New Finance | Rethinking the Governance of Money
I, like many others, love the promise of Bitcoin. It’s a censorship-resistant currency with a hard cap that doesn’t steal the purchasing power of the masses through infinite paper printing. Bitcoin addresses many of the issues we have with the current fiat system and yet I don’t see much debate over the future governance of money, whether that’s crypto or something else.
There are of course some smart people in the space debating the best way to design systems in a fair way and transparent way. But regardless, I still want to outlay some of my own thoughts and solutions here on the problems we face. It really is true – one of the best ways to learn is to teach or at least attempt to teach.
Prosperity Through Circulation
Money is very much like the blood in a body. For most of history, the body that housed that blood could have been represented by a kingdom, city-state, or more recently a country. When blood flows smoothly we experience health. When it stops, it forms clots and blocks our arteries causing pain and in extreme cases even death. The same can be said of the money circulation in an economy.
Money has no value in and of itself. It simply represents the value created by a product or service. And that value needs to circulate. When it doesn’t, the economic health of the body starts to drop. We may be able to build or create a specialised service or product for ourselves. For the most part, however, our other needs are taken care of by the value creation of others.
The more value we create and circulate through helpful products and services the more prosperous an economy becomes. I say helpful because selling addictive substances on a street corner may create value for you but it’s removing it from someone else. It needs to be a win-win solution. That could be financial, physiological or even psychological.
This concept continues to work as long as value is consistently changing hands. This is why from a spiritual perspective if we all continued to just give things away we could create prosperity the likes of which the world has probably never seen before. Instead, what inevitably happens is that a few individuals fall for the lure of massive wealth and start to hoard.
Hoarding creates the opposite effect. When individuals start hoarding cash they strangle an economy and threaten the health of the entire system. This can be seen today with the exorbitant wealth of people like Jeff Bezos and Warren Buffet. Wealth inequality is once again on the rise creating many of the problems we are currently facing.
Crime, homelessness, suicide – these are just some of the issues that are directly created by the hoarding of wealth. Studies show that after a certain level of wealth people actually become more narcissistic and lose empathy for their fellow human beings. And yet this is the system we continue to use. A system which promotes hoarding and the strangulation of the economy.
Experimenting with Solutions
There are no easy answers though I believe a healthy balance of both capitalist and social democratic ideas may be the solution. Giving a few individuals an unlimited cap on wealth creation at the expense of the rest of society is a ludicrous idea.
Creating a hard cap on wealth is an interesting idea worth exploring. Individuals can do whatever they want with their wealth up to a point. The number is arbitrary and can be set by a democratic vote of all people in that society – say $10 million. Anything above that can be pumped into programs which benefit society – renewable energy, cleaning of the oceans, reducing poverty, etc. The major point here, however, is that society decides where the extra capital is committed, not the individual. This creates a number of interesting features.
Circulate and Distribute the Value
As an individuals wealth starts approaching our arbitrary cap they will have to start spending it or the cash above the limit will be sent to a community fund. You could use a smart contract to implement this automatically. A wealthy person now has two options. Spend the cash and circulate the value. Alternatively, you consciously contribute to the social good as you continue building wealth.
It’s important that society chooses the causes to promote, not the wealthy and powerful individuals pretending to do so on behalf of the populace. We have the technology to do it. You can see something along these lines with the district0x project.
An interesting problem this may produce is the hoarding of physical things like houses, cars, art, or other forms of value as you approach the cap. Humans are particularly crafty at avoiding such limitations. We may have to come up with other ways to deal with this. The results are observable though and we need to ensure that resources flow around the world and do not stagnate in the hands of the few.
Final Thoughts: The Governance of Money
Unfortunately, history has proven that we can’t trust a few individuals with the governance of money. Almost always these individuals use their wealth as leverage to gain power. To change that dynamic we’re going to need to divorce democracy from wealth. Those with plenty of money still have a vote but the vote only counts as one in the sea of the people. And I’m not talking about delegating people to act on our behalf. Instead, we can decentralize that process too and allow society to vote on every issue that affects them.
It’s not going to be easy though. As we’ve seen in the crypto industry, coming to consensus presents its own set of problems. And even though we see infighting and hard forks left, right, and center, at least we’re experimenting with new more equitable types of democracies.
I’ve only presented one alternative approach here but I think it’s worth considering. Cryptocurrency is the future. That much is clear. But we do need to ensure that we do not replace the current elite with a new elite who leverage their wealth in the crypto economy. Otherwise, what’s the point?