[118336] in Cypherpunks
Re: A question about b-money... (fwd)
daemon@ATHENA.MIT.EDU (Jim Choate)
Sat Sep 25 09:12:20 1999
From: Jim Choate <ravage@einstein.ssz.com>
Message-Id: <199909251300.IAA25558@einstein.ssz.com>
To: cypherpunks@einstein.ssz.com
Date: Sat, 25 Sep 1999 08:00:47 -0500 (CDT)
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Reply-To: Jim Choate <ravage@einstein.ssz.com>
> Date: Sat, 25 Sep 1999 08:40:45 +0200 (CEST)
> From: Anonymous <nobody@replay.com>
> Subject: CDR: Re: A question about b-money... (fwd)
> This does not work the way people have been assuming. Consider a
> more detailed analysis of the example above.
Good. I'll enjoy blowing more holes into this one.
> Let us indicate b-money prices using $BM. Suppose computing cycles cost
> $BM 0.01 per hour. Now 100 hours of computing cycles cost $BM 1.00.
> Suppose, following the example above, the standard basket of commodities
> costs $BM 0.33. Then if you burn 100 hours of computing cycles you get
> credited with "3 units".
Let's indicate $ with $, that way you don't get lost in a maze of
abstractions that hide the point. You can't object to this since you're
saying a priori that such an equivalence is extant. b-money is just a token
that represents that quantity through a W-s equivalence.
That 'basket of commodoties' value better be exactly equivalent to the W-s
used to generate that value of b-money tokens. If it's not then you've
devalued the value of the baskets contents and injected inflation and
reduced the value of your b-money toke requiring you to create another
b-money token to get back to where you thought you were to start with. Of
course this next token further inflates the market which requires yet
another token, and so on.
What you're doing with b-money is saying that $0.1 is equal to $1. Even 1st
graders don't make that sort of mistake.
You're right back in the hole having to generate even more tokens to make up
for the drop in the original value of the baskets.
YOU CAN'T MAKE MONEY MAKING MONEY. IT MAKES THE MONEY VALUELESS. This is
Economics 101.
> Here is the mistake people are making. It doesn't mean you get credited
> with value equal to 3 standard baskets, which would be 3 x $BM 0.33 or
> $BM 1.00; rather, it means you get 3 units of b-money, i.e. three b-money
> "dollars" or $BM 3.00.
> In this situation it is profitable to burn cycles to create b-money.
> For each 100 hours you earn $BM 3.00, but it costs you only $BM 1.00
> (100 hours times $BM 0.01 per hour).
Which means that to make $1 of value costs me less than $1 of resources.
Giving me a token whose actual market value is LESS than its face value.
That's called inflation and its bad. The goal is to build a market where the
value of $1 is the same as it was ten years ago and ten years from now.
> What happens is that initially it is profitable to burn cycles like this
> and generate b-money. This will cause an increase in the b-money supply.
And an increase in the amount owed the electric company for its services.
They want to be paid, b-money MUST be usable for this. So you use $0.1 of
the utilitites services to generate $1 of value which you then turn around
and pay the electric company with. Now they've spent $.01 to provide you their
services (it was their price after all for the W-s you expended in making
your) and you take $.99 of the token value and use it. That represents
inflation because the $.99 came from out of the air, YOU MADE IT UP. In
effect b-money is a means to counterfiet value. This works fine as long as
you're the only one doing it and nobody else knows. The instant others know
they can spend $.01 to make $1 they're all going to jump on the bandwagon.
This means that the market value of the $1 b-money token will decrease.
> However as the b-money supply grows, inflation happens, just as we have
> seen with government currencies when they increase the money supply.
> This causes prices to rise.
Which is exactly what you don't want. It's nice you finaly see why b-money
won't work (though you haven't figured it out yet). The value of the 'basket
of commodoties' (I'm going back to W-s as it's not as abstract) also goes up
meaning that the value of your original token is devalued simply because you
made it.
There is also the point that the reason inflation occurs in the real world
is seldom because the actualy quantity of money goes up or down but rather
because of changes in market value because of changes in quantity and need.
The problem with b-money is that it allows people to generate their own
money as they see fit (which is all the time). What person wouldn't spend
say $1000 W-s to make $1M of b-money tokens?
> Eventually prices rise so that computing cycles cost not $BM 0.01 per
> hour, but $BM 0.03 per hour. Correspondingly, the basket of commodities
> will increase from $BM 0.33 to $BM 1.00.
You're assuming that the value of the token is constant in this case. It
isn't. If the value of the basket of commodoties increases then the token
you originaly generated is worth less than it was. You have to make up this
loss of value somewhere. So you generate another token to compensate. That
new token injects more instability into the market further lowering the
value of that basket of commodoties. And so on.
> Now if we burn 100 hours of computing cycles, it costs us $BM 3.00
> (100 hours x $BM 0.03 per hour). This is still 3 standard baskets'
> worth of cycles, so we would get credited with $BM 3.00. Our costs now
> equal our gains and the cycle burning is no longer profitable.
No they don't. You have now equated $0.03 to $3. There is no profit in that.
> With b-money, the money supply increases initially until it reaches the
> point of equilbrium. That happens when the price of a standard basket
> of commodities reaches $BM 1.00. At that point the money supply becomes
> stable.
That isn't stable and most certainly isn't an equilibrium point. When the
value of the b-money token reaches the costs of the W-s to generate it
you're actualy broke. Why? You use $1 to generate a $1 b-money token. Now
you've got to pay the electric company for their $1 of W-s AND you've got to
pay the CD vendor a $1 for the used CD you bought so he can pay his costs.
Last time I checked:
$1 - $1 - $1 = -$1
I never heard of any economic system that states being in debt is a profit.
Put down the pen and step away from that checkbook Sir.
> Over the long term, there will still be a slow increase in the b-money
> supply.
Over the short term there will be a magnificent increase in the b-money
supply as people try to cash in on the un-equal evaluation of the tokens (ie
$0.3 = $3). Then quite rapidly the b-money market will crash as people
realize that everyone else has twigged to it and is doing it too.
> Over time, improvements in productivity and technology cause
> the price of the basket of commodities to fall below $BM 1.00.
Furher inflating the market and devaluing that $1 b-money token even
further.
> As this happens, it becomes (slightly) profitable to generate more b-money.
> This will go on until the money supply is increased enough to stabilize
> the commodity price at the $BM 1.00 level.
Ever hear of economies of scale, if the margin is slight we can make the sum
great by doing a lot of that particular service. Since we're generating $3
for each $.03 it is obvious what happens. Everyone starts turning on their
machines and using them to generate tokens. So much for a fixed b-token
supply. The faster we make b-money tokens the faster the electric company goes
broke. At some point the electric company quites taking b-money tokens and that
will cascade through the rest of the economy. THAT makes the b-money token
worthless.
> B-money is therefore highly resistant to inflation, and contains
> mechanisms to automatically adjust the size of the money supply to
> produce very stable prices over the long term. It would be superior in
> this regard to virtually any other proposed form of money.
If you 'adjust the money supply' then you're injecting even more inflation.
b-money is wishfully making value out of peoples desire to have money.
It's broke bad.
____________________________________________________________________
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The Armadillo Group ,::////;::-. James Choate
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