Guardian Post: The truth is out: money is just an IOU, and the banks are rolling in it

The truth is out: money is just an IOU, and the banks are rolling in it

The Bank of England's dose of honesty throws the theoretical basis for austerity out the window.

 

Read it at: http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity

Blog post by David Hales on Labour Finance and Industry Group (LFIG) blog

I was asked to write a short blog post for the Labour Finance and Industry Group (LFIG) blog on P2P financial systems. The Labour Party (the main centre-left opposition political party here in the UK) is in the process of forming new policy for the next election and consults widely within academia and beyond. I was very glad to asked to write a post on P2P finance which I think could become a major countering force to large "to-big-to-fail" institutions.

Here is the post:

http://www.lfig.org/articles/supporting-peer-to-peer-financial-services-for-economic-resilience/

And below I reproduce it here:

Supporting Peer-to-Peer Financial Services for Economic Resilience
by David Hales; 27 May 2013

The current monoculture

Financial services, particularly those provided by banks, are dominated by a small number of large players. This severely limits choice, competition and innovation. One of the most serious consequences of this, evidenced by the current crisis, is lack of resilience over the entire financial system.

How can new entrants be encouraged to provide innovation, diversity and choice to promote resilience?

Recently “peer-to-peer” (P2P) approaches to financial services have emerged that use innovative technology platforms and business models. Policy makers should proactively support these approaches since they potentially offer new levels of innovation and choice promoting the public good.

Peer-to-Peer innovation – two waves

In recent years there has been a growth of so-called “peer-to-peer” (P2P) approaches to financial functions. For example, P2P lending and more recently P2P money.

P2P lending (1)  removes the mediating role of a traditional bank by allowing savers to lend directly to borrowers. This leads to better interest rate deals for both parties although the default risk is borne by the lender. There are a number of P2P lending companies offering variants on how borrowers are matched to lenders and how risk is mitigated. P2P lending services distribute the process of borrowing and lending but rely on centralised online platforms (operated by the P2P lending companies) and on money created by traditional banks and supplied by lenders.  A more recent and radical P2P innovation is to provide money itself in a P2P way.

A P2P monetary system called Bitcoin (2)  has attracted much interest recently. Bitcoin does not rely on any centralised entity. The currency – Bitcoins – are created and tracked by each user within the system running a piece of software (called a client) on their computer. There is no organisation or company that owns or controls the system. Bitcoins can be exchanged using online exchanges or directly between users through their client software – similar to sending an e-mail. One way to think about Bitcoins is that they are like electronic cash without requiring an intermediary – such as a bank – to store or record transactions. It works by using a sophisticated computer algorithm based on cryptography and distributed computer concepts.

Put crudely, Bitcoin provides a distributed and trusted ledger or database. Every client program contains an up-to-date list of all accounts and how many coins they contain. Transactions are not allowed if they violate the data in the ledger – i.e. you cannot spend your coins more than once. But why would anyone trust this algorithm? Because it is open source meaning anyone can view the code to verify that it does what it claims.

Bitcoin does not depend on the whims of an owning corporation, a monetary policy committee or the political stability of a nation. It is a self-organised distributed software system. The innovations in Bitcoin could be as revolutionary as the invention of double entry bookkeeping and the joint stock company (3)  – because they can be freely adapted and applied within other systems. Bitcoin could become a competitor to traditional currencies but, more importantly, it has already inspired competitors and variants (4). I do not wish to promote Bitcoin per se but rather the open and innovative P2P model that allows for rapid innovation.

We might term P2P lending as a “first wave” innovation – the focus is on disruptive business models within a traditional company structure. Systems such as Bitcoin could be termed “second wave” innovations – they disrupt the very notion of a business model in the same way that open source operating systems based on Linux offer alternatives to Apple and Microsoft.

In the future new second wave systems might provide other services such as store of value, credit creation or fully distributed markets.

Supporting second wave P2P

First wave systems already have a UK trade body and productive interactions with regulators and the policy apparatus (5) .

Second wave systems are more amorphous. Anyone can create an open source system and recruit others to participate. No formal legal entities exist that are responsible for the code. Yet this is not a bug – it’s a feature. It drives high rates of experimentation and innovation.

On the other hand for new systems to gain wide use it is necessary to promote trust, interoperability and acceptance.

How can this be achieved?

One approach might be a voluntary certification process. Where certain desirable features are present, such as open source code transparency; transaction integrity; and support of interoperable standards; then various levels of certification could be awarded via a suitability composed organisation. Such an organisation should proactively support promising second wave projects providing the necessary expertise to examine the code and provide advice to developers if they wish to attain certain certification levels.

The Bitcoin community, through the recently created Bitcoin Foundation (6) , is already pursuing these goals for Bitcoin. Policy makers should proactively engage with these kinds of initiatives in order to support the development of second wave P2P approaches.

A key outcome of such a collaboration would be to provide the right regulatory environment and interoperable standards (7)  to allow for productive innovation and diversity by levelling the playing field with traditional banking – which receives huge implicit public subsidies yet provides limited resilience or choice.

