“Zero Money”: First Principles Thinking About Monetary Value
Change the Money, Change the World (22)
Part 5(F) — Pan-national activism 2
“… whereas in Bitcoin there exist no monetary authorities that could expand the money supply in times of deflation, in the Eurozone the existing monetary authorities are constrained by the ECB’s charter in a manner that stops them from expanding the money supply in deflationary times. … What use are monetary authorities in a currency union if they cannot expand money supply in response to falling prices? In this regard, the Eurozone is no different to Bitcoin, without even featuring the zero transaction costs of Bitcoin or its New Age appeal.”
BITCOIN: A flawed currency blueprint with a potentially useful application for the Eurozone by Yanis Varoufakis
So Varoufakis is proposing an adaptation of Bitcoin as a weapon against deflation. So the question is, does the adaptation compromise trustlessness and decentralization to a relatively harmless extent? Does it move towards a paradigm eliminating fiat, the totally false currency blueprint, and support a monetary medium reflecting an acceptable value proposition in maintaining enough scarcity? Is his proposal a true hedge against deflation or a not sufficiently disinflationary solution? The prospect of the immense impact of deflation coming from technological innovation is a challenge for any proposal, especially one hoping to modify the existing paradigm with a strategy that might fall too far short of the Bitcoin standard. It is of course necessary, however, to implement his political struggle to change the world, and Varoufakis’ interim tactics for changing the money.
The opening quote shows Varoufakis sees it a requirement to expand monetary supply when necessary. To equate Bitcoin and ECB Charter rules misses the point that Bitcoin cannot be modified. The ECB, however, can change policy and over-supply at the stroke of a pen. An inability to raise price drops in the face of disproportionate wage reductions would be a shock that must be avoided as Varoufakis indicates. The “inability” is not about Bitcoin, its about applying constraints on the printing presses, and the need to modify, monitor and control ECB monetary policy for price and wage support that does not result in a value transfer from the masses into the pockets of the masters. I think this is where Varoufakis is going but he didn’t need Bitcoin as a straw man on the way.
“Europe’s leadership is refusing even to enter into a rational debate of the institutional reforms that can render the Eurozone viable again. The question is: Is there something that the peripheral countries can do to give themselves a chance to breathe better and to act as a bargaining chip that will make Berlin, Frankfurt and Brussels take notice? The answer is yes: They can create their own payment system backed by future taxes and denominated in euros.”
OK, then: the political agitation will be mainly in advocacy for the “little guy”, the Southern EU states, against the Northern “bullies”. He envisions a Future Tax coin, the FT-coin, using a Bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free. It is denominated in Euros, but Bitcoin too is denominated in fiat. Ultimately that problem along with bad governance of fiat needs resolution. We can consider and evaluate the FT-coin proposal just like any other coin in that regard. So what are the details of the FT-coin:
“… FT-coin could work as follows: You pay … €1000 to buy 1 FT-coin … under a contract … (a) to redeem … for €1000 at any time or (b) … two years after it was issued as payment … €1500 worth of taxes. Each FT-coin is time stamped i.e. in its code the date of issue … Every year (after the system has been operating for at least two years) … a new batch of FT-coins to replace the ones … as taxpayers use them … on the understanding that the nominal value of the total number of FT-coins in circulation does not exceed a certain percentage of GDP ( … no danger that … the government will end up … with no taxes).”
That is conceptually straightforward, but I don’t know how it serves everyone, how it fits with regard to eliminating wealth disparity. Can I buy 100,000 FT-coins and gain 50 million Euros in tax relief? Can I not have enough disposable income to buy any coins or have a tax liability I need to pay? The idea is clear, and it could be a way to save the Eurozone economy within the existing paradigm, but initially there are many such questions as to how well it resolves the exiting social inequalities and systemic theft of value from those who can least afford it. Who is it that we can expect to get potentially great gains from engaging in the coin trading market, or monetizing banking-like functions, staking investments, and other kinds of token enterprises built on the FT-coin? We can see, however, how great benefit could come from more decentralized and trustless authentication and verification as embedded in the Bitcoin-like mechanisms in further description:
“Once in possession of an FT-coin, you can either keep it in your FT-coin e’wallet or you can trade it. To make sure that the system is fully transparent and that transactions are completely free, FT-coin could be run by a Bitcoin-like algorithm designed and supervised by an independent non-governmental national authority. Just as in the case of Bitcoin, the total amount of FT-coins can be fixed in advance, at least in relation to a variable not in the government’s control (i.e. nominal GDP), while every single transaction (including the tax extinction using FT-coins) is monitored fully by the community of FT-coin users on the basis of the blockchain pioneered by the infamous Mr Nakamoto. As an FT-coin is about to ‘mature’ (i.e. to reach two years of ‘age’), the demand for it will obviously rise from those that do not possess FT-coins of that vintage”
Varoufakis has concluded Bitcoin is too deflationary by nature to act as a widespread currency alternative to the dollar or the euro. Not entirely, Bitcoin has demonstrated it is a lucrative store of value. It has outperformed the projected gains of FT-coin. It is not as yet competitive as the unit of account, or nearly the size, of the fiat medium of exchange. Neither is the FT-coin, so it doesn’t mean much to say Bitcoin is too deflationary to be a widespread currency alternative, suggesting some contrast to FT-coin. As for the threat of deflation, I have pointed out earlier that nothing stands in the way of technological innovation drastically reducing prices and wages. We can, nonetheless, welcome and support the adaptation of Bitcoin standard mechanisms of FT-coin. Yanis Varoufakis’ concluding remarks on the advantages of the outlined scheme do anticipate benefits to the “weakest”, but this is to be struggled for, not inherent to the scheme, itself a novel design disruptive to an unfeasible package of austerity measures in exchange for a bailout from the Troika, and “Troikas” elsewhere:
“… a source of liquidity for the governments that is outside the bond markets, which does not involve the banks and which lies outside any of the restrictions imposed by Brussels or the various troikas
… a national supply of euros that is perfectly legal in the context of the European Union’s Treaties, and which can be used to increase benefits to society’s weakest members or, indeed, as seed funding for some desperately needed public works
… a mechanism that allows taxpayers to reduce their inter-temporal tax bill
… a free and fully transparent payment system outside the banking system, that is monitored jointly by every citizen (and non-citizen) who participates in it.”
As stated earlier, this essay is not about Bitcoin, it is about changing the world, and that needs a true monetary medium of as maximum a value as possible, a unit of account best reflecting the first principle of scarcity in the measurement of its value. An allegiance to that first principle will naturally gravitate to “Zero Money” in a political struggle to actualize an egalitarian world society. A denizen of such a world would have absolute sovereignty over her acquired store of monetary value. In that characteristic, Bitcoin can already suffice, and promise an abundant future, for some its sovereignty even now. Just holding Bitcoin can be profitable political activism.