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<nettime> Open Source and Open Money
Felix Stalder on Wed, 16 Jan 2002 09:09:30 +0100 (CET)


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<nettime> Open Source and Open Money


[This discussion, which in many ways is a continuation of the "Fading
Altruism of Open Source" thread here on nettime, took place somewhere in
between nettime and Stefan Merten's oekonux list. In fact, it was Stefan
who sent a reference to the orginal thread to oekonux, but kept Kermit,
Keith and myself on the cc, so that we would still participate. Jaromil has
forwarded the Graham Seaman's first reply. Below are three more. Felix]


	+ From: Kermit Snelson <ksnelson {AT} subjectivity.com>
	+ From: Keith Hart <HART_KEITH {AT} compuserve.com>
	+ From: Felix Stalder <felix {AT} openflows.org>



From: Kermit Snelson <ksnelson {AT} subjectivity.com>
Date: Mon, 14 Jan 2002 22:30:40 -0800

I believe that terms like "altruism" and "opportunity cost" don't provide
much insight into why people develop open source or free software.
Lancashire, who bases his analysis on such ideas, overlooks the fact that
computer programming is not only an occupation but also a hobby and sport,
particularly for those who are good at it.  The obvious fact that people
will do it without being paid no more "poses a serious challenge to
traditional political economy" than does bird-watching or basketball.

So the interesting economic question about open source development isn't why
some people do it for free.  Instead, I propose that we consider instead
what kind of contractual instruments, other than those that impose legal
monopolies, are capable of creating sustainable economies.  Recasting the
discussion in these terms can also make it clearer why the "open money"
issue is related to the "open source" and "free software" discussions.
After all, both currency and software license agreements are contractual
instruments, and the issue before us is whether such instruments can enable
a sustainable economy without resorting to the restrictive monopolies of
central banking and copyright, respectively.

I'll start out by stating my own understanding of how an "open money" system
would work and how it compares with the "open source" paradigm.  As will
quickly become obvious, I'm very ignorant on the first subject (and only a
little less ignorant on the second) and hope that my inevitable errors will
lure Keith Hart and Felix Stalder, our experts, into the discussion to
correct me. :)

When you sell something in exchange for (say) a USD100 currency note, you
have given up ownership of a real asset in exchange for a claim against the
Federal Reserve.  In other words, you have essentially "loaned" money to the
US government.  That USD100 note is carried on the Federal Reserve's balance
sheet as a liability, usually collateralized by the equivalent amount in US
government securities.  To maintain the market value of the note you hold,
the Federal Reserve must limit the amount of such liabilities with respect
to the underlying performance of the US economy.  It does this by buying and
selling US government securities on the open market, changing the interest
rate it charges to its member banks, and varying the reserve requirements
that it imposes on them.

In contrast, there is no central bank in an "open money" system.  When you
sell something in exchange for 100 "dollars" on such a system, you
essentially grant an interest-free loan to the community of LETS users in
general.  There is no limit placed on any single user's indebtedness; each
member acts as her own Federal Reserve Board, deciding for herself the
liability she feels she may responsibly incur to the LETS community based on
her own ability to sell items back to it.

Naturally, there are many possible problems with such a system.  What
happens, for instance, if people establish accounts on a LETS system, "buy"
expensive items, and then leave without ever having sold anything
themselves?  Essentially, they've stolen from the community.  If too many
people do this, the system will collapse.  Or what if everybody on the
system is selling aromatherapy and no one is selling legal services?  If
there is a unbalanced distribution of products or services on offer, the
system won't work.  As with any central bank currency, the health of an
"open" currency depends entirely on the economy and behavior of the
community that adopts it.

A similar situation applies to free software.  If the GPL instrument is to
serve as the basis of something more than a hobby economy, it must provide a
way to compensate those who can't afford to give their time away.  The
compensation theory of the GPL seems to be (according to the FSF web site)
that it forces software to be paid for in software.  In other words, if A
writes a program that uses B's GPLed code, then B gets to use A's program as
compensation.  This assumes, of course, that A has no workable, non-GPL
alternative to B's code, and that A's program is equally valuable to B.  In
other words, the abilities and needs of the community have to be balanced in
a rather exquisite way if the community is to be self-sustaining.