David Hales is a Senior Research Fellow at The Open University. His website can be found at: http//davidhales.com

References:

1. For example see http://zopa.com
2. http://bitcoin.org
3. A recent ECB report noted the potential disruptive effect of Bitcoin: http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
4. http://litecoin.org
5. http://www.p2pfinanceassociation.org.uk
6. https://bitcoinfoundation.org/
7. Andrew Haldane, from the Bank of England, noted the importance of interoperable standards for promoting competition with specific reference to P2P approaches in a recent speech: http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech552.pdf

Paper from Marseilles workshop participant, Guilherme da Fonseca-Statter: "The Edonomy as a Complex System"

Guilherme da Fonseca-Statter
The Economy as a Complex System
Contribution for a Marxian Inspired
ABM or AbCE Analysis

Available at: http://cfpm.org/scive/The Economy as a Complex System.Draft.pdf

Guilherme gave a talk to the workshop on "Re-Evaluating Value" held last week in Marseilles, on The Labour Theory of Value.  This is the paper in which his ideas are explained in greater depth.

Part of the Introduction:

This paper is intended to be a very short version of an eventual future «doctoral thesis» on the
general theme of complexity sciences and to be dedicated to the specific theme of a certain
empirical law of behaviour of the capitalist system. As a consequence of the fundamental problem
indicated in the opening paragraphs no attempt has been made to actually develop or present
formal modelling specifications. The idea, at this stage, is to present the overall description of a
future model that should be developed within the next two years. In any case it is my firm belief
that a trained programmer could build a realistic model using just the specifications that are
provided here. It has been done before (with much less sophisticated tools and techniques), there
is no reason why it could not be done now.

Workshop on: "Re-evaluating Value...", Marseille June 17-18th 2013

Workshop on:
Re-evaluating Value – non-market value models for changing times

Mediterranean Institute for Advanced Research, Aix-Marseille University,
Marseille, France, http://www.imera.fr, June 17-18th 2013

The Topic

Value is a major aspect of any economic theory: what it is, how it is produced, measured, stored and transferred between agents. Indeed, historically, these aspects characterise different schools of political economy.  Some approaches focus on an objective basis for value such as labour or physical resources. Others place emphasis on subjective judgments by individual agents and free exchange between them.

Recent, often ICT mediated, developments such as “commons based peer production”, “crowd funding”, “freecycling” and new virtual currencies do not fit easily into existing economic models of value.   On the other hand “complexity science” tools and approaches allow for a widening of traditional models of value.

Traditional models have focused on agents using either object or subjective notions of value and equilibrium points. Agent-based modelling allows for experimentation with new and hybrid notions of value in non-equilibrium conditions.  In these, value might be an emergent phenomena where agents construct notions of value through the interplay of subjective and objective factors supporting novel forms of exchange and cooperation.

In this workshop we aim to bring together researchers from different disciplines such as economics, philosophy, anthropology, law and computer science, who are working towards new conceptions of value, models that embody them and real world systems that depend on them.

Day 1 - Grand Challenges

The first day of this workshop is devoted to opening up the key issues to do with theories and approaches to understanding value at the present time.  It is open to all who are interested. The day will start at 9.30 and end at 4.30pm with an hour for lunch and two 30 min coffee breaks.  Talks will be 30 mins long plus 15 mins for discussion.

Day 2 – Developing Agent-Based Models to Meet the Challenges

The second day of the workshop is devoted to informal discussions about developing simulation models that start to address some of the different conceptions of value.  It is not expected that everyone will stay for day 2, or all of day 2, but is open to all who want to seriously discuss the development of relevant simulation models. The day will start at 10am and continue for the rest of the day, or until everyone is tired.

Speakers and Discussants

The following people are either invited speakers or will be leading a discussion session (in alphabetical order), followed by their talk title if available.

• Bruno Vetel, “Who benefits from the value? Virtual currencies design for a massively multiplayer online role playing game.”
• Jean Magnan de Bornier. “Value in economics: datum, construct or instrument?”
• Jean-Benoit Zimmerman, “Jamendo: the heartbeat of free music!”
• Jeremy Pitt, “The Reinvention of Social Capital for Self-Organising Electronic Institutions”
•  Jeff Johnson, “Value from first principles”
• Bruce Edmonds, “Towards modelling mundane value”
• Paul Omerod, TBA
• Andrzej Nowak, TBA
•  Juliette Rouchier, TBA
• Mario Paolucci, TBA
• Olivier Chanel, TBA
• David Hales, TBA

Hotels and food

Others at the workshop are staying at the hotel Lutetia (http://www.lutetia-marseille.com). You will need to book yourself into this, or at another hotel (e.g. via http://www.tripadvisor.co.uk/Hotels-g187253-Marseille_Bouches_du_Rhone_Provence-Hotels.html).  On monday night, a dinner is planned at Les Panisses, please let Juliette (juliette.rouchier@univ-amu.fr) know if you you plan to join us for this before 9^th June (we think we can cover this and lunch for participants, assuming we do not get too many).

Directions

The Hotel

Hotel Lutetia, 38 Allée Gambetta, is easy to attain from the train station: go down the stairs, cross the street and walk down the street facing you (Boulevard d'Athènes). “Allée Gambetta” where the hotel is, is the second or third street on the left.

