Wealth: A New Era of Economics

Wealth: A New Era of Economics — Freeism

Capitalism and Socialism are in a climatic feud. Why? Because they are dying. Don’t believe me? Let me challenge your assumptions and introduce you to the future. Let me tell you some stories.

I have capitalist friends who caffeinate their day with Seattle’s Best, simply because they want to rebel against Starbucks’ monopoly. Little do they know, Starbucks owns Seattle’s Best, so profit for them equals profit for Starbucks.

This is why my socialist friends hate capitalism, they know that corporations will feign competition in order to drive more sales. Ultimately, brand loyalty doesn’t matter — except, to the government of course, my socialist friends say.

We call this a false narrative, it is meant to distract you from the actual story. It is quite effective, for example, the 2016 USA political elections were rife with them. But how and why do they work?

Dichotomies impassion people because it creates psychological reactance. More divisiveness creates more loyal followers to an ideology, and increased echo chambers. Echo chambers eliminate open minded and rational discussion, which when gone, leaves only emotional decision making.

Emotional decisions always self-select to one’s loyalty — their family, their tribe, their ingroup. Blind, impassioned loyalty, in both politics and products.

Hegelian Dialectics

The evolution of ideas, or memes (not the photo kind), has a known process. Some idea is held as a thesis, and it is challenged by an opposite, an antithesis. The tension between these two ideas creates stress, which when broken, produces the synthesis, or the resolution and combination of the ideas.

The raging tension between capitalism and socialism is indication that we are at a breaking point. So what will be the synthesis of these two systems?

To predict the future, we must understand at the past. Let me tell you a story.

The Evolution of Wealth

Hunter gatherers’ wealth was in their catch. But some time along, some clever fellow realized they could domesticate their catch rather than killing it. Thus nomadic societies were born, and the patriarch with the largest herd was revered as the wealthiest man. But then things changed.

Some cleverer fellow realized, rather than decimating the land that the animals grazed upon, a process of continual self-inflicted exile, they could instead put the land to use. If animals were wealth, and they fed upon the land, then land must be a more abundant source of wealth than animals.

All it took was a technological spark, and the agricultural revolution was born. For better or for worse, this new era of wealth lead to the first roots of real civilization, but it also bred the violence of warfare over land disputes.

It did not take long for some forethinking individuals to come along, and realize they could surpass the king’s wealth by supplying his army and feudal peasants with the tools to conquer and till the land. A single manufacturing plant squeezed into a few small acres of land could produce products, which would spread from hand to hand across the land. They did not need to own the land, all they needed to own was what you wanted in your hand.

The industrial revolution shattered all previous expectations of how much wealth could exist. An abundance overflowed, enabling even common folks to live with luxuries that any king would covet but could not conceive. But what do manufacturing plants feed upon? What powers the industrial revolution?

A simple concept: the mold, a blueprint for a product. When built once by an expert, it could be used to endlessly copy an idea into reality at the low cost of the raw materials. But all a blueprint is, is some information. What value is in that? How could some abstract, non-tangible idea, be worth anything?

The internet triggered the information age, a new economic era that took the idea of ideas to an extreme. Memes (the photo kind) spread like viruses and simple pieces of data about a person could be resold ad infinitum until it manipulated the masses. Hacks, leaks, and scandals dominated the news, and torrents dethroned the media monopolies. Information became free.

Capitalism as a Forcing Function

If Starbucks is clever enough to trick you into the illusion of competition, why wouldn’t Capitalism and Socialism trick you into a false dichotomy? Memes want to survive just like organisms and corporations do. It is more in their interest to throw society back into the dark ages, such that humans have to rediscover Adam Smith and Marx again, than to let a new era replace them.

Where we are now is a turbulent shift into the future. Our modern day currency is stuck in a legacy system that assumes economic goods, products, etc. are made up of physical materials that require capital intensive labor to create or replicate. Certainly, a lot of our world economy is made up of these things, but not all of it. The cost of copying data, for example, is negligible.

To predict the cathartic future of economic wealth, all we have to do is consider what ideas feed upon. Like animals feed upon the land, ideas feed upon people. No, don’t worry, the future isn’t a dystopian brain-juice sucking matrix of zombies, it is a little bit more utopian and nuanced than that.

Specifically, the best ideas are often the synthesis, in a Hegelian sense, of tension between many minds. Not just any idea is ripe for creating an entire manufacturing plant around it. Ripe ideas are ones that have been endlessly scrutinized by the most ruthless of minds and have undergone countless iterations of evolutionary tension. The minds that can simulate the future of these ideas are the ones best at correcting any flaws before they even occur.

