The Digital Barter Economy

[Mike Ingle <MIKEINGLE@delphi.com>]

There has been much discussion here and elsewhere about digital cash.
Presumably digital cash would be directly linked to "real" money; there
would be some way of exchanging digital tokens for cash. This type of
digital cash may be an intermediate step, but the final result could be the
elimination of money altogether.

Money exists because of problems with a barter economy. In order to barter,
you have to find someone who wants what you have and has what you want.
Some goods are hard to carry around, tend to spoil or go bad, etc. A
physical barter economy has high transaction costs. The problems which
money solves, particularly that of finding someone who has what you want
and wants what you have, are mainly costs of information. Computers and
networks can solve information problems.

Money has its problems as well. Money can either be based on a standard
such as gold, or it can be "fiat money" which has value only because people
accept it. Standard-based money is dependent on the standard - if there
isn't enough gold, the economy can't grow. The reverse can also happen -
Pizarro brought back enough gold to cause inflation throughout Europe. Fiat
money is dependent on the honesty and competence of the government which
issues it, and governments have a long history of spending too much,
getting into debt, printing too much money, and wrecking their currency in
the process. Money has been necessary to facilitate the operation of the
market, but it also interferes with the "pure" free market. Perhaps money
is no longer the best solution.

Instead of representing money, a digital certificate could directly
represent a product or service. One certificate could be good for a car,
or perhaps 1/1000th of a car. The person who wanted to buy a car would buy
(trade for) 1000 of these. Another certificate could be good for an hour
of a particular person's labor. Everyone would, in effect, print their own
money. Its value would be determined by their reputation.

If you work for one company, you would be paid in coins representing the
products or services of that company. If you are self-employed, you would
create your own coins for whatever type of work you do, and spend them
directly. Your employers would then buy these coins and present them to
you, at which time you would provide them with a service. The buying and
selling would be done through a huge, distributed international network,
similar to the over-the-counter stock market.

The value of all coins would be determined by the market, using reputation
banks. If you are a good consultant, your coins would go up in value. If
you are a bad consultant, or if you print too many coins, and are unable
to deliver the services promised, your reputation would be damaged. The
value of your reputation would always be higher than whatever you could
gain by "cashing it in" and ripping others off. Reputation insurance could
also protect buyers against a dishonest seller.

When a company wants to hire you, they would buy your coins in the market.
If you wanted to buy a new car, you would use whatever coins you have to
buy, at an exchange rate determined in real time by the market, the coins
representing the car you wanted. You would then take the car coins to the
dealer and drive off in your new car.

The negotiation and reputation lookups involved in any purchase would be
far too complex for the person to handle in real time. Each person would
have a software assistant. During a transaction, the assistants would
negotiate with each other, looking up the values of coins and reaching a
fair price. The better your assistant, the better value you would get, so
writing good assistants would be a very profitable business. For large-
value transactions, humans might be involved in the negotiation.

Using this system, the first truly free market could be created. The
information requirements would be very high, but might become feasible
someday. Digital cash could be only the beginning.

--- MikeIngle@delphi.com
Secure Drive. Because It's Nobody's Business But Yours!