A message from the recent past

That’s the headline from my latest piece in Inside Story, in Libra, Facebook’s newly announced cryptocurrency. Opening and closing paras below

Facebook’s announcement that it is launching a #cryptocurrency called Libra raises two questions. Will Libra compete with the most famous cryptocurrency, #Bitcoin ? And what is a cryptocurrency anyway?

Ultimately, the crucial part of the name is “crypto.” What Bitcoin and Libra have in common is a desire to avoid the constraints of government regulation of financial markets by burying their operations in layers of technological mystery. These aspirations, brought together in the term “fintech,” reflect the market libertarianism that dominated both the technology and finance worlds in the heady days of the 1990s, and persisted even after the global financial crisis of 2008. It remains to be seen whether such aspirations will flourish in the current, much less favourable environment

6 thoughts on “A message from the recent past

  1. It might be worth reflecting on the historical progress of money and capital. These reflections will give us some new perspectives on money, tokens and cryptocurrencies.

    I refer people again to this brilliant paper by Ulf Martin – “The Autocatalytic Sprawl of Pseudorational Mastery”.

    Click to access 20190500_martin_the_autocatalytic_sprawl_of_pseudorational_mastery_recasp.pdf

    The title is easy to understand if you parse it out. However, I will put that more philosophical discussion at the end of this post.

    The Structure of the Paper.

    Martin starts by discussing power by which he means “social power”.

    “Hence, a person’s social power, gesellschaftliches Gestaltungsvermögen, is their ability to overcome the combined, but not necessarily coordinated, resistance of all other persons with respect to their goals.”

    He discusses how wealth (financial capital) is power in our system.

    “We can now say that capitalization is the quantification of the otherwise only qualitative notions of ‘greater’ and ‘smaller’ with respect to what goals can be achieved. In an almost fully capitalized world, for example, Bill Gates, with a capital might or Vermögen of $100 billion, can realize any project for which facilities costing that order of magnitude can be bought, which are of course greater than the facilities someone with only $1 income a day can buy. The quantification is necessarily relative, since social ability is relative to the social ability of others.”

    He then discusses “Modern Rationality and Rational Mastery”. I leave that to the reader but the final discussion below called Parsing the Title touches on this.

    One we understand Martin’s views of Modern Rationality and Operational Symbolism, he turns to Property, Credit, and Money and gets into the topic of “Money Creation Through Credit”. He presents an historical survey of this process from Late Medieval and Renaissance Europe up until the present day. He arrives at a discussion of:

    “4.2 The Phases of Global Capitalization

    According to Nitzan and Bichler (2009), the capitalization of human societies occurred in phases. During each phase, the accumulation process would eventually hit an organizational barrier, or ‘envelope’. Through radical organizational re-formation (Umgestaltung), capitalism was able to break these envelopes and proceed further until the process hit the next barrier:

    a) the monopoly wave of the turn of the twentieth century occurred within individual industries;
    b) the oligopoly wave of the 1920s occurred within sectors;
    c) the conglomerate wave of the 1960s took place across the entire business sector at the national level; and
    d) the ongoing globalization wave started in the 1970s and breaks the national envelope.” – Ulf Martin

    While Martin does not discuss cryptocurrencies and new forms of private money tokens, I think we can see that the attempt to create new currencies and tokens beyond and outside the state, locally and globally, is an attempt now being taken over by international or transnational capital in order to overthrow the state’s monopoly on money creation or perhaps more correctly the state’s monopoly on management and oversight of the creation of money. This attempt fits the form of breaking the national envelopes of fiat currencies and moving money management from states to corporations. The hi-tech corporations clearly beleive they are best positioned to push this project through.

    To “control the world” the corporations would need just two things in a sense. They would need to supersede the states’ monopoly on the management of money creation and they would of course also need to supersede or take over the states’ monopoly on violence meaning control of security systems, especially police and army. Of course, we are now in the realm of dystopian fiction if imagining any full progress to oligopolistic, global corporate dictatorship. Yet, the progress to date seems to point in this direction. Certainly, democratic governance, especially our highly imperfect representative democracy, is being bought, suborned and subverted by corporate money operations.

    We can see that the libertarian tech forerunners in creating crytpocurrency and new token money systems have shown the innovative imagination which corporations, due to their bureaucratic structure and controlled operations, lack. The corporations do not often greenfield innovation, they brownfield it. They come in and take over innovative ideas by mutating them enough and then making them their own by the copyright-capitalisation process. This is not to say that I think a cryptocurrency like bitcoin is a good idea. Indeed I do not think this for the reasons that J.Q. lists; the waste of energy and poor transactability. But corporations can see that it (in the spirit of Citizen Kane) it is not a currency but it’s a “good idea for a currency” (sans the “mining”). This is why they seek this kind of takeover. It’s a multi-stage project. The tokenising of money in private corporate hands must come first. Then it will be fully corporatized and privatized with any crytpo nature being employed to ensure full corporate control of the currency.

