The Author re-organizes quotes from various lectures and material by John Nash on the topic of establishing a standardized global monetary unit (aka Ideal Money). All quotes by John Nash (headings by the author of this blog).



John F. Nash, Jr. Southern Economic Journal Vol. 69, No. 1 (Jul., 2002), pp. 4-11

Published by: Southern Economic Association

Article Stable URL: http://www.jstor.org/stable/1061553

A Modern Alternative to Central Banking

…money itself is a sort of “utility”, using the word in another sense, comparable to supplies of water, electric energy or telecommunications. And then, if we think about it, we can consider the quality of money as comparable to the quality of some “public utility” like the supply of electric energy or of water. …we may become irrational in thinking about it and fail to be able to reason about it as if about a technology, such as radio… We of Terra could be taught how to have ideal monetary systems if wise and benevolent extraterrestrials were to take us in hand and administer our national money systems analogously to how the British recently administered the currency of Hong Kong. But one cannot logically feel confident of the adoption internationally of an ideal system of currency or currencies in an achievement analogous to the achievement of the metric system or of “the euro”. Such a result would necessarily have a political content since it is the states that control and supply the various currencies that are in use at the present time. The missing axiom is simply an accepted axiom that the money being put into circulation by the central authorities should be so handled as to maintain, over long terms of time, a stable value. But a modern alternative is possible, one that would provide a good standard independent of state pardoners. This idea occurred to me fairly recently. …for the government of a state, acting on its own independently of other states, to rationally contemplate the evolution of the inflation rate for its currency towards zero there are clearly some very relevant considerations relating to tax revenue expectations. But if, for example, all of the countries of the world would base the value for their national currencies on the value of the British currency then this situation would appear singular and unstable, while it was not so singular for a lot of countries to base their currency value on gold. …this standard, as a basis for the standardization of the value of the international money unit, would remove the political roles of the “grand pardoners,”… However the possibilities with regard to actual establishing a norm of money systems that could qualify as “ideal” are dependent on the political circumstances of the world. If the world had in fact become a single empire with a central government, that what is now international trade, with shipping on the oceans through areas considered the property of no state, would be replace by the equivalent of domestic commerce withing the United States. This development would profoundly modify the circumstances relevant to the establishment of “good” or “bad” systems of money. What I have to suggest is not appropriate for the world empire context.

A Problem for the Issuer of an E-Currency

There is a problem for the issuer of a currency, whether in coinage, paper, or electronic form, that if this currency (or money) is too good, then it could be exploited by all sorts of parties and interests that might simply wish to safely deposit a store of wealth or even to conservatively invest some assets for future good value. (The word good is used here in terms of comparative value trends, as in good investments.) Then, under extreme conditions the currency issued by one state could be exploited by parties not of that state as a sort of “safe-deposit box” on which they would not need to pay any rental fees or fees like those paid to the managers of mutual funds for investment. But, simply to improve the conditions under which agreements regarding long-term lending and borrowing would be made, a money would be more or less equivalently good if it had a completely steady and constant rate of inflation. Then this inflation rate could be added to all lending an borrowing contracts. Hence, the problem of a money that would be too good is avoidable. If the value trend of a currency is such that a natural interest rate is not negative, then it is not an unattractive task for a central currency authority to mint or print the physical currency that would circulate. Then the issuer of currency would be partially in the position of a borrower not paying interest on borrowed money. …the issuer of a currency also needs to be properly prepared for the possibility of speculation on the part of interests domiciled in foreign states, etc., etc.

Considerations for an “Index of Prices to Serve as a Basis for a Money of Standard Value”

The long-term trend of the value of any index of prices will depend, sometimes predictably on the choice of the composition of that index. It is a coincidental fact that the inherent nature of mining and mining technology makes it possible for the prices of certain commodities that are produced as a result of the devotion of labor and capital to the effort of mining to increase less (or decrease more) than might be expected. There is a “dimension paradox”: Agricultural products are produced by using the two-dimensional resource of the earth surface, so the “disappearing frontier” creates a limitation. In contrast, some mining, particularly for elemental metals, can essentially be done in three dimensions, although, of course, there are increasing costs for deep digging. So, really there is lots and lots of gold, silver, platinum, tungtsten, and so forth out there and more can be found by digging deeper. If we then consider which commodities would be optimally suitable for providing a basis for a means of transferring utility, and if we specifically consider the possibility that the trading partners may be located in different nations and perhaps on different continents, than the suitability of such commodities with regard to the ideal function of facilitating utility transfer depends on the extent to which such a commodity seems to have a value independent of its geographical location. Clearly, in terms of this geographical perspective, gold has historically been optimal, largely because the labor cost of moving it over great distances is so small relative to the value of what is being transported. Thus, gold formed a very efficiently movable medium for the transportation of a value exchangeable for other values, ultimately deriving, in one way or another, from human labor (with the achievements of warriors here also being viewed as involving labor). Nowadays, however, few would propose a return to the actual use of simply the metal gold as a standard, for the following reasons. (i) The cost of mining gold effectively does depend on the technology. Recent cyanide leaching techniques have made it possible again to profitability mind gold at formerly abandoned sites in the U.S. so that it is now a big producer. However, the unpredictability of the cost is a negative factor. (ii) The location of potential gold-mining locations may not be “politically appealing.” so it would seem undesirable to make a political choice to enhance the economic importance of those particular areas. (iii) There is some negative psychology about gold such that even if it were the most logical choice after all, the unpopularity of the idea could be very obstructive. However, right now platinum would be even better than gold, because it has more value per unit of weight. Crude petroleum could also be used for barter transactions, and in view of the present state of the global economy it would seem a proper component of an index of prices of internationally traded commodities that enter into the costs of industrial consumption.