Therefore, it seems to me that asking whether "open source" and "open money"
contractual instruments can support a viable economy simply restates two
very old political questions.  Namely, is this exquisite balance achievable
simply by letting human beings do exactly as they please, or is the thumb of
coercion (e.g., copyright and central banking) required on the scale?  And
if the latter, whose thumb?  And who will control it?

Kermit Snelson


From: Keith Hart <HART_KEITH {AT} compuserve.com>
Date: Tue, 15 Jan 2002 05:30:34 -0500


Kermit,

I am very grateful for the clarity of your post on open money and open
source, especially for seeking to return the argument to basic political
and legal theory, as in:

>what kind of contractual instruments, other than those that impose legal
monopolies, are capable of creating sustainable economies.<    and

> is this exquisite balance achievable
simply by letting human beings do exactly as they please, or is the thumb of
coercion (e.g., copyright and central banking) required on the scale?  And
if the latter, whose thumb?  And who will control it?<

I would add that there is a substantial amount of writing about open money
available on the web. See www.openmoney.org for a comprehensive and recent
compilation of educational sources.

As for how LETS systems function, your instant diagnosis goes to what most
people would see as the core of the issue:

>Naturally, there are many possible problems with such a system.  What
happens, for instance, if people establish accounts on a LETS system, "buy"
expensive items, and then leave without ever having sold anything
themselves?  Essentially, they've stolen from the community.  If too many
people do this, the system will collapse.  Or what if everybody on the
system is selling aromatherapy and no one is selling legal services?  If
there is a unbalanced distribution of products or services on offer, the
system won't work.  As with any central bank currency, the health of an
"open" currency depends entirely on the economy and behavior of the
community that adopts it.<

But -- there has to be a but -- effective answers to these questions
require some understanding of how community currencies have evolved in the
last two decades. One big problem lies in our general inability to think
outside the box of national currency systems. These are, as you point out,
central bank monopolies encouraging citizens to perceive of 'the economy'
as singular and in important respects self-sufficient. When people try to
set up some alternative, they often unconsciously mimic the dominant model,
setting up a single, self-sufficient closed circuit, with a central
register, its own currency and usually a committee of leaders to run it.
Members are individuals trading goods and services in parallel with the
national economy of which they are of course also members. Soon enough such
organizations run up against problems of size, quality of service, high
transaction costs, inadequate division of labour and so on. Some LETS
systems have persisted for a considerable length of time, but many also
fail in the short run, as often as not because of a weak conceptualisation
of the mechanics of community currencies. One handicap of such systems is
that the participants are sometimes motivated to replicate 19th century
utopian communities, wanting nothing to do with conventional commerce,
perhaps reverting to a labour theory of value in their standard measure.
There is even a Victorian charitable arm of the movement, bringing
subsidised succour to the poor by this means. Many circuits run on paper
scrip like national money.

The key intellectual and practical breakthrough consists in thinking of
community currencies as plural rather than singular. Individuals may belong
routinely to as many circuits as they already have credit cards and other
plastic instruments at their disposal. In the latest phase, smart cards can
carry up to fifteen currencies, reflecting each person's interests and
pattern of association. Just as important, if LETS systems are to allow
people to carry out their daily tasks without spending all their time in
exchange transactions, they much be fast, cheap and effective. This means
integrating them with normal commerce to a variable degree. Businesses and
non-profit organizations can be and are members of LETS communities. If
they sell more than they buy within the circuit, they can give purchasing
power to  deserving causes or to employees as a bonus. Loyalty loops to
particular firms can be built separately into the system. Members who feel
that their interests diverge from those of others can set up a sub-circuit
of their own. Prices can easily be calculated in a mixture of national and
community currencies, with only the latter element being registered.

It is difficult in this shorthand way to convey the possibilities to people
who have spent their lives adapting to conventional money as inevitably the
only game in town. Each community is free to design its own rules. In many
cases, the moral, political or ecological purposes of the circuit may make
fine calculation of economic benefits to individuals less pressing. The
question of 'free riders' is a problem that every economist brings up
(their lives depend on it). Some communities may insist on positive
balances only (no overdrafts) or limit negative balances to a certain
amount. Most allow new members to buy without selling first and some allow
unlimited negative balances. The money is supplied by any member whenever
they go negative. If they default on their commitment, they lose reputation
and perhaps more. It all depends on the kind of community and its size.
Most LETS systems have been local so far, but the possibility of virtual
communities of exchange is made palpable by recent technological
developments. It is all a matter of learning which methods work best for
particular situations.

This also should be stressed, that community currencies are a means of
political education, showing people how conventional money works, how other
kinds of money operate, and providing lessons in direct democracy. Open
money has yet to take advantage of the crowds that are now routinely
brought together by the internet. A system of national domain names is
being established and the software for multiple-currency cross platforms is
almost ready. There is no reason why, in an expanded community currency
network, the banks should not handle many transactions, as long as it is at
a fair price.

Clearly, the vision I am presenting here is not anti-capitalist in the
usual way. Open money is not a scarce commodity, it has no price (interest)
and cannot be hoarded or used as capital. My colleagues and I believe that
markets and money can be developed on non-capitalist principles, initially
as part of capitalist commerce, not independently of it. This inevitably
sets us at odds with those who believe that any taint of exchange or money
is as good as selling out to capitalism. Even so we have been inspired by
the example of the Free Software movement and consider that open money is
one way towards democratising access to money itself. It would be wonderful
if money, which has long been the source of exclusive private property,
might one day be a commons to which all of us have free access to make our
own.

Keith



From: Felix Stalder <felix {AT} openflows.org>
Date: Tue, 15 Jan 2002 14:46:18 -0500


As usual, I enjoyed reading Kermit's post and agree with most of Keith
Hart's ideas, but I see some real difficulties, conceptual and practical,
with their realization. First, the main agreement is that open money and
national money is complementary, in the same way that open and closed
source software are complementary. If Stallman and Thorvalds had demanded
to abandon all proprietary code before we could begin to use open source
software, nothing would ever have happened. If we demand a leap from the
old to the new, only few people will follow (for very good reasons, I must
say).

But the main issue is see concerns the question of trust. I agree with the
Keith that there must be multiple LETS systems, because their main
advantage is that they can be highly flexible and adapted to their
community's specific needs and characteristics.

However, that compounds the problem of trust and reputation management. If
I'm member of a lot of LETS communities, defaulting in one is less of an
issue than if I'm only member in this one. Peer pressure and incentives are
strongest when the community comprises many aspects of a member's life,
which is the case in local communities, but much less the case in virtual
ones. In order to trade reputation between communities, there must be some
kind of reputation super structure, similar to the way certificate
authorities are envisioned in PKI systems, or Moody's rates corporate debt.

Cash solves the reputation problem elegantly, by transferring the trust
from the person to the token. Credit cards solve the problem horribly with
an incredible invasive global authenticating infrastructure which is
queried virtually every time one uses the card.

I cannot but imagine this reputation trading between LETS communtities as
incredibly privacy invasive. How you behave in different LETS communities
tells even more about you than how you spend your national currency. I
remember that during a side conversation at the Wizard of OS conference
last year in Berlin, Keith not being particularly concerned about the
probleme of privacy invasion, saying something, if I recall correctly, that
a true global citizen must be responsible and accountable for his/her
actions. This reminds me of the argument that if you got nothing to hide,
then you do not have to worry about surveillance.

Then there is the practical argument. Keith and Michael Linton seem to put
much hope into smart cards and their ability to process multiple currencies
efficiently. Sure chip catds can do this, technically. But, the economic of
smart cards are so prohibitive that introducing them will be restricted to
organizations that can afford incredibly high up-front costs, hoping to
recoup these costs by later selling "real estate" on the chip. I don't see,
for merely practical reasons, how LETS systems would get access to that
pricey real estate. That might change over time when smart cards are widely
available and issuing another yet another one is a minor project, but I
would not bet on that happening anytime soon.

Felix

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