70 Rules, The Unfinished Game

70 Rules, The Unfinished Game

The Unfinished Game

I have just finished reading a wonderful book, The Unfinished Game, by Stanford University Mathematician Keith Devlin (http://www.amazon.com/The-Unfinished-Game-Pascal-Seventeenth-Century/dp/0465018963). The book takes a penetrating look at the correspondence that occurred between 17th century mathematicians Blaise Pascal and Pierre de Fermat (yes the last theorem guy). The two great minds had taken up communication in an effort to solve a mathematical puzzle that had been around for at least a couple of centuries prior to their efforts. The Problem of Points, also known as the problem of the Division of Stakes, is a mathematical problem that drew Pascal’s attention in the 1650s. Briefly stated the problem seeks to determine the fair distribution of the wagers in a game of chance that has been interrupted before its conclusion.

The collaboration of Blaise Pascal and Pierre de Fermat over the Problem of Points is widely credited as being the beginning of Probability Theory.   The ability to use mathematics to make intelligent assessments about future events changed the world. Probability became an indispensable tool in a wide array of human endeavors but especially in science and business. Whole new disciplines in sciences and whole new industries in the world of commerce flowed from the letters the two men wrote to each other 450 years ago.

My introduction to Professor Devlin was his publishing of “A Mathematician’s Lament” by Paul Lockhart, on his Math Web Site Devlin’s Angle. Lockhart’s Lament is a passionate plea for the teaching of math as a beautiful and interesting subject. Lockhart believes that the proper approach to Mathematics is as an art and should be approached in a playful and joyous manner. Mathematics should be its own reward. This has been a goal of mine as well. Lockhart now teaches Mathematics in Elementary School.   If this has piqued your interest I also recommend Lockhart’s beautiful book Measurement, which demonstrates what he means (http://www.hup.harvard.edu/catalog.php?isbn=9780674057555).

My journey down this path began in 1984. I read a book called Mathematics and the Imagination (http://www.amazon.com/Mathematics-Imagination-Dover-Books/dp/0486417034) by Edward Kasner and James R. Newman. I have been entranced by mathematics ever since. I became an Elementary School teacher as well and tried my best to make math available to my students in this manner.

I had used the Pascal-Fermat connection as the intro in an essay on my other principle interest, the nature and structure of money. So when I saw that Professor Devlin had tackled The Problem of Points I was eager to see what he had to say. The Unfinished Game has not disappointed. He makes Pascal and Fermat come to life. He explores the Problem of Points from both a historical and theoretical point of view. I was especially happy to see my favorite mathematician Jakob Bernoulli in a starring role. Galileo has a cameo.

Things also took a dramatic turn for me when Professor Devlin concluded his book with a glowing description of a Nobel Prize in Economics won by Robert Merton and Myron Scholes. Professor Devlin uses their accomplishment as an example of how the work of Pascal and Fermat continued to open new vistas in human activity. The two mathematicians received the prize in the 90s for their model predicting the “Value of Derivatives”. I have my own take on the two and their accomplishments and to say that it is the diametric opposite of Professor Devlin’s puts it mildly. I’ll get back to that.

A very special surprise for me was the appearance of Luca Pacioli, the third time this year that he has figured prominently in my studies. He was the first person to publish anything about the Problem of Points. He worked out his own solution which did not gain much acceptance in the mathematics community, but he wrote up and published it 150 years before Pascal and Fermat took up the question. If you haven’t heard of Luca Pacioli you’re not alone. He is odds on favorite (that’s a probability cliché) to win the contest for highest ratio of Importance/Obscurity in the history of Western Civilization.

It’s not that he is unknown. In some circles he is well known. I was using Leonardo da Vinci’s pencil sketch of a Luca Pacioli wood carving of the icosidodecahedron in my own book without crediting Luca. The reason was that I did not know about him. I don’t think I am alone. I had seen several da Vinci pencil sketches of the Platonic and Archimedean Solids. What I eventually discovered was that they were sketches for Luca Pacioli’s book La Divina Proportiona. This book dealt extensively with the Platonic Solids and the Golden Ratio, (the Divine Proportion, the mean and extreme ration, the Golden Section). These are two of the main topics of my book, Mathematical Measures, Mathematical Pleasures, Mathematical Treasures. (http://www.amazon.com/Mathematical-Measures-Pleasures-Treasures/dp/0615743757, free download at http://mathfortheages.com/wp-content/uploads/2012/06/book-final-edit-11-122.pdf)

I am a firm believer in paying attention to any person or piece of information that shows up in two completely different contexts in which I am interested. Pacioli had just hit the jackpot. If the Problem of Points was the third time that Luca Pacioli had been on my radar, and Leonardo da Vinci’s pencil sketch of the icosidodecahedron the first, then there must have been a second.

70 Rules

We, my classmates and I at King City Joint Union High School, were saying it a lot in June of 1970. 70 Rules. It rolled off our tongues. High school graduates are full of themselves. We almost believed it. So for a few weeks before and after graduation you could hear 70 Rules coming from cars dragging main or shooting the loop. We didn’t make the phrase up. When we were freshmen we had heard 67 Rules. When we were juniors it was 69 Rules. (You’ll notice I skipped a year. Not an accident). By the time 70 Rules died down I was left to start considering what to do with the rest of my life. Plan A had been dead for months now and Plan B was nowhere in sight.

One year earlier my Plan A had been to matriculate at Stanford University in the fall of 1970. For this plan to have worked a whole series of events would have to have taken place. These events did not take place. I was not headed for Stanford. It had always been a stretch anyway. As with most of my fantasies of adolescence there was a young lady involved. Alas.

As the summer of 1970 moved along I began to miss my classmates. They are the only group of people I have ever loved. My identity was with them and my identity had disappeared.

By the fall of 1971 I managed to end up at Rocky Mountain College in Billings, Montana. Rocky is the only institution I have ever loved. It saved my life. From 1971 to 1975 it was my Alma Mater, my Soul Mother. It took me in and sustained and nurtured the talents and skills that I had brought with me. I left it a better person than I entered, any step up from useless is not a long journey. But what it also did was to help me regain a spark of curiosity that sustained me for a decade until something else took its place.

Rocky Mountain had a legacy. It was originally Billings Polytechnic. It was started by the Eaton Brothers as a Religiously affiliated college that would accept any and all in the State of Montana and its neighboring states that wanted an education. It was called the College of the Open Door because you could arrive without a penny in your pocket and leave with a college education if you were willing to work. Billings Polytechnic had a working farm in which poor students could earn their tuition with the sweat of their brows. That legacy remained and I thank God that it was still there for me.

My tenure at Rocky Mountain College helped me gain a position in the Master’s Program in the Department of Agriculture and Resource Economics at Oregon State University in Corvallis. Oregon State was in the athletic conference Pac 8 at the time and I got to see the teams from the “Farm” come and play. Neither school was much of a threat to anyone at the time, but the convergence allowed me to wax nostalgic about my Plan A. I hadn’t made it to Stanford, but I had made it to a school that played them in sports on a regular basis. Maybe a Phd. would be in my future.

I loved the study of Economics, but I could not see myself as an Economist. My approach to Economics was always very similar to Lockhart’s approach to mathematics. For me Economics was and still is an art. I went outside the purview of my department for a thesis topic. “The Workforce Incentives of the Aid to Families with Dependent Children”. My thesis remained unfinished for almost 40 years. The subject just kept getting broader. I finally finished it to my satisfaction. It is titled “The 1% Solution” and can be read at my website worldmeetworld.wordpress.com. It was The 1% Solution that brought me to such a completely different reading than Keith Devlin has on the work of Merton and Scholes. Or maybe I’m still just trying to get to Stanford.

The Rule of 70

Luca Pacioli was what is known as a Polymath. He made major contributions in a wide range of areas. I’ve mentioned Probability and Geometry, he was also a Monk, Philosopher, and a Physician, but perhaps his most important field of endeavor at the time was his impact on business practices and accounting. He is considered the Father of Modern Accounting, and Double Entry Bookkeeping. He also created many tables for businessmen that dealt with calculation of interest on loans.

One useful tool that Luca Pacioli made available was a simple method to determine the length of time it would take for a loan to double. It was called the Rule of 70, also the Rule of 72 and the Rule of 69. These “Rules” all dealt with calculations of compound interest. They are actually all the same Rule, the multiple versions and names have to do with the ease of use. 72 is more compatible with the 12 month calendar, but the actual number of the rule is between 70 and 69, to be more exact, approximately 69.4. I like that phrase, “to be more exact, approximately.”

If a loan was let at 5% simple interest it would take it 20 years to double. Five percent per year for 20 years yields 100%, 0.05 x 20. The Rule of 70 tells us that if it was compounded yearly it would take only about 14 years (.70 x 20) to double. You can do the math one year at a time. At the end of the first year you’d have 1.05. Paying 5% on 1.05 yields 1.1025. Paying 5% on 1.1025 will yield 1.1576 at the end of the third year. Etc. Or you can just take (1 + .05) to the 14th power to get 1.97. It doubles in slightly over 14 years. Compounding yearly for 20 years yields 2.65. Compounding every six months yields 2.685. Compounding monthly yields 2.7126… The more often you compound the closer you get to e, 2.71828…

Increasing the frequency of compounding increases the return on the loan but the rate of the increase slows each time. These two opposite tendencies run up against a limit. It runs up against one of the most famous and well used limits in the world of mathematics. (1 + 1/x) to the x, as x approaches infinity. This is the formula for the transcendental number e, 2.71828…..   e is irrational, which means it cannot be stated as the ratio of two whole numbers. e is the base of the natural logarithms, I prefer the spelling logarhythms.

Logarhythms were invented by Scottish Mathematician and Theologian John Napier, Baron of Merchiston. He did this about 40 years before Pascal and Fermat began their correspondence. The table of logarhythms did not figure in their discussion but they did in those of the man who took their work and combined it with the work of Christian Huygens and made Probability Theory a Discipline in Mathematics. This man was named Jakob Bernoulli.

Bernoulli figures heavily in Professor Devlin’s book and is given the credit he so richly deserves. Bernoulli was a member of Mathematics’ most important family dynasty. No less than 7 Bernoullis made major contributions in mathematics in the face of 4 generations. Arguably the most important was Jakob.

Jakob Bernoulli was the first to recognize the connection between the transcendental number e and compound interest. The formula for e is (1 + 1/x) taken to the x power as x approaches infinity. This is 100% interest compounded continuously.

is called the exponential function. e is nature’s growth constant. It is also the constant of radioactive decay. When graphed it yields the logarhythmic spiral. The shape of spiral galaxies and hurricanes. Jakob Bernoulli so loved the logarhythmic spiral that he left instructions to have one carved on his tombstone only to have an Archimedean Spiral carved instead.