·        To go from the airport to the train station, the best solution is to take the shuttle from/to airport/gare Saint Charles (cheaper and nicer than taxis who are unpleasant thieves in their majority in Marseille) - buy a return ticket while going out of the terminal and get on the bus – in 25 minutes you can get to the train station at any time of the day.

The Meeting Venue

·        To go from the hotel to the meeting place you can walk (15-20 minutes) or take the tram for a part of the journey. The address to get in is 2 place Le Verrier and maps can be found on: http://www.imera.fr/index.php/fr/informations-pratiques/plan-dacces.html

·        Walking: Walk up the Allée Gambetta to the top, turn left/right and carry more or less on in the same direction on Boulevard Longchamps. Go up to the end of the boulevard and when facing the palais (huge museum) turn left and carry on going up on a street with serious traffic, walking on the right side. carry on until the Place Le Verrier. On your right you will find a large black grid which will be open. Get in and find the building of the institute.

·        Tram: take the tram at Canebière Garibaldi and get down at Longchamps, then you will see the Palais Longchamps and turn around the palais on the left, as for the walking instructions.

·         

      From the station, it is also possible to take the subway, and cross the Jardin du Palais Longchamps (a very nice park) and a maps can be found at: http://www.imera.fr/index.php/fr/informations-pratiques/plan-dacces.html

In you get lost: beware : locals do not know the place so well – you have to refer to “Maison des Astronomes”, which is its old name, but is known to something like 10% of the population.

Contact

For information about the local arrangements contact Juliette Rouchier <juliette.rouchier@univ-amu.fr>, for queries about the programme Bruce Edmonds <bruce@edmonds.name>, and for possible connection with/funding from NESS David Hales <dave@davidehales.com>.

A review of David Graeber's "Towards an Anthropological Theory of Value"

Graeber, D. (2001) Toward An Anthropological Theory of Value: The False Coin of Our Own Dreams. Palgrave Macmillan.

Amazon: http://www.amazon.com/Toward-Anthropological-Theory-Value-Dreams/dp/0312240457

This is a meandering book that covers a lot more ground than simply what value might be.  Indeed, it reads more like a collection of separate essays each of which has *some* relevance to value rather than a coherent thesis.  A more accurate title might have been "Mauss and an alternative to the Neoliberal view", being at heart concerned with combating the individualistic, "economically rational", market-centric, consumer focussed set of assumptions that pervades much thinking in economics.  On his side is ranged anthropologists and Marx (his view of society rather than his class politics), against him economists and the anthropologists that were influenced by them.  It does succeed in giving a vivid alternative view of how modern society might be, but flounders in its (pre-agent-based-simulation) formulation of a dynamic and co-emergent alternative.  However, it does give many interesting insights into what different societies consider their most valuable aspects/artefacts/rituals/persona. 

His basic position (as far as I can disentangle it) is that:

• The most important 'product' of most societies are the people it produces
• Individuals' important actions mostly aim at producing their social structures
• It is the actions of individuals that are the key rather than any products
• Value is a socially developed way of comparing important actions
• Sometimes action is fetishised into objects
• Each society achieves this in different ways which change over time

It thus implies, but does not say outright, that the 'value' given to things in a market is not truly relevant to what society is (or should be) about. Basically that modern liberal capitalist societies are an aberration - the idea is simply a mistake.  Of course he has an advantage in that what he is criticising is well-worked-put and described, whilst his alternative is only implied: numinous and indistinct.  He (wisely) neither criticises nor praises the other societies he examines, but merely describes and analyses.

Those looking for an alternative, anthropologically-grounded, theory of value will be disappointed.  Beyond what I have just sketched one gets little in the way of conclusions.  What one does get is well-discussed examples of what some other societies consider of greatest value, which is interesting.  However (as in his later book on debt) he passes over the trading/gifting/sharing of more mundane and useful items very quickly with little discussion, concentrating on that with crucial prestige.  The problem with this is that these are most removed from the contingencies and constraints of life, they are the surplus value put into ways of gaining/adjusting reputation or power.  They are the things that are the most culturally specific being constrained by nothing but what its participants accept as normal and right.

Thus the view of value that this book provides ignores (or does not account for) key issues, including:

• The difference in value when an action does and does not succeed, since in each of these cases the value attributed is its importance and hence is the same according to Graeber's vague formulation
• That some actions/production of artefacts act to facilitate other actions/production of artefacts (apart from that all significant actions act to produce society and hence the individuals with it - but no distinction between in terms of efficacy or importance in these are made) whilst others are an end in themselves or even are destructive of other actions and artefacts
• How the production of individuals and society and their survival and prospering relate (and whether this has any leverage upon the meaning of value in that society)

Early warning of upcoming workshop on "Non-market conceptions of value"

17&18 June in Marseilles.  More details when we have them!

A paper from the European Central Bank on virtual currencies

(pointed out by Dave).

Looks at the cases of Bitcoin and the SecondLife currency the Linden in detail.  Does take a slightly "we are a Central Bank and know how to do these things properly" sort of attitude but is interesting.

http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf