On the Synthesis and Formalization of Hayek, Nash, And Szabo’s Proposals For The Optimization of The Existing Global Legacy Currency Systems - jalToorey/IdealMoney GitHub Wiki
Our final tool is that we don’t need to bring Hayek or Nash’s proposal with us entirely.
Of his theoretical and useful device the ICPI Nash said:
The concept I developed of "Ideal Money" became, in my view of it, sufficiently advanced when I conceived of a practical basis for a standardization of the comparison of the value of a currency with an appropriate standard or ideal. And the key to that was the idea of an ICPI or (international) "Industrial Consumption Price Index".
On the Esoteric DucatH Nature of Bitcoin
Then why shouldn't have Satoshi introduced to the world Hayekian ductH money, perfectly well supplied in relation to the demand?
The Szabonian Deconstruction of Apparent Trilemmas
Notice the wikipedia concept of a trilemma (Epicurean Paradox):
If God is unable to prevent evil, then he is not all-powerful.
If God is not willing to prevent evil, then he is not all-good.
If God is both willing and able to prevent evil, then why does evil exist?
Notice there is the possibility of Szabonian comparison in that the trilemma example is already framed such that it at least loosely fits into Szabo's complexity framework for traverse complex intersubjective truths:
Gods are objectively imaginary, but serve as a very useful metaphor for the theory of the intersubjective I have outlined. In other words, God exists -- and belief in Him constitutes a true belief -- intersubjectively, but not objectively.
On the Intersubjective Considerations of the Epicurean Paradox
And so we are grateful to have Szabo’s useful tools:
In other words, treat God or the gods as a metaphor for our modern insights into cultural evolution.
God as a metaphor for cultural evolution accounts for some of the theological divine traits.
Perhaps then from a Hermeneutic inquiry into metaphors of intersubjective truths and our tools that look for axioms of consistency added to inconsistency arguments we wonder if we should view the unresolvable trilemma itself as the added axiom and ask if people maybe should simply not wrestle with such a trilemma in the first place (ie don't look at the world through the lens of a paradox and don't accept the authority that forces you to!).
On the Intersubjective Considerations of The impossible trinity
Let us consider in the same way the impossible trinity:
The impossible trinity (also known as the impossible trilemma, the monetary trilemma or the Unholy Trinity) is a concept in international economics and international political economy which states that it is impossible to have all three of the following at the same time:
a fixed foreign exchange rate
free capital movement (absence of capital controls)
an independent monetary policy
The Impossible Trinity, and the DucatH
Hayek's ducat had no capital controls, and traded an independent monetary policy for a fixed exchange:
I would announce the issue of non-interest bearing certificates or notes, and the readiness to open current cheque accounts, in terms of a unit with a distinct registered trade name such as 'ducat'. The only legal obligation I would assume would be to redeem these notes and deposits on demand with, at the option of the holder, either 5 Swiss francs or 5 D-marks or 2 dollars per ducat. This redemption value would however be intended only as a floor below which the value of the unit could not fall because I would announce at the same time my intention to regulate the quantity of the ducats so as to keep their (precisely defined) purchasing power as nearly as possible constant
I would announce that I proposed from time to time to state the precise commodity equivalent in terms of which I intended to keep the value of the ducat constant, but that I reserved the right, after announcement, to alter the composition of the commodity standard as [46] experience and the revealed preferences of the public suggested
*It would, however, clearly be necessary that, though it seems neither necessary nor desirable that the issuing bank legally commits itself to maintain the value of its unit, it should in its loan contracts specify that any loan could be repaid either at the nominal figure in its own currency, or by corresponding amounts of any other currency or currencies sufficient to buy in the market the commodity equivalent which at the time of making the loan it had used as its standard. Since the bank would have to issue its currency largely through lending, intending borrowers might well be deterred by the formal possibility of the bank arbitrarily raising the value of its currency, that they may well have to be explicitly reassured against such a possibility. * *1 These certificates or notes, and the equivalent book credits, would be made available to the public by short-term loans or sale against other currencies.