More than a 100 years before Napier or Bernoulli or Euler became aware of e Luca Pacioli had published on the Rule of 70. The Rule of 70 comes within a breath of e.   The time for e to manifest itself is compound interest is called the e-folding time. The time for a loan to double is called the doubling time and it is 0.693 times the e-folding time.

Frederick Soddy

The mathematical process of doubling and halving became known in science as the “Half Life.” The “Half Life Period” was a term coined by Earnest Rutherford in his work on radioactive decay with Frederick Soddy in the early 20th century. They were both Nobel Prize winners in the physical sciences.

At the height of his promising career in the physical sciences Soddy left to begin a crusade to challenge the structure of the world’s monetary system. He was solving what he considered the most pressing problem that humanity faced, Money. “In four books written from 1921 to 1934, Soddy carried on a “campaign for a radical restructuring of global monetary relationships”,ring a perspective on economics rooted in physics.” Wikipedia

When the trained scientist Frederick Soddy began to understand how money worked in his world he became angry. He not only wanted banking reform he believed the bankers should be put in jail.

Soddy took Probability Theory and the principles of compound interest and revolutionized chemistry. He then took his knowledge of the Physical world and brought it back to the world of money from whence it came.   He brought it back as a revolutionary who has largely been ignored.

The Continuous Game

What Blaise Pascal and Pierre de Fermat explored was a gentlemanly and fair distribution of wagers based on some ability to gauge one gentleman’s position vis a vis another gentleman’s position in an uncertain situation, a game of chance. The uncertainty derived from the fact that the rules of the game being played had not taken the situation of the interruption of the game into account. The rules very well could have. A rule could have been: if the game is interrupted then whoever is ahead gets the whole pot. Or, if the game is interrupted then the pot is divided on a percentage basis of the points already scored. Both of these solutions would be correct and fair as long as the rules are known ahead of time and participation is voluntary.

The imposition of fairness is a value judgment. The proper place of value judgments is in game design, the setting of the rules. There is no mathematically correct choice between either of these other choices and the solution that Pascal and Fermat proposed.  What Pascal and Fermat determined was fair was what they considered the rules should be in an interrupted game. They believed that in interrupted games each player should be compensated for their relative earning potential. What they really determined is the expected value of each player’s position in a game that is not interrupted. That they did it mathematically is a testament to the power of the tools they brought to bear. The interruption is simply an arbitrary place in time but it is a place in time that turned out to have profound implications. What Pascal and Fermat invented in addition to Probability Theory was Meta-Game Theory, the mathematical analysis and synthesis of chance of human intention. The significance and value of the latter has barely been touched.

Real problems arise when the rules of the game are malleable and participation is anything but voluntary. This is the situation in which the modern world and many of its inhabitants find themselves in today. They have no choice except to participate in a game that is called the economy. The game is rigged and notions of fairness do not enter into its design. Their other choice is starvation for themselves and their families.

Robert Merton and Myron Scholes waded into the “game of economy” with an equation that was used to estimate the value of an investment instrument known as the Derivative. The first red flag should have been the pretentious allusion to the work of Newton and Leibniz in the name Derivative. Merton and Scholes and colleague Fischer Black used the most sophisticate tools that mathematics had to offer to create a predictive model, an equation that would yield information on how the market for this new method of investing would play out. It would help to establish the Value of Derivatives.

Derivatives are so known because they constitute a process by which people do not invest directly on assets, they are one step removed. People and institutions invest on some sort of grouping or packaging of an underlying asset. The packaging may or may not include bets on the future value of the underlying asset. The packaging has developed to the point that it can basically include anything.

It’s just like two guys sitting at a bar and betting on whether the next guy who walks in will be wearing a black or white coat or if a guy goes to the bathroom whether he will relieve himself in the left or right urinal. This is still just plain wagering. But if the modern world of communication gets involved and thousands of their friends begin to place side bets and then those side bets and the original bets are packaged and you can also bet on those packages, you have a basic idea of what Derivatives are. This is still a harmless use of an afternoon. It even has some vague similarity to the gentlemanly context in which Pascal and Fermat operated.

The game in which Derivatives operates, the game which Merton and Scholes and Black analyzed was not a harmless afternoon; the stakes were food, clothing, and shelter for the people of the world. And had they stopped at analysis that would have been idle academic speculation. But they did not stop at analysis, they put themselves in the game. They added their academic cover for a group known as Long Term Capital Management.   A group of very high rollers made fistfuls of dollars in the Derivative markets in the 90s until they didn’t. Then their equation proved to be a complete and utter bust for themselves and their partners. And this would have been fine as well, except for what happened next. The financial establishment bailed them out.

Their equation was not used to seek fairness in a gentlemanly contest. Their equation was used to give advantage and power to the already advantaged and powerful in a game of life and death. By placing their considerable mathematical skills in the service of derivatives and derivative traders they have sought to give unfair advantage. Derivatives are designed to obscure. They are the white collar version of the pick pocket. They help some people make a killing. They lead other people over a cliff. The difference between the game that Merton and Scholes analysed and the one that Fermat and Pascal analisied is that the main outcome being predicted by Merton and Scholes was the behavior of other people. The “predictions” they put into play quickly became a prime mover in the behavior of other people. They essentially became dice shavers for those who knew how they were being shaved. I have no indication that either knew what they were doing but they were at the very best useful idiots. This is not scholarship worthy of being associated with Fermat and Pascal.

What’s true about the modern world is that it is always an unfinished game for some people. For others the game is long since over, or never started, because a requirement of playing the game is that you have to have money. For some people the purchasing power of money is zero, because they have no money. For some people the Value of Derivatives is Infinite because they have no money. Just as Blaise Pascal and Pierre de Fermat examined the tool of their game, Dice, anyone in academia who wishes to make any predictive statements about markets should have some knowledge of the nature and use of money. Money is the dice of the market.

Creating a money that is as indifferent and disinterested in the outcome of the game as a good pair of dice is a necessary prerequisite to introducing any notion of fairness into the economy.   That is a worthy use of the legacy and tools that Luca Pacioli and Blaise Pascal and Pierre de Fermat and Jakob Bernoulli have left us. The 1% Solution is an effort to do just that, create a money that is as disinterested and indifferent to the various players in the game economy as a pair of “Fair Dice”. The whole world is invited to come play.

Conclusion

Keith Devlin has done a great service to the world in drawing attention to a moment in the history of mathematics that is worth exploring and savoring. The lives of these two men are a beacon to the capacity of the human mind.

If he can find the time I would hope that he could give my approach a look and a comment. And if he invited me to Stanford I’d probably accept. I’d only be 44 years late.

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Be a Moneteer

Moneteer- A Pioneer in creating a monetary system through knowledge and mutual effort.

Most of the decisions about your life are being made outside the political system in which you participate.  These decisions have to do with the design and operation of the money that you use.  This state of affairs will continue until you take the trouble to be informed not only about the system under which you live but of the historical and proposed options that exist for money.  The ability of the financial elites of the world to loot with impunity is dependent on an ignorant and complacent public.  Do not let this state of affairs continue.

Do not blindly take up the first new ideology that comes your way but become aware of what is being done today, what has been done in the past, and of all proposed solutions in the realm of money.  Become a Moneteer.  A Moneteer is a person who has made the conscious decision to make oneself knowledgeable about money and to become an active co-creator in the money system in which one lives.

There will be those who say these efforts are foolish and naïve, but the exact opposite is true.  The one truth that strikes fear in the hearts of those who operate the money system is that it is the combined actions of the regular Mary and Joe’s of the world that give money its power.  Once this becomes clear and money is forced to give a strict accounting, the Con-Artists who depend on an ignorant public will lose their power.

If this sounds a bit like the Wizard of OZ, challenging a power that operates behind a curtain, then you are perceptive.  The author of the Wizard of OZ was L. Frank Baum, who was a follower of 19th century economic reformer Henry George.  During the last part of the 19th century George’s book, Progress and Poverty, was the number one seller in the United States.

Sylvio Gesell, Argentian/German businessman invented a type of money, Stamp Scrip, that was designed specifically for the situation in which the world finds itself today.  U.S. Senator John Bankhead proposed it for America during the Depression.

Being a Moneteer does not mean that you should blindly follow these or any other reformers but that you should at least know who they are and what they had to say.  Blindly following and blindly rejecting any ideology is used by those who would control the weak and ignorant.

Nobel Prize winning French Economist Maurice Allais has stated that there is no difference between the modern world of finance and the practice of counterfeit.  If a counterfeit gang had taken over your town or country wouldn’t you look into it?  How about if one took over the entire world?

Everybody Knows.  Leonard Cohen has stated clearly the truth of the modern world.  Everybody Knows that the game is rigged, that the notion of “free market” is a hollow, cynical assertion.  The world is being pushed into a crisis of deprivation because a set of numbers tells us that there is no alternative.  This set of numbers are what the world calls Money.  There are other sets of numbers, there are other Money’s.

Be a Moneteer.  Moneteering will involve the investigation of every money system that has ever been proposed.  It will involve setting up public experiments with these Money’s and the reporting of how each works.  Do not be a patsy.  You and your neighbors can make your own money system from a position of knowledge.  In money, knowledge is power.  Be Knowledgeable.  Be Powerful.

Study and understand the following.

Commodity Money

The Austrians

The Gold Standard

The Monetarists

Alexander Del Mar

Irving Fisher and the Chicago School

The 1% Solution

Stamp Scrip

Sylvio Gesell

Senator John Bankhead

The 1% Solution

The Keynesians

Fiat Money

The Chartalists

Modern Money Theory- L. Randall Wray

American Monetary Institute- Stephen Zarlenga

Community Currencies

LETS- Local Economic Trading Systems

Time Dollars

Study all of these and use the knowledge you attain to add to the list.  Encourage your friends and neighbors to do the same.   Then you will be a  Moneteer.

Economics has been limited to the study of the effects of money on people.  Isn’t it about time that we began to investigate the effect of people on money?

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The Unit of Money

The Unit of Money

Money is a unit.  The sum of all money is that unit.   Any quantity of money is a fraction of that unit.  The denominator of these fractions is the sum of all money.  All of these fractions add up to one.  Money exists between 0 and 1.

The allocation of money reflects a society’s distribution of the ability to acquire things.  At any given point in time money reflects the entire power of acquisition of the society.  Money exists in time.  With each exchange the power of acquisition is altered because money changes hands.

A monetary exchange leaves the purchaser, employer, renter with control of an asset and with less money.   It leaves the seller, employee, landlord without an asset but with more money.  This alters the power of acquisition,

In a free market, participation in an exchange is voluntary.   The most important factors in market participation are the need for food clothing and shelter at the bottom end and the expected value of money over time at the top end.

Demand is the desire for things from the people who have money.  Supply is the desire for money from the people who have things.

A rise in price reflects some combination of increased demand and/or decreased supply.

A drop in price reflects some combination of decreased demand and/or increased supply.

One’s economic power depends on the size of the fraction of the total amount of money, the power of acquisition.

Look at our mast head at worldmeetworld.wordpress.com.  It has a photo of the earth and an idealized representation of the world split into a grid of longitude and latitude.  We use the measurement of 360° (degrees).  We divide these ° (degrees) into ever and ever smaller pieces.  Minutes, seconds, miliseconds.  This does not alter our system of the world as a 360° sphere.  If we changed the number of degrees, say from 360° to 400° then we are altering the system.  The world is the same sphere but we have altered the measurement.

Money cannot be increased nor decreased.  It is always 1.  The monetary fractions can be divided finely, as finely as desired.  This does not alter the unit it simply makes money more precise.  Monetary fractions may be increased, but this does alter the unit of money.  This increases the denominator which dilutes the other pieces.  This alters the power of acquisition.  Purchasing power is taken from the other pieces of money and given to those who receive the new pieces.  This is exchange by dilution.

∑$ = 1

Demand = $ + Desire for Things

Supply = Things + Desire for $

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Is Economics Dead?

Is Economics Dead?

Has the Discipline and Profession of Economics run its course?  If it has its death occurred in the late 1990s in the United States of America.  The event that signaled that death was the demise and rescue of a private equity firm known as Long Term Capital Management.  LTCM failed and it was bailed out.  Much could be said about the behavior of the public officials associated with the affair.  U.S. Federal Reserve Bank Chairman Alan Greenspan, New Federal Reserve Bank Chairman Timothy Geithner, Treasury Secretary Robert Rubin, Rubin’s second at Treasury Larry Summers, and President William J. Clinton all deserve a great deal of scrutiny for their roles. 

The actions of these officials signaled to the business world that a whole new business model had been established.  The well connected and influential need not worry.  They could engage in the most risky behavior imaginable and they would be protected.  The lessons were learned and we are living with the consequences.  But the most disturbing aspect of the whole incident was two of the partners in LTCM, Myron C. Scholes and Robert C. Merton.  They were fresh off winning the Nobel Prize in Economics for their work on “a new method to determine the value of derivatives”. 

The mathematics involved in their model was impressive, and perhaps for that they deserved a medal, but it was the topic and use of that mathematical power that laid bare the complete moral and intellectual bankruptcy of their profession. Economics had flat-lined.

Derivatives pose as an investment product but are actually a form of misdirection.  Misdirection is used by magicians, pick-pockets and other con men to capture your attention while they’re performing their trick or robbing you.  I’ll let you guess in which category Derivatives belong.  Just as Alan Greenspan saw “irrational exuberance” as the cause of the 2007/08 crash, Scholes and Merton saw the exotic working of Brownian Motion in the derivatives markets.  I cannot say for sure whether the long con being worked here by Merton and Scholes involved enough self-delusion to convince themselves that they were actually saying something about the workings of the economy or just playing with themselves.  I’ll leave that for history to tell but the begged question in the entire process that took Scholes and Merton to such mathematical heights was, why didn’t they just look at the money flows?

A narrative that describes the participants in the derivative markets and a strict accounting of the money flows would tell most of the story.  It’s true that most of the money in the derivatives market is borrowed money, but then just follow the money back to the people that lent it.  The lenders obviously had a clear motive for the loans they made, and we’re talking Billions upon Billions here.  Maybe these sleuth economists could have found a clear pattern.  This type of analysis would explain everything far more clearly than using a very strained Algebra and the Calculus.  But then someone one else might have gotten the Nobel Prize.

Scholes and Merton could have followed the money trail to the banks; after all, “That’s where the money is”.   At the banks the trail might have gotten a little complicated.  The banks were surely the source of the money that fueled all participants at almost every level in the Derivatives Market.  But the curious thing was that though the money came from the banks, there was seldom, if ever, anyone’s account debited for the loans.  It was almost as if the money appeared out of thin air.  And it did. 

Obviously Merton and Scholes ran in circles that would have a bit of difficulty discussing openly the actions and motivations of the people who ran the banks, but another Nobel Prize winning economist would not.  Maurice Allais has made the clear and unambiguous explanation of where the banks get the money they loan out in the modern era; they create it out of thin air.  As Allais notes, the entire process is indistinguishable from counterfeit. 

Just as Alan Greenspan sought to use “irrational exuberance” to hide his own and others culpability in 2007-08, Merton and Scholes used higher mathematics to further confuse an intentionally confused process.  The new and exotic investment instruments, derivatives among them, were designed to confuse and no amount of mathematics will change that.  Never has the cultural and scientific legacy of the world been used in so low an endeavor.  That the profession saw it as laudable is revelatory. 

Had Merton and Sholes faced up to the fact that the Derivatives Markets were designed to separate the foolish from their money this episode could be seen as a blip on the radar.  But they are still around, still promoting the political and economic milieu that made the whole thing possible.

The identification and exploration of the deep pockets that fueled the derivatives market is important because money is important.  We live in a monetized world in which every dollar or peso or ruble is in competition with every other dollar, peso or ruble in the world and by proxy with every other person in the world.  If Merton and Scholes had bothered to ask why anyone would lend money to the risky venture known as Long Term Capital Management they would have found that no one was willing to lend money to them. 

Long Term Capital Management was a high stakes player in the Big Casino of Modern Capitalism.  But they weren’t playing with their own money.  They weren’t even playing with anyone else’s money.  They were playing with money that was conjured into existence.  I’m not sure that all the high powered mathematics in the world could have given any insight into the 24/7 adrenaline parallel dimension that was the Derivatives Market.

The economy is on a gurney on its way to emergency surgery.  Do the doctors in that operating room have the tools to get the economy going again?  This question is worth answering.  But the answer must also contain a testable hypothesis.  To give Merton and Scholes credit they did test their hypothesis, and failed in an embarrassingly public manner.  But they seemed completely unaware that there was another group piggy-backing on their experiment with Long Term Capital Management.  These people were asking a different question.  “Can we design a set of products that will hoover up every available dollar in world capital markets until our bets go sour and then get the rest of the world to bail us out?”  That experiment was a shining success.  Now that’s something worthy of a Nobel Prize.  They chartered the path for the biggest con in human History.  Now there’s something to be proud of.

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The Butterfly and the Sledge Hammer

  1. The Butterfly and the Sledge Hammer

“Do what you love.”  It has rolled off my tongue more than once.  It is the truism of the age of the “Creative Class”, another flippancy that has echoed in my own voice.  While I was not born to the silver spoon, I was born into a comfortable existence in perhaps the most egalitarian and free society the world has ever produced, 1950s and 1960s California.  I was encouraged to not only dream, but to dream large.  And I did.

The world was an oyster for an entire generation and I thought, by extension, an entire country and world.  I almost could not fail.  The world has been kind and mainly gentle with me.  I lived in the world of the Butterfly.  Butterflies are one of nature’s beautiful and delicate creatures.  That butterfly society has transformed our world.  Movies, music, computers, and now the social media have brought us into close approximation to each other.  But the butterfly has not floated through our existence alone.  It has had a companion, the sledge hammer.

The sledge hammer is as cruel a task master as the world has ever seen.  Grinding and unforgiving poverty has left much of humanity in such a precarious position that should the world “market” cease to function for even a short time their very lives would be in jeopardy.

There are those that believe and even argue that the Butterfly cannot exist without the Sledge Hammer as the enforcer, the police of the privileged enclosures necessary to the Butterfly.  The Butterfly creates our modern world from a hot house that must be ruthlessly exclusive.  The power of money backs this belief with an array of tools that have conquered the world and guard that conquest jealously with a brute force that brooks no dissent.

Money has replaced almost all other forms of human social arrangement.  Liberty and democracy have succumbed to its insidious influence and power.  How did this happen and is it irreversible?

The Butterfly and the Sledge hammer have been the twin pillars of support for a “summer camp” that had ambitions to be a “Science”.  Economics fiddles while the world burns and it is little more than sport or a career.  Money is the power behind the throne for both the Butterfly and the Sledge Hammer.  The rich life of the Butterfly Economy permits the time and space to ponder itself.  Such possibilities and potential.  The Sledge Hammer Economy breads pathologies of all types, pitting the poor dregs to fight over scraps and plot the overthrow of the system even as they seek their own escape.

From tea at 4:00 p.m. on the veranda to mining garbage in Brazil all day long, it’s all the same world.  The fickle world of the Butterfly and the Sledge Hammer can take you from one end to the other in two shakes of a lamb’s tail.

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The 1% Solution

The 1% Solution

The Point of Money 

Prelude 1:  In the 17th Century French Mathematicians Blaise Pascal and Pierre de Fermat tackled a problem that had been circulating in Europe for some time, known as “the Problem of Points” or “the division of the Stakes”?  Pascal and Fermat, both avid participants in games of chance, wanted to know how to proceed if their dice game were interrupted at a point before the game was concluded.  Given different particular points in the game, they wished to know how the pot should be divided.  This seemingly mundane discussion between Pascal and Fermat laid the ground work for what became Probability Theory.  Probability Theory has woven itself into many branches of mathematics and the natural sciences, philosophy and artificial intelligence.  It is perhaps the single intellectual development that separates the modern world from the ancient.  It opened a window into the future, a scientific window that gave a numerical basis to expectations.  Probability Theory is crucial in the fields of quantum mechanics and thermodynamics and many other “physical sciences”.  In the field of economics and commerce it has brought us the invaluable tools of car insurance, hedge funds, derivatives, and Nobel Prize winning equations on how to value those derivatives.

At the dawn of the Third Millenium the world has once again come under the control of the powerful mystery cult called the “Market”.  At the core of this cult sits its main ritual called Money.  Until recently any discussion of the nature, structure, and function of Money has been taboo, almost absent from the public dialogue.  A topic that should dominate every legislature, every news cast, and every college curriculum has been an afterthought.  The World Wide Web has nibbled at its edges but our lives depend on it taking center stage.  It is the central question of our age.  What is the point of Money?

 The Occupy Wall Street Movement has given the world a wake-up call.  The growing income and wealth inequality, or as it’s called in the Hebrew and Christian bibles, Iniquity, threatens to capsize the world economy.  While the Occupy Movement has occasionally been criticized for lack of clear goals and programs, others have stepped in to fill the gap.  The former Republican presidential candidate Mitt Romney criticized his Democratic opponents for saying no one should live in luxury.  Mr. Romney proposed the unambiguous goal of making everyone rich so we could all live in the luxury we deserve.  I wholeheartedly agree.  We should all be members of the 1%.    But short of Mr. Romney adopting us all, how do we achieve such a goal?

I encourage everyone to keep the Billionaire down the block on speed dial but that alone is not a strategy.  We could get a job but unemployment seems to be chronic.  The only growth industries are Greens Keepers and Security Guards.  We have thinkers, educated young people, poets, artists, film makers, workers of all types who are idle.  Whole generations, Millenials, Xers, Yers, Boomers, are in trouble.

They’re ridiculed for not having a job.  They’re told “call back next month” when they go seeking gainful employment.  If they ask for help in their distress they are labeled “moochers”.  Those who are “lucky” enough to find employment are told that wages are down.  The “moochers” category has been expanded to the entire bottom 47% of the economic pecking order.  Government help to anyone in this group is defined as encouraging mooching.  The urban legend is that they mooch off the top 53% of the population known as the “producers”.

Food Stamps, unemployment insurance, every program aimed at helping the “moochers” is being cut or eliminated.   Hard-nosed realists tell us that these programs only reward laziness. The poor must be taught to be responsible for their own lot. The “producers” employ armies of lobbyists to persuade the press and politicians to alert the world about the moral hazard of getting something for nothing.  Meanwhile the myriad of subsidies to the “producers” are not even discussed in polite company.  The moral hazard only applies to the “moochers”.  Whether the bottom 47% is getting more of the public dollar than the top 53% is open for debate, but one thing is not.  The further up the economic ladder you go the more your subsidies are “On Top Of” your wealth and income.  No matter how rich you get, you never lose them.  In fact the richer you get the more subsidies you get. The further down the economic ladder you go the more your subsidies are “Instead Of” your wealth and income.

We reward the wealthy and punish the poor.  We have even gotten to the point where we have ceased to support those programs that are used by everyone in the society.  Education, water, even roads and bridges are being allowed to fall apart. The “Moochers” are watched closely so that all types of assistance are cut off at the very first sign of prosperity or the accumulation of any wealth.  The wealthy are shown the red carpet.  The serious people of the world assure us that we are in deep trouble.  We are told that helping the strong and punishing the weak is the only way out of “this situation” and that it will take years.  What exactly is “this situation”?

The situation is poverty amidst plenty.  The Economic Singularity is sailing without us.  The Human Economy has accumulated such massive wealth that it is becoming increasingly difficult to figure out what to do with it.  Nobody except the very wealthy have any money to spend.  We have plenty of what the world economy tells us that we want.  There’s enough caviar to go around for those who can afford it.  We seem to have almost enough BMWs.  What’s a world to do?   We could encourage using $100 bills to light cigars like they did back in the 1890s.

The “free market” has succeeded in creating a massive amount of things that a few people want.  Yet there are many places on earth where millions are hungry and lack the basics of clean water and a roof over their heads.  Perhaps our new “Robber Barons” and their pet politicians are correct; the price we must pay for prosperity is a poverty that would make Charles Dickens blush.   It dovetails nicely with their view toward the environment.  We are told that the only way to live happily on the earth is to foul it beyond recognition.

If this is true then the world financial crash of 2007 is just a down payment.  The disciplinary message that is poverty will continue to spread.  If you don’t work you don’t eat.  And if we don’t have enough work to go around.  Well, you figure it out.

There are those who encourage political action as a solution, but that seems almost foolish.  When United States Attorney General Eric Holder states in public that the crimes perpetrated on the world by the operators of the financial system must go unpunished because prosecuting them would create “disruption”, it is not difficult to see who is really in charge.

Suggestions of political reform are met with the disdainful refrain “that’s just how the free market works.”  The constant, mindless repetition of such mantras has begun to grate on one’s nerves.  One would hope that we are not headed for a situation in which people starve to death in sight of food.  During one of the Cult of the Market’s other attempts at global possession, just such a thing happened.  In 19th century Ireland the Potato Famine was not caused because Ireland lacked food.  It was caused because many farmers grew only potatoes and when the potato crop failed they lost not only their main source of food they lost their main source of revenue as well.  So even though there was sufficient food available in Ireland to address the famine, that food was exported.  The cashless farmers had to fend for themselves.  Politicians excuse for not extending some help to these farmers was that they didn’t want to send the wrong signal.  Death was the appropriate signal.  If I were a betting man I wouldn’t bet the family silver against it happening again.  Soon!

Later in his life Blaise Pascal went into isolation for the purpose of religious contemplation.  He was drawn out of that isolation by his fascination with the cycloid/trochoid, a member of a family of geometric curves known as the Roulettes (doesn’t it sound like a 60s Motown group).  For whatever reason Pascal published his work “Histoire de la Roulette..” under the pseudonym Amos Dettonville.  The whole episode makes me think that if Pascal and Fermat were here today they’d still be rolling dice.  I don’t think they’d have any trouble adjusting.  Their world was already Virtual 400 years ago.  Maybe they would be video game designers.  Or maybe we could lure them both in as consultants for our proposal of new type of money, The 1% Solution.  Laissez les bon temps roullez.

The World Has Changed

Prelude 2:  About a half a century before Pascal and Fermat began their correspondence, an obscure Scotsman named John Napier was at work on an amazing project.  Napier accomplished something that would weave itself into the next four centuries of the learned world.  He had simplified the functions of multiplication and division into acts of addition and subtraction.  Napier’s great work “Mirifici logarithmorum canonis descriptio” created the Logarithmic Tables.  These tables and their close relative the slide rule, made possible calculations that expanded the capacity of every mathematician and scientist in the world.  Calculations that would have taken hours or days could then be done in minutes.  Napier exponentially increased the productivity of every mathematician and scientist. These tools proved sufficient to take us to the moon.  They have only been surpassed in the past fifty years by the electronic calculator, also known as the electronic slide rule.

One of the great problems with the current situation is that the world has changed forever.  Young people coming into the workplace today are the most productive in the history of humanity.  This has been their undoing.

Mechanical power, mass production, and information technology led mid-20th century scientist/mathematician Norbert Weiner to identify a process which he called Cybernetics.  He foresaw that these advances in information control and communication technologies would create situations in which a single person could replace tens, hundreds, or even thousands of former workers.  This is happening in industry after industry.  “Jobs” are disappearing and yet the biggest push from both sides of the political spectrum is how to “cure unemployment”.  “We must figure out how to get these kids jobs, or we are lost” is the refrain.  Weiner thought that the efficiency gained in these developments would increase living standards.  Just the opposite has occurred.  Less workers are needed and wages have taken a dive.

Buckminster Fuller was equally optimistic.  He called this process Ephemeralization,  ”the ability of technological advancement to do more and more with less and less until eventually you can do everything with nothing”.  Fuller’s vision was that ephemeralization would result in ever-increasing standards of living for an ever-growing population despite finite resources.

This persistent level of “unemployment” we are experiencing is no longer solely a product of the business cycle.  Everyone is scared because they don’t know what to do.  Perhaps unemployment is no longer curable.  We may never again need everyone to be employed in the manner they are now.  We may never have needed everyone to be employed as they are now.  Perhaps employment is not as gainful as we thought.

Norbert Weiner and Buckminster Fuller believed that such abundance would end the working world as we knew it.  It has, but not in the way they thought.  Productivity increases have been used to eliminate the access to money and thus access to the economy for increasing numbers of people.

While working people and whole societies have had trouble adjusting to the world of plenty, the economy has not.  The standard operating rules have been, send the money straight to the top.

The rest of us cannot decide whether we want to take a cattle prod to Granny to get her to work another five years or create “jobs” in order to get money in people’s pockets.  I think it’s time to get annoyed.  And then get past it.  In a very polite way of course.

Like Isaac Newton, the very parsimonious Mr. Napier spent many years engrossed in the Revelation of St. John.  One can never know how much his work in mathematics was informed by the dragons and trumpets and angels he communed with there.  If one of the dragons was Ouroboros or if one of the trumpets blown was Poseiden’s Nautilus Shell, it would help explain a lot. 

The Old Game

Prelude 3:  Famous French author and observer of America, Alexis de Tocqueville is credited with the quote, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”   Whether it was de Tocqueville or not who made the statement, Fortunatus of Cyprus disagreed.  He was the owner of the famous Purse of Fortunatus, which never ran out of money.  “Freedom and democracy will begin when the public discovers it can grant itself the public’s money. It is, after all, the Public’s money.”

Game Theory is an academic discipline that looks a lot like Fermat and Pascal’s approach to the “Division of the Stakes.”  It takes Points in our personal and business lives and looks at them as if they were Points in a game.  Pascal and Fermat looked at the interaction of random factors.  Game Theory looks at the outcomes of players pursuing strategies.  These strategies can be competitive or cooperative.  The players can be equally informed and equally positioned or there may be great differences in power and knowledge.  The “Stakes”, the score in all of these games are measured in money and money is assumed to work.

Money is a bit different than points in a game.  Money has three fairly well accepted functions, Medium of Exchange, Store of Value, and Measure of Value.

Medium of Exchange – We use money to buy and sell.  You give someone money and they give you something you want.  That’s a buy.  You get money from someone and give them something you have.  That’s a sale.  Buying and Selling are bets.  You bet that what you get in a buy is better than the money you gave up.  You bet that the money you get in a sale is better than what you gave up.

Measure of Value – Money is a digital information system.  When you buy or sell something the amount of money becomes a price.  Price allows a person to compare completely unrelated products on an “objective basis”.  The object in the “objective basis” is money.  Price is set through negotiation.  Sometimes those negotiations are in the form of auctions and sometimes they are informal.  Offer and counter offer underlie every price.  Money is the language of these negotiations.

Store of Value – When you sell something for money you do this so that at some point you want to buy something.  When you buy something the seller has the same thing in mind.  What is the shelf life of the money?  If I get it on Tuesday, can I still use it Saturday?  Or if I keep it for a year, how much will be left?  This is a major concern for those who have stock piled cash.  The great majority of the world’s people have no cash savings and thus the long term Store of Value is of no consequence to them.

Game Theory helps us put numbers on things, but it is limited.  What would Game Theory tell us about a Basketball Game that began with one of the teams beginning with the usual score of 0, and the other team starting with 5,000,000,000?  Not much.  The outcome is determined.  Not only is the playing field not level, but such a “competition” would never take place.  The person with 0 points would not be allowed on the field.  This is because the playing field for money is made up of money.  The only competitors allowed are those with a lot of money.

There is a religious belief awash in the world that the winners of previous competitions are legitimate and their winnings must be respected.  Where did this money come from?  How did these points in the economic game achieve such prominence in human society?

Most of today’s money is created by Central Banks, be it the Federal Reserve System in the U.S. or the European Central Bank, and their numerous branch banks.  They create money by loaning out a portion of their customers deposits at interest.  These proceeds of these loans become deposits and are also lent out.  The banks are required to keep a portion of their customer’s deposits in reserve in the form of cash or bonds.  This is known as Fractional Reserve Credit.

One should be careful at this point.  Thinking about Fractional Reserve Credit can make you dizzy.  I recommend a good stiff drink before trying to wrap your head around the process.  Actually understanding Fractional Reserve Credit may require a whole bottle.

For any money there are basic safeguards needed to insure that it fulfills its functions.

