Zero-balance money supply

I wonder how well a zero-balance money supply would work (having
positive and negative money)?  Positive and negative money is created
simultaneously by a single transfer of wealth.  The only problem I see
is the possibility of reneging on negative money.  Of course, when
that happens nowadays, we call it bankruptcy.  So I guess we deal one
way or another.  The banking system would have to constantly take a
percentage of all transfers to pay its costs, one of which is
bankruptcies.

I *think* it would be impossible to inflate or deflate such a currency.
Inflation might occur if people lost faith in it, but it would also
have a negative feedback effect.  Inflation increases people's ability
to pay off their negative money, which puts a cap on the amount of
inflation that could occur.  As soon as the money inflated a little,
people who could pay off their negative balances would do so at the
newly inflated value.

I also think it would be impossible to run such a currency
anonymously, because a negative balance is essentially a loan, and how
could you loan money to someone who could be anyone?  Only if they had
established a reputation with their public key...

Hmmm...  Interesting, then.  You could only effectively work
anonymously if you had created a reputation for your anonym.  And that
reputation would have to be established in some way *before* anyone
would loan you money, otherwise such a loan would end up being a gift.

One way to establish such a reputation would be to write some free
software, or answer Usenet questions, or were otherwise seen to be
knowledgable and responsible.  I haven't seen anyone try it yet,
though.  Does anyone know of such an attempt?

-russ <nelson@crynwr.com>      ftp.msen.com:pub/vendor/crynwr/crynwr.wav
Crynwr Software   | Crynwr Software sells packet driver support | ask4 PGP key
11 Grant St.      | +1 315 268 1925 (9201 FAX)    | Quakers do it in the light
Potsdam, NY 13676 | LPF member - ask me about the harm software patents do.

[just rejoined after a period of absence, sorry if this has been
covered before, but Russ' post looked like a thread-starter so I
thought I'd jump in.]

Russell Nelson writes:
 > I wonder how well a zero-balance money supply would work (having
 > positive and negative money)?  Positive and negative money is created
 > simultaneously by a single transfer of wealth. 

Some friends of ours tried starting up a regional group of a system
called LETS, which works on this principle.  The group members traded
`spots' for services or items - in this case generally stuff like
gardening/handyman work, computer programming, whatever their skills
were. The spots were tallied in each member's account with a community
`bank'.

The key to the whole thing was that there is no value in the currency
itself, only in the *exchange*. It never really got far enough off the
ground to become self sustaining, due to lack of interest or general
apathy, but was an interesting idea.

Apparently there are a number of communities in the US with this kind
of system established, as well as other kinds of barter economies.

 > I also think it would be impossible to run such a currency
 > anonymously, because a negative balance is essentially a loan, and
 > how could you loan money to someone who could be anyone?  Only if
 > they had established a reputation with their public key...

One of the interesting features of such an alternative economy,
especially when when it operates side-by-side with a traditional one
where debtors could leave the system, is that there is a strong
community incentive to prevent anyone building up either too large a
debt or too great wealth. In both cases such a person becomes a risk
and a burden. But there is never any problem of someone keeping money
out of circulation, or being short of small change.

In the LETS system I mentioned above, everyone's current balance and
trading volume were published in a newsletter. That way, community
members were encouraged to keep their balances, and those of their
trading partners, near zero.

 > Hmmm...  Interesting, then.  You could only effectively work
 > anonymously if you had created a reputation for your anonym.  And that
 > reputation would have to be established in some way *before* anyone
 > would loan you money, otherwise such a loan would end up being a gift.

This is the same situation as now. However, consider that you don't
actually *need* anyone to lend you money -- you can make as much as
you like yourself by contributing to the community, or borrow some
from the community at any time.

 > One way to establish such a reputation would be to write some free
 > software, or answer Usenet questions, or were otherwise seen to be
 > knowledgable and responsible.  I haven't seen anyone try it yet,
 > though.  Does anyone know of such an attempt?

Sure.. lots of people are doing those things you mention.. in fact I'm
sure I've seen you do *all* of them yourself, Russ :)

--
Dan.

From: Daniel AMP Carosone <danielce@mullian.ee.mu.OZ.AU>
   Date: Mon, 23 May 1994 22:43:10 +1000

[crypto content: has anyone tried to impart reputation to an anonym? ]

   Russell Nelson writes:
    > I wonder how well a zero-balance money supply would work (having
    > positive and negative money)?  Positive and negative money is created
    > simultaneously by a single transfer of wealth. 

   Some friends of ours tried starting up a regional group of a system
   called LETS, which works on this principle.

Yes, I'm sorry, I should have mentioned LETS by way of crediting them.

   One of the interesting features of such an alternative economy,
   especially when when it operates side-by-side with a traditional one
   where debtors could leave the system, is that there is a strong
   community incentive to prevent anyone building up either too large a
   debt or too great wealth. In both cases such a person becomes a risk
   and a burden. But there is never any problem of someone keeping money
   out of circulation, or being short of small change.

I think that it's more a matter of trust.  If you trust the system to
work well, you can carry a high positive balance (e.g. selling a house
to someone).

   In the LETS system I mentioned above, everyone's current balance and
   trading volume were published in a newsletter. That way, community
   members were encouraged to keep their balances, and those of their
   trading partners, near zero.

Right.  It encourages you to keep your wealth as wealth, and not
wealth receipts.  But then again, inflation encourages that also.  :)

    > Hmmm...  Interesting, then.  You could only effectively work
    > anonymously if you had created a reputation for your anonym.  And that
    > reputation would have to be established in some way *before* anyone
    > would loan you money, otherwise such a loan would end up being a gift.

   This is the same situation as now. However, consider that you don't
   actually *need* anyone to lend you money -- you can make as much as
   you like yourself by contributing to the community, or borrow some
   from the community at any time.

Hmmm, hadn't thought of that (tho it's obvious now that I do).  Yes,
it's community-based, trust-based borrowing.  But also hmmm, it lets
individuals make borrowing decisions for the corporate body.  Not
necessarily such a good thing.

    > One way to establish such a reputation would be to write some free
    > software, or answer Usenet questions, or were otherwise seen to be
    > knowledgable and responsible.  I haven't seen anyone try it yet,
    > though.  Does anyone know of such an attempt?

   Sure.. lots of people are doing those things you mention.. in fact I'm
   sure I've seen you do *all* of them yourself, Russ :)

No, I meant "establish a reputation for an anonym".  But thanks for
the complement (NOT)!.  [sorry, I guess I'm a looser, a looser of bad
jokes.] [ but then again if I was *that* sorry I wouldn't make them in
the first place, eh? ]

-russ <nelson@crynwr.com>      ftp.msen.com:pub/vendor/crynwr/crynwr.wav
Crynwr Software   | Crynwr Software sells packet driver support | ask4 PGP key
11 Grant St.      | +1 315 268 1925 (9201 FAX)    | Quakers do it in the light
Potsdam, NY 13676 | LPF member - ask me about the harm software patents do.