In most respects, indeed, the proposed system should prove a more practicable method of achieving all that was hoped from a commodity reserve standard or some other form of 'tabular standard.' At the same time it would remove the necessity of making it fully automatic by taking the control from a monopolistic authority and entrusting it to private concerns. The threat of the speedy loss of their whole business if they failed to meet expectations (and how any government organisation would be certain to abuse the opportunity to play with raw material prices!) would provide a much stronger safeguard than any that could be devised against a government monopoly.
On the Political Instability of the Triffin Dilemma as Represented By Competing Trilemma Strategies
The only legal obligation I would assume would be to redeem these notes and deposits on demand with, at the option of the holder, either 5 Swiss francs or 5 D-marks or 2 dollars per ducat
Notice for example if the ducatH exists in a Hayekian lanscape of competing currencies another bank can hold duacatH’s and issue their own currency against it. With the assumption ducatH’s function as if like USD today the competing banks could then rely the on ducatH’s sound monetary policy and use it to provide the type currency it needs to BACK its own currency thus freeing its own currency from the part of the burden of the consideration and constant adjustment required in regard to a chosen and announced basket of commodities or prices.
The main advantage of the proposed scheme, in other words, is that it would prevent governments from 'protecting' the currencies they issue against the harmful consequences of their own pleasures, and therefore prevent them from further employing these harmful tools.
In economics this is the called the Triffin dilemma.
The observation of the comparison of the short-term domestic trilemma strategy versus the long-term international wants of the rest of the users of the reserve currency:
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
It is the problem when one major nation’s currency becomes favored as the foundation for other currencies such that it is implied that the foundational currency has a certain trilemma strategy versus those that use it as a foundational basis (and therefore they have a differing trilemma strategy which thus by defintion don't resolve).
It should concern the world, Triffin warned, the competing wants demand something impossible.
Our observation here is of the long term instability of political pressure implied:
This dilemma was identified in the 1960s by Belgian-American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, leading to a trade deficit.[1] The use of a national currency, such as the U.S. dollar, as global reserve currency leads to tension between its national and global monetary policy.
On a Higher Order of Ducat Observation
We know that in the face of inconsistency of a system we can understand and observe it to be consistent from a higher order outside that system.
This is WHOLLY different than adding an axiom of consistency simply for the sake of survivability in the face of changing nature.
Here rather than simply add an axiom of ‘this system is consistent’ we want to move to an external framework and try to see the trilemma/dilemma considerations from a higher order.
We will consider a Szabonian construct by imagining ourselves in the position then not of a central bank-but the omnipotent aka Satoshi.
As We Enter Into Satoshi’s View
That we should consider entering to the position that Satoshi stood with omnipotence and commanded into being the principles that Hayek wished for (but with the context of designing a programmable money) should be something natural for the reader to enter into-after all Hayek, as if from a position of god in his proposal, decreed his ducatH to exist in our natural world that otherwise wouldn’t allow it.
And so we put to ourselves as Satoshi, how could we program the SUPPLY to organize itself in relation or response to the DEMAND, or rather in in Hayek’s ducat case more specifically, in relation to the chosen and relevant commodity prices.
And we have Satoshi comments on this to help us enter in to it as Satoshi responded to these questions:
Is there a formula to decide on what should be the total amount of tokens, and if so, what is the formula? If there is no formula, who gets to make that decision and based on what criteria will it be made?
In the spirit of complexity distance metaphors the prices are not in Satoshi’s realm for use (otherwise he could peg the supply and be done with it-a hidden easter egg for CBDCs!):
To Sepp's question, indeed there is nobody to act as central bank or federal reserve to adjust the money supply as the population of users grows. That would have required a trusted party to determine the value, because I don't know a way for software to know the real world value of things. If there was some clever way, or if we wanted to trust someone to actively manage the money supply to peg it to something, the rules could have been programmed for that.
