I wasn’t surprised by the idea of using labor hours itself, but rather by the assumption that people in a system with free choice would naturally settle on it as the ideal solution.
Sure, I’ll try to clarify. You seem comfortable with the idea that global market capitalization can be expressed in a single currency, like the dollar. Let’s assume the world’s total market cap is $100 trillion. Let’s say Apple’s market cap is $3.5 trillion, or 3.5% of the total, so if you had $1, you could conceptually allocate 3.5 cents to Apple, 3 cents to Microsoft (which has a $3T market cap), and so on across all investable assets.
This is how index funds work and I hope there’s nothing inherently strange about it.
If there are non-equity assets you can’t invest in, you still aim to expand your investment base to represent the entire market as proportionally as possible. In a perfect world, you could also invest in governments, crypto, individuals, but even an approximate model works well.
But of course you’re not doing this manually and this world, an index fund—like a “Vanguard S&P 500”, but larger—handles it for you. You give them your money, and they allocate it proportionally across the entire market. Since this is the most stable strategy, many people trust it and invest in this company until they can effectively exchange shares of this fund among themselves as equivalent to money.
And when the network effect becomes broad enough, the rest of the world economy uses the shares of this fund as a currency, and from that point on, the entire economy is measured in it, because you literally store money in it as an a priori option, and given that it is invested by capitalization, it represents “fractions of the global market”. So from now people exchange fractions of the global market.
Yeah, this technically depends on the “success of one company”—but the success of this index fund depends on hundreds or thousands of companies it holds. You don’t expect this “one company” to collapse unless the entire economy does, and not due to any mismanagement of a single firm. And this company does not “own all the money in the world”, but simply acts as an intermediary.
Does this make more sense? If, hypothetically, all traditional currencies vanished and were replaced by shares of global market capitalization—so that instead of dollars, people traded “hundred-trillionths of global market cap”, ranging from 0 to 1, and no new money was printed—what effects would you expect, and what makes you think this system wouldn’t work or would work worse?
Speaking about the volatility of the global cap… what are you comparing it to? It seems to me that any national currency with inflation steadily falls, unlike the world market, which, with fluctuations of several percent, generally grows. “More stability than this” most likely means less profit, if you knew that—conditionally—gold will always rise in price, this would be taken into account in the global cap to make this growth slower than the relative growth of the entire economy.
I guess I’m just not sure you could trade in “hundred-trillionths of global market cap”. Like, fractions of a thing assume there is still an underlying quantity or unit of measure that the fraction is a subcomponent of. If you were to range it from 0 to 1, you’d still need a way to convert a 0.0001% into a quantity of something, whether it’s gold or grain or share certificates or whatever.
I can sorta imagine a fractional shares of global market cap currency coming into existence alongside other currencies that it can be exchanged for, but having all traditional currencies then vanish, I think that would make it hard to evaluate what the fractions were actually worth.
It’s like saying I have 2.4% of gold. What does that mean? How much gold is that? If it’s a percentage of all the gold that exists in the market, then you’d be able to convert that into kilograms of gold, because all the gold in the world is a physical quantity you can measure. And then you’d be able to exchange the kilograms with other things.
0.0001% of global market cap, similarly, should be able to be represented as an equivalent physical quantity of some kind, and if you can do that, then why not just use that physical quantity as your currency instead?
For instance, you could, at a given moment in time, take that fraction to represent a percentage of all shares outstanding of all companies in the world. Then you could create a currency based on an aggregated “share of all shares” so to speak. But then the value of that share would be pegged to that number of shares rather than the actual capitalization, which fluctuates depending on an aggregate of share prices. So, in practice, your fraction of global market cap can’t be pegged to a fixed number of shares.
Also, fractions assume zero-sum transactions. If you have 0.0001% and get an additional 0.0001% to make 0.0002%, you must take that 0.0001% from someone else. There is no way to increase the money supply. Assuming some people hoard their fractions, the effective amount in circulation can only decrease over time, leading to effective deflation.
The value of each fraction, assuming there is some way to account for it, would also increase over time as the global economy grows. Thus, relative to other things, a fraction will become more valuable, which is also effectively deflation.
This many causes of deflation seem like it would become something people would further hoard as a way of speculation, again assuming there are still other things that can be exchanged for it, like commodities, even if other currencies no longer exist.
My understanding is that a good currency is stable and doesn’t fluctuate too quickly. Modern economists prefer a slight inflation rate of like 2% a year. This currency would not at all be able to do this, and not work well as a medium of exchange.
And keep in mind, you can’t really make all the other currencies go away completely. Gold is a commodity currency that people would try to price your global market cap currency with. You’d have to outlaw gold or remove it all from everywhere and that doesn’t seem realistic.
