is a bad one... if the actual raw food chain or water supply of the island collapses then this will obviously collapse the higher levels and raw sustenance will begin to carry a premium price in a money-enabled society)

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Life As a Pyramid    
  
By thinking of things this way, we begin to understand the pyramid of society: in order for the super-organism of a civilization to advance, much work needs to happen at the bottom of the pyramid to enable the intellectuals at the top to continue to offer social/engineering/medical services to keep the entire super-organism working.  
  
In nature, just as we have found with the phi constant, we see that natural selection has already discovered optimal ways of doing things.  I firmly believe that the human body is an amazing example of a near-optimal system already and as we go on we are going to discover some important centralization/optimization lessons associated with it.  
  
Think about how much work needs to be done by the organs of the body in order to enable the brain to function.  The brain performs incredible miracles for the body in return for this energy, but it also soaks up a large part of the body's energy 'budget'.  Inside our bodies, money can be thought of as cellular energy... calories... blood... ATP... a number of things.  But essentially the parts of our organism need to transact with each other in order to enhance their harmony and increase their abilities.  For example, if the heart, stomach, and legs could talk, they might bitch about how much work they have to do to support the brain... but none of them could deny that it was the brain that got the entire super-organism promoted to a better job which enabled a higher quality of life for all the organs of the body.  
  
We can see the symptoms of a poor "economy" when the body loses the ability to run the brain at a high level (through injury or depression) and in turn the "economy" of the body turns its focus towards survival and not thriving.  Each organ starts hording energy and attention turns towards protecting only those most crucial organs to sustain life.  
  
We can scale up these concepts to our super-organism of the 1000-person island and imagine the same:  a healthy economy is going to be made up of two principles: 1. an abundance of resources.  2. encouraging all the different members of the super-organism to interact with each other frequently, ensuring that everyone's needs are met and all members can perform their specialty at maximum efficiency.  
  

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Humanity as the super-organism  
  
Takeaways:  Money is blood.  Money is energy.  Money is a system to interact with our fellow members of the super-organism of Earth.  
  
For a mechanical example, we are the parts of the machine, the raw resources of the planet are the power generators, and money is the hydraulic fluid that shifts pressure from one component to the next. Without any of these three essential parts, the "machine" falls apart.  
  
Therefore money needs to act as a fluid that moves from one part to the other, and it follows that a healthy specimen will have an excess of energy (resources) that will allow money to flow frequently from one hand to the next.  A good form of money should naturally *encourage* this spending.  Hoarding of resources (represented by the fluid, money, or blood) should only occur during an emergency when the survival of the organism is threatened.  
  
Population is important.  Our super-organism has 7 billion members.  There are titanic wonders that we can accomplish with 7 billion humans vs. a mere 1000.  Every one of these 7 billion is important in some way.    
  
On an island of 1000 people, the iPhone never would exist.  It's just not possible because the super-organism isn't complex enough to sustain the intelligence necessary to create and manufacture such a thing.  
  
So on a grander scale, it's important to note that population is a good thing, as long as that population can be offered the resources it needs to survive and also fulfill a specialty within the super-organism.  A good money (blood/fluid) will allow us to transfer between all members of the super-organism easily and effectively.  Just think how fucked up it would be if every organ in our body had to use a different type of blood and we had special organs to convert blood types that were crossing from one organ to another... but that's how the modern global economy works.  
  
Cryptocurrency should allow all members of our super-organism to communicate and transact better than ever.  The reason it will likely be a privacy based cryptocurrency and not bitcoin is because we are not a perfect super-organism yet.  We don't all trust each other implicitly.  
  
Bitcoin is a money for a perfect world (the body) where there is little to no chance of the constituent parts turning on each other.  But our super-organism is still forming and so there is a danger of competition and bad-actors (cancers and such) to clog up the machine.  Therefore a privacy based cryptocurency is the best form to act as the fluid that transacts between all the different parts of our 7 billion person island, as it allows all the advantages of digital transactions while also enabling a true trustless economy.

I am an unabashed supporter of bitcoin and Monero, so I apologize if their inclusion as metaphors offends you.  Feel free to refute or provide your own examples of island economic principles.  
  
It's worth noting that we are most assuredly in the top sliver of humanity by even challenging the notion of what money is.  I asked my teenage nephew the other day what money was, and the answer he gave, "paper that the government prints", is indicative of the fog that the general population operates under.  
  
If you were the last man on Earth, would money exist?  No.  Because money is an imaginary concept by humans to keep track of what other humans owe them.  
  
If there were only three survivors on a deserted island, would money exist?  Possibly, in a primitive form.  Small notes could be used to keep track of IOUs and favors, but one would hardly expect a robust economy to emerge.  For the most part, the three people are probably intimately connected in their day-to-day actions so each sees what the other is contributing towards civilization and feels compelled to interact appropriately.  A complex separate ledger to keep track of each person's contribution is not necessary.  (Consider this:  in a marriage do you have a form of money?  Probably not, you know what your significant other is contributing or not to your mini-'society')  

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The Thousand Man Island
  
Now let's say that there are 1000 people on the island.  Now it's not completely possible to keep track of each member's contribution.  A form of currency is needed.  
  
One wise man stands up and says, "Guys, I got this.  We will use special notes with my signature as currency.  I will issue them to anyone who does me favors, and you can trade them among yourself."  
  
Now initially, these notes carry little value, because who-da-fuck-is-this-guy amirite?  And so the issuer finds himself giving out many notes for very little payback.  These early "speculators" find themselves turning over real and hard resources for all-but-worthless notes.  But they also tell their friends that this is a superior way of doing things vs. just trusting each member to do their part.  In this way, the early speculators get quite rich, as they have been saving these notes for a while by the time the rest of the population catches on.  Bitcoin is a superior form of this money because we don't need the first guy to issue the notes.  There is no human point of failure.  
  
What would the 'bitcoin' be in this example?  Bitcoin would be a large sacred rock in the center of the island.  There is only one, and people transact by making large signatures on the rock, each claiming a portion of it.  They can then transfer a part of their claim to others as a form of payment.  It is limited, independent, and the signatures on the different regions can be publicly verified.  It is also nice that there is no central authority controlling the sacred rock.  It exists all on its own.  Of course, the 'notes' in our tale are the U.S. Dollar, which is the standard we are currently on.  
  
Let's look at what happens next in our example:  
  
The notes are the dominant form of currency on the island.  They circulate wildly and among the 1000 survivors, there are eventually 10,000 notes that are being passed back and forth.  The value of a note fluctuates slightly, but because the 'issuer' (who has become quite famous by now) has decreed that he won't issue more than X-new notes a year, the value holds fairly steady as people know they can rely on the power of that promise.  Suddenly though, a new tribe is discovered across the island.  And this tribe has many things that are desired... so a plan is formed.  The 'issuer' sells the new tribe on the power of their note, and proceeds to create 50,000 new notes and trade them to the new tribe for their goodies.  
  
The new tribe thinks they are getting a killer deal.  The original tribe only has 10,000 notes circulating among it, and they now hold 50,000 of the same?  Imagine the servitude that they can invoke by cashing in those notes!  The first tribe basically owes the second a vast debt that can be called in at any time.  
  
Meanwhile the "issuer" is attempting to soothe the concerns of the first tribe: "Listen, this is normal.  It is healthy for other tribes to hold so many of our notes.  We don't have to worry about them cashing them in.  You can go ahead and continue valuing your notes as usual."    
  
Now imagine that a third tribe is discovered, and an additional 50,000 notes are written and exchanged for resources.  

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Public Verifiable Currency
  
See where I'm going with this?  This is exactly what is happening with the US Dollar right now.  
  
And what is bitcoin?  Bitcoin, again, is that sacred rock.  A new character, the "scribe" declares to not just his tribe, but the entire island: "Guys I have a better idea!  Instead of trusting this guy who clearly keeps drawing up new notes, let's just use the sacred rock!  We can compete to see who gets to make the initial markings, and we will set up a fair game to distribute the initial claims of the sacred rock.  There's clearly only a limited number of places to make markings, and if we run out we can just subdivide our markings into smaller parts."  
  
Don't forget, money is only needed if there is more than one person on the island.  Because that's what a "dollar" is, ultimately.  It's a measure of what society owes you.  You can take your dollar anywhere and exchange it at any time for something from another human.  This miner wants to substitute these new markings on the sacred rock for debts.  
  
Initially, the "scribe" is met with wide skepticism from those who liked the notes.  "No one wants your stupid marks on a rock, you bum.  And what's more, if it got popular, you would be rich because you have been playing the game the longest!  It's just a scam!  Guys, no one trust the scribe and his sacred rock.  It's fucking dumb."  
  
And this is the key:  All money is a scam by that definition.  The early adopter will always get rich if they successfully predict that something is a superior form of money that will grow popular.  Getting rich speculating is a necessary evil for the rise of a new form of money.  So when they say that cryptocurrency is going to be one of the greatest wealth transfers in history, they are right.  The future is about to be a very strange place.  
  

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Private Verifiable Currency
  
Now, here's where Monero enters the equation. (or feel free to interject the privacy-based crypto of your choice)    
  
A third wise man, the gem miner, enters.  He says, "I have an even better idea!  Instead of using marks on the sacred rock, lets use these shiny gems as money.  They are limited, as there are only so many on the island, and they are also private!  No one has to know how many gems you own unless you show them."  
  
If the shiny gems truly are limited, it would be difficult to figure out a more effective basis of money for this island.  It is clearly superior to both the paper notes and the markings on the sacred rock.
  
This is why I'm with Monero.  It might not be the first blockchain, but it is the first blockchain that has all the necessary features of a true currency.  
  
I really enjoy these thought experiments regarding the n-person island and how the n-persons will transact goods and services.  Understanding these metaphors really helps simplify large scale economies for both you and anyone you are teaching about cryptocurrency.