We find Satoshi’s humility in the response above to be a disguise-there is no programmatic way to manage the money supply in response to changes in prices.
Satoshi, in face of the Impossibility trilemma can’t use option 1 of:
- a fixed foreign exchange rate
- free capital movement (absence of capital controls)
- an independent monetary policy
On Satoshi's Wrapping of Hayek's Ducat
And so we let Satoshi make the infallible declaration:
I shall declare this supply schedule in which I shall make adjustments of the demand to meet.
This achieves the ends of ducatH money, but by adjusting the DEMAND side to match the PREVIOUSLY STATED SUPPLY instead of the supply the match the demand.
It's a clever corollary of Hayek's implementation of a ducatH:
satoshi{ducat}
(It's also a re-synthesis of the quantity and subjective theories of money; finite in supply and yet elastically adjusted in regard to its demand)
On Satoshi’s Considerations of the Demand Management of a Statically (Pre-announced) Supplied Currency
Consider again our Trilemma:
- a fixed foreign exchange rate
- free capital movement (absence of capital controls)
- an independent monetary policy
Satoshi can’t use option 1 as he has no programmatic access to prices.
Our task in Satoshi's perspective of designing Bitcoin is to formulate the implementation of option 3
On the Free Capital Movement As A Derived Assumption of Bitcoin
How do we derive the formalized truth or axiom that bitcoin implies the free flow of capital movement?
Can't Bitcoin be banned in some countries?
Recall we derived a tool from this Cantilon observation which is the corollary that if there is a phenomenon of prices across a network then nodes that have this price signal are thus a part of the network:
Circulation always consists of the large sums the farmer receives from Further reflection on the circulation of money the sale of his products that are broken up for sale at the retail level, and then collected again to make large payments. This money may be considered as constituting the circulation between the city and the countryside, irrespective of whether some of it leaves the city or remains entirely there. All of the circulation is carried out between the state’s inhabitants, and all of them are fed and maintained in every respect through the land’s produce and the raw materials of the countryside. For example, it is true that the wool drawn from the countryside, when made into cloth in the city, is worth four times more than its previous value. But this increase in value, which is the price of the city’s workers and manufacturers, is exchanged again for the countryside’s produce, which serves to maintain these workers.
Our point here is simple yet significant. From a Satoshian perspective of implementing a ducatH electronic money the assumption 'free capital movement' maps agreeably or in other words:
The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.
Put more simply, any nation and it's citizenry that has their own native currency, and can see an exchange price for their currency with Bitcoin, has for all intents and purposes witnessed Bitcoin's the unstoppable nature of its:
- free capital movement (absence of capital controls)
On Higher Order Observations As Solutions To Otherwise Un-Re-solvable Lemmas
From Satoshi's perspective before he had already coded bitcoin, consider then that he meant to pre-declare the supply and steer the demand.
Thus his money will float and flow freely by giving up control of the monetary policy.
On the Nature and Design of Demand Stabilized ducatH
Hayek means to solve our problems by the periodic correction of the supply of in relation to its demand.
Then let us consider the equivalent in which a stated supply is periodically approached by making adjustments based on its demand (the language here that is key is that we are not necessarily claiming to adjust the demand but instead making adjustments based on our measure of the demand albeit that we have not revealed yet).
Such a derivation of Hayek's intent has zero complexity distance from this statement of Nash’s:
The ultimately launched concept of "Ideal Money" became possible when I conceived of a practical basis for a standardization of the comparison of the value of the currency with an appropriate standard or ideal. And the key to that was the idea of an ICPI or (international) "Industrial Consumption Price Index".
The IMPLEMENTATION Nash says, that we showed is DERIVABLE and DERIVED from either and both the ducatH AND the ICPI, made what Nash’s calls “Ideal money” possible.