Modern economists prefer a slight inflation rate of like 2% a year. This currency would not at all be able to do this, and not work well as a medium of exchange.
Why not? Like, the S&P 500 can vary by tens of percent, but as Google suggests, global GDP only fell 3% in 2021, and it usually grows, and the more stocks are distributed, the more stable they are.
If you imagine that the world’s capitalization was once measured in dollars, but then converted to “0 to 1” proportionally to dollars, and everyone used that system, and there is no money printing anymore, what would be wrong with that?
Of course you can still express money in gold if you want, it’s just that not so many people store their money in it, and that would require exchanging money for money. If dath ilan heard a plan to ban all currencies, they would quickly come up with Something Which Is Not This.
It might seem like deflation would make you hold off on buying, but not if you thought you could get more out of buying than from your money passively growing by a few percent a year, and in that case, you would reasonably buy it. If it made people do nothing, the economy would slow down enough for deflation to stop, for them to start doing things again, and so they wouldn’t get to that point in the first place. Every transaction you make is an investment of your knowledge into the global market in the area where you believe you are smarter than the market and can outpace it in some sense.
The main reason economists like inflation is because it allows companies to lower real wages of underperforming workers without having to actually give them a pay cut.
It also has other advantages—it allows a central bank to set a negative real interest rate, giving them more flexibility in the usage of interest rate as a tool.
Deflation meanwhile is considered very bad. Some of the reasons wouldn’t be relevant here, but the key one is that meeting agreed on contracts becomes much more expensive than expected. If the wages you pay to your farm workers are tied to the stock market, but the income you get from selling farm produce is not, you have a real problem.
The main reason economists like inflation is because it allows companies to lower real wages of underperforming workers without having to actually give them a pay cut.
Yeah, I remember this part, and also the part where dath ilan don’t use it anyway, because instead they can just “order everyone to step to the right once” and accept those wages and people are sane enough to do so.
Why not? Like, the S&P 500 can vary by tens of percent, but as Google suggests, global GDP only fell 3% in 2021, and it usually grows, and the more stocks are distributed, the more stable they are.
Increases in the value of the S&P 500 are basically deflation relative to other units of account. When an asset appreciates in value, when its price goes up it is deflating relative to the currency the price is in. Like, when the price of bread increases, that means dollars are inflating, and bread is deflating. Remember, your currency is based on a percentage of global market cap. Assuming economic growth increases global market cap, the value of this currency will increase and deflate.
Remember, inflation is, by definition, the reduction in the purchasing power of a currency. It is the opposite of that thing increasing in value.
If you imagine that the world’s capitalization was once measured in dollars, but then converted to “0 to 1” proportionally to dollars, and everyone used that system, and there is no money printing anymore, what would be wrong with that?
Then you would effectively be using dollars as your currency, as your proposed currency is pegged to the dollar. And you stopped printing dollars, so now your currency is going to deflate as too few dollars chase too many goods and services as they increase with economic growth.
As you are no longer printing dollars or increasing the supply of your new currency, the only way for it to stop deflating is for economic growth to stop. You’ll run into problems like deflationary spirals and liquidity traps.
It might seem like deflation would make you hold off on buying, but not if you thought you could get more out of buying than from your money passively growing by a few percent a year, and in that case, you would reasonably buy it.
Deflation means you’d be able to buy things later at a lower price than if you bought it now. People would be incentivised to hold off on anything they didn’t need right away. This is why deflation causes hoarding, and why economists try to avoid deflation whenever possible.
Deflation is what deflationary cryptocurrencies like Bitcoin currently do. This leads to Bitcoin being used as a speculative investment instead of as a medium of exchange. Your currency would have the same problem.
In dath ilan, inflation and deflation are not used as macroeconomic tools because people are rational enough to accept wage reductions if their purchasing power remains unchanged, or to voluntarily pay the government to prevent crises without the need for a hidden tax that dilutes money by printing more during a crisis. Interest rates on loans could be lower if you expect returns that outpace deflation. If people can afford not to work, they are expected to do so, and they would spend more “shares”, redistributing them in favor of those who are more eager to work. Perhaps you aren’t really interested in having people work that much or that often, especially if you’re aiming for a utopia with a four-hour workday, or something similar. How relevant are these issues in a world where “every person is economist in the same way every earthling is a scribe by medieval standards”?
To be fair, before publishing I thought this currency could be implemented in a real world environment with less improbability. My current main doubt is “how can the market cap be so volatile with a stable GDP, and would they be closer to each other in a more adequate equilibrium?”. And I’ve basically switched to “okay oops, but under what conditions could this theoretically work, if could at all, and could you imagine better theoretical peak conditions?” mode. Deflation seems like a reasonable danger, I just can’t see how it could be avoided if everyone used market fractions at least to store their money if not to exchange. Because, like, you don’t introduce a random money-making machine into the system to solve your psychological problems at the cost of 2% of your money, there’s no place for it, so I’m guessing that people would adapt to that, and there’s a fictional example of dath ilan that such adaptation is real.
