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Eugine_Nier comments on Private currency to generate funds for effective altruism - Less Wrong Discussion
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The lack of seignorage comes from the lack of monopoly power. In the absence of a monopoly on creating money, the market will drive the cost of creating money and the value of the money to near equality. This has nothing to do with anything inherently wasteful about bitcoin.
But given that money is a unit of account - a measuring stick for the real economy, that is a very bad thing. - if the real cost of money creation equals the value of money then that is a lot of resources poured into a metaphorical hole in the ground. Ultimately it consumes a stock of resources equal to the net worth of your entire formal economy to no purpose whatsoever. There have been worse ideas, but it is a remarkably short list.
This means that the only actor who can do any real net good with the power of money creation is the government. - Kumhofs idea might be a better system than what we are currently doing, private currencies - of any type - logically cannot be.
And before anyone brings it up - a private actor with a monopoly on currency creation is not very private. That level of power defacto makes you the government.
Hehe. Well you could call such an actor the government - I don't want to quibble on words since I don't like verbal disputes - but there would certainly be many things that differentiated it from a normal government.
Note that getting currency monopoly would give you two sorts of seignorage. Firstly, you would get seignorage on the way there. People would buy your currency using other currencies, which would give you enormous incomes. At the same time, conventional currencies would lose value, which would mean holders of these currencies would lose immensely. Secondly, once you have monopoly power, printing new money in order to get some small amount of inflation a year (which is seen as desirable according to conventional economic theory) will give you 3,5 % of GDP in seignorage a year according to Kumhof (if I remember correctly).
So certainly this would give you huge incomes, and power. Still, you would not have monopoly on power which is the traditional definition of government, etc.
You would, ultimately, not get paid in other currencies (Monopoly! so other currencies have no value) but in real assets and labor. IE, the issuer would end up owning.. most of the economy in question. The only way that does not get shut down hard is if the currency issuer is de facto the government, regardless of whether they recognize that.
Under Kumhof's scheme, the income substitutes for taxation, so that the percentage of the economy run by the government isn't changed, and should in the long run go down some if I apprehend the system correctly. (No national debt, so no commandeering of resources to pay for that.) It also makes the finance sector of the economy much smaller.
Yes when you have monopoly you can't get paid in other currencies, that is correct. However, it would not end up owning most of the economy, since the point of the plan is to give away the money for charitable purposes (which might not only include money to the poor of course but also other things the effective altruist movement find important).
I don't think that you'd have to be the government for this to work. You'd have to strike a deal with the government, that is true, but you would not have to be the government. You'd be very powerful, that is true, but there have been other organizations which have been very powerful without actually being the government - e.g. labour unions in some countries. Of course, they have had lot of contact with the government - sometimes friendly, like under social democratic governments, sometimes hostile, like under Thatcher.
The power of such "states in the state" is of course upheld by the legal system. Social democratic governments tend to write laws that support the union power, whereas conservative governments write laws that undermine them. See Gunnar's post on how this system would be upheld by the legal system too.
So in order for this system to be accepted, you need political support, for which you in turn, in a democracy, need electoral support. This does not, however, mean that you should form a political party for this cause. Instead I think that a better idea would be to work it out on your own, and let the parties come to you, as it were. That way the distinction between the NGO that takes care of this system and the government would be upheld.
No, actually, bitcoins created early in the process were created cheaply since their value wasn't as high back then.
I agree that there would be very little seignorage in any market-based system to create money. An important question is, though, what concrete mechanism it is that drives up the cost of creating money in a given market-based money creation system. I gather that in the Bitcoin system, it is the fact that people spend huge amounts on hardware that hosts the Bitcoin software. This is, if I understand correctly, wasteful to some extent.
Another market-based system which wouldn't be wasteful in that sense is one along the following lines. Call the new currency X-coin. Say that new X-coins are created now and then (either by a central authority or according to a pre-set process). Every time a new X-coin is created, people may bid for it in dollars. Now since each time a new X-coin is produced, the value of all other X-coins is somewhat diluted. Therefore, the dollars that the purchasers of new X-coins spent get distributed to existing X-coin owners (in proportion to the number of X-coins they own).
That would be a market-based system that wouldn't be wasteful. Note that it depends on the existence of another currency, dollars, and wouldn't work if the X-coin system got world monopoly (or perhaps not even if it became relatively large).
Scenario A: There start out being 100 X-coins. A new X-coin is created. This coin is purchased, and the price distributed equally among the holders of the previous X-coins.
Scenario B: There start out being 100 X-coins. Each X-coin is declared to be equal to 1.01 X'-coin. Someone then bids for the right to buy all those .01 X'-coins.
What's the difference between these two scenarios?
In either case, whoever starts out owning 1 X-coin owns 1% of the total currency. Not just 1% of the present currency, but 1% of the entire net present of the expected value of the currency. An X-coin issue doesn't increase the market capitalization of the coins, it just acts like a partial split.
Not completely, it has the side effect of making it even harder to double spend bitcoins.
If there is a surplus that is being transformed into deadweight loss, that is a waste, although one can view it is not being inherent to bitcoin in particular. It seems to me that, at least to first approximation, we should expect the seignorage to equal the market value of the currency, the market value to equal the net present value of the expected future value, and the future value to equal the surplus value generated by the currency. Which would suggest that it is a wash; resources are being spent in the present to create a currency that will create surplus value in the future. But then perhaps there is surplus value that isn't captured by the holders of the currency, which makes the currency a net benefit for society. Or maybe there are costs that make it a net loss. I'm not confident in my economic understanding enough to be sure what the overall effect is.
The value created by the currency is the gains from the trades the currency makes possible.