Malinvestment

This is part of the idea of scrip/IOUs, written records of a job done or a thing traded. If I have any mistakes in the logic behind this, at least I'm not controlling the money system of an entire country (or world) and making mistakes, and making it illegal for people to operate their own local money systems. So whatever mistakes I make, they will be small-scale and temporary (or imaginary, since I'm not even doing this yet). This is a work in progress.

This idea is kind of hard to explain and it's vague as of right now. So, 'suspend disbelief' and play along for a bit. As Edward de Bono would say, put on the green hat.

I imagine an informal IOU written on paper. Jane Smith swept the floor in Ann Jones' house. Ann says, 'Thanks for sweeping the floor,' and gives Jane the IOU saying 'Jane Smith swept floor at 100 Oak Street, for Ann Jones.' Jane Smith then has this piece of paper and can trade it for something.

She gives it to somebody to buy a couple of eggs for breakfast (or whatever). The recipient agrees: 'Floor sweeping is a valuable activity.' They agree that somebody somewhere really does need to have the floor swept. The egg seller calls Ann Jones on the phone and says, 'Did Jane Smith really sweep your floor?' She says, 'yes,' and cancels her own record of the floor sweeping.

But it has to be used by the egg seller again. The egg seller now has a piece of paper talking about a floor he didn't sweep. Somebody else did that. Jane Smith could give the egg person an IOU that says, 'eggs sold by John Taylor to Jane Smith.' (This is getting confusing.) John Taylor then takes that to someone and says, 'I want someone to wash my dishes for me. I really did sell these eggs to Jane Smith. Call her and find out.' So they do. They all agree: You did something useful, and we have a record of it. It really happened.

The idea is: keeping records of what was bought and sold, whether it's a product or service, and each person judges whether that was a valuable activity.

Again, with the green hat still on...

The eccentric neighbor, Zachary Ferguson, asks Jane Smith to stand in front of his house spinning in circles, running around, jumping up and down, singing and shouting and annoying everybody, for ten hours. For some reason, she agrees to do it. He then hands her the IOU: 'Jane Smith caused ten hours of ruckus for Zachary Ferguson.' Jane Smith has been 'paid' her fee for doing that. She now has this piece of paper with a record of having caused a ruckus.

But everyone knows Zach Ferguson around town. Nobody wants to take the piece of paper with his name on it. Zach is well known for wasting people's time and energy on silly activities, and not giving them anything valuable in return. Jane goes back to Zach and says, 'Nobody will take this IOU with your name on it. *YOU* have to give me something valuable for the time I spent causing a ruckus in front of your house.' Nothing useful was created anywhere by Zach Ferguson (I sure hope there aren't any real people out there with that name. Maybe I'll write another story where Zach gets to play the good guy.). He refuses to do anything helpful for Jane Smith, or give her anything in exchange.

Ann Jones, and Zach Smith, both asked somebody to do a job for them. But one person was viewed as more trustworthy and productive and the other person was known to be wasteful and unproductive in the things they did.

So this is partly the idea of 'good reputation.' But I'm focused on not just reputation, but whether the activity created something valuable or not. I agree that it has to do with someone's good reputation. But I want to distinguish this idea from 'reputation,' because it's a slightly different idea. I want to emphasize the idea of 'valuable activities' and not just 'good reputation.'

Here is the real world example. An entrepreneur borrows a million dollars to start a company. So all of his employees have enough money that their business can survive for a year or so, just goofing around, surfing the net while at work, playing nerf football in the office, and having parties. They take home their paychecks, and spend them on REAL, valuable products, like food. They make a pretense of doing some kind of work, but it's not a useful activity. Maybe an occasional customer buys their product or service. But not many people do. And those who do, are also using borrowed money, themselves. This isn't imaginary, it really happens. It's called 'malinvestment.' Spending money on businesses that are not doing anything useful, in the big scheme of things. Just because somebody was willing to lend money to you doesn't guarantee that you're actually producing something useful with that money you borrowed. This is how business is done in the real world.

Yet their paychecks are just as valuable as mine! A dollar in their paycheck will buy as much as a dollar in my paycheck.

They lend people money with no strings attached. You can SAY that your business is going to do whatever, but then, not actually do it, or not do it very well, or the marketplace doesn't want that product or service.

Somebody could have a great reputation and be trusted around town, but they can tell you to cause a ruckus in front of the house, and gradually, they'll waste their wealth and have nothing to show for it. (This is one of the times when I wish I could think clearly and not have my 'mental experiences.' One of my 'mental experiences' is that the thoughts and phrases and sentences seem to be 'canned' or premade, like things I've already read in books, or things other people have said, instead of my own ideas. I want to say a new idea in an original way, and instead I get the same stuff I've read other people writing in the past. I don't want to just repeat the same stuff in the same words that everybody else is saying.)

Ann Jones tells everybody to just cause a ruckus and have fun. Gradually, the IOUs come back to her and people are saying, 'Give us something valuable in return.' But nobody was tending the farm animals or sewing new clothes or picking the apples in the orchard. Nothing got done. So Ann Jones can't give them anything in return for all the stuff they did.

In the real world, a business might just declare bankruptcy. They can't pay anyone back for what was done. Defaulting, people not paying back. It can happen with credit cards, too. Millions of people everywhere getting something for nothing.

Precious metals are supposed to prevent that from happening, because you can't print a piece of gold or silver. However, it's possible to loan gold and silver. You can lend huge amounts of gold and silver and not get paid back. You can lend it to somebody to do something useless. If anybody anywhere is able to collect large amounts of gold and silver (using whatever methods, honest or dishonest), then they can freely lend it out again, quickly, with no strings attached, carelessly, to anyone. Sure, they'll lose all their gold and silver that way. But someone else will collect it again a few years from now, and do the same dumb thing again.

In the past few years, I've become so opposed to the idea of borrowing and lending AT ALL that I can hardly imagine a system that would work well and not cause malinvestment. But I'm still interested in Antal Fekete talking about Adam Smith's Real Bills of Exchange (I didn't read Adam Smith's version, I just read Fekete's description of it). That's very similar to what I'm talking about - somebody keeps a record of whether a valuable product or service actually was produced or done, and they get paid back for it whenever the customers buy the product or service. You give someone a bunch of apples and tell them to make apple pies. You wait until the apple pies are sold, and the money comes back to you. It's more complicated than that, and I don't have enough time today to write it all.

I was focused on the idea of 'the IOU is judged as valuable or not valuable by everyone who receives it.' At a glance, most ordinary people can judge whether the activity or product described is likely to be valuable. Within reason, you can tell at a glance, with regard to ordinary, non-technical products and services. The daily activites (produce food, cook food, live in a house, etc) are judged more easily than the very technical or obscure or esoteric activities (what Ludwig von Mises would call 'higher order economic goods.') It's hard to judge the value of 'My company is an advertiser who advertises the advertising services of other advertising companies.' ('Advertising' is another thing that is really wasteful nowadays.)

more later...