I wasn’t surprised by the idea of using labor hours itself, but rather by the assumption that people in a system with free choice would naturally settle on it as the ideal solution.
Sure, I’ll try to clarify. You seem comfortable with the idea that global market capitalization can be expressed in a single currency, like the dollar. Let’s assume the world’s total market cap is $100 trillion. Let’s say Apple’s market cap is $3.5 trillion, or 3.5% of the total, so if you had $1, you could conceptually allocate 3.5 cents to Apple, 3 cents to Microsoft (which has a $3T market cap), and so on across all investable assets.
This is how index funds work and I hope there’s nothing inherently strange about it.
If there are non-equity assets you can’t invest in, you still aim to expand your investment base to represent the entire market as proportionally as possible. In a perfect world, you could also invest in governments, crypto, individuals, but even an approximate model works well.
But of course you’re not doing this manually and this world, an index fund—like a “Vanguard S&P 500”, but larger—handles it for you. You give them your money, and they allocate it proportionally across the entire market. Since this is the most stable strategy, many people trust it and invest in this company until they can effectively exchange shares of this fund among themselves as equivalent to money.
And when the network effect becomes broad enough, the rest of the world economy uses the shares of this fund as a currency, and from that point on, the entire economy is measured in it, because you literally store money in it as an a priori option, and given that it is invested by capitalization, it represents “fractions of the global market”. So from now people exchange fractions of the global market.
Yeah, this technically depends on the “success of one company”—but the success of this index fund depends on hundreds or thousands of companies it holds. You don’t expect this “one company” to collapse unless the entire economy does, and not due to any mismanagement of a single firm. And this company does not “own all the money in the world”, but simply acts as an intermediary.
Does this make more sense? If, hypothetically, all traditional currencies vanished and were replaced by shares of global market capitalization—so that instead of dollars, people traded “hundred-trillionths of global market cap”, ranging from 0 to 1, and no new money was printed—what effects would you expect, and what makes you think this system wouldn’t work or would work worse?
Speaking about the volatility of the global cap… what are you comparing it to? It seems to me that any national currency with inflation steadily falls, unlike the world market, which, with fluctuations of several percent, generally grows. “More stability than this” most likely means less profit, if you knew that—conditionally—gold will always rise in price, this would be taken into account in the global cap to make this growth slower than the relative growth of the entire economy.
I guess I’m just not sure you could trade in “hundred-trillionths of global market cap”. Like, fractions of a thing assume there is still an underlying quantity or unit of measure that the fraction is a subcomponent of. If you were to range it from 0 to 1, you’d still need a way to convert a 0.0001% into a quantity of something, whether it’s gold or grain or share certificates or whatever.
I can sorta imagine a fractional shares of global market cap currency coming into existence alongside other currencies that it can be exchanged for, but having all traditional currencies then vanish, I think that would make it hard to evaluate what the fractions were actually worth.
It’s like saying I have 2.4% of gold. What does that mean? How much gold is that? If it’s a percentage of all the gold that exists in the market, then you’d be able to convert that into kilograms of gold, because all the gold in the world is a physical quantity you can measure. And then you’d be able to exchange the kilograms with other things.
0.0001% of global market cap, similarly, should be able to be represented as an equivalent physical quantity of some kind, and if you can do that, then why not just use that physical quantity as your currency instead?
For instance, you could, at a given moment in time, take that fraction to represent a percentage of all shares outstanding of all companies in the world. Then you could create a currency based on an aggregated “share of all shares” so to speak. But then the value of that share would be pegged to that number of shares rather than the actual capitalization, which fluctuates depending on an aggregate of share prices. So, in practice, your fraction of global market cap can’t be pegged to a fixed number of shares.
Also, fractions assume zero-sum transactions. If you have 0.0001% and get an additional 0.0001% to make 0.0002%, you must take that 0.0001% from someone else. There is no way to increase the money supply. Assuming some people hoard their fractions, the effective amount in circulation can only decrease over time, leading to effective deflation.
The value of each fraction, assuming there is some way to account for it, would also increase over time as the global economy grows. Thus, relative to other things, a fraction will become more valuable, which is also effectively deflation.
This many causes of deflation seem like it would become something people would further hoard as a way of speculation, again assuming there are still other things that can be exchanged for it, like commodities, even if other currencies no longer exist.
