Transcript of Episode 70 – Art Brock & Fernanda Ibarra on Currencies

The following is a rough transcript which has not been revised by The Jim Rutt Show or by Art Brock & Fernanda Ibarra. Please check with us before using any quotations from this transcript. Thank you.

Jim: Today’s guests are Ferananda Ibarra and Art Brock of Commons Engine and The Holochain Project. Ferananda is director of the Commons Engine. She’s a visionary social innovator and regenerative entrepreneur, bringing over 15 years of experience with community building and currency design. Art has worked to unlock the secrets of the social DNA by which people operate and the critical role of currencies for programming these patterns. Art builds targeted currencies which shape the social dynamics of our emerging post-industrial economy. He’s created more than 100 designs for multi-currency systems, and his software company has built and deployed dozens of those systems.

Jim: So, we’re going to talk about currencies today in a quite general sense, and I think it’ll be quite interesting conversation. I had a previous podcast with Art. It was episode 56 on May 28th where we went in great detail into Art and Ferananda’s Holochain Project. For people who want specifics about Holochain, I would point them to that episode. It may well come up in the conversation today, but the focus today is going to be on currencies more generally. Let’s start with exactly that. When we’re talking about currencies in the most general sense, I mean as general as you can make it, how would we define currency? Either one of you feel free to take that question.

Art: I have a very specific definition where I’m trying to … Let me just start off by staying we use the word currency and money rather interchangeable in English, and I don’t. Money to me is a particular type of currency. It’s a medium of exchange currency. I’m trying to reclaim the word currency more in resonance with its original roots, from the Latin currere, to run, to flow, like electric currents and river currents and things like that. In fact, there’s a pneumonic that I tried to give people to remember when I used the word currency. Think of it like currents-see, like see with your eyes, the ability to see flows, to see currents.

Art: My very specific definition is that a currency is a formal, shared symbol system that we use to shape, enable, and measure flows or currents. And you can see how money is a type of symbol system that we use to shape, enable, and flow exchanges of goods and services, but there’s many other kinds of flows that money isn’t very good at, like sharing, caring, trust, attention, those kinds of things. So, when you understand the word currency in this broader context and yet a formalized context still, it gives you access to shaping these flows very powerfully.

Jim: Very interesting.

Art: Ferananda, do you have something to add to that?

Ferananda: Indeed. Well, as Arthur said, he has been using that definition of currencies for a long, long time and being with him working for decades, the part that got me into adopting that definition, but not only adoption, that actually gave me more tools to think about systems, because when I see … I started to see flows, and I started to see currencies everywhere. So, it’s like a little switch. Sometimes we call it the red pill versus the blue pill moment. Once you have it and once you get it, you start seeing life. And if you see the way how living systems work, that they work because of the flows and the relationship among the objects, then it makes total sense to be able to see currencies, to track currents. That would be my two bites on that, Jim.

Jim: Well, very good. I will confess when I tend to use currency I use it more abstractly than the average person in the street but considerably less broadly than y’all do. My definition, I call it signaling systems for the coordination of production, investment, and consumption, which allows us to get pretty far field but still keeps us in what is at least approximately the monetary domain. So, any of my questions and examples are more likely to come from that space, but I would encourage you guys to take it as general as you would care to, because I think both myself and our audience would love to learn about this broader perspective, and I do think that’s very important.

Jim: Whenever I talk about currencies, one of the first things I have to do with a audience is that … Unfortunately, particularly places like the United States, people have reified the concept of money. As I like to say, the first job is to convince people that money or currency in this sense of coordination of production, investment, and consumption didn’t come down from Mount Sinai with Moses. Right? It’s a series of frozen accidents. It’s a series of institutional designs essentially that happened over time for various reasons, created by humans, and it’s constantly in flux. I mean, even our current money system underwent a fairly major change in 1971, as late in the day as 1971 where we finally went off the gold standard. One could argue the innovations after the 2008 financial crisis represented another major change.

Jim: So, I always like to start the conversation by, whether we define it relatively narrowly or relatively broadly, that currencies are social institutions created by humans, subject to change and subject to development to better serve needs for human wellbeing. Why don’t one of you guys give the audience an example of a currency that is outside the production, investment, and consumption space, just so we can get a sense of the breadth of your definition?

Art: There’s a definition that I lean … Oh, sorry. There’s an example that I lean on, because everybody’s pretty familiar with it, of nonmonetary currencies. It’s the currencies we use in education. So, a college degree is a kind of reputation currency that is reputing that you’ve attained a certain level of learning in a particular field. If you want to build a bridge, it’s good to have somebody that has been certified as a structural engineer involved in this project, and there’s a bunch of people who have certified that they’ve reached a particular level of learning in this field so your bridge is not likely to break. That’s very useful to have that kind of reputational dimension and ways of managing that, hiring for that, that kind of thing.

Art: But that’s not the only currency, right? We also use credits, for example, because you get the degree by getting 25 credits of this and 12 credits of that and 15 credits of the other thing. Credits are just a unit of account currency counting your course hours in different domains of work required to fulfill the degree. But the credits only count if you get a good enough grade, and the grades are a performance metric currency attempting to measure how well you’re learning the content of the course. None of those are monetary currencies. You may pay the school in a monetary currency for being enrolled and taking the classes, but these are other currencies that shape the flows of participation of students.

Art: Then sort of your balance sheet in that story is your transcript. It shows you the status. It’s sort of like the scoreboard of where you are in acquiring the stacks of credits you need and the grades that you’ve gotten. And you divide up power in that space by who issues which currencies. Professors issue the grades. Deposits issue the credits. The university issues the degree. So, do you get what I mean by this is a thing that shapes the flow, millions of people’s participation in education?

Jim: That would certainly fall into my broader bucket of coordination of production, investment, and consumption, because it’s around the production of education, and then later it’s used to shape job opportunities in the areas of work, which then leads to consumption, et cetera. So, I can see how that falls even into my somewhat narrower definition than your very broad definition.

Jim: But I would point out … This is another subdivision I’ve discovered many years ago. I believe you all use this distinction, which is a distinction between transactional type currencies, like money systems, and static ones or relatively static ones that are not transactional, like reputation systems. I think that’s a very important distinction to make, because for instance you cannot spend your college credits. In fact, that would be some form of fraud if you somehow managed to transfer your college credits to me. That would not be the purpose for this particular kind of social signal. So, is it worth distinguishing that dimension?

Art: Most definitely. A good reputation currency should not be able to be transferred. I have a blog post actually about this, that reputation and exchange are orthogonal dimensions of design in a currency. And when people make reputation currencies that can be traded, they’re almost always really crappy reputation currency designs. If you can buy a reputation or if you lose reputation because you’re actually leveraging it, it’s not that you didn’t do the work that was reputed, it’s not that you didn’t acquire the learning. When you get into … You use your high school degree to get into college, but they don’t own your high school degree when that happened. You didn’t lose your high school degree. Right? So, the reputation still needs to remain for it to have integrity, still needs to remain with the person that earned that reputation for what they earned it for, not for buying it or something like that.

Art: But the credits are an interesting hybrid, because credits can be transferred if you transfer to another university. Part of what you’re trying to look at when you transfer to another university in fact is how well will my credits transfer. How well will the work that I’ve already done transfer in and count toward work toward a degree in this other university? Now, they don’t transfer to another person. So, there are always rules in the transactional dimension that place constraints, and sometimes they just can’t be reassigned to another person, but sometimes they can still be accepted by another organization in their accounting.

Jim: I’m going to be a little bit nerdy here. I’m going to suggest that the transfer of credits is actually more like … It’s something different, because it doesn’t actually disappear from the home institution either. So, let’s say I move my credits from Arizona State to Arizona University. I actually have credits at both places. In fact, it’s probably more like some kind of foreign exchange transaction, or somehow my Arizona State credits turn into Arizona credits, but they still remain Arizona State credits as well. So, there’s something interesting and slippery about that particular example.

Ferananda: For me, it would follow the track of education and currencies. What I’m interested about … I mean, I’m a self-instructed learner since forever, and I raise a girl that was on and off from school during her whole life. She’s 19 now, but at 13 she opened her first makerspace. She figured out that the slower learners were those kids that were coming out of school. Then she started to figure out, how am I going to do this without having the credits from school? I really don’t want to go to school, but how can I prove all that I know? She has studied about finances and learning about marketing, and she has learned how to make a startup and how to raise funds and how to do crowdfunding. By the time that she would want to study business, by the time that she would be actually interested in something that she would be passionate about learning, it would take a long time for other students to catch up.