  1. Indifferent- As with all scoring systems, Money should not show favoritism between participants.  There should be a single set of rules for all.  Money should provide equal access to all.
  2. Tightly Sealed- The creation and destruction of money must be rigorously controlled and done in a completely transparent manner.  Creating money taxes all other currency divisions.  Destruction of money is a dividend to all other currency divisions.  Unauthorized creation of money for the private gain of the creators is called Counterfeit and is a crime.  Authorized creation of money for the private gain of its creators is called banking.
  3. System Transparency- All basic quantities of money must be known and publicly reported on a timely basis to all market participants.  There should be no need of an audit of the Central Bank or any of its member banks.  Every day should be like an audit.  It should be Standard Operating Procedure to share all information and to make sure that information is correct.  There should be regular examinations to see if any public information is false.  There should be severe penalties for any lies.
  4. Markets depend on equal opportunity of all to participate.  Practices such as High Frequency Trading or other practices that use privileged access and technological advantage in market access must be controlled. No transactions should occur at a speed that makes transparency and equal access difficult.

These minimum safeguards are treated as a joke.

  1. Privileged players have privileged access.  The financial system is open to some and closed to others.  “Credit-worthiness” is used as a tool of economic power
  2. The creation of money is ill-defined.  Few comprehend it.  It is a hodge-podge of inherited standard operating procedures and is mostly made up on the fly.
  3. The entire financial establishment operates in an atmosphere of secrecy which serves the accepted business model of fraud.  The quantity of money in existence and who owns it is impossible to ascertain.
  4. Monetary transactions have entered the twilight zone.  Some are done at the speed of light with no opportunity for the market to even know what has occurred let alone be able to respond.

Money has degenerated to the point that the banks and brokerage houses that control the financial structure no longer feel much need to mask their activities.  They are running confidence games that are on the intellectual level of the carnival midway.  Insider trading and bait and switch are common.  Money has become a squeeze box, increasing and decreasing by letting and calling loans.  Granting power to some people and taking power from others, all in the name of “good business”.

Banks use Fractional Reserve Credit to loan their customers money to invest.  Perfect for creating Bubbles.  No one’s account is debited to make the loan.  The money created is “virgin”.  It didn’t exist before.  This new money has the self-fulfilling prophecy of driving up the price of whatever it is invested in, real estate, tech stocks, tulips.  This makes the bankers look like real smart “investors”.  Until the Bubble pops.

Those seeking alternatives have been steered to the somewhat loosely defined concept called the “Gold Standard”.   Gold is seen as “sound money” because gold has been shown to be a good Store of Value over the long run.  This is true.  Gold maintains its purchasing power over time.  It would be perfect if Storing Value was the only function of money.  But money must also be a Medium of Exchange and a Measure of Value.  At these other two functions, Gold Sucks.

When money is made of Gold the economy operates until gold is cornered and then the economy collapses.  It is usually brought out of collapse by introducing a modified gold standard.  Gold Backed cash and bonds are issued and their issuers are required to maintain “reserves” of gold to pay anyone who wants to redeem their paper for gold.

Central Banks and the Gold Standard both have their origins in medieval times.  Gold merchants began to provide strong houses (banks) where people could keep their gold.  These Banks issued certificates to the depositors which they needed to redeem their gold.  These certificates began to circulate as if they were the gold.  Some bankers realized they could issue more certificates than they had gold.  They could loan those certificates at interest because there was a thriving market for money.

It was a gamble, a gamble that could pay off well if not everyone showed up at the same time for their gold.  Even a rumor that a bank had issued more certificates than it had gold could trigger a panic known as a “run on the bank”.   Everyone rushed to get in line in time to get their gold.  If you got there late, tough luck.

The reason that such a system existed and continued to thrive was that it worked.  Given two towns side by side, the town which had the Gold Merchants who were loaning out extra certificates was more prosperous.  It had a Medium of Exchange that allowed its economy to thrive.  Even though it had booms and busts, it grew over time.  The town next door with an “honest” bank had an economy that was sluggish.  The only people who had money were the wealthy.  It puttered along until it was bought out or conquered.

Other cities and regions began to catch on and figured they should get them some bankers too.  And they did.  As much as they hated them and wanted to do without them, experience showed that those communities who had banks who issued more certificates than they had gold were tremendously more prosperous than those cities and regions that did not.  The modern world is the result.

We are told to choose between two rotten choices.  The Central Bank Model is little more than organized Counterfeit. The world’s bankers have proved unable to resist the temptation to create money and divert it to their friends.  I’m not sure anyone could.    The Gold Standard is an open invitation to a hijacking.  The governments of the world stand ready to run protection for both of these rackets to the exclusion of all others.

The two greatest beneficiaries of the “free market” in today’s world are the Chinese Communist Party and the Saudi Royal Family.  Wouldn’t Adam Smith be proud?

Attorney General Holder’s waving the white flag of surrender is just public acknowledgement of what has been clear for some time.  The lunatics not only run the asylum, they have privatized it and have pumped and dumped it a half dozen times.  It is not the first time that a powerful government has been brought to its knees by a financial structure that it cannot control and does not even understand.

One would hope that Game Theory would help us “find a way outa here” but each day makes it clear that the single economic law still in effect is the Power Law.  Under the power law the strong get stronger and the weak get weaker.  That quirky and insightful Jewish Economist Jesus was something of an expert on the Power Law and he summed it up nicely.  For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.  You can look it up.

The existing game for money on planet earth is now over, finished, Kaput.  Money responds to Money and nothing else.  The team that just won the World Series for money were very good players and they have a multitude of tools; Poverty and the Threat of Poverty, Control of the Money System, The Purchase of the Political and Regulatory System, and an ever tightening control of Information through Ownership of Media. They own the game. They barely need to cheat any more.

There are a growing number of money reformers who are no longer limited in their thinking.  They are looking beyond the Central Bank and the Gold Standard.  Here’s the take away question.  Is it still cheating if we figure out how to cheat for everyone?

The Social Network

Prelude 4: Austrian Economist Friedrick Freiherr Von Wieser (1858-1926) discovered a paradox, an exception to the iron law of demand.  Wieser considered a situation where “by driving an artesian well or opening up a copious mountain spring it is possible to provide a town with pure water in superabundant quantities.”  Wieser concluded that “If the principle of marginal utility were strictly adhered to, such an enterprise would never be started; a superabundant stock of free goods has a marginal utility of zero.  But will such a consideration deter the public from incurring expenses for such an enterprise?  Surely Not.”  

Economic Theory has no way of addressing a product that has sufficient quantity so that everybody has enough of it.  It tells us that individual initiative would not make this available because no one could make a buck off of it.  Wieser also is quite sure that this is the point at which economic theory no longer has anything to say and “common sense” takes over.  That is unless common sense can be bottled up.

Perhaps had Professor Wieser dug just a little deeper in this well he would have found the missing “Purse of Fortunatus”.  Perhaps the world was not yet ready for its beneficence, to never run out of money. 

The Industrial Revolution incorporated thousands of years of learning and innovation into machines.  These specially designed machines replaced craftsmen in the production order.  With craftsmen each product costs approximately the same amount.  Under the industrial system the purchase of the machine and set up can be very expensive.  The first unit of product costs a lot, but each succeeding unit became cheaper.

There were a multitude of effects from the process which derived from the ability to produce goods at drastically reduced prices.  Craftsmen lost their jobs.  Some crafts that people had trained in for years were completely eliminated.  Textile mills and especially the printing press virtually eliminated the craftsman.  This was a preview of what is happening today.  Innovation has been the undoing of many people.

The Industrial Revolution came close to manifesting Wieser’s Hypothetical Well.  While things were not hyper-abundant, they were abundant.  That is, they were abundant to those who had the money to buy them.  They were not abundant to those who did not have money.

Hyper-abundance began to appear with the advent of the Social Network.  The Social Network as a modern phenomenon can be traced to the telephone.  One telephone is useless.  You need someone to call.  The more people you have to call, the more valuable is the Telephone System.  This phenomenon of a product gaining value with each new customer has been termed the Network Effect.  The telephone system became more and more valuable.  It was allowed to develop into a regulated monopoly.

Broadcast radio and then television were more difficult to control.  The signals were out there and collecting a toll was more expensive than it was worth.  A new business model emerged, advertising.  Under advertising companies try to capture our attention so they may sell that attention to others who wish to sell us stuff.

Cable television brought back gates with the promise of greater variety and better quality.  A whole new network of wires was laid out.  Technology continued to intervene.  The Internet and the World Wide Web were waiting in the wings.  The Web at first piggy backed on the telephone and then cable television began offering its own connection.  The World Wide Web sits atop both and threatens to subsume both.  Phone services are now delivered through the internet and television programs and movies as well.  We’re headed for a single connection.

What came next was drastic.  Social Networks and Social Media began to connect people and machines to each other.  Massive businesses were created in days.  This was far more important than the medium becoming the message, the customer had become the product.  Face Book, just like broadcast radio and television, was given away.  There was no fee for use because Face Book needed to have as many “customers” as possible.  But unlike Radio and Television, Facebook did not produce entertainment to lure more customers; they lured more customers by luring more customers.

Creator of Ethernet and cofounder of 3COM Robert Metcalf gave the “Network Effect” an equation.  Metcalf stated that the “Value” of a Network was exponentially related to the Number of participants in that Network.   V = n²   This entered computer jargon and legend as Metcalf’s Law.  Even though Metcalf has personally backed off many of the claims of the more ardent supporters of the concept, it remains a powerful force.  Facebook’s multi-billion dollar stock offer was credited to the notion.

Since his original conception, Metcalfe has clarified several points. He has added that when Metcalfe’s law is applied to social networks (and thus social networking sites like MySpace, Facebook and LinkedIn), it is not just the number of users that must be considered but also the affinity between users. He has also pointed out that the law works best when applied to smaller networks and loses value when concepts like “connected” and “value” cannot be quantified.  http://www.wisegeek.com/what-is-metcalfes-law.htm

Wieser has shown us in his “Paradox of the Well” that goods produced abundantly enough to be given away have no marginal utility and thus no “market value”.  Metcalf wants to keep his insight contained to “small” networks whose “value” can be quantified.   The “Value” that Metcalf wants quantified is not its use value, it is the trade value of the network to investors.  For him this “Value” must be quantifiable or it makes no sense.  The philosopher Wieser tried to show us that the world would be foolish not to avail itself of the “free”.  The businessman Metcalf tried to keep the “free” sufficiently obscured, perhaps even from himself.  Is there a fine line between charging admission and just leaving the door open, or has the Rubicon been crossed?

The Social Networks have become so free that there are those who are advocating micropayments to customers for certain activities.  Imagine a Movie Theater in which all the doors are open all the time and the movie selection will be geared to get as many people as possible inside and to persuade them to stay as long as possible.  They might even lower the popcorn prices all the way to zero.  And by the way, I want a cut when this tremendous new business model goes into production.

