Fiat Economics

 Fiat Economics 

Monetary Theory

How do you define money in modern terms?

It depends on what you’re doing with it. It's a multifunction tool. Basically it is something that has consensual transactional utility and managed scarcity in the relation;

           (Value = scarcity x utility )

Fiat money has no intrinsic value. It must be managed as to scarcity and declared as to utility for it to be valuable.

Fiat money is relatively scarce to its demand or it loses value. That is its scarcity.

Fiat money is declared and accepted as legal tender. That is its utility. 

Critical Functions

Store of Value

A unit of money is worth more or less the same unit of money over time. This allows ROI calculations over significant time periods enabling reliable trades. The solidus, defined by weight and purity of precious metals, a commodity money, functioned effectively as a store of value for centuries because gold and silver were scarce.

Medium of Exchange 

A play off of the store of value, it can mediate market values of disparate goods and services in transactions over space and time. The solidus functioned effectively here too.

Value Calculus 

Money is essential for the relative valuation of goods and services in market situations. As a value calculus it must be of sufficient quantity to value all goods and services plus capital requirements. There is not enough commodity money in existence to fund a general prosperity. The total scope of economic activity vastly exceeds the supply of gold and silver. That is the main reason we now use fiat money with its artificial scarcity and its declared utility of legal tender.

Labor Theory of Value

Adam Smith and David Ricardo in the long ago beginnings of economics essentially agreed that money was worth the labor it could buy. With the invention of the steam engine money, now buying empowered labor, so defined, that measure became increasingly meaningless to the amount of precious metals in existence. Instead economics began tracking machine productivity without acknowledging that change. It became the science of the labor multiplier and money began to move to its modern fiat definition of a special product capable of holding a market together as (Value = scarcity x utility).

We now face such a moment as the steam engine again only orders of magnitude larger, robots building robots. Just as the steam engine took us into the era of fiat money, the Economic Singularity of robots building robots is taking us into the era of fiat economics.

What are fiat economics?

To this point, the basis of economic analysis has been scarcity, value certainly consisting of scarcity x utility but utility in nature being to a significant degree scarce. A nail can be driven with a rock but a hammer works much better. This is about to change. When robots build robots who fill semi-skilled positions at significance everything changes. Suddenly manufacturing per se knows no commodity scarcity and anything semi-skilled labor can build is a commodity, only material, resource, scarcity. The light at the end of our long march from the irrigated fields of Sumer to AI managed factories of smart machines is in sight and it's a steam locomotive going the other way.

Our ability to create value, scarcity x utility, is diminished because scarcity of labor is quickly going to go to zero. Robot labor when robots build robots is a drug on the market. When one removes manufacturing difficulty from robots, what is robot labor worth? It is worth practically nothing, materials, some metal, some plastic, some electricity. The value equation is broken. Labor theory money is naturally worthless. One could build a Bentley for a few dollars. A new era of prosperity? A lobster in every pot? No, labor multiplier money is also worthless. There is no human in the loop. No human means the multiplier is zero.

It is the art of fiat economics to create value possibilities by artificially creating scarcity. This is easily done by assessing a fee per hour on robot labor. By doing so robot labor then becomes valuable. Labor theory money becomes valuable. Possessed of intrinsic value, the value of robot labor, fiat money is now not just a useful fiction but a new solidus of manageable capabilities.

Taking the fees and the protective tariffs and distributing them as a UBI supports aggregate demand and prevents what otherwise would be catastrophic demand insufficiency.Labor multiplier money becomes valuable. There's a human in the loop.

Do Well and Be Well