Ferananda: So, what are the currencies of the future that will show us when someone has gone through a certain flow of skill, education, performance, knowledge, coordination with others, collecting intelligence? I mean, you name it. That will help us and enable us to move and evolve what we know now as the educational system or the way of showing that we know, because right now it’s like, if the universities were the bank, and they’re the ones, they issue the currency, and if you don’t have the currency, you don’t have a PhD. You can get a job, but the PhD person will always be regarded as different than the one that doesn’t. And I believed that my whole life. Except when I already had sufficient reputation, nobody really cared.

Jim: Interesting. I’ve certainly played that game, having been a person engaged in the sciences without a PhD. You definitely have to go quite a bit further down the road to prove to people that you’re able to play the game at their level. At least in that domain, I’m not really aware of an alterative signaling system other than just demonstrating it by doing the work and being able to hang with the big dogs. But certainly that would seem to be a very significant opportunity there. You look at the $300,000 to get a four-year university degree from a elite university. Most of the interesting work seems to show that the actual amount of things learned in undergraduate university in the United States at least is relatively little.

Jim: In fact, I had a very interesting guest, Jason Brennan, on the show back in December, I think, and his new book Cracks in the Ivory Tower. He makes a very strong argument that most of what goes on in universities is actually signaling as well, as opposed to substance. The students cynically take the easiest courses for the highest grades. The professors modify their teaching to get high student evaluations. The administration is always interested in more administration and more tuition, et cetera. So, the university game itself is all caught up in signaling, but it presumably opens an opportunity to do exactly what you were talking about for your daughter, Ferananda, a way for her to be able to demonstrate in a transferrable way, that’s the interesting part that gets us back into currency design, in a way that’s more of less fungible, that you could prove that this person is sort of equivalent to that person through some other mechanism than spending $300,000 and four years of your life on relatively unproductive work. I think that’s an area there’s going to be a lot of interesting things going on.

Jim: Thinking about things that are actually happening in that space, it’s very light, but LinkedIn has their endorsements thing, which is kind of a weak version of that where “This person’s a good leader” or “This person’s good at project management,” et cetera, and your contacts on LinkedIn endorse you. Sometimes they’ll write a little word or two about you. I suppose that’s mildly interesting. I don’t know to what degree employers use such things, but there certainly would appear to be some real opportunities to make those signals more truly meaningful where you actually could use them to get a job.

Ferananda: Well, I don’t know. I mean, it depends, right? If you have something, like a portfolio, things that you’ve done and reputation with people, and then you start getting in your way in what you can do and what is possible, but that probably hits another barrier and another path that we can take in the conversation. So, I don’t want to deviate it from our currency topic, but it’s for sure something that we want to be able to see on what possible designs are there in the future so that the issuance of knowledge doesn’t belong to the universities alone.

Jim: One example from history is the guild systems where essentially the guilds took on responsibility. If you were a silversmith, for instance, you’d start as a junior apprentice. Then you’d be an apprentice, then a senior apprentice, then a journeyman, and then a master eventually. Those actually had very significant meaning that were transferrable across the at least Western European medieval systems. So, if you were a master silversmith in France, it meant about the same thing in Germany, and you could move to Germany and get a job as a master silversmith. So, there’s at least one example where that can become transferrable. That’s probably where we get back to our discussion of currencies where the signal isn’t idiosyncratic like a portfolio, but rather has relatively simple surface attributes, for instance, a ranking system within a guild, if that makes any sense. Arthur, it looks like you have something to say about this.

Art: Yeah, it’s interesting, because the transfer of credits isn’t a standard double-entry accounting transaction. The source isn’t debited for the credits, and that’s generally true of reputation currencies. The source isn’t debited for have reputed something. So, you were talking about those LinkedIn endorsements where I say you’re good at podcasting, or you’re good at science, or you’re good at systems thinking, or whatever the thing is. I’m not being debited anything for saying those things, but there’s some interesting language that we use sometimes around this that I think gives us a clue as to really what is going on.

Art: When we talk about lending credibility to something, I’m not actually being debited for it, but if you have the system working right, I should be on the line in some way. If I’m saying, “This is a good person. Hire them,” and they’re not, then that should come back to reflect on me in terms of my reliability of recommendations. Right? So, it’s not like I’m being debited, but if there’s nothing that I’m on the hook for, then you have a pretty wishy-washy reputation currency. Because my reputation for being able to discern somebody’s character or somebody’s skills and be able to make a good recommendation at the very least should be on the line.

Jim: That’s interesting. We talk about a signaling system. There needs to be a back channel essentially. All right, I, an employer, relied upon your signal. Turned out your signal was bad. There needs to be a way to send a return message back to your reputation that says, “At least with respect to this transaction, your signaling was of low quality.” Something like that?