Many of the issues surrounding the “value” of these efforts is obscured because the economy itself is a social network.  The economy is a virtual network which is laid over the physical and social world of human society.  Information is passed digitally over a grid called money.  Each additional participant adds value to the network.  And by participant I do not mean the great majority of the world’s population that is struggling to survive on pennies a day.  A participant is an independent consumer and producer who is free to negotiate with others and purchase products and offer products for sale.

A true participant in the Economic Network is one whose interactions are never forced. Basically what I’m talking about is trust fund kids, people with enough assets that they don’t have to take the first job that comes along.  The trust funds don’t all have to be in the $100,000,000 range.  We don’t all have to be billionaire’s children.  A cool $10,000,000 or so would do.  Just enough to not ever have to worry about their children starving.  This means that they can be extremely choosy in their “work” life.  They have the luxury of never working unless they want to.  For them work truly is an ethic, not a necessity.  They can afford to take some risks.  Risk pays dividends.  Coming from a family where you can bet $10,000 at the drop of a hat has its advantages.  Having the resources to absorb million dollar losses can put them in situations that pay huge dividends.  Money is leverage.  Now you see why I’d like to be adopted.  I just want to participate.

This brings us to the 4th function of money that fails to make it into most economic text books:

  • The ability to deny money to individuals, groups and society as a whole.  This is the main function of money as it is used today.  It is the power to deny people the basics necessities of life by denying people money.  When this power is intact there will never be a “free market” and the benefits of the “network effect” of the economy will always be stunted and not allowed to grow.

In the physical world of human reality, consumption must precede production, or how to put it nicely, the person is dead.  Human beings have the longest “Childhoods” or training periods of all the creatures on earth.  If they do not have support and access to the world economy in their youth their capacity to participate as a Producer later in life is challenged.  Poverty stunts the growth of the majority of humans at a very predictable rate.  Poverty limits the size of the Economic Network.

Taking Metcalf’s original equation       V = n²     we can contrast the Value of a Network that includes 100% with one that includes just the 1%.

Squaring 100% of the world’s population of 7,000,000,000 we get a network valued at

7,000,000,000² = 49,000,000,000,000,000,000

Taking 1% of the world’s population we get

7,000,000,000  x 1% = 70,000,000

And squaring that we get a network valued at

70,000,000² = 4,900,000,000,000,000

According to Metcalf’s Law the Market Network that includes 100% of the world’s population is worth 10,000 times more than the Market Network that only includes the 1%.  Maybe we ought to give it a look.

The New Game

Prelude 5:  The great Greek Mathematician Archimedes is reputed to have stated “give me a lever and a place to stand and I can move the world.”  He also taught us a great deal about how to float. 

A very wise man in my home town of Greenfield, California used to say, “you let me design the race and I’ll win every time”.  Maybe we should all take a little more interest in the design of the race.

There is an off shoot of Game Theory called Meta Game Theory.  In Meta Game Theory nothing is a given.  Games are seen not as a fixed entity of rules and scoring, but as evolving scenarios, in which stake-holders claw out reality by defining and redefining the game.  Creating the rules and rewards of games are themselves a game.  This is the Game to set up the Game.  Many people are already engaged.

Money is not as limited in its possibilities as some would wish you to believe.  While corporate controlled media and politicians have ignored virtually all options that in any way challenge the powers that be, the World Wide Web has not been so quiescent.  The Internet is coming to life with a discussion about money in all its manifestations.  Current efforts and historical alternatives are receiving attention and generating interest.  Money has taken many forms throughout history, some to great effect.

The idea of creating a New Money is gaining an audience and adherents.  The advocates vary in goals and structures.  Each of these alternatives seeks to overcome or circumvent the power of money in its own way.  The following categories are not hard and fast, they tend to bleed into each other.

  • Community-Building Currencies that seek to rebuild and support community are abounding.  LETS (Local Employment Trading System), Time Banks, Astoria Dollars are established and growing.  A method to “trade” on an equal footing with neighbors or to harness the power of the “free market” for a different group of customers that does not need the permission of international capital.  Some are complimentary to existing currencies.  Some are designed to replace those currencies.  Some trade hours of labor not distinguished in terms of quality.  What all of these share with the 1% Solution is that they are congregational, they depend on voluntary association.
  • Political Groups and Movements are springing up that seek to reform government policies surrounding money.  100% Reserve Money, the Positive Money Movement, Modern Monetary Theory, and the American Monetary Institute are providing strong advocacy for workable alternatives to the venality, stupidity, and downright corruption that now dominate.  Democratic and egalitarian principles underlie their efforts but they still seek what is called “Full Employment”.

The 1% Solution does not share this goal.  It believes that “Full Employment” is a personal decision.  Though people should be rewarded for their diligence and creativity, they should not be impoverished because they refuse to accept what someone else has determined are proper conditions for that employment.  Wages for work are primarily set by the poor negotiating position of those who need employment in order to have access to money.  If that negotiating position were improved things would change.

  • Monetary systems in video games and virtual worlds such as Linden Dollars of Second Life and numerous other simulations.  Some have opened exchange windows with the world’s official currencies.  The gaming world is creating a parallel universe.  Whether the motivation is to amuse, learn, or seek alternatives to the status quo is dependent on the participants.

The range is unlimited.  Some of these games are tackling issues that all creators of money must face.  How much currency should be created?  Who should get it and how, when, and why?  All of these questions are being faced and dealt with.  While some would diminish the significance of these efforts it is always important to remember that all money ever created is Virtual.  All money ever created is Digital.

The gaming world is beginning to realize this and gamers are not limited by the intellectual death that surrounds conventional business and economics.  The main restraint is that most of the games that exist are proprietary, owned by limited liability corporations.  The money in these games is “house money”, with all of the problems of “house money”.  The 1% Solution seeks to be a currency capable of being used by games and gamers that does not have these deficiencies.  It will happen eventually, either The 1% Solution or another peer-to-peer currency will be adopted over various gaming platforms.

  • Cyber-currencies such as Bitcoin have created completely Self-Referential Currencies.  They market the scenario of a guaranteed limitation on their issue.  They may be used to buy and sell products and be traded for other currencies.  Fortunes have been made and lost in Bitcoins.  That is fortunes in what we call Real Money, Conventional Currencies.

The 1% Solution and Bitcoin, share some characteristics.  Both seek to create a Virtual Commodity based on a guaranteed pattern of issue.  The value of that commodity is set in the market place.  They are both floating currencies.

Bitcoin creates what is essentially Synthetic Gold.  It introduces new currency through a process known as mining, which rewards early entry and computing power.  Bitcoin requires considerable effort in order to receive issued money.  Bitcoin has a sunset on new issue.  Its power derives from exclusion.

The 1% Solution has an ethos of egalitarian access.  A transparent limit on issue is combined with regular, equal payments to all participants.  It sets a minimum floor and everyone is nudged toward the middle.  Rewarding diligence, creativity, and quality are the goals of The 1% Solution.  Bitcoin rewards shrewdness and its sole goal is making money.

  • The discussion of Trillion Dollar Coins did yeoman’s work in bringing the structure of money to people’s attention.  Hearing the mealy mouthed idiocy that surrounded the discussion was priceless.  Get it?  President Obama’s hasty retreat spoke volumes about the fear that Trillion Dollar Coins stirred in the leaders of the Financial Establishment.  We all must serve someone and President Obama has made it clear who he serves.  It seems that being accepted as “one of the boys” by big finance is of paramount importance to him.  This keeps him in their pocket.  I say Trillion Dollar Coins for everyone.  It would certainly put the debt in a different perspective.  It was all those zeros that raised so many hackles.  $1,000,000,000,000  And here I thought zeros was the same as nothing.  Nothing is not what it used to be.

Let’s not let the discussion be swept back under the rug.  Existing money must be questioned.  Existing money must be challenged and scrutinized.  Any and all new alternatives, including The 1% Solution, must be challenged and scrutinized as well.

The Occupy Movement has set the stage for a serious discussion of these proposals. A “level playing field” may be a tall order right out of the gate but a “place to stand” on that field is essential.  And maybe then Archimedes could teach humans how to float as well as money does.

Earth, Wind, Fire, Water, and Money

Prelude 6: 17th Century Swiss Mathematician Jacob Bernoulli stood at the crosswords of probability and logarithms.  Bernoulli found the algorithm for the base of the Natural Logarithms.  Its formula is algebraically stated    2.71828…   This number underlies some of the most intriguing phenomena in the universe, Spiral Galaxies, storm systems, and nature’s organic masterpiece the Nautilus Shell.  The Exponential Function   also has the amazing characteristic of being its own derivative.  But it was the Transcendental Number e’s connection to money that helped Bernoulli discover and state the algorithm clearly.  e is the product of 100% interest compounded continuously. 

Compound Interest is derived by dividing the time period of a loan into smaller portions, collecting the interest for that period and then paying interest for the rest of the time of the loan on both the original principal and the collected interest.  Take a $1,000 loan at 100% per annum and compounding it semi-annually would collect 50% on the loan at six months.  This is $500 which would now create a $1,500 balance which you would pay another 50% on for the next six months.  The total paid would be 2,250.  The amount paid on the loan increases each time the compounding period is shortened, but no matter how small you make the periods, even down to the millisecond, the amount paid reaches a limit at e, $2,718281828….

Napier’s Logarithms yielded the transcendental number “e” which Bernoulli combined with the insights of Fermat and Pascal and Dutch Mathematician Christiaan Huygens and made Probability Theory into a branch of Mathematics.  The status of “e” as nature’s growth constant made it invaluable in predictive scenarios.  “e” takes a discreet process, doubling, and makes it continuous.  This makes the use of calculus in probability a very simple process.

Its inverse “1/e” also proved itself time and again.  It describes the process of radioactive decay.  It even has a law named after it, the Law of Best Choice.  Its algorithm is closely related to that of “e”.     

Let’s see “1/e” at work.  Imagine every person on the earth attending the opera and checking their hat at the door.  The hat check man conscientiously puts them all in individual boxes but neglects to label the boxes with the name of the hat’s owner.  When we all come back to get our hats the odds that no one would get their own hat back is 1/e = 0.36787…

I think it’s time for a new hat check guy. 

Money doesn’t just compound, it confounds.  It stretches so far back into human history that it is difficult to put together any sort of evidence as to how it began or where it came from.  Money also penetrates our lives so deeply and is at the heart of so much of what we think and believe that it is difficult to even think about money without using our beliefs about money as our analytical tool.  We see money with money.

The structure and design of money is usually set by those who own a lot of it.  They have a considerable interest in making sure that Storage of Value is the paramount function.

A MediumA MeasureA Store.  We ask a great deal of money.  It must be a transitional entity, an idealized referent, and a tool of conservation.  Try to think of anything else that does as much.  And to top it off, all of these functions are dependent on our belief about money.  Money is quite simply another form of matter.