A Miracle Source and the Value of a Global Money Standard

The historical fact seems to be that the gold standard, was, in its time, a basis that favored the prosperity of the United Kingdom and of other states, like the United States and Switzerland, that adopted the concept of the standard. We can see that times could change, especially if a “miracle energy source” were found, and thus if a good ICPI is constructed, it should not be expected to be valid as initially defined for all eternity. It would instead be appropriate for it to be regularly readjusted depending on how the patterns of international trade would actually evolve. Here, evidently, politicians in control of the authority behind standards could corrupt the continuity of a good standard, but depending on how things were fundamentally arranged, the probabilities of serious damage through political corruption might becomes as small as the probabilities that the values of the standard meter and kilogram will be corrupted through the actions of politicians. Moreover, commodities with easily and reliably calculable prices are most suitable, and relatively stable prices are very desirable. Another basic cost that could be used would be a standard transportation cost, the cost of shipping a unit quantity of something over long international distances. …a global money standard could have a value similar to that of standard measures such as those of the metric system. There is tremendous value in simply having prices quoted conveniently. If the technical problem of designing an index of prices to serve as a basis for a money of standard value is considered in a more elaborate fashion, it seems that it is possible to define the sort of index that would vary smoothly and yet would also vary in an appropriate way over longer periods. So it occurs to me to think that that which is not achieved by a grand action of establishment by “fiat” may alternatively tend to come into existence as a consequence of a process of evolution. And of course, after a certain degree of progress by “evolution” the rest of the progress could possibly be realized by a convention or a process of “fiat”. …the possible area for evolution is that if, say, an inflation rate of between 1% and 3% is now considered desirable and appropriate in Sweden, then, if it is really controllable, why shouldn’t a rate between 1/2 % and 3/2 % be even more desirable?

A Technical Solution to the Intrinsic Difficulties of Supplanting Paper Money

The constitutional structure of the authority behind the euro is of the “paper money” character in that nothing is really guaranteed as far as the value of the euro is concerned. But this is typical of all currencies used in the world nowadays. I think of the possibility that a good sort of international currency might EVOLVE before the time when an official establishment might occur. …my personal view is that a practical global money might most favorably evolve through the development first of a few regional currencies of truly good quality. And then the “integration” or “coordination” of those into a global currency would become just a technical problem. (Here I am thinking of a politically neutral form of a technological utility rather than of a money which might, for example, be used to exert pressures in a conflict situation comparable to “the cold war”.) But the famous classical “Gresham’s Law” also reveals the intrinsic difficulty. Thus “good money” will not naturally supplant and replace “bad money” by a simple Darwinian superiority of competitive species. Rather than that, it must be that the good things are established by the voluntary choice of human agencies.

The Re-Levation of Milton Friedman, Friedrich Von Hayek, and an Array of Computers as our Government/Banking System

M. Friedman acquired fame through teaching the linkage between the supply of money and, effectively, its value. In retrospect it seems as if elementary, but Friedman was as if a teacher who re-taught to American economists the classical concept of the “law of supply and demand”, this in connection with money. …after consulting with some of the economics faculty at Princeton, I learned of the work and publications of Friedrich Von Hayek. I must say that my thinking i apparently quite parallel to his thinking with regard to money and particularly with regard to the non-typical viewpoint regarding the functions of the authorities that in recent times have been the sources of currencies. …we can’t really logically assume that human civilization has found the ultimate ideal of forms of social government in the times of the twentieth century. (One can imagine a future form of government where a highly advanced automaton (or array of computers) would function like the office of a City Manager with the human input to the government passing through the analogue of a City Council.)