Art: That’s right. And boost it if it was of high quality. So, people who are really great at making recommendations and placements, they get listened to more, and people that are not so great about that get listened to less.

Jim: Yep. It would be great to hook that into a rating system on social media. Right? Because unfortunately a like is a like is a like, or a retweet is a retweet is a retweet. If one could somehow have feedback on the quality of those recommendations and filter them and downregulate them or upregulate them based on your previous experience with that particular signaler, that would be quite useful.

Ferananda: Yes, indeed. It also reminds me … In the currency, the mutual credit I implemented in Mexico, it is called Ollines and still going. One of the ways in which people get into the circle of the mutual credit of Ollines is through someone recommending you, actually is the only way. And that person has to be responsible for your learning and is kind of some sort of buddy system where they go with you until they’re sure that you can walk on your own, you know the system, you know how to transact. Actually it’s pretty intense when you do it in the mutual credit, because it’s not money. It’s community currency. So, you don’t do what you can do with money. And people, we are so used to just transacting with money that we forget about all other dimensions of value that can be shared within a community context. Then we need to learn those things as well.

Ferananda: So, the buddy system works that way, and it’s really useful. Sometimes you would have somebody that would say, “Hey, I’m new to town, and I heard about Ollines, and I would like to be part of it.” Then you will allow them to have a certain credit limit until they prove their reputation by the number of transactions they have, the number of happy people with the way in which they provided value to the community, and things like that.

Ferananda: But I always have wanted to see a system that would integrate that reputation currency with a mutual credit, even a time bank, so you can see different dimensions, as Arthur was saying, because it’s not linear or flat. You can have two carpenters that are awesome, and Joe is fast, and he’s not that expensive, but he’s things don’t tend to last many years, while Joe, he’s very slow, but his quality’s amazing and it’s very likely that his furniture would last for hundreds of years. Then both are not good or bad. It’s just about what are the choices that you want to make and be able to make those dimensions visible so that people can make informed decisions when they want to be able to do a transaction based on what your reputation looks like. But most of the systems are pretty flat, so you don’t really see dimensions.

Jim: Yeah. I guess a question is, does it cognitively map to what humans are actually capable of dealing with? It’s always important. I point this out to people who like myself enjoy designing these systems. 50% of your audience, if this is a global system, will have an IQ les than 100. So, it’s important to design a system that’s actually tractable with the actual human cognitive ability you’ll find on the ground.

Art: What’s interesting about that though is I think people have more capacity in this domain than we give them credit for, at least in the domain of what I call currency. I think we navigate different dozens of different currencies a day and understand by context which set of rules we’re operating in. So, you don’t try to use your grade on your math test to pay for gas at the gas station. You don’t use a postage stamp or your bus pass or … There’s lots of different kinds of currencies that make sense in certain contexts. But I think what you’re pointing to is that the currency has to map well to the social frame, to the social expectations. If it doesn’t map well, then you’re going to cause too much cognitive overhead of trying to have people remap.

Jim: Very well said. I like that.

Art: Yeah. But there’s different social contexts in which there’s different social frames. So, when I go across the street to my neighbor Bryan and I say, “Hey, can I borrow a handful of nails? I’m working on this project and have run out of nails, and I just want to be able to finish this project,” man, he would root through his basement for an hour to find me that handful of nails or something like that. He’s excited to help out. And he doesn’t want me to hand him a couple bucks for the nails he gives me. He doesn’t want me to go next week when I’ve gone to the hardware store and to return some nails to him or an anything like that. It’s not an exchange type of social contract. What it is in this case is neighbors investing in living in a neighborhood where neighbors treat each other well.

Art: So, if you make your reputation type of currencies map to that frame, then they have low cognitive overhead. But if you start trying to make them really complicated with a bunch of other rules you’re trying to push in there, then you get complex, and they take a lot of cognitive overhead.

Jim: I think that’s a beautiful distinction. Very well said. In fact, I grew up in one of those neighborhoods of call it upper working class, lower middle class, plumbers, electricians, carpenters, cops, what have you. And the whole neighborhood basically ran on a kind of loose form of reciprocity. I’ve never heard of anybody ever actually calling a plumber. Somewhere in the neighborhood there was always someone who knew enough about soldering and piping and what have you to be able to instruct you on how to fix your sink or unstuck a toilet, et cetera, and they’d expect you to reciprocate, but not one-on-one and not necessarily now. It was kind of a very loose, unstructured form of reciprocity credit that built up over time. I don’t know if that actually falls into our definition of currency, but it certainly falls into the signaling system domain.

Art: Yeah. What’s really interesting about it though is I think you have to be careful about the reciprocity piece, because it lets you still hold onto that money concept where there is a little bit of a tit for tat exchange going on. Because what’s really interesting is, if I go borrow that handful of nails from Bryan and he finds it pretty easily and I thank him and I’m grateful, that kind of thing, what’s actually been invested in is our relationship. It actually increases my ability to go back to him next week and say, “Hey, man. Can I borrow your lawnmower? I can’t get mine to start,” or whatever. It’s not that now I owe him an equal measure. It’s that we’re investing in the neighborliness, and both of our abilities to use that neighborliness go up when we do that.

Jim: Yeah, it’s interesting, because that gets around the classic Western point of view failure of seeing the objects but not seeing the relationships. So, in this case if you argued that what you’re doing is investing in the line that connects the two objects rather than either of the two objects, that provides a different framing for thinking about the problem.

Ferananda: Yes. It also points to another aspect that we constantly emphasize about not wanting to track absolutely everything, because then … I mean, if you wanted to track that, and then, oh, I’ll go to our neighbor interface, and I’ll put you two neighborly points, and then we’ll gain trust and you start measuring everything, it just becomes mechanic and artificial. It loses its beauty.

Art: Especially if you track it using scarcity based accounting. I think this is one of the binds that time banks get into, because time banks are really kind of magical in a certain way, because what they do is they have neighbors be able to find each other for doing these kind of neighborly services or exchanges, like the plumber you described or something like that. So, I can go mow somebody’s lawn, and I get time dollars for that, and they get debited time dollars for that. Then they can whatever.

Art: Maybe I’m doing it for an older woman in the neighborhood, and she bakes pies that go to somebody else, and she earns time dollars for that. But then what happens is, when I start having relationship with her because I’ve mowed her lawn a few times and she invites me in and serves me lemonade or whatever, then we start having our own relationship that we’re investing in. And to account for it, she’s getting debited time dollars, and I’m being credit time dollars no longer feels right for the relationship. It’s, again, that mapping the social frame.

Art: It’s like when you go over to a friend’s for dinner. You don’t leave a $20 bill sitting on the plate when you get invited over to a friend’s house for dinner. That’d be kind of rude, because they’re not asking you to pay. It was a social occasion. As you start building that social relationship, if you still stick with scarcity based accounting, it puts us back into really a little bit of a dehumanized frame, an antisocial frame, because that’s the frame that money operates is.

Ferananda: Yes. So, one of the things that struck me when working with the time banks … I worked with the South Oregon Time Bank for quite a little time when I first arrived to Ashland. The scarcity mindset operates even when people are playing with abundant currencies. So, for example, when you get into time banks, you work for someone, you provide somebody, and you get time. Then it gets accounted to you. But somehow there was a perception that time points had to be given to the new person so that they would feel abundance. And it doesn’t work that way.

Ferananda: I feel that one of the things that we need to be shifting is our mindset of scarcity into creating currencies that are not scarce by design but that are actually pretty abundant, because the value that the community can provide and that I can provide can be infinite, can be full of potential. Then the time bank people, I was trying for them to see that it was not necessary to do that, but that also they didn’t have to stick with one hour is one hour of my time, regardless if I am a doctor surgeon and you’re cleaning my dishes. And it was not possible to get out of there, because it starts to be an ideology more than trying to find a way which we can create more and more flows for everyone.

Jim: I like that. Yeah, let’s dig into this topic some, because this intersects a couple of different things, which I think are quite interesting. We actually have a time bank in our little town in Virginia, Stanton, Virginia, called Hour, H-O-U-R, It is the classic time bank where an hour equals an hour by ideology. Neurosurgeon, same as cutting the grass. And we have run into just the things that you’re talking about, that people have a scarcity, or maybe it’s a protestant work ethic or something, that it’s good to have a positive balance and that going negative is somehow disreputable. So, if we have a community, probably for psychological or sociological reasons I don’t really understand, our economy system is probably overpopulated with these diligent, reliable people, all of whom want positive balances. As we know, in a mutual credit system, everybody can’t have a positive balance.

Jim: So, we have talked about all these same things. How much startup credit should people get? We finally decided on three hours. Didn’t really help any at all, because as you know, if you have a mindset that we all have to be positive, you’ll eventually deplete the credit, and things will stop working. We’ve talked about things like adding a demurrage charge. That’s one I still like. Heavy. Make it 10% a month. If you accumulate hours, they go away and get redistributed per capita. Again, the community was not willing to go that route, again, because of something about hoarding. My positive signal I was a good person. I have a positive balance.

Jim: And you’re absolutely right. If you get away from that perspective, it opens up a vastly bigger space of opportunity. The whole idea of mutual credit is an area that it could be potentially utterly liberating to the organization of production, investment, and consumption, but it locks down in this scarcity mindset. I’d love to get your guys’ thoughts on that. What, if anything, can be done? Is it currency design, like demurrage or other things, or is it more of a psychological, sociological problem of getting people to realize that, as long as over the long term they’re productive members of society, it’s actually a good thing to be negative, because it means that transactions have occurred? I think it’s a big question. I’m very interested in your answers.

Art: Well, for me it has a lot to do with that frame that I was talking about before where, if you have this sort of neighborly exchange system and then you use scarcity based accounting as the frame, even if it’s mutual credit and could not be scarce, but the problem is you have a balance. And the way people have been trained by money, which occupies most of our imagination when it comes to currency, because we’ve been so buried by our exposure to money that other things pale in comparison, there is sort of this shame of having a negative balance or a fear of having a negative balance.

Art: But if you, for example, set up a time bank that wasn’t a bank, but it was more like you set up the accounting to be in more a community service transcript frame. Think of it more like the educational currencies where you are counting your hours invested in different types of service to the community. Nobody has a negative balance. They just have different periods of time over which they’ve invested in the community, and you can see somebody’s time sheet, if you will, as a record of their service, not as a balance necessarily.

Art: I know one of the places that time banks actually have, one of the niches that they’ve tried to serve, is also people coming back and reintegrating into communities from prison, because it’s very hard for them to get jobs. But I think something like this community service transcript would be much more helpful in having them get job placement where they can see they’re an active, contributing citizen that has maybe also a bunch of testimonials that go along with it than a time bank balance. “Oh, look. I’ve earned 50 time dollars. Aren’t I great?”

Jim: I like this. Yeah. Because that’s open-ended. It’s all positive. I like that. That’s very interesting. Does the transaction still work? So, I’m an elderly person who can no longer shovel their snow. On our time bank, you’d put up a request, “I’m looking for someone to shovel my snow,” and somebody who felt capable of doing that would basically take up that offer, do it, and would get no debits or credits but rather would add that to their resume, shall we say. I guess that works.

Art: It’s true. You can have kind of the flip side of that sheet as well which shows the services I’ve taken, I’ve accepted, which also gives you a sense of is this person in balance, or what kinds of need they have or things like that. So, you can have both things be visible.

Jim: I like that a lot, because it actually serves a similar psychological purpose of dissuading free riders while at the same time not being rigorously transaction oriented and kind of sucking at our protestant work ethic towards running up a positive balance. That’s quite interesting, because both are positive in some sense. Right? Either side of the transaction could be thought of as a positive thing under that scenario, I think. It might be worth trying.

Jim: Let’s move a little further. Again, this is an area I’m so interested in, but I think we all know, from looking at the history of people trying it, it’s really hard to get it to work at a large scale, our mutual credit systems. There’s lots of these little LET systems around. There’s the WIR system. But again, they only seem to work in very special social contexts. Maybe one of you could describe what a mutual credit system is, and then why haven’t these things taken off? They seem like the magic, universal solvent to the problem of money, but they just yet haven’t made it.

Art: Yeah. For me, I think I’m a little bit more precise about my definition of mutual credit than some people. For me, it actually just has to do with the form of issuance. It means that, for every credit created, there is an offsetting debit, that money is always created through the act of an offsetting debit and credit. And therefore what that really means is all the positive balances always equal the negative balances. So, the net money supply is always zero. This is not used to how we’re thinking of money supply. Right? If you look at the cryptocurrency stuff and all the coin market cap, they’re looking at the supply as one of the main things, and they’re always trying to keep an eye on, if the supply changes, then this could have value impact and all that kind of stuff. Well, the supply never changes in a mutual credit currency.