In non abstract terms, ideas feed off of networks of people. You see this already in the fastest growing sectors of the economy, like Silicon Valley. Employees switch jobs about every 2 years or less amongst the highest paying companies in the world. Venture Capitalists use their network of connections to put top talent on promising startups. And once executed, just a small team can automate an idea into reality that then billions of people depend upon.

Why? Because the right narrow network of people can produce an idea that is the mold for information arbitrage, that when set in place, can manufacture digital or physical goods at a scale that outpaces the economy itself. Whether you like self-driving cars or not, it is undeniable that just a few companies are reshaping transportation into a ten-trillion dollar industry. A lot of jobs will be lost in the process, but automated systems will ultimately move more people, more efficiently, than ever before, leading to a significantly larger market cap.

Socialism as a Caring Cathedral

But this is where our socialist friends come in, what about wide, not deep, networks? Down with profits and exploitation by the few, they cry, “We need to stop the growing class divide”! For most, it doesn’t seem fair that the tech bros walk away with wealth while twiddling their thumbs. No matter your perspective, the fact that it is happening, indicates that there is more money in information than previously imagined.

Money doesn’t equate to moral goodness, though. Therefore “governments must be our saviors, with regulations, higher graduated taxes, and free welfare” — or so the thinking goes. But rather than trying to mask the symptoms, why don’t we fix the mechanics of the system? That is, what if we actually made money represent moral good? As silly as it may seem.

If capitalists are greedy, then they are also stupidly and blindly following the government’s definition of arbitrarily printed money — well, except for those lucky crypto-libertarians. If you want to change behavior, as Bitcoin taught us, all you need to do is change the game with different incentives. So here is an easy analogy to follow: Imagine if we made money act like stock in the stock market. Let’s go over some examples.

Your dollar doesn’t get traded for a pencil, instead you got stock in the company equal to the cost of the pencil plus the profit from that purchase. Then, the cost portion automatically gets redeemed for the pencil, and you keep the penny stock portion on the profit. Over time, if the company’s stock goes up, your remaining portion also appreciates. However, if at any point there is a loss of trust in the company from the public, they could all sell, tanking the company, and potentially eliminating years worth of profit.

All a socialist needs to do, is change the meaning of money, and companies will self-regulate for greed’s sake. Further, the companies that offer welfare services, subsidized by their profit, will gain the most trust with the public. This will drive competition in the market to produce better protective care than even a government could provide, and eliminate all possible waste. No longer an invisible, instead, just a transparent hand of help to all. A network that is both deep and wide.

A New Era of Wealth: Freeism

If Socialism is defined as the production and distribution of goods controlled by the public whole, and Capitalism as the production and distribution of goods controlled by private souls, then we can define Freeism as the production and distribution of goods incentivized by algorithms. Specifically, to impart my bias, with the goal of free peoples, free products, for a flourishing planet.

Now, the question needs to be asked, whose algorithm? If it be Apple’s, Amazon’s, ACME’s, or anyone’s, then we might as well knight a tyrant and ride into a nightmare. This is why it is important that it be a decentralized algorithm, akin to the Internet or the World Wide Web. Such algorithms are controlled by nobody, yet can be used by anyone, to form a network.

The key factor of Freeism is that it changes the definition of wealth from “how much somebody hoards” to “how much somebody gives away”. This aligns the interests of everyone — the rich are often rich because they operate at scale already. This lets them maximize their manufacturing and retail processes without having to hold anyone at gun point to purchase stored up goods, and poorer people will get access to excess goods. Everyone will be the richer.

At present in the United States, there are more empty homes than homeless people on the street. The flaw with the current economic model is that if these homes were given out, that would incentivize people to become homeless in order to get free housing, and a free house is a loss in profit. In Freeism, this is reversed, it is more profitable for a good to be distributed than hoarded, and this is done without needing to steal from the rich or have a graduated tax.

Before we discuss how the distribution works, we need to have a nuance discussion on what a network is. This will explain more thoroughly why the algorithm for distribution needs to be decentralized, but will also give us a look at the tremendous value that exists in networks. Being able to measure it is necessary for economics, and it turns out there is a simple formula to do so.

In the case of Google or Amazon or Facebook, there are a lot of people on their network. As in, they own, control, and centrally operate it. Compare this to Uber or AirBnB or even Bitcoin or AT&T, there are a lot of people in their network, but that they can’t control. This subtle difference is in how resources are accessed. For example, AT&T will contact me if somebody in Verizon wants to talk, AirBnB notifies me if somebody wants to use my spare room.

You search Google, but Uber searches for you. If you are in the right place at the right time, with empty seats, then you might be selected as the lottery winner. You post to Facebook, yet Bitcoin might reward you the block. Why is this difference important? Because when you are on a network, value gets sucked up. When you are in a network, opportunity gets pushed down to you.

As a result, network algorithms can unlock previously untapped value. A lot (possibly NP-hard, for the mathematicians out there) of it. Enough that it could cause a cataclysmic disruption to the foundations of economic theory, and why Freeism deserves its own category. Because there is such a large number of possible economic resource allocations an algorithm could make, Freeism should be considered its own branch of science to explore and study.

The economic value of a network is capped by it saturating a complete graph, known as a fully connected network. For computers, this is not optimal, but for a businessman at a “speed dating” cocktail event, it is the ideal number of business cards they could exchange — known as the Handshake Problem:

It is now easy to calculate the potential worth of a fully saturated network. Assign any fiat currency value that you think the information about the relationship between any two people is, and multiply that against the handshake number where n is the number of people in that network.

For example, assume an advertiser is willing to pay 1% of $0.01 to Facebook for all the information about the relationship between you and your mom. Then assume that they (if they had an unlimited budget) then did this for each relationship across Facebook’s 2 Billion users, and assume they get indefinite access to the information ad infinitum, then they would be charged:

$0.0001 * ((2B(2B-1))/2) = $199,999,999,900,000

Surprised? About $200 Trillion dollars, about 2X the entire world GDP, about 10X the US national debt. This is the power of network algorithms, and its abundance of value will reshape the definition of wealth itself.

Wealth of Freeism: Giving Universal Basic Services

The wealthiest people in Capitalism are already the ones who have figured out how to manufacture goods at an economy of scale such that they can then sell it to the largest number of customers at the most optimal price.

Socialism isn’t much different, it just wants these goods to be redistributed from the wealthiest to at-risk minorities, at the lowest tier price (if not for free), and then subsidized by every class above that through tiered pricing.

One finds the singular median price, while the other spreads it across a range. The key note is that both systems are 0-sum. They are both win-lose. This is what we call a necessarily barbaric system.

A Hegelian solution is quite simple though — to incentivize the production and distribution as the definition of wealth, rather than it being the result of a transaction. Capitalists see production as being easy, but distribution as being hard. Socialists see distribution as being easy, but production as being hard. This is the grievance both sides have with each other, and here is how to fix it.

The industrial revolution gave us the gift of machines that can overproduce goods. The information age gave us the gift of over distributing knowledge. When combined together in a fully saturated network, there exists an optimal algorithm that knows what surplus good can be locally gifted to whom, and knows who should get credit for such good deeds. No exchange, just win-win.

If you look at the arguments from both sides, this becomes a perfect fit. For a socialist, capitalists have too much, so it shouldn’t it be easy for them to give just a little? For a capitalist, if socialists want so much to be given, why not use a free market instead of a inefficient government? One fights to deregulate markets to reduce costs in distributing products to the masses, and the other fights to regulate markets to prevent price collusions.

In the end, they both want the same thing, they’re both Freeists at heart.

Both sides have proposed a universal basic income instead, to address this. But it will inevitably fail for any economic system that is has to “balance out” exchange— whether that be taking from the rich to give to the poor, or the rich taking from the middle class just to make the rich richer. Both sides cannot achieve progress by giving things away for free when they depend upon a zero-sum baseline. Such societies will see no growth because the transactions have to be corrected at some point to keep the system valid.

As a result, both systems view something that is given out for free as being worthless (unless there is exclusivity around its distribution). This means we can predict that a universal basic income will just self-adjust to treat $1K/ month as the new $0. But in Freeism, we could hand out houses and make profit for all parties involved, since distribution is rewarded over transaction.

Measuring Additive-Only Value in Economic Terms

The theory of economics is that both people walk away with more value than when they started — you have chickens, I now have a cow. But the problem is that no economic system outright accounts for this increase in value except for incremental baseline adjustments relative to inflation. The closest thing that approximates added value is the stock market or credit card rewards program.

A network algorithm can track this though, and many already do. The math behind giving is easier than tracking both addition & subtraction. Bitcoin, for instance, consumes entire countries worth of energy to calculate transactions. The reason why is an oft forgotten primary school fact, that subtraction is non-commutative — the order of its operation produces different results. Nobody wants disagreements over their money though, so trillions are spent every year in banking to maintain the complexity behind those transactions.

So there is immediate gain infrastructural gain to switching to an additive-only system, as addition is purely commutative. It will be much cheaper to operate. In fact, money in the system will become increasingly seamless to use. Let us go over a few examples of how an this currency might work.

But first, we need to understand some of the base variables that any economic system might have. Of our current research, there are three main ones to consider — whether the currency is 0-sum or not, whether the currency uses ratios or units, and whether the currency operates on a good or a connection. There are plenty of bad configurations. But the one we will explore is an additive-only, ratio-based currency, modeling connections in a network.

Take for instance “buying” a cup of coffee. In the traditional system, you lose and they gain units of coins or dollars over a cup of coffee. In this version of Freeism, you are given a cup of coffee and you rate what daily percent value you got from the organization that gave it to you. So quick examples, is coffee might be 2% of your day for waking you up, housing as 55%, transportation as 18%, food as 12%, and so on.

An immediate interesting attribute of this system is that something might be valued differently by different people. Coffee might be 1% for one person, or 5% for another, not a fixed price of $2 greenbacks. Another important factor is to remember that it isn’t the coffee per-se that is being rated, but the interaction between you and the organization. It doesn’t really matter if it was coffee that day, it might have been a blueberry muffin or a banana shake.

This also means you can become a patron. Rather than pulling out your additive-only points every day you grab that coffee, you might say “Starbucks provides me with 4% of my month’s value”. Now you just go up and grab your coffee, no waiting in line for machines to do non-commutative math and print trees out of their parts and spill change. Just once-a-month, tap renew.

A third point, if it wasn’t already clear, is the patron sets the value, not the giver. So what stops someone from saying something is worthless? What is in it for the giver? An important part of the economics, is that a giver does not have to give. They are never compelled to hand over resources, they can always refuse service. Coffee is effectively a post-scarce resource, but sports cars and fashion are not. These are what we will call luxury goods.

Luxury goods are given away at the discretion of the host. In the same way a person can rate the daily percent of value they got from a giver, any host can see how much value you have given back to society. And in any competitive system, there can only be one top giver. The biggest givers, all givers, are ranked against each other. So some fashion designers might only give clothing to individuals in the top thousand socio-economic status of wealth. Why?

Because if you are seen as providing valuable services to someone who objectively provides the most value to the rest of humanity, then you take share in that ratio of wealth. But remember, they set the “price”, and somebody of that status has the pickings of quality service. People have to seriously consider the worth of their time.

So is a host going to give any still-scarce good, like a car, to any person? Probably not. According to current numbers, an American distributor would give a car to about 90% of U.S. households. So the bottom 10% of those who have not helped give value to others would then not have their own car. Let us get real here for a minute, will this create worse poverty than present? No.

Housing and food are post-scarce in the U.S., and even transportation is, just not cars. In traditional economics, it is traditionally a wealthier person who can afford not to have a car because they can pay a driver for a service, and average people who own a car must rent when they are out of town, while the poor can’t afford anything at all. In Freeism, being given a ride doesn’t cost anything, and it makes the car owner wealthier for doing it, so there is a natural incentive for rich people to “exploit” the poor by giving them help.

A missed ride, in an economy where there is no loss, is the lost opportunity of climbing the socio-economic ladder faster than your peers. And everybody wants to be richer, no? Richer means giving more, and if you give more than others, then maybe you can redeem the penthouse suite at the hotel tonight. Nobody needs the penthouse, not even rich people, but can they afford it? Yes, as long as they’ve helped enough people, by the people’s standards. Then they get it for free, as thanks for their contribution to society. That’s only fair.

Freeism does not eliminate private property as Marx may have wanted, but it demands those who own such capital maximize its use for the sake of the greater good in order to profit. This incentive will lead to the increased efficiency and automation of distribution until The Handshake Problem is saturated, with no room for waste — resources are to be given, not hoarded. Currently, waiting for exchange creates friction on distribution in Capitalism.

Let’s go over a couple more edge cases. What stops two individuals from colluding and giving each other as many points as possible? This is where a unit-based, additive-only, relationship currency would fail. The points would keep on inflating the system or give them a temporarily unfair advantage over others. But this is not true in a ratio-based system, the best they could do is change their daily percent value — they can do that as many times in a day but it only updates the ranked value — there are no new transactions.

So what if they give each other 100% of their daily value, every day? Well, that would either prohibit them from ranking anyone else, which would put them on disfavorable terms with other givers and hosts, giving themselves a reputation as entitled and thankless. Or any over-approximated or under-approximated daily values can just automatically be percent adjusted. For example, if you in 1 day said food was worth 100% and housing was 100%, then both would just be actually calculated as 50% and 50%. The math can be recalculated any time or many times because the operations are commutative.

The largest attack vector is in creating thousands of fake identities, but there are no coins to be double-spent here. The only thing “spent” is the identities you have interacted with, but the more you interact with them the stronger you tie yourself to a fake network, which makes you more culpable upon audit, and thus causing luxury hosts to be more discretionary in their giving.

For the technical, audits can be surprisingly cheap and easy to perform, though will likely be continuously indexed in the background. Worst case, it would be as slow as taking the graph intersection on a web of trust, which should take less than a half a day to compute. However, once started, our currently working coded prototypes are able to audit and update at sub-second speeds globally, fully peer-to-peer and cryptographically secure — no need to trust a middleman institution.

The system is surprisingly simple. It requires less than one tenth of the existing financial infrastructure to operate, which may anger many elite since they will have no complexity to hide their excessive prices behind. It requires less thought to use, which may anger many intellectuals because they won’t have any academic superiority to pontificate from. Finally, it does not require any person to engage in a necessarily barbaric system, which may anger many powerful people since they will have nobody to oppress to satiate their self-esteem issues. The simplicity of the system is its virtue, and why it will work.

Hindsight is obvious. If we want an economic system that accurately accounts for value in an economy, it should be obvious that the system should actually attempt to measure value via the economic actors in the system. Capitalism and Socialism tries to proxy this variable through debt, but this fundamentally means that value cannot be created anew — it must “come from” or balance out from somewhere else. This assumption is because the primitives of those systems have no way to model it, with0-sum exchange, unit currency, and accounting of items instead of the connections in a network.

Bridging Eras of Wealth: From Here to There

In Freeism, value can come from somewhere else, but it can also model and account for post-scarce goods that previous systems could not imagine, like digital information. Thus it is able to subsume Capitalism and Socialism, like Einsteinian physics did of Newtonian models, while still driving new behavior. This is a key property of the system, because it makes it evolutionarily viable.

Post-scarcity is defined as any item that is in quantity larger than the number of humans available to use it. Nothing stops people from paying for a post-scarce good, it is just that they just don’t feel like it is justified. But such a payment does not detract from or suddenly make that thing unavailable — it does not change the nature or economic properties of that good.

This allows for people to accept both forms of currency on the same “transaction” without it effecting the economics of the market. This is not possible with Bitcoin, both it and USD are scarce so people won’t want to double pay. But people are already accustomed to both paying and rating their Uber driver. You could get paid in both cash and daily percent value.

Having such ratings are intrinsically valuable on their own, because they can be used to match you with other generous hosts in various communities. There is a natural incentive for them to provide you with subsidized or free services, such as transportation, housing, digital goods, or others things, in order to be rated more highly by other acclaimed hosts. This strengthens your network and lets you discover new relationships that unlock previously untapped value, while being increasingly competitive to larger transactional crowd-sharing services.

A simple game theory rule is that where two people already have the system, they will rate each other accordingly to gain network effect, regardless of whether cash is used. Where any person is permitted to use the rating system, they will, in order to preserve their cash. Where only cash is accepted and there is no competition, people may attempt to evangelize the owner into joining, or fall back to cash. But where there are competing stores or services, people are incentivized to choose the one that takes ratings, to either preserve cash or gain network strength.

All together, this means that the new economic model will eventually outgrow the old and become the dominant model. It can do this while being integrated with the old model in a non-conflicting way, but still also increase the total value add of any interaction, even if it is not yet viewed as being a currency.

Finally, because the currency is additive-only and network effects can only grow, there is a natural incentive for people to join sooner than later because they will have that much more of an on-average gain to their wealth than compared to others, which increases their odds of receiving luxury goods — at no cost or loss to their endeavors.

Conclusion

The greatest deterrent to Freeism is possibly explaining Freeism. Capitalism and Socialism embedded themselves into the brains of their hosts, that describing any other or competing system sets off a wave of tribal reactance in their victims. There is no amount of words or better arrangement of words that could convince anyone. It is purely those who are already open minded enough that may understand the implications of the system, not because of anything read here, but simply because they are already exercised in their ideation.

Pondering about Freeism is also likely to be fruitless — and so in this sense, the author has wasted his time writing about it. The only productive direction is to implement it, and have people use it as a game or toy. It cannot be treated seriously, as that would expose how different it is to the status quo. But when made as an option, people will choose over the alternative. This will be the best way to measure its success and determine its economic effectiveness.

If you enjoyed this article, please follow me on Twitter and check out our work towards implementing ERA. ERA is the economic resource allocation algorithm described in this article, to bring about Freeism.

Wealth: A New Era of Economics was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.