Money is a rotating system.  It spins.  Money must at times be completely virtual and others completely physical.  Both Digital and Analog.  Discreet and Continuous.  Ordinal and Cardinal.  It is not difficult to understand the divergence of opinions about money.

When we compare these and other alternatives what we are often experiencing is money talking to itself.  Money is intricately related to our capacity for abstract thought and the physical world in which we live.  Our views and experiences with money are a major factor in establishing our consciousness and ability to think.  Our inability to fathom the true nature of money has left us in a world in which, as Oscar Wilde once said, “People know the price of everything and the value of nothing.”

Jacob Bernoulli put money in a whole new light.  He used the practice of compound interest to peer into the secrets of the universe.  In doing this he established that money is not just a human artifact and tool, it is part and parcel of the fundamental structure of the universe.  Money is a separate form of matter, distinct in some ways and sharing some basic fundamental truths with others.  It is time to use the insights that Bernoulli left to return the favor and peer into the inner structures of money.

Jacob Bernoulli’s addition of money to the cosmic soup opened a door on some voices that have unique insights and have seldom been taken seriously.

  • Alexander Del Mar, 19th century economist, stated that money was a tool to measure value with precision.  Del Mar found the key to that precision in the knowledge that the Unit of Money is the Sum of All Money1 = ∑$
  • Silvio Gessel, 19th-20th century Argentinian Businessman, Activist, and Social Theorist, found what he believed to be the basic flaw in money, it does not deteriorate over time like everything else in the universe.  He offered a specific solution to this flaw.  He invented Stamp ScripStamp Scrip required that the holder of currency must purchase a stamp and apply that stamp to the note to keep the money current.
  • Lastly, a well-known voice who gave us the essential principle of any economic system, “treat the least well off among us with the dignity and generosity we would like to receive ourselves.”  His name was Jesus.

Bernoulli has done the math but now the process of bringing “e” to life must begin.  It will take more.  It will take more of everything.  We must find a vehicle for “e” that can withstand the buffeting that it will receive when it comes to the fore.  We may need to look into the mists of time and….

Somewhere just beyond our day to day consciousness a set of twins are beginning to stir after a long slumber. 

“Do you really think they can pull this off?” asked the older, Ouroboros.

“They better,” answered the younger, Nautilus.  “How would you like to be misunderstood by a whole generation?  They think I’m the Golden Spiral.  I’m “e”.  I’m not Phi.  I’m sick of it.  I’m the Logarithmic Spiral.”

“Well at least the Golden Spiral is a special Logarithmic Spiral.  I mean they kinda know who you are.  How about me?  I’m some sort of beast that devours itself.  I don’t eat myself.  I establish balance.  I feed myself.”  Ouroboros sulked.

“Ok, Ok.  But if they do what they claim they’re going to do, people will understand us again.  Mr. Bernoulli and Mr. Pascal are honorable and smart men.  I trust them.  They will help us be ourselves again.”  Nautilus smiled and patted his older brother on his …

“It’s that Fortunatus fellow I don’t trust.  I mean a purse that never runs out of money.  What kind of reality is that?”  Ouroboros was wavering.

“But you know who else they have with them?  How can we pass this up?  It’s not like we were doing anything else.”  Nautilus the eternal optimist.

“About that you are right.  Sometimes we just need to be quiet and do our part.  It’s the least we could do.” 

Nautilus thought he saw a smile on Ouroboros’s face.  Nautilus attached himself to his big brother just below his head and they started the long roll towards Casino Fortunatus.

The 1% Solution, Betting on Money

Prelude 7: Jewish Rabbi and Economist Jesus:  “”Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you.”

Good Evening ladies and Gentlemen.  I’d like to welcome you to Casino Fortunatus.  My name is Blaise Pascal.  You may have heard of me as the creator of Pascal’s Wager.  The “Wager” was a little ditty that I worked up one night to demonstrate what a good bet it was to believe in God.  I mean, what do you really risk, and the pay off.  Eternal Bliss.  Are you kidding me?  But that’s another story.  All I ever got out of it was God started calling me his Bookie.  His kid got a big laugh out of it, but I failed to see the humor.  I thought a little different later on.  You know the old “God works in Mysterious Ways” thing, well he does.  Being called God’s Bookie put me in touch with a couple of guys I’d like you to meet.

The first is Fortunatus of Cyprus.  One day a long time ago Fortunatus met the Goddess of Fortune in the woods.  She gave him a very special purse.  What was special about this purse was that it never ran out of money.  Fortunatus did what most of us would do with easy money, he squandered it.  Well you can’t really call it squandering because he never ran out of money.  He did kind of squander his life though, until he met my Jewish buddy Jesus.  Jesus thought the purse was some kind of parlor trick at first.  They talked economics for centuries.  Fortunatus wanted to do something of lasting value with the purse but couldn’t figure out what.  Jesus was little help.  He kept talking around the issue.  Jesus called them Parables.  But all Fortunatus wanted was a straight answer.

The long conversations with Jesus did pay off and when Fortunatus saw how his native Cyprus was being treated by the money changers, Jesus’s word, Fortunatus was ready.  He decided to open Casino Fortunatus.  He’s the boss, the “Visible Hand” behind the whole project.  He’s upstairs right now but we hope to get him down later.  He hasn’t worked in over 500 years so running this place has been something of an adjustment.

Now let’s take the escalator down to the mezzanine where we can meet our Pit Boss Jacob Bernoulli.

Welcome, welcome.  My name’s Jacob Bernoulli and I am the Pit Boss here at Casino Fortunatus.  The first two counters here on the mezzanine are windows to the two types of chips we use here at Casino Fortunatus.  You’re free to call them money if you wish, I’ve never been able to tell the difference.  The first is called Nautilus.  Nautilus is my favorite because it recreates the beautiful Logarithmic Spiral.  I like the shape so much I tried to have one of them carved into my tombstone (Don’t ask).  The other is called Ouroboros, a snake in a big loop eating its own tail.  Ouroboros is everywhere in the world’s cultures and mythological systems.  I’m going to spend a few minutes explaining how each Chip System works.  You can stay and listen or go on and open your own accounts.

You are eligible for accounts in both Nautilus and Ouroboros.  You may sign up in one or both.  We have the two types of chips because they are the best referent to each other that is available.  Money is somewhat paradoxical in nature and having these two versions of the same process will give the players perspective.  It gives you monetary binocular vision.  It gives our money a depth that is not available elsewhere.

Early entrance is of no consequence so signing up for one to begin with and another later will not in any way change the status of your account/accounts.  Everybody starts in the middle here at Casino Fortunatus.  Unused accounts stay in the middle and all accounts are nudged slightly to the middle each day.  The Chips in the Nautilus System are called Del Mars.  The Chips in the Ouroboros System are called Gesells.

Upon opening your Ouroboros account, you will be issued 100 Gesells.  These chips are your property to use as you see fit.  Each day your account will be taxed at the rate of 1%.  If your account is idle, if you have neither earned nor spent any of your Gesells, your tax will be 1% of 100, 1 Gesell.

The revenues raised from this tax go directly to an equal dividend to all participants.  Every account, and thus every Gesell in the System, is taxed at 1% daily.  The dividend, the Daily Bread (DB), will be a constant 1 Gesell per day.

The tax and dividend are a push if you keep exactly 100 Gesells in your account.  Pardon the Gambling jargon, it means you pay out exactly what you get back.

If you have spent or lost half of your Gesells, leaving 50G in your account, your tax will be 0.5G.  Your dividend will still be 1G so you have a net gain of 0.5G on the tax and dividend.

If you have gained or won 50 Gesells, raising your account to 150 Gesells, you will pay a tax of 1.5 Gesells.  With a dividend of 1 Gesell, you will have a net loss of 0.5  Gesells on the tax and dividend.

If you have spent or lost all of your Gesells and your account is empty, you will pay no tax and still receive your 1 Gesell dividend.

Ouroboros follows the equation I discovered a few centuries ago.

lim as n→∞ (1 – 1/n)ⁿ = 0.36787…

Ouroboros is constructed of a material that occupies the space between the physical world and human thought.  This material follows the patterns similar to other elements.  It decays like other material and the rate of that decay is determined by its configuration.  Our configuration in Ouroboros has a steady rate of decay of 1% per day.  Each Gesell that comes into existence will begin to deteriorate at the rate of 1% per day.  Each Gesell will have a half-life of about 69 days

  (1 – 1/100) taken to the 70th power = 0.49483…

and an e-folding time of 100 days.  The e-folding time is the time it takes for “e” to manifest itself, in this case as     .

  (1 – 1/100) taken to the 100th power = 0.3660…

The Sum of Gesells in circulation in Ouroboros will always be exactly 100 x the number of users of Ouroboros.  The Daily Bread (DB) will always be 1 Gesell per Day, an equal share of 1% of the Sum of Gesells in circulation.  (See web site for 100 Day Schedule)

Upon opening your Nautilus Account, you receive 100 Del Mars, or some equivalent thereof.  The Nautilus differs from the Ouroboros in that there is no direct tax.  The Nautilus operates through dilution.   The Dividend, Daily Bread (DB), will always be an equal share of 1% of the Sum of all Del Mars in circulation.  The number of Del Mars in circulation will grow 1% per day.  The Daily Bread will grow 1% per day. (See web site for 100 Day Schedule)

Nautilus will be a time sensitive system.  The clock will begin ticking on March 21, 2013.  If you begin on opening day you will receive 100 Del Mars.

Day 1    New accounts receive 100 Del Mars

Day 2      Dividend of 1 Del Mar

Day 3         Dividend of 1.01 Del Mar

Day 4             Dividend of 1.0201 Del Mars

Day 5                    Dividend of 1.030301 Del Mars

Day 6                         Dividend of 1.04060401 Del Mars

Day 7                               Dividend of 1.0510100501 Del Mars

The Sum of Del Mars in Circulation grows by 1% per Day.  The Daily Bread (DB) dividend grows by 1% per day to keep the proportional relationship constant.  The Dividend is always an equal share of 1% of the total number of Del Mars in Circulation.

The number of Del Mars will double in 70 days.  This gives the Del Mar a Half Life of 70 Days.

  (1 + 1/100) taken to the 70th power = 2.0087… 

and have an e-folding time of 100 days.

  (1 + 1/100) taken to the 100th power = 2.7048…   

Your account is waiting for you.  It does not matter when you begin, your opening account will always be an equal share of the Total Number of Del Mars in circulation and the Daily Bread dividend will always be an equal share of 1% of that total.

Notice the many other windows here on the mezzanine.  Each window will have a counter that is a trading connection to the other currencies of the world.  Dollars, Yen, Pesos, Bitcoins, Linden dollars from Second Life, LETS, Time Banks of all sorts.  Each will have its own counter.

We encourage trading.  Ouroboros and Nautilus are both Floating Currencies, they will earn their way in the Free Market.  Exchange rates with these other monetary protocols will be set by that market, the laws of supply and demand.  Our difference, our value, will be that all of our customers will float right alongside our currencies.  The Daily Bread will be a measure that is accessible to everyone because it is an amount of currency that every customer will receive daily.

The Exchange rates will give our customers an objective gauge to determine how they are doing versus other currencies.  Our currency is not a vehicle for long term savings because it will decay.  We recommend that our customers buy commodities or stocks or bonds for purposes of savings.  We encourage stocks in which people actually produce something, but your investment choices will be your own.

The Daily Bread dividend acts as a systems test.  It introduces a daily pulse into the system that all customers receive.  This pulse acts to calibrate all measures keeping them accurate and current.

The 1% Solution will act to balance the spin of the economy.  All procedures act to keep the economy more plumb, more level, and more centered on a daily basis.  It does this by pushing all quantities towards the middle.  It is very much like truing a wheel.  Plumb.  Level.  Centered.

To maintain a stable velocity and to keep such practices as High Frequency Trading from ruining the place a 1% Transaction Free applied to all transactions.  The proceeds from this fee will be distributed along with the Daily Bread dividend.

Honesty, diligence, creativity and good faith will be rewarded based on performance.

Idleness will not be rewarded nor will it be punished.  The Daily Bread dividend for all members of the house will be equal and unconditional.

Dishonesty will be punished.

We ask you to bet on us.  The bet will have something in common with my friend Blaise Pascal’s famous Wager.  The only thing you pay is attention.  The potential gains are huge because the risk is so miniscule.  Casino Fortunatus will not engage in any gaming activities.  We will keep an accurate tally.  We will be the best score keeper the world has ever seen.  If you have ever gambled at any other of the world’s major casinos or participated in any of the world’s economies you have been playing against the house using house money.  The House always wins.  With Nautilus and Ouroboros, you are the house.  At Casino Fortunatus the whole world is the house.  We want the whole world to win.

Time Horizon

Prelude 8 :Heraclitus 535-475 BCE, Everything Flows

Hello, my name is Fortunatus.  Before you go today I’d like to tell you a little bit about the history of the 1% Solution.  I developed it with a friend named Zacchaeus.  Zacchaeus was the first graduate from Jesus’s School of Economics.  His doctoral thesis was very short.  I’ll quote the whole thing.

Then Zacchaeus stood and said to the Lord, “Look, Lord, I give half of my goods to the poor; and if I have taken anything from anyone by false accusation, I restore fourfold.”

Jesus’s reaction was remarkable,

And Jesus said to him, “Today salvation has come to this house, because he also is a son of Abraham; 10 for the Son of Man has come to seek and to save that which was lost.”

The first day I talked to Zacchaeus it was hilarious.  He told me how completely ostracized he was after this.  The Religious leaders were pissed because Zacchaeus was a tax collector and the other tax collectors were pissed because the people wanted all the tax collectors to do the same thing, and start giving money away.  It got so bad he had to leave the country.  But the funniest thing was that when he started giving the money away everybody suddenly turned poor.  They’d show up in their old clothes and make sure they hadn’t bathed or eaten for a few days to make it believable.  Kinda like those really rich farmers who take crop supports or those really rich guys who get their lawyers to make them eligible whenever there’s a tax break or any program for the poor or middle class.  Zacchaeus finally decided to just give to all who asked. That way he didn’t have to watch people make fools of themselves.  He found later that “give to all who ask” was already one of Jesus’s principles anyway.  Zacchaeus was a natural that way.

I was sold.  But I put the problem to him.  I can get all the money I want any time I want.  What’s half of that?  We went to some of the old Greeks for that but all they had to say was something about half of infinity is still infinity.  I was nonplussed.   It was Zacchaeus who came up with the solution.  Go to an area and find out how much money there is and double it, and give an equal share to everybody.  That way the poor get a share, and the whole society won’t go into a whole production to convince you how poor they are.  It was brilliant.

Then I started to worry about what having a whole bunch of money at once would do to people.  I told him my story of how suddenly getting a bunch of money had affected me.  Zacchaeus was ready.  We’ll do it like the Lord’s prayer.  A little every day.  Daily Bread!!!  We started mapping out the plan.  I wanted to start in Famagusta, my old home in Cyprus.  So we were ready.  We were loading the boat with money when something occurred to me.  If we give them the same amount every day for a year, at the end of the year there would be twice as much money as at the beginning.  The Daily Bread would have shrunk in significance because the amount of money would have doubled.

We thought we were going to have to unload our boatload of money when Jacob Bernoulli piped in.  What you gentlemen have is a problem that absolutely cries out for compounding, just like interest.  You could have knocked us both over with a feather.  We knew what Jesus thought about charging interest on loans.  But before we could respond Jacob blurted out.  But my colleagues it’s not interest you’re compounding, it’s disinterest. It’s compound Disinterest.  You are making a vehicle for Zacchaeus’s principle that will make money flow like a river.

So here we are.  We decided to call it  e to the x Calibrator, or excalibrator for short.  ’The 1% Solution is the simplest version of excalibrator ever because we use a base ten number system.  Or at least that’s what Jake, er Professor Bernoulli told me.  That and to acknowledge all those brave kids in Occupy Wall Streep who stood up for the poor when no one else would.  We all owe them a tip of the hat and don’t think for a minute that it hasn’t been noticed around here.  Well I better just shut up.

Blaise and some of the other guys in Jesus’s regular weekly seminar in the “history of economic thought” class said the whole thing brought the Prophet Amos to mind.

Hear this, you who swallow up[a] the needy,
And make the poor of the land fail, Saying:

“When will the New Moon be past,
That we may sell grain?
And the Sabbath,
That we may trade wheat?
Making the ephah small and the shekel large,
Falsifying the scales by deceit,
That we may buy the poor for silver,
And the needy for a pair of sandals—
Even sell the bad wheat?”

Jesus called for a Good Measure.  One that does not reward sharp dealing.  One that does not sacrifice the present of the poor for the future of the rich.  No one on earth should have to be worrying about where their next meal comes from.  That is why the earth was put here, to provide food and clothing and shelter to all of God’s children.  The earth will eventually reject this modern period of greed just as it always has.

The funniest thing about learning economics as Jesus’s School is that even though there are billions in the world who claim to follow him, they ignore almost everything he says about money.  Half of the world is living in economic danger, the equivalent of being found bleeding in the street.  These people must be cared for.   What we’ve learned here is that the moral thing to do is also the most efficient.  What is called efficiency today is almost always rationalization for theft.

Each person on earth must be fed, clothed and sheltered every day.  That is our only relevant time horizon.  The 1% Solution hopes to do that by establishing a predictable flow for money and a minimum position for the least among us, a position that is not zero.  I think that’s called minimax in game theory.

Our Measure is an Inertial Measure, it’s in the flow.  The Measure has a Time Horizon of 1 Day.

Each use of the 1% Solution makes it more valuable.  Each time the 1% Solution becomes more valuable, the Daily Bread (DB) dividend becomes more valuable.  Each time the DB becomes more valuable the 1% Solution becomes more valuable, which encourages its use..  Etc.

It is entirely possible that the 1% Solution is more than 10,000 times more valuable than the current economy.  It could be infinitely more valuable.  Well I’ll leave those types of estimates to Blaise.  He’s the expert. Time will tell.

Relax and enjoy.  Explore Casino Fortunatus.  Bring the kids, and the grandparents and everyone you can think of.  It’s on the House.  The House of Zacchaeus. You’re the House.

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Land, Labor, Capital, and Desperation

Land, Labor, Capital, and Desperation

“The Economy thrives on incentives (if you work, we’ll give you money) and desperation (if you want money, you have to work) and Social Security is a double-wammy, reducing the incentives of workers and reducing the desperation of the elderly.” Matthew Yglesias

http://www.slate.com/blogs/moneybox/2012/12/19/the_powers_that_be_hate_social_security_here_s_why.html

via

http://www.eschatonblog.com/2013/01/freeloaders.html

Matthew Yglesias likes his grandparents the old fashioned way, hungry and “desperate”.  Well he doesn’t necessarily want it himself, but he can understand why the “Important People” of the world would want it.  Mr. Yglesias has done the world a great favor.  The ignorance involved in such a statement is so complete that I hope there is a portion of Jonathon Swift in his musings, but I fear not.  And even if they are not the sincere beliefs of Matthew Yglesias, they are beliefs that are held by many and they poison the discussion over the economy and how it works.

Perhaps the greatest error in modern economic “wisdom” is that a structure of incentives has anything in common with the desperation of poverty.  Yglesias claims that making the elderly desperate enough to keep working will make the economy thrive.

The crux of his thesis is concentrated in the statement “if you work we’ll give you money”.  Mr. Iglesias’s use of the royal We determines the source of incentives, and it is not the function of the market, it is the ownership thereof.  That tells almost all there is to tell about this argument, but he goes further.  “If you want money, you have to work”.  I wonder if anyone has informed Tagg Romney, or for that matter Barack Obama, or the incredibly busy Mr. Yglesias.

Mr. Yglesias does not stop with the royal We, he speaks for the disembodied entity that he calls “The Economy”.  He goes so far as to tell us what “The Economy” wants.  “The Economy” has a real hankering for things which he can classify as investments.  “The Economy” wants to prepare itself for the future and any spending which prepares for this future is good.  And letting a bunch of old people sit around does not prepare us for the future.  That spending is best left to the “productive” people of society.  “The Economy” likes those people because they get us ready for the future.  Every dime Tagg Romney spends is an investment according to Mr. Yglesias.

If his tongue was not in his cheek Mr. Yglesias is on the same page as Mr. Romney and Mr. Obama and all the other Important People of the world.  While Mr. Obama may, and this is highly doubtful at this point, support slightly higher transfer payments to America’s seniors, it is his “stewardship” and “nobles oblige” that spur his actions.  Nowhere in main stream American thought is the belief that seniors, or for that matter juniors, receive money from the public purse as a matter of property right and not deference.

The payment of public money to old and young is in no way contrary to a system of incentives that rewards diligence, hard word, and creativity.  Quite the contrary, a society which cares for its old and young is one that fosters the type of society that is efficient and productive and competitive.  “The Economy” does not reward hard work and punish sloth.  “The Economy” rewards power, influence, and ownership.  The major portion of the produce of our economy goes to Crooked Bankers, the Saudi Royal Family and their junior partners in Texas, the Rigged Casino known as Wall Street, the Communist Party of China, a Courtier Press, and a Political Class that is as corrupt as the world has ever seen.  This might make it seem that we need to foster desperation, but the opposite is true.  The only thing that desperation produces in the economy is more desperation, and the owners of the world count on it.

There might be some people in this modern world who could use a dose of desperation Mr. Yglesias, but you should let your grandparents have enough money to give a cookie to your cousins once in a while.  Who knows, you might even get one.  If you’re not too worried it will corrupt you.

 

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