The Future of Money is Liquid Robots

 

Klimpt Midas

Over the last several weeks global financial markets have experienced what amounts to some really stomach churning volatility and though this seems to have stabilized or even reversed for the moment as players deem assets oversold, the turmoil has revealed in much clearer way what many have suspected all along; namely, that the idea that the Federal Reserve and other central banks, by forcing banks to lend money could heal the wounds caused by the 2008 financial crisis was badly mistaken.

Central banks were perhaps always the wrong knights in shining armor to pin our hopes on, for at precisely the moment they were called upon to fill a vacuum left by a failed and impotent political system, the very instrument under their control, that is money, was changing beyond all recognition, and had been absorbed into the revolutions (ongoing if soon to slow) in communications and artificial intelligence.

The money of the near future will likely be very different than anything at any time in all of human history. Already we are witnessing wealth that has become as formless as electrons and the currencies of sovereign states less important to an individual’s fortune than the access to and valuation of artificial intelligence able to surf the liquidity of data and its chaotic churn.

As a reminder, authorities at the onset of the 2008 crisis were facing a Great Depression level collapse in the demand for goods and services brought about the bursting of the credit bubble. To stem the crisis authorities largely surrendered to the demands for bailouts by the “masters of the universe” who had become their most powerful base of support. Yet for political and ideological reasons politicians found themselves unwilling or unable to provide similar levels of support for lost spending power of average consumers or to address the crisis of unemployment fiscally- that is, politicians refused to embark on deliberate, sufficient government spending on infrastructure and the like to fill the role of the vacated private sector.

The response authorities hit upon instead and that would spread from the United States to all of the world’s major economies would be to suppress interest rates in order to encourage lending. Part of this was in a deliberate effort to re-inflate asset prices that had collapsed during the crisis. It was hoped that with stock markets restored to their highs the so-called wealth effect would encourage consumers to return to emptying their pocket books and restoring the economy to a state of normalcy.

It’s going on eight years since the onset of the financial crisis, and though the US economy in terms of the unemployment rate and GDP has recovered somewhat from its lows, the recovery has been slow and achieved only in light of the most unusual of financial conditions- money lent out with an interest rate near zero. Even the small recent move by the Federal Reserve away from zero has been enough to throw the rest of the world’s financial markets into a tail spin.

While the US has taken a small step away from zero interest rates a country like Japan has done the opposite and the unprecedented. It has set rates below zero. To understand how bizarre this is banks in Japan now charges savers to hold their money. Prominent economists have argued that the US would benefit from negative rates as well, and the Fed has not denied such a possibility should the fragile American Recovery stall.

There are plenty of reasons why the kinds of growth that might have been expected from lending money out for free has failed to materialize. One reason I haven’t heard much discussed is that the world’s central banks are acting under a set of assumptions about what money is that no longer holds- that over the last few decades the very nature of money has fundamentally changed in ways that make zero or lower interest rates set by the central banks of decreasing relevance.

That change started quite some time ago with the move away from money backed up with gold to fiat currencies. Those gold bugs who long to return to the era of Bretton Woods understand the current crisis mostly in terms of the distortions caused by countries that have abandoned the link between money and anything “real” that is precious metals and especially gold way back in the 1970’s. Indeed it was at this time that money started its transition from a means of exchange to a form of pure information.

That information is a form of bet. The value of the dollars, euros, yen or yuan in your pocket is a wager by those who trade in such things on the future economic prospects and fiscal responsibility of the power that issued the currency. That is, nation-states no longer really control the value of their currency, the money traders who operate the largest market on the planet, which in reality is nothing but bits representing the world’s currencies, are the ones truly running the show.

We had to wait for a more recent period for this move to money in the form of bits to change the existential character of money itself. Both the greatest virtue of money in the form of coins or cash and it’s greatest danger is its lack of memory. It is a virtue in the sense that money is blind to tribal ties and thus allows individuals to free themselves from dependence upon the narrow circle of those whom they personally know. It is a danger as a consequence of this same amnesia for a dollar doesn’t care how it was made, and human beings being the types of creatures that they are will purchase all sorts of horrific things.

At first blush it would seem that libertarian anarchism behind a digital currency like  Bitcoin promises to deepen this ability of money to forget.  However, governments along with major financial institutions are interested in bitcoin like currencies because they promise to rob cash of this very natural amnesia and serve as the ultimate weapon against the economic underworld. That is, rather than use Bitcoin like technologies to hide transactions they could be used to ensure that every transaction was linked and therefore traceable to its actual transactee.