On the Zero Distance Complexity Peculiarity Between Nash and Hayek’s Theoretical Devices
Nash and Hayek’s proposal each rely on the introduction of the same device for the same purpose. Hayek explains it as follows:
Experience of the response of the public to competing offers would gradually show which combination of commodities constituted the most desired standard at any time and place. Changes in the importance of the commodities, the volume in which they were traded, and the relative stability or sensitivity of their prices (especially the degree to which they were determined competitively or not) might suggest alterations to make the currency more popular. On the whole I would expect that, for reasons to be explained later (Section XIII), a collection of raw material prices, such as has been suggested as the basis of a commodity reserve standard,l would seem most appropriate, both from the point of view of the issuing bank and from that of the effects of the stability of the economic process as a whole.
Nash explains it the same:
A Non-Political Value Standard
A possible non-political basis for a value standard which could be used for money would be a good "ICPI" statistic where this acronym refers to "industrial consumption price index". That could be calculated from the international prices of commodities, such as copper, silver, tungsten, etc. that are used in industrial activities.
We can see that times could change, especially if a "miracle energy source" were found, and thus if a good ICPI index is constructed it should not be expected to be valid, as initially defined, into all eternity. It would instead be appropriate for it to be regularly readjusted depending on how the patterns of international trade would actually evolve.
On the Considerations of Bootstrapping the ducatH From Hayek’s View Versus Satoshi’s Vantage Point
Hayek stated of the exchange value of his Ducat:
The only legal obligation I would assume would be to redeem these notes and deposits on demand with, at the option of the holder, either 5 Swiss francs or 5 D-marks or 2 dollars per ducat. This redemption value would however be intended only as a floor below which the value of the unit could not fall because I would announce at the same time my intention to regulate the quantity of the ducats so as to keep their (precisely defined) purchasing power as nearly as possible constant.
He needed an initial exchange price so he could say this:
The real value at the price at which the ducats were first sold would serve as the standard the issuer would have to try to keep constant.
What he is expressing is that it matters not exactly INITIAL value of the unit of the ducatH. Rather its only that the value proposition needs a declaration of any sort.
Consider then that Hayek meant to say:
given the initial value of x I will periodically readjust to remain stable in relation to x
Where x he said was to be:
...either 5 Swiss francs or 5 D-marks or 2 dollars per ducat
On Re-visiting The Significance of Bitcoin Showing Mises To Be Inconsistent
This is a nuance that he missed in his work it seems.
Hayek is re-solving Mises regression theorem from habit and yet from natural experience and because of our empirical observations of Bitcoin existing, we showed that Bitcoin does exist WITHOUT previous commodity based value violating Mises, and this caused us to use Szabonian deconstruction to find inconsistencies among the followers of Austrian branches economics.
That Mises would declare of his theorems:
The theorems attained by correct praxeological reasoning are not only perfectly certain and incontestable, like the correct mathematical theorems. They refer, moreover with the full rigidity of their apodictic certainty and incontestability to the reality of action as it appears in life and history.
They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts.
Nash rather has said:
It seems plausible or at least conceivable that knowledge actually gained from the study of Nature, plus cultural evolution, would in time lead to decisions, positive or negative, about the adoption of axioms relating to set theory that seem to us now as quite optional in merits.
On Bitcoin's Ability To transcend the Triffin Dilemma
Bitcoin doesn't suffer from the political pressures of the Triffin dilemma. It has no short-term domestic wants that can conflict with its global use as a long term stable currency (whether we believe it will be longer term stable or not).
Bitcoin foregoes:
a fixed foreign exchange rate
It implies:
free capital movement (absence of capital controls)
And Bitcoin as Satoshi declared previously in our essay, as our clever insight/observation, stabilizes its DEMAND function in order that it targets its supply effectively foregoing:
an independent monetary policy
Achieving Hayek's intent.
Bitcoin as a Demand Side Stabilizing DucatH Money
Bitcoin has the property to be ducatH money, NOT because its supply is elastic to its demand, but that in reverse as a derivable corollary-its demand factor is elastically regulated to its pre-stated supply.
On the Computational Short-Cut to the Cleverness of the Demand Function For Bitcoin
In a previous essay we showed how to derive this from each of Szabo and Nash’s work.
What we want to think of here is the cost to produce a new unit of currency in relation to the supply of that unit as if we were considering the (costless) act of pegging our currency to the price of some exogenous commodity (with concern of the natural and generally associated political difficulties).
We want to think of the simple formula of the quantity theory of money, the Cantillon Framework, before we apply it to the Hayekian field.
Consider a factor of increase in the production of a commodity we considered tying our currency to.
In order to keep our supply schedule static we MUST create a corresponding THROTTLE on the demand to the supply.
On the Demand Side Re-Arrangement of Szabo’s Bitgold:
Szabo notes that exact possibility of observable factor reduction of production cost in his essay Bitgold:
...it might be possible to be a very low cost producer (by several orders of magnitude) and swamp the market with bit gold.
He then makes the clever observation that based on the ‘periodicity’ of the system it is rearrangeable into its summable sigma form:
…since bit gold is timestamped, the time created as well as the mathematical difficulty of the work can be automatically proven. From this, it can usually be inferred what the cost of producing during that time period was.
Eureka! This renders bitgold from what would be asymptotically increasingly ducat+ money (ie increasingly cheaper to produce money) to a ducatH money:
Thus, bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value.
Re-Visiting Szabo’s formalization Intrapolynomial Cryptography
Szabo previously formalized Intrapolynomial Cryptography and proposed the application of being a response to a demand in architecture (think ASICs or specialized bitcoin hardware):
There are at least two practical implications of the above analysis. One is that there is very little room for error in the analysis and implementation of compute-cost postage, hashcash, bit gold, MicroMint, and other such intrapolynomial cryptography schemes. Another is that, unless the opponent has a very low budget and is thus limited to standard personal computers, it does not make sense to analyze the security or cost of these schemes without reference to machine architecture. For example, spammers may be able to defeat compute-cost postage by using custom chips optimized for computing the particular puzzle function.
Re-Visiting Dead-Reckoning As a Metaphorical Comparison To Bitcoin’s Difficulty Adjustment Algorithm
Let us re-visit Nick Szabo’s essay on dead reckoning:
A dead reckoning itinerary can be specified as a sequence of tuples { direction, speed, time }. It can be drawn as a diagram of vectors laid down head-to-tail. However, as mentioned above, this diagram by itself, for nontrivial sea and ocean voyages, contains insufficient information to map the arrows accurately onto a Ptolemaic map (i.e. maps as we commonly understand them, based on celestial latitudes and longitudes), yet sufficient at least in theory to guide a pilot following such directions to their destination.
Remember that we derived from Hayek’s ducatH the comparable implementation that:
given the initial value of x I will periodically readjust to remain stable in relation to x
We mean to reduce the complexity distance between dead-reckoning the difficulty adjustment algorithm by noting that in dead-reckoning the entire point is you cannot lose the chain of tuples that reduce to x (here is might be confusing the reader because we aren’t pointing to a block-chain in the sense of linked transaction but we are point out that each tuple in dead-reckoning depends on its connection to the previous tuple).
It's a very difficult orientation to find that x doesn’t matter or in terms of Mises regression theorem ANY non-zero valuation will do and.
It’s a brilliant observation that Satoshi based bitcoin on.
On Process Control Arrangements As a Metaphorical Comparison To Bitcoin’s Difficulty Adjustment Algorithm
Thus with regard to Szabo’s bitgold, we consider a predetermined supply schedule and need to adjust the computation factor in face of an unknown and changing demand schedule as the summation of the periods of issuance.
Supply = sum of the periods of (computation factor offset / total architecture output)
Notice Szabo doesn’t assume a finite supply nor is our formalization bound by it (nor was the ducatH contrary to Saifedean’s lies).
For each period then, we want to adjust the computation factor offset in response to the total efforts of the architecture. Satoshi introduced metaphors of mining for gold (this is a hermeneutic statement rather than of the history and etymology)-we want to find out how we can adjust the proof of work function to counter the changes mining power.
We have found the impasse from Szabo:
…it does not make sense to analyze the security or cost of these schemes without reference to machine architecture.
However solving this would remarkably give us Hayek’s ducatH.
How do we PRE-Predict the totality of mining efforts for a period, such that we can offset the increase or decrease in computation effort BUT BEFORE we even know it? In fact how could Satoshi possibly expect to even measure the totality of mining efforts of the network?
We find the answer as a process control solution:
By using the approximate "miss" of the last period’s ducat ratio with respect to its PREDICTED target.
On Mapping Szabo’s Bitgold to Nash’s Proposal for Ideal Money and Hayek’s Ducat Proposal
Here are able to borrow from a special framing from Nash’s proposal or rather the concept of Idealness as a higher order implementation of Hayek’s ducat. Consider what we suggested was Szabo’s eureka observation:
…since bit gold is timestamped, the time created as well as the mathematical difficulty of the work can be automatically proven. From this, it can usually be inferred what the cost of producing during that time period was.
Why is this important? It’s because it organizes and identifies each piece of bitgold by the total computational effort of its associated period.
It's a brilliant observation of Szabo’s.
He has arranged bitgold as a formalized implementation of Nash’s Ideal Money and Hayek’s ducat by the specific notation we express as:
ducatH
On the Termination of the Recursive Nature of Periodic Dead-Reckoning Adjustments
We recall that Nash noted:
The ultimately launched concept of "Ideal Money" became possible when I conceived of a practical basis for a standardization of the comparison of the value of the currency with an appropriate standard or ideal. And the key to that was the idea of an ICPI or (international) "Industrial Consumption Price Index".
If we consider that Szabo’s notion of arrangement of bitgold as our “target” supply we have a clever and strange arrangement such that in a given period we can expect to have missed our target by a matter of mining either too much (ducat+) or too little (ducat-) units as the effects of the inaccuracy of the previous period.
Thus we can bake INTO our algorithm a commandment from Satoshi:
the current adjustment for the computation factor offset shall ALSO make up for the discrepancy between the LAST adjustment
However, notice this doesn’t also induce a prediction for the totality of the new mining efforts. That's because it's unnecessary! A process control algorithm of periodicity that self-retargets is, well, dead-reckoning age technology.
Like how Mises regression doesn’t actually need termination on his inquiry nor does the algorithm we just described.
Satoshi realized its enough to declare (notice the subtle but powerful difference):
…the current computation factor prediction shall make up for the discrepancy between the last prediction
And so in the long run, it did.
On Asymptotically Ideal Money as the Implementation of Dead-Reckoning As a Solution to the Demand Side Management of Hayek’s DucatH
Thus it is quite natural to say that if we consider 'that which is ideal money', to be Hayek's ideal of a money that has a perfectly scheduled supply to its demand, which we correlated to governing the demand with respect to a preannounced supply schedule, which then formalizes to Szabo’s bitgold observation and arrangement, that we satisfied with a simple process control solution which asymptotically approximates our stated ideal (for readers that are confused and can code, try to code this up and you will only get one foot in before you realize it’s obvious).
And thus we have shown the re-solution and re-synthesis of Hayek’s proposal, with Szabo’s bitgold proposal, and Nash’s Ideal Money and shown each of the three of them to have zero distance complexity between them.
They are thus as if from the same but somehow unique perspective.
This observation by Szabo’s account is thus ‘intrinsically’ valuable.