My understanding is that a good currency is stable and doesn’t fluctuate too quickly. Modern economists prefer a slight inflation rate of like 2% a year. This currency would not at all be able to do this, and not work well as a medium of exchange.
And keep in mind, you can’t really make all the other currencies go away completely. Gold is a commodity currency that people would try to price your global market cap currency with. You’d have to outlaw gold or remove it all from everywhere and that doesn’t seem realistic.
Why not? Like, the S&P 500 can vary by tens of percent, but as Google suggests, global GDP only fell 3% in 2021, and it usually grows, and the more stocks are distributed, the more stable they are.
If you imagine that the world’s capitalization was once measured in dollars, but then converted to “0 to 1” proportionally to dollars, and everyone used that system, and there is no money printing anymore, what would be wrong with that?
Of course you can still express money in gold if you want, it’s just that not so many people store their money in it, and that would require exchanging money for money. If dath ilan heard a plan to ban all currencies, they would quickly come up with Something Which Is Not This.
It might seem like deflation would make you hold off on buying, but not if you thought you could get more out of buying than from your money passively growing by a few percent a year, and in that case, you would reasonably buy it. If it made people do nothing, the economy would slow down enough for deflation to stop, for them to start doing things again, and so they wouldn’t get to that point in the first place. Every transaction you make is an investment of your knowledge into the global market in the area where you believe you are smarter than the market and can outpace it in some sense.
The main reason economists like inflation is because it allows companies to lower real wages of underperforming workers without having to actually give them a pay cut.
It also has other advantages—it allows a central bank to set a negative real interest rate, giving them more flexibility in the usage of interest rate as a tool.
Deflation meanwhile is considered very bad. Some of the reasons wouldn’t be relevant here, but the key one is that meeting agreed on contracts becomes much more expensive than expected. If the wages you pay to your farm workers are tied to the stock market, but the income you get from selling farm produce is not, you have a real problem.
Yeah, I remember this part, and also the part where dath ilan don’t use it anyway, because instead they can just “order everyone to step to the right once” and accept those wages and people are sane enough to do so.
Increases in the value of the S&P 500 are basically deflation relative to other units of account. When an asset appreciates in value, when its price goes up it is deflating relative to the currency the price is in. Like, when the price of bread increases, that means dollars are inflating, and bread is deflating. Remember, your currency is based on a percentage of global market cap. Assuming economic growth increases global market cap, the value of this currency will increase and deflate.
Remember, inflation is, by definition, the reduction in the purchasing power of a currency. It is the opposite of that thing increasing in value.
Then you would effectively be using dollars as your currency, as your proposed currency is pegged to the dollar. And you stopped printing dollars, so now your currency is going to deflate as too few dollars chase too many goods and services as they increase with economic growth.
As you are no longer printing dollars or increasing the supply of your new currency, the only way for it to stop deflating is for economic growth to stop. You’ll run into problems like deflationary spirals and liquidity traps.
Deflation means you’d be able to buy things later at a lower price than if you bought it now. People would be incentivised to hold off on anything they didn’t need right away. This is why deflation causes hoarding, and why economists try to avoid deflation whenever possible.
Deflation is what deflationary cryptocurrencies like Bitcoin currently do. This leads to Bitcoin being used as a speculative investment instead of as a medium of exchange. Your currency would have the same problem.
In dath ilan, inflation and deflation are not used as macroeconomic tools because people are rational enough to accept wage reductions if their purchasing power remains unchanged, or to voluntarily pay the government to prevent crises without the need for a hidden tax that dilutes money by printing more during a crisis. Interest rates on loans could be lower if you expect returns that outpace deflation. If people can afford not to work, they are expected to do so, and they would spend more “shares”, redistributing them in favor of those who are more eager to work. Perhaps you aren’t really interested in having people work that much or that often, especially if you’re aiming for a utopia with a four-hour workday, or something similar. How relevant are these issues in a world where “every person is economist in the same way every earthling is a scribe by medieval standards”?
Ok fair. I was assuming real world conditions rather than the ideal of Dath Ilan. Sorry for the confusion.
To be fair, before publishing I thought this currency could be implemented in a real world environment with less improbability. My current main doubt is “how can the market cap be so volatile with a stable GDP, and would they be closer to each other in a more adequate equilibrium?”. And I’ve basically switched to “okay oops, but under what conditions could this theoretically work, if could at all, and could you imagine better theoretical peak conditions?” mode. Deflation seems like a reasonable danger, I just can’t see how it could be avoided if everyone used market fractions at least to store their money if not to exchange. Because, like, you don’t introduce a random money-making machine into the system to solve your psychological problems at the cost of 2% of your money, there’s no place for it, so I’m guessing that people would adapt to that, and there’s a fictional example of dath ilan that such adaptation is real.