Though some economists fear that the current regime of loose money and the financial repression of savers is driving people away from traditional forms of money to digital alternatives others see digital currency as the ultimate tool. Something that would also allow central banks to more easily do what they have so far proven spectacularly incapable of doing- namely to spur the spending rather than the hoarding of cash.

Even with interest rates set to zero or even below a person can at least not lose their money by putting it in a safe. Digital currency however could be made to disappear if at a certain date it wasn’t invested. Talk about power!- which is why digital currency will not long remain in the hands of libertarians and anarchists.

The loss of the egalitarian characteristics of cash will likely further entrench already soaring inequality. The wealth of many of us is already leveraged by credit ratings, preferred customer privileges and the like, whereas others among us are charged a premium for our consumption in the form of higher interest rates, rent instead of ownership and the need to leverage income through government assistance and coupons. In the future all these features are likely to be woven into our digital currency itself. A dollar in my pocket will mean a very different thing from a dollar in yours or anyone else’s.

With the increased use of biometric technologies money itself might disappear into the person and may become as David Birch has suggested synonymous with identity itself.The value of such personalized forms of currency- which is really just a measure of individual power- will be in a state of constant flux. With everyone linked to some form of artificial intelligence prices will be in a constant state of permanent and rarely seen negotiation between bots.

There will be a huge inequality in the quality and capability of these bots, and while those of the wealthy or used by institutions will roam the world for short lived investments and unleash universal volatility, those of the poor will shop for the best deals at box stores and vainly defend their owners against the manipulation of ad bots who prod them into self-destructive consumption.

Depending on how well the bots we use for ourselves do against the bots used to cajole us into spending- the age of currency as liquid robot money could be extremely deflationary, but would at the same time be more efficient and thus better for the planet.

One could imagine  much different us for artificial intelligence, something like the AI used to run economies found in the Iain Banks’ novels. It doesn’t look likely. Rather, to quote Jack Weatherford from his excellent History of Money that still holds up nearly two decades after it was written:

In the global economy that is still emerging, the power of money and the institutions built on it will supersede that of any nation, combination of nations, or international organization now in existence. Propelled and protected by the power of electronic technology, a new global elite is emerging- an elite without loyalty to any particular country. But history has already shown that the people who make monetary revolutions are not always the ones who benefit from them in the end. The current electronic revolution in money promises to increase even more the role of money in our public and private lives, surpassing kinship, religion, occupation and citizenship as the defining element of social life. We stand now at the dawn of the Age of Money. (268)

 

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Seeing the Future through the Deep Past

woman-gazing-into-a-crystal-ball

We study history not to know the future but to widen our horizons, to understand that our present system is neither natural nor inevitable, and that we consequently have many more possibilities before us than we imagine. (241)

The above is a quote from Ynval Harari’s book Sapiens: A Brief History of Humankind, which I reviewed last time. So that’s his view of history, but what of other fields specifically designed to give us a handle on the future, you know, the kinds of “future studies” futurists claim to be experts in, fields like scenario planning, or even some versions of science-fiction.

Harari probably wouldn’t put much credence on the ability of these fields to predict the future either. The reason being that there are very real epistemological limits to what we can know outside of a limited number of domains.  The reason we are unable to make the same sort of accurate predictions for areas such as history, politics or economics as we do for physics, is that all of the former are examples of Level II chaotic systems. A Level I chaotic system is one where small differences in conditions can result in huge differences in outcomes. Weather is the best example we have of Level I chaos, which is why nearly everyone has at some point in their life wanted to bludgeon the weatherman with his umbrella. Level II chaotic systems make the job of accurate prediction even harder, for, as Harari points out:

Level two chaos is chaos that reacts to predictions about it, and therefore can never be predicted accurately. (240)

Level II chaos is probably the source of many of our philosophical paradoxes regarding, what we can really know, along with free will and its evil deterministic twin, not to mention the kinds of paradoxes we encounter when contemplating time travel, issues we only seem able to resolve in a way that conserves the underlying determinism of nature with our subjective experience of freedom when we assume that there are a multiple or even infinite number of universe that together manifest every possibility. A solution that seems to violate every fiber of our common sense.

Be all that as it may, the one major disappointment of Harari’s Sapiens was his versions of possible futures for humanity,though expressed with full acknowledgement that they were just well reasoned guesses, really weren’t all that different from what we all know already. Maybe we’ll re-engineer our genes even to the point of obtaining biological immortality. Maybe we’ll merge with our machines and become cyborgs. Maybe our AI children will replace us.

It’s not that these are unlikely futures, just commonly held ones, and thinkers who have arrived at them have just as often as not done so without having looked deep into the human past, merely extrapolating from current technological trends. Harari might instead have used his uncovering of the deep past to go in a different direction, not so much to make specific predictions about how the human story will likely end, but to ascertain broad recurring patterns that might narrow down the list of things we should look for in regards to our movement towards the future, and, above all, things whose recurrence we would do best to guard ourselves against.

At least one of these recurring trends identified in Sapiens we should be on the look out for is the Sisyphean character of our actions. We gained numbers and civilization with the Agricultural Revolution, but lost in the process both our health and our freedom, and this Sisyphean aspect did not end with industrialization and the scientific revolution. The industrial revolution that ended our universal scarcity, threatens to boil us all. Our automation of labor has lead us to be crippled by our sedentary lifestyles, our conquest of famine has resulted in widespread obesity, and our vastly expanded longevity has resulted in an epidemic of dementia and Alzheimer’s disease.

It’s a weird “god” indeed that suffers the arrival of a new misfortune the minute an old one is conquered. This is not to argue that our solutions actually make our circumstance worse, rather, it is that our solutions become as much a part of the world that affects us as anything in nature itself, and naturally give rise to some aspects we find problematic and were not intended in the solution to our original problem.

At least some of these problems we will be able to anticipate in advance and because of this they call for neither the precautionary principle of environmentalist, nor the proactionary principle of Max More, but something I’ll call the Design Foresight Principle (DFP). If we used something like the DFP we would design to avoid ethical and other problems that emerge from technology or social policy before they arrive, or at least before a technology is widely adopted. Yet in many cases even a DFP wouldn’t help us because the problem arising from a technology or policy wasn’t obvious until afterward- a classic case of which was DDT’s disastrous effect on bird populations.

This situation where we create something or act in some way in order to solve one problem which in turn causes another isn’t likely a bug, but a deep feature of the universe we inhabit. It not going to go away completely regardless of the extent of our powers. Areas I’d look for this Sisyphean character of human life to rear its head over the next century would include everything from biotechnology, to geoengineering, and even quite laudable attempts to connect the world’s remaining billions in one overarching network.

Another near universal of human history, at least since the Agricultural Revolution Sapiens has been the ubiquity of oppression. Humans, it seems, will almost instantly grasp the potential of any new technology, or form of social organization to start oppressing other humans and animals. Although on the surface far-fetched, it’s quite easy, given the continued existence of slavery, coupled with advances in both neuroscience and genetic engineering to come up with nightmare scenarios where, for instance, alternative small brained humans are biologically engineered and bred to serve as organ donors for humans of the old fashioned sort. One need only combine the claims of technical feasibility by biologists such as George Church of bringing back other hominids such as the Neanderthals, historical research and abuse of animals, and current research using human fetal tissue to grow human organs in pigs to see a nightmare right out of Dr Moreau.

Again far-fetched at the moment, other forms of oppression may be far less viscerally troubling but almost just as bad. As both neural monitoring and the ability to control subjects through optogenetics increases, we might see the rise of “part-time” slavery where one’s freedom is surrendered on the job, or in certain countries perhaps the revival of the institution itself.

The solution here, I think, is to start long before such possibilities manifest themselves, especially in countries with less robust protections regarding worker, human, and animal rights and push hard for research and social policy towards solutions to problems such as the dearth of organs for human beings in need of them that would have the least potentially negative impact on human rights.

Part of the answer to also needs to be in the form of regulation to protect workers from the creep of now largely innocent efforts such as the quantified self movement and its technologies into areas that really would put individual autonomy at risk. The development of near human level AI would seem to be the ultimate solution for human on human oppression, though at some point in the intelligence of our machines, we are might again face the issue of one group of sentient beings oppressing another group for its exclusive benefit.

One seemingly broad trend that I think Harari misidentifies is what he sees as the inexorable move towards a global empire. He states it this way:

 Over millennia, small simple cultures gradually coalesce into bigger and more complex civilizations, so that the world contains fewer and fewer mega-cultures each of which is bigger and more complex. (166)

Since around 200 BC, most humans have lived in empires. It seems likely that in the future, too, most human will live in one. But this time the empire will truly be global. The imperial vision of domination over the entire world could be imminent. (207)

Yet I am far from certain that the movement towards a world empire or state is one that can be seen when we look deep into history. Since their beginnings, empires have waxed and waned. No empire with the scale and depth of integration now stands where the Persian, Roman, or Inca empires once stood. Rather than an unstoppable march towards larger and larger political units we have the rise and collapse of these units covering huge regions.

For the past 500 years the modern age of empires which gave us our globalized world has been a play of ever shifting musical chairs with the Spanish, Portuguese followed by the British and French followed by failed bids by the Germans and the Japanese, followed by the Russians and Americans.

For a quarter century now America has stood alone, but does anyone seriously doubt that this is much more than an interim until the likes of China and India join it? Indeed, the story of early 21st century geopolitics could easily be told as a tale of the limits of American empire.

Harari seems to think a global ruling class is about to emerge on the basis of stints at US universities and hobnobbing at Davos. This is to forget the power of artificial boundaries such as borders, and imagined communities. As scholars of nationalism such as Benedict Anderson have long pointed out you can get strengthened national identity when you combine a lingua franca with a shared education as long as personal opportunities for advancement are based upon citizenship.

Latin American creoles who were denied administrative positions even after they had proven themselves superior to their European-Spanish classmates were barred from becoming members of the elite in Spain itself and thus returned home with a heightened sense of national identity. And just as long as American universities remain the premier educational institutions on earth, which will not be forever, the elite children of other countries will come there for education. They will then have to choose whether to sever their ties with their home country and pursue membership in the American elite, or return home to join the elite of their home country with only tenuous ties to the values of the global power. They will not have the choice to chose both.

Indeed, the only way Harari’s global elite might emerge as a ruling class would be for states to fail almost everywhere. It wouldn’t be the victory of the trend towards “domination over the entire world” but a kind of global neo-feudal order. That is, the two trends we should be looking to history to illuminate when it comes to the future of political order is the much older trend of the rise and fall of empires, or the much younger 500 year trend of the rise and fall of great powers based on states.

One trend that might bolster the chances towards either neo-feudalism or the continued dominance of rival states depending upon how it plays out is the emergence of new forms of money. The management of a monetary system, enforcement of contacts, and protection of property, has always been among the state’s chief functions. As Harari showed us, money, along with writing and mathematics were invented as bureaucratic tools of accounting and management. Yet since the invention of money there has always been this tension between the need for money as a way to facilitate exchange – for which it has to be empty of any information except its value, and the need to record and enforce loans in that medium of exchange- loans and contacts.

This tension between forgetfulness and remembering when it comes to money is one way to see the tug of war between inflation and deflation in the management of it. States that inflate their currency are essentially voting for money has a means of facilitating exchange over the need for money to preserve its values so that past loans and contracts can be met in full.

Digital currencies, of which Bitcoin is only one example, and around which both states and traditional banks are (despite Bitcoin’s fall) are showing increasing interest, by treating money as data allow it to fully combine these two functions as a medium of exchange that can remember. This could either allow states to crush non-state actors, such as drug cartels, that live off the ability of money to forget its origins, or conversely, strengthen those actors (mostly from the realm of business) who claim there is no need for a state because digital currency can make contracts self enforcing. Imagine that rather than money you simply have a digital account which you can only borrow from to make a purchase once it connects itself to a payment system that will automatically withdraw increments until some set date in the future. And imagine that such digital wallets are the only form of money that is actually functional.

There are other trends from deep history we should look to as well to get a sense of what the future may have in store. For instance, the growth of human power has been based not on individual intelligence, but collective organization. New forms of organization using technologies like brain-nets might become available at some future date, and based on the scalability of these technologies might prove truly revolutionary. This will be no less important than the kinds of collective myths that predominate in the future, which, religious or secular will likely continue to determine how we live our lives as they have in the past.

Yet perhaps the most important trend from the deep past for the future will be the one Harari thinks might end desire to make history at all. Where will we go with our mastery over the biochemical keys to our happiness which we formerly sought in everything from drugs to art? It’s a question that deserves a post all to itself.