While reputation may be derived from many relations and concepts, these bases are frequently observed in the design of reputation currencies: ownership, membership and trusteeship.
Owner reputation is a primary basis of lender-oriented currency design. The benefactor evaluates how likely the recipient is to return or compensate a trade. For example, the recipient might own cash and thus immediately return a favor by giving the seller reusable currency tokens. The currency design is, therefore, aimed at facilitating direct reciprocity.
Member reputation is a primary basis of community-oriented currency design. The benefactor evaluates if a recipient benefits a common cause or resource and how likely that member’s contribution to the community will continue. Even though indirect rather than direct reciprocity is facilitated, there is a strong expectation of a closed-loop circulation of currency within the community.
Trustee reputation is a primary basis of brand-oriented currency design. The benefactor evaluates if a potential recipient belongs to an entity with a worthwhile specialization and acceptable market performance. The emphasis is on indirect reciprocity without any expectation of closed-loop currency circulation within a predetermined boundary.
To illustrate the concept of trusteeship, imagine a hospital whose mission is to provide healthcare. If the hospital has a reputation for effectively allocating its limited resources to serve patients, then a benefactor would have a good reason to support and accept that hospital’s currency brand. The benefactor should not be concerned whether or not it would eventually benefit directly from using the hospital’s services. Rather, the benefactor should focus on establishing its own reputation as a trustee by effectively fulfilling its specialization.
The preceding comparison does not imply that reputation currencies may emphasize only one conceptual basis. Different reputation bases leads to different approaches to improving market access. On the one hand, it is easy to see that a brand or trusteeship-oriented currency design provides access to the widest market possible since currency use is not limited to direct reciprocity or within community boundaries. On the other hand, it may be argued that a trustee’s reputation offers the least guarantee on redeemability since trusteeship is not as easily qualified or quantified in comparison to ownership or membership.
While currency traceability to a specific issuer brand is not a cure-all for all of the world’s ills, recent news stories continue to show its importance in relation to currency design. If, for example, madoffholdings.com and somebroker.com are each expected to publish corresponding currency outflow and inflow record copies, then it would have been much more difficult for Madoff to run an undetected Ponzi scheme for so long. The potential for fraudulent schemes will never be eliminated, but transparency and technology could help lead the way in deterring and catching such occurrences.
Traceability would also be extremely valuable in enabling targeted noncooperation with disreputable market entities. In light of AIG’s woeful neglect of its responsibilities , those who disagree with AIG’s intent to award bonuses to its executives could easily refuse to accept AIG’s currency brand in interentity trades – if currency is indeed to be traceable to independent currency brands. Without currency traceability, those who end up accepting any payment from AIG’s executives would be unaware that their products and services are being redeemed with inappropriately earned, anonymous currency.
With all the news and opinions on the recent US financial bailout effort and bill failure, I would like to offer some insights on how the satconomy framework could have helped prevent this potential for widespread market collapse. The keyword is self-regulation, but distinguished from the common, unsustainable free market version as follows:
Accountable Self-Regulation: It is true that public companies regularly publish their financial and market results, but those reports are very difficult to decipher for regular market participants. In particular, it is very difficult to perform online audits and inter-entity reconciliation of reported revenues and expenditures, which would go a long way towards preventing overstated profits or understated spending. When entities such as Worldcomm, Fannie Mae, AIG or Merrill Lynch have had to restate billions in cash flow summaries, it shows how current accounting models are not adequate for tracking self-regulation in very large market entities.
In contrast, satconomy promotes the use of the OCAUP accounting model that standardizes the declaration of self-determined limits, currency lifecycle and the publishing of inter-entity transactions that are openly reconcilable. With more eyeballs able to view and audit simplified financial reports in public, it is hoped that self-regulation issues do not have to go undetected for years which could help prevent problems from getting uncontrollably intertwined.
Independent Self-Regulation: As the massive bail out plan points out, everything is intricately tied together in the current free market version. As a financial entity gets larger, the impact of its collapse on the whole market becomes significantly more adverse. This type of dependency makes it difficult to analyze for root causes and target solutions.
Ideally, a healthy market could and would simply accept and survive the natural demise of irresponsible entities that failed to self-regulate. This is the idea behind the cultivation of independent currency brands in satconomy. The more diversity there is in independent currency brands, the less potential there is for undesirable dependencies between market entities. There would still be inter-entity needs for specialization and product flow in satconomy, but the reliance on a shared currency brand as a transaction instrument is eliminated. There will be more isolated segment fluctuations in contrast to wild swings affecting the whole market.
Influencing Self-Regulation through Non-Cooperation: One of the main reasons that the $700 billion bail-out plan failed to gather enough votes is the perception that it would lead to long-lasting government intervention in the operation of free markets. With current socio-economic platforms of conservative versus liberal ideals, the practical result is that the market is either (a) left alone to the whims of moneyed investors and lenders, or (b) monitored by powerful regulators that present bureaucratic and selective responsiveness issues. In other words, the options could be framed as a choice between the influence of big money or big government.
Satconomy offers a vastly different option, that of harnessing the cumulative influence of market participants in accepting or rejecting a currency brand in a market transaction. Any entity could issue its own currency brand to support its goals and members, which other entities are free to accept or reject. Market entities and activities that are represented by popular currency brands will thrive, while unpopular entities will feel pressure from sellers that are unwilling to accept disreputable currency brands. This dynamic is not much different than today’s public companies reacting to stock prices. In satconomy, however, public opinion has a more direct impact on purchasing power: it does not matter how much currency you have stashed if you could not spend any of it.
One of the key differences between satconomy and other ledger-based currency systems arises from the concept of ‘obligations’. In other posts, I have used the term ‘debits’ as a quantification of obligation, and I’ll continue that usage here.
In Ripple, debits represent the obligation of a participant to the neighbor node that it used as a payment intermediary. It doesn’t matter in this analysis whether or not there is an actual manual settlement of ‘debts’. The main point here is that the obligation arises as a result of a market transaction, or what some alternative currency proponents refer to as property transfer.
In LETS, obligation also arise from a market transaction. The difference with Ripple is that the debits are owed towards the whole community, and anyone that belongs to that community may cause a member to accrue debits or cancel it through a market transaction. In contrast, Ripple credit-debit issuance and cancellation are specific to neighboring nodes.
In satconomy, obligations arise even before any market transactions take place and without prior contractual arrangements. Even before an entity’s obligations are quantified as debits, the obligation is already there, qualified as mission statements or organizational goals. Debits are declared as soon as an entity issues equivalent credits for member contributions towards its goals. Again, no market transaction precipitated the recording of new credits and debits, or at least it would be absurd to call the process of product creation as a case of ‘property transfer’, when technically the credit issuer and recipient within the entity end up becoming co-trustees of the entity’s product inventory and debit account.
In satconomy, debits represent the quantification of an entity’s obligation to the market as a whole. Not because other market participants have necessarily made any demands on the currency issuing entity, but simply because that entity has made it an obligation to specialize in delivering certain goods or services to the market. There’s nothing new in this concept of ‘self-determined duty’, entrepreneurs are always trying to research and develop new product offerings all the time without explicit prompting from the market.
But someone might argue, how could a currency issuing entity cancel its self-accrued debits when it owes no one in particular? By selling its products to other entities that it perceives as engaging in sustainable market activities. All that happens in a satconomic market transaction is the cancellation of equivalent credits and debits (quantified obligations and contributions). No new ledger entries are recorded out of expectations for future reciprocity in a market transaction.
I don’t know how and when the idea of independent currency brands and issuers would become widely adopted, but a word of caution to the early adopters:
“As long as you derive inner help and comfort from anything, you should keep it. If you were to give it up in a mood of self-sacrifice or out of a stern sense of duty, you would continue to want it back, and that unsatisfied want would make trouble for you. Only give up a thing when you want some other condition so much that the thing no longer has any attraction for you, or when it seems to interfere with that which is more greatly desired.” (Richard B. Gregg recounting M.K. Gandhi’s advice, in the book The Value of Voluntary Simplicity, online copy here.)
If a person’s current line of work allows him or her to achieve peace of mind, as far as being able to provide for family and to contribute to society without personal moral or ethical objections, then the wages from that work does not have to be given up in order to try out a satconomy implementation.
As for myself, I think of this effort as somewhat of a personal hobby/duty. If and when the time comes that I lose interest in the salary that I earn as a technical writer, or if I conclude that my contract work is an obstacle to the effective demonstration of a satconomy framework system, then only at that point would I have to give up earning ‘regular money’. I will be content to be able to simply cultivate a currency brand (tyaga.org) at this point, just like any start-up entepreneur who hopes to eventually gain brand recognition. However, unlike an enterpreneur who looks forward to a big payday at an IPO, my goal is conceptually simpler but perhaps much harder to implement: influence the market to sustainably support what my entity’s currency brand represents.
Instead of posting another development update, this time I’d like to present the role and perspective of a credit recipient in a market transaction under a satconomy framework.
The credit recipient in a transaction could be a seller, a tax collector, a nonprofit receiving a donation, a grantee, or others in a similar role. I hope that it is clear by now, after going through earlier posts, that each and every entity in satconomy issues its own currency brand, and therefore does not to receive credits from other entities in order to have currency to spend. It may be asked, then, what would be the point in having an entity act as a credit recipient in a market transaction, when that entity could already issue credits to itself (and its members)?
Remember that an entity issues or creates currency as credit-debit pairs. An entity accrues debits at the same time that it accrues credits. The rationale for accepting credits in a market transaction is for an entity to use those credits to cancel its self-accrued debt to the market.
An entity, by exchanging its products – goods and/or services – for the payment (credits) of a market participant does not receive profits, investment returns, cash or any ‘wealth’ in return. In a satconomy transaction, an entity simply gets to fulfill its self-determined obligation to the market. The partial or total fulfillment of its obligation to the market is quantitatively symbolized by the partial or total cancellation of its self-accrued debits.
The next question might be, why should a market transactor be selective as to which credits or currency brand to accept? It might seem counter-intuitive for an entity to reject any opportunity to cancel its debits. The answer should be found in an entity’s goals or mission statement, where it declares its specialization and target audience, and in the reputation of an entity with regards to its ability to provide value to the market. A trustworthy entity accepts its role in helping cultivate a robust and open market, so it should cater its products to benefit those entities that the market perceives as valuable contributors. If an entity is deemed to support unpopular regimes or monopolistic entities or free riders, then even though it has the ability to cancel its debt (using the credits received from the unpopular entities), market participants could still choose to reject its currency. In satconomy, noncooperation goes beyond the refusal to buy a product from an ‘unfair’ entity and extends to the rejection of that entity’s currency brand.
When the basic principles of satconomy were being elucidated, trusteeship-based economy as promoted by M.K. Gandhi was neither followed nor considered in detail. However, as soon as the the concept of specialized unit entities became inseparable from the notion of independent currency brands, it became clear that satconomy was a special implementation of trusteeship economics.
Trusteeship is based on the management and use of one’s wealth and resources for the benefit of the community. It differs from communism or socialism in that the trustee is neither coercively deprived of private ownership nor specifically supervised by state authorities. On the other hand, trusteeship differs from capitalism in that the trustee is expected to benefit the ‘whole’ – community, market, society – and not merely to maximize ‘owner’ profits. In simplified terms, ownership is predicated on being a good trustee.
But what if the trustee was found to be untrustworthy? What if the trustee was not managing its resources for the benefit of the ‘whole’? Who should make that determination, who should take action, and what would be considered as appropriate action?
Satconomy provides answers to those questions through the use of entity-specific currency brands. The effectiveness of an entity as a trustee is symbolized by its currency brand, which its members earn for contributions made to the entity’s specialization and goals. If a market participant determines that the entity is not a responsible trustee, then that individual may choose to not work for that entity and/or reject that entity member’s currency in a transaction. Satconomy encourages market participants to not buy from irresponsible entities AND to reject any currency brand that are individually perceived as representing unsustainable market activities.
To specifically answer the questions posed earlier: In satconomy, each market participant is encouraged to make an independent and informed evaluation of an entity’s effectiveness as a trustee. A market participant does not have to evaluate all of the known market entities and currency brands, but rather, only those that he or she might be economically involved in through a work or trading relationship. If an entity is determined to be untrusworthy, then the appropriate action would be for the individual evaluator to noncooperate with the irresponsible trustee. Each satconomy participant is expected to actively help regulate the market through the acceptance or rejection of entity-specific currency brands.
From this expectation of a highly informed and involved market, the primary challenge in satconomy becomes how to offer universally accessible and up-to-date information about market entities. In meeting that challenge, satconomy would promote the open establishment of cumulative perceptions regarding a trustee’s performance.