    Footnote: The Title of Ulf Martin’s paper.

    “A single chemical reaction is said to be autocatalytic if one of the reaction products is also a catalyst for the same or a coupled reaction.’ (Wikipedia 2018). If we carry this definition over to the social symbolic machinery, we can say that credit creation is an autocatalytic process, a process that feeds itself.” – Ulf Martin.

    It is my interpretation that the juridical structuring of rights to property and income plus the money and finance operations implementing these rights as mathematical calculations constitute the greater part of the “social symbolic machinery” referred to in this case.

    “But the autocatalytic processing of credit operations has no predetermined direction and appears to be rather chaotic. Further operations originate from existing ones, so the process is a sprawl, like the urban sprawl radiating from town centers. The result of business operations, the autocatalytic sprawl of the financial system, is itself a social formation, but it is not the order business intends to achieve. Instead, the autocatalytic sprawl of finance is the unintended result of business operations. The overall social formation (gesellschaftliche Gestalt) of the capitalist society is thus… a mixture of order and chaos that business continuously needs to deal with.” – Ulf Martin.

    Martin could have added that it is this sprawl of financial operations, outwards and “upwards” into derivatives of derivatives of derivatives etc., that government regulation attempts to (or fails to attempt to) control.

    In turn “rational mastery” in the widest sense (perhaps wider than intended by the philosopher Cornelius Castoriadis) means the (attempted) mastery of nature and humans by the use of symbolic systems. We see it most clearly in mathematics when applied in the hard science disciplines. But humana have long been engaged in applying language and later language plus mathematics as a combined symbolic system to attempt to manage each other and attempt to manage nature. Mathematics essentially is a specialist language system. That last statement takes a bit of philosophical arguing which I leave aside here.

    When “rational mastery” is applied to the world it is soon unmasked as “pseudorational pseudomastery”.

    “Rational mastery is actually pseudorational pseudomastery: it is not rational and it fails because of its own operations. As we will see, it is also autocatalytic: the process of increasing rational mastery yields its own growth.” – Ulf Martin

    We could say that applying rational mastery, be it for example scientific and/or economic “mastery”, results in outcomes which are emergent and produce radical novelties as unforeseen outcomes. Sprawl, emergence and growth, along with unforeseen consequences, are all uncontrollable under the current credit money creation system as it runs the real economy system by its manipulations. It results in an endlessly growing sprawl which which must run foul, sooner or later, of the limits to growth on a finite planet.

  2. From today’s media

    “Fallen AFL great Mark ‘Bomber’ Thompson has admitted he was an ice user and spent 12 hours a day trading cryptocurrency after leaving the game in the wake of Essendon’s drugs scandal that left him in a “bad way” ”

    Trading cryptocurrencies while on ice – what could go wrong?

  3. Bitcoin’s price is surging, up 40% this week, and it has quadrupled since the low point 6 month’s ago.

    I knew I should have piled in then. But there will be other opportunities. Sure as eggs the price will crash, and then surge and then crash, and then surge ….

  4. “I knew I should have piled in then. But there will be other opportunities. Sure as eggs the price will crash, and then surge and then crash, and then surge ….”

    There ya go… what goes up… get in there smithy 🙂

  5. I’d still like an explanation of what Libra actually is. Is it a bit like a pre-paid debit card? You buy 100 Libra for whatever in Aussie dollars and the value of your holding varies with changes in a basket of currencies. Can you borrow – I’ll buy now and pay next month in Libra? Will it reduce international transactions costs – both commissions and the ability to make trades globally? I have read views that range from “its a nothing credit card deal” to “this can bring down the whole financial system”. The latter as far as I can tell is unlikely if it is not involved in net money creation because Libra is ful conventional currency backed.

  6. Harry Clarke

    all of those questions you can file under “remains to be seen”. You can add a couple more. Is a Libra account a deposit? If so it will have to be regulated like a bank. Or it is a security, which will involve different regulation?

    According to some reports, Libra will pay no interest and there will be no charges, fees or commissions. So how will it make make money? By investing the float, that is, the amount that people have in their Libra accounts, before they are used to make transactions. This is exactly the model that American Express used to make money on travellers’ cheques. You’d buy travellers’ cheques, use them up on your holiday overseas in a period of weeks, or months, during which Amex had the money invested for its profit.

    Plus, of course, this is Facebook. It will make money selling information about what you spend your money on, in combination with all the other information it has about you. (I know they say they won’t do this. Anyone who believes them is no naive they should not be let out of their house.)

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