Introduction to Ideal Money and the Value Thereof

~The disambiguation of `Ideal Money` from `ideal money`~

On the Relevance of John Nash’s Ideal Money and Bitcoin

The significance of works Ideal Money is observed when fitting Bitcoin as a basis for the proposal described (whereas economic philosophers may have previously come to conclusions for or against Bitcoin but without considering it in this particular role). Although an inquiry into what is money and more specifically what is ‘good’ or what is ‘bad’ money is relevant and even at some times critical to fully understand the works, it should be understood that Nash’s proposal for Ideal Money very specifically refers to a scenario of a single monetary order as described in Ideal Money:

So my personal view is that a practical global money might most favorably evolve through the development first of a few regional currencies of truly good quality. And then the “integration” or “coordination” of those into a global currency would become just a technical problem. (Here I am thinking of a politically neutral form of a technological utility rather than of a money which might, for example, be used to exert pressures in a conflict situation comparable to “the cold war”.)

A process analogous to this occurred when a number of European countries passed first through EFTA, then through the EU, then into an “exchange rates stabilization” and then into the structure of “the euro” (which is based in Frankfurt).

What Does Ideal Money Refer To?

It is recommended that “Ideal Money” with capital first letters as opposed to “ideal money” be used to refer to Nash’s concept of having the entire world on a single monetary order (as opposed to discussion on what would be the best or ‘ideal’ money medium or ‘ideal’ qualities a money medium could have).

On the Value of Achieving an Ideal Money Scenario

The Ideal Money scenario described provides a single global pricing system which is deceptively extremely valuable. Nash points out “There is a tremendous value in simply having prices quoted conveniently”.

Increasing the efficiency of our pricing systems increases the efficiency of our general transactions. This would be as if the fee to transact for general (ie all or most without considering edge cases) transactions were reduced. Here we turn to Nick Szabo who explains that efficiency gains that affect general ‘transport’ in a network have a ‘radical nonlinear impact’:

Metcalfe’s Law states that a value of a network is proportional to the square of the number of its nodes. In an area where good soils, mines, and forests are randomly distributed, the number of nodes valuable to an industrial economy is proportional to the area encompassed. The number of such nodes that can be economically accessed is an inverse square of the cost per mile of transportation. Combine this with Metcalfe’s Law and we reach a dramatic but solid mathematical conclusion: the potential value of a land transportation network is the inverse fourth power of the cost of that transportation. A reduction in transportation costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen. While a power of exactly 4.0 will usually be too high, due to redundancies, this does show how the cost of transportation can have a radical nonlinear impact on the value of the trade networks it enables.~Nick Szabo Transportation, divergence, and the industrial revolution

On the Valuable Effects of Contract Formation and Ideal Money

Extending the concept of globally stabilizing the inter-relational value of major currencies over time we consider contracts and contract formation:

A concept that we thought of later than at the time of developing our first ideas about Ideal Money is that of the importance of the comparative quality of the money used in an economic society to the possible precision, as an indicator of quality, of the contracts for performances of future contractual obligations.

In conjunction with a reasonably stable standard (as defined in Ideal Money) for value that all currencies would stabilize with the reliability of the standard and currency bloc formation has implications for contract formation:

…as the currency of the Sovereign tends to have less stability and less reliability of its value then the circumstances affecting the formation of business-relevant contracts become quite perturbed.

My point is simply that good reliability of the estimates of the future value of a currency, a “medium of exchange”, is favorable for the formation of contracts of a business-related variety.

The Search for an Implementational Basis for Ideal Money

Then it is understood that the works Ideal Money is the inquiry, explanation, solution, and ultimately the implementation of the solution, to the problem of bringing the world economy onto a single global monetary order as described by John Nash.

*It should be noted here at least in short form that the above is generally NOT the pursuit of the present day economist, and that the reasoning as to how and why such a pursuit was or should be taken are not given here.*