Singularity economics and the future of money
On his website, Robin Hanson discusses an unfilled niche in economics which he calls the “economics of science fiction” or “economics of future technology.” Another modern phrase would be “Singularity economics.” Hanson describes the economics of science fiction as the:
“economic analysis of the sorts of assumptions typically explored in science fiction. It is distinguished from the typical hard science fiction analysis by using the tools of professional economics, rather than the intuitive social science of the typical engineer. And it is distinguished from most economics by taking seriously the idea that we can now envision the outlines of new technologies which may have dramatic impacts on our society.”
One interesting question is how future advances in science and human nature will impact the monetary system. Two developments that may have a substantial impact on the future of money are molecular nanotechnology and the stability of governments.
Tangible forms of money may be greatly affected by advanced molecular technologies because it will enable individuals or organizations to duplicate money at low cost. As Robert Freitas notes in his paper “Tangible Nanomoney,” “any form of physical currency whose value depends solely upon the physical arrangement of common atoms” will fail to meet the traditional criteria that a physical currency needs to satisfy, such as possessing intrinsic value and immunity to counterfeiting. Although counterfeiting of money could remain illegal, the costs of enforcing this may be excessively high. As Tyler Cowen observes, “In the very long run, our monetary standard might be determined by what is least susceptible to counterfeiting or alchemy/nanotechnology.”
During the 20th century, government has acquired almost unlimited power over money. This coincided with a move from a commodity based currency to a fiat currency with no underlying intrinsic value. As humans evolve, it is questionable if such a currency will be sustainable. Most modern states derive their power, and therefore their power to issue and control money, from the mandate of voters. But as economic analysis of voting in large democracies has demonstrated, voting is hard to reconcile with economic rationality. Unlike voting in the marketplace (”buying”), the probability that an individual can affect the outcome of a (national) election is negligible. As David Friedman puts it in his textbook on price theory:
“consider someone making two decisions–what car to buy and what politician to vote for. In either case, the person can improve his decision (make it more likely that he acts in his own interest) by investing time and effort in studying the alternatives. In the case of the car, his decision determines with certainty which car he gets. In the case of the politician, his decision (whom to vote for) changes by one ten-millionth the probability that the candidate he votes for will win. If the candidate would be elected without his vote, he is wasting his time; if the candidate would lose even with his vote, he is also wasting his time.”
When people will come to recognize the tribal origins of voting and selecting “leaders,” and the desire to express individual choice as collective choice will decrease, the mechanisms of empowering a legal authority that issues and controls money will be affected as a result (as will other traditional functions of government).
As Freitas notes, a future currency “should be self-validating by its own physical form, and not rely upon any legalistic governmental imprimatur, easily-altered surface stamping, or monopoly minting authority to partake of value (e.g., no “fiat” specie).” The most obvious alternative for a government-controlled fiat currency is a commodity based currency. For such a commodity to be used as money it should be homogeneous, easy to subdivide, and have a high value to weight ratio. The most obvious candidate for such a currency is gold. Gold has a long historical track record as a commodity used for money and some economists, particularly advocates of the Austrian School of Economics such as Ludwig von Mises and Murray Rothbard, have been staunch advocates of the gold standard. Although gold has the clear advantage that its supply cannot be greatly inflated by government or advanced nanotechnology, the value of gold has historically shown considerable variability. For this reason the economist David Friedman proposes that the ideal commodity “would not be any single commodity, but a commodity bundle.”
A major advantage of using such a commodity bundle instead of a single commodity is that changes in monetary and non-monetary demand for a single commodity in the bundle (for example, gold) will only have a small effect on the bundle as a whole. In the context of advanced nanotechnology, commodities that can be produced by physical arrangement of common atoms may need to be excluded from such a commodity bundle to increase stability. Therefore, the most plausible candidate to be used as the standard for money would be a bundle of commodities that cannot be created by advanced molecular technology, i.e., a bundle of commodities reflecting chemical elements. In his paper, Robert Freitas discusses ideal candidates for tangible nanomoney such as the superheavy elements (SHE), which could become a part of a new standard, if not part of the physical money itself in case the standard for such a currency and the currency itself would coincide. Clearly, a mature nanotechnology will have effects on both the standard for future money as well as the physical forms of payment that are used in daily economic life.
There does not need to be a universal commodity (or bundle of commodities) and private firms can issue their own commodity-based money, which may or may not evolve into a universal standard. As David Friedman points out in his manuscript “Future Imperfect,” future (online) technologies can do conversions fast and invisible to the user, permitting multiple standards to coexist. Such a system can be a fractional reserve system, or not. The most important feature of a future money is that it should “not rely upon legalistic governmental imprimatur” and be immune to advanced molecular technologies.
Robert Freitas – Tangible Nanomoney
David Friedman – Gold, Paper, Or…Is There a Better Money?
David Friedman – Future Imperfect
Ludwig von Mises – Gold versus Paper
Murray Rothbard – What Has Government Done to Our Money?