Art: What changes is the active supply, how far people are into the positive or negative. So, the game in mutual credit as far as I’m concerned is the management of the credit limit patterns and formulas. Now, most people, like you mentioned time banks and LET systems and those kinds of things, most people aren’t very creative about this stuff. There’s kind of a vanilla format for mutual credit where it’s like there is no formal credit limit, and everybody can go up and down equally and all that kind of thing. And as far as I’m concerned, that’s not very creative. Those things do have a limit on scale and application that often what you need to do is tailor it for a particular use or need where you can have different, for example, classes of users that may have different types of credit limits or different algorithms for determining their credit limits.

Art: The beauty of this is that, if you have a mutual credit currency, that the supply can be encoded both to expand when the market needs it, when there’s demand for it, and to contract when there’s less demand for it. And fiat currencies suck at contracting supply. They only know how to devalue when there’s less demand for it.

Jim: That’s actually not quite true. Let me probe on this a little bit. Because if you think about it, using your definition, our current monetary system is substantially mutual credit, which seems to me means maybe there’s a problem with the definition. Because as we know, more than 90% of the money in circulation is issued by commercial banks under the fractional reserve banking regulations or their equivalent in savings and loans or credit unions, et cetera, and the money does not have longterm life. It only exists as long as the loan is outstanding. When the loan is repaid, that money literally disappears. Now, it turns out that, because banks are in the business of lending money, most of the time they recycle the money back out with new loans as quickly as they possibly can, because the lack of created money is a lack of profit opportunity.

Jim: However, one of the things that actually drives recessions is when the rate at which new loans are put out falls, the money supply, at least the locally available money supply, actually falls as well. So, our traditional commercial bank driven fractional reserve banking system has a lot of those same attributes. So, it makes me a little skeptical of that definition.

Art: Not exactly. Here’s the thing. When a bank gives me a mortgage, they just created a half a million dollars, or rather they just gave me a check for half a million dollars toward paying off the previous people. They did not deduct that half a million dollars from an account.

Jim: No. That’s the beauty of it. No, they love that, right? Money out of thin air. But they did give you a debit. You now have a … Actually in their vocabulary it’s the other way around. The money is a liability to them, but the mortgage is an asset. The two offset each other.

Art: Exactly. But what they just did was doubly create two assets. They created an asset on their books, which is the mortgage of the money that I owe them, and they created a $500,000 check that they wrote out to the previous owners to pay off their mortgage, or specifically the previous owners’ bank to pay off the mortgage. So, you don’t have the money being created with an offsetting debit and credit. Let’s just be clear about that from the outset. It’s being created from nothing, and then the way that they game this system is the order of repayment. Your initial payments on your mortgage, you’ve got 99% of it being applied to interest and very little of it impacting principal. Over time, that switches so that on the tail end, when you’re finally paying off your home 30 years later or whatever, it’s almost 100% of your payment applying to principal. Well, the reason for that is, when you’re repaying principal, that money is technically going back out of circulation.

Jim: Exactly. That was my point. The money actually disappears when you repay principal. So, how’s that different than mutual credit?

Art: Because in mutual credit, what you do is, if you create an algorithm for somebody’s credit limit to be tied to their productive capacity, their track record, rather, let’s say … So, in the case of HoloFuel, it is correlated to the past few months of hosting of hosts. We take that as a strong indicator of the next few months of hosting, of the likelihood for them to be able to repay if they go into the negative. Right? So, your credit limit expands as you provide value and as there’s demand for that value. And as that demand either decreases or your ability to provide it decreases, so does your credit limit.

Art: Now, that doesn’t necessarily mean you have changed your balance, because many people may have a credit limit and not go into the negative at all. They may still have a positive balance or something like that. But your ability to draw against that supply, the supply to draw against changes. So, even if you had a negative balance extended to your full credit, and your credit limit is now shrinking, it means you can’t expand it again. You can only contract. As you take in, for example, the hosting payments, they will not be spendable to you, because you’re beyond your credit limit at the moment. Does that make sense?

Jim: Yeah. Let’s see if we can tease out the difference, because I can see their similarities, but there’s also the big difference is there’s not a interest-bearing liability that’s created in the case of the mutual credit system. Nobody is collecting interest on the money that’s been created.

Art: Yes. That’s a big difference, but let’s actually … I don’t want to skip … That’s not the biggest difference. I don’t want to skip over … Fundamentally fiat currency is encoded for scarcity. What that means is you always owe more of it than exists. So, when I get that half a million dollar mortgage, over the course of 30 years, I’m going to have to pay back three times that amount, depending on the interest rate that I got it at. I’m going to have to pay back 1.5 million. But only half a million got created, not 1.5 million. So, how the heck am I supposed to pay back 1.5 million on a loan that only creates a half a million? That can only happen if I can take it from other people’s principal, because the only money that exists was [inaudible 00:44:18] but the money that’s owed is the principal plus interest. So, for every dollar created, a dollar plus interest is owed. The whole system is encoded for scarcity.

Jim: Yeah, and also it’s unstable unless there’s enough growth. That’s the classic built-in imperative of growth, the fact that we create the money with a magic wand in fractional reserve banking, but we don’t create the money for the interest. So, if the thing doesn’t continue to grow, it runs out of money and crashes.

Art: Exactly. So, if we don’t grow the economy, next year to service the interest on the money we issued this year, then we start having massive defaults and foreclosures and that kind of thing on loans.

Jim: Yep. So, in mutual credit … Let’s make sure we make it clear both to me, would be helpful, and to the audience. So, in mutual credit, I have good credit, say, for $1,000. I could create $1,000 worth of money out of thin air, but there’s no offsetting interest generating liability. All I’ve done is depleted my credit level. I haven’t actually built this liability for interest in the future. Is that a fair distinction?

Art: I got a little confused in there as to which you were talking about, because you said mutual credit, but then it sounded like you were talking about creating it out of thin air.

Jim: But you are creating it. As I understand mutual credit, if I have $1,000 credit limit, I can literally create $1,000 worth of money out of thin air, and I deplete my-

Art: All you can do is spend money in a transaction. I don’t get to just write a check. I don’t get to create some instrument that has its own independent existence. I can participate in a transaction in which I go into the negative, and somebody else goes into the positive. So, really what’s happening is somebody else is providing value, actual, real value for the money they’re being credited, and I’m being debited for receiving that value, which is different than when a bank creates money from nothing where they’re sending this check and getting the asset of my mortgage, and they therefore technically also get to be the primary owner on my house.

Art: I feel like I want to get into the different forms of issuance to really distinguish what it means to have something created by fiat, literally created by nothing, just the authority to say so, versus something that’s asset backed, a backed curator versus, versus something that’s a mutual credit currency. They’re truly different forms of issuance. This is I think where people get really confused, because they only think about money transactionally, not about the full life cycle of issuance to redemption, retirement, expiration of units.

Jim: Go for it, because I think I’m confused a little bit now. I thought I understood what mutual credit was, an area I have a lot of expertise in. But, yeah, dig into it. Let’s make it as clear as we can make it.

Art: Cool. When you have a backed currency … For example, there are some local currencies like BerkShares, or there’s even sometimes some local chambers of commerce create some little currencies and stuff, where you buy local currency units by spending dollars on them, and then they can only be spent at these local businesses. And the businesses have the ability to cash out for the dollars that are backing the local credits. That’s a backed currency. That’s actually backed in this case by the asset of a dollar. Now, you could make a currency be backed by electricity, by hosting power, by different kinds of things, which is what we do with HoloFuel. We really say that it’s backed by hosting power for the hosts’ lines of credits.

Art: That’s different than when you create something from nothing. There’s nothing on deposit. You can’t redeem a dollar. Now, you said there was a big change in 1971. Back then, there was a gold standard. You could technically redeem a dollar for gold. You could say that dollars were backed by gold. Except the issuance of dollars wasn’t tightly connected to gold reserve, so it was all very sloppy, and it was really a Bretton Woods scheme to get the dollar as a universal backing currency so we could kind of tie the whole global economy together and have everybody use dollars as a reserve currency, because they knew they could be redeemed for gold in an emergency. So, that was a weird hybrid where it’s kind of fiat currency issuance with a promise that we’re going to redeem it for something. As long as nobody really calls in that promise, we can get away with that for while.

Jim: Yeah, and once they started, they had to end the system, right?

Art: Exactly. Exactly. Which is why Nixon terminated it in ’71. Right? So, there’s asset backed, and then there’s what we call secured where technically what’s happening in the case of a mortgage is that the mortgage asset is secured by the house. My promise to pay is secured by the house. Now, people think that the $500,000 check that the bank handed me was secured by the house or is asset backed, but the fact that you can’t go and take those dollars back to the bank and redeem it for my house tells you it’s not actually backed by it. The loan was secured by it, which basically means technically banks own almost all the property in our country, not people, because we have them all mortgaged. If the bank calls in that mortgage, they take the property. During coronavirus times, there’s an interesting thing where we’ve given some flexibility or forgiveness on payments, but what happens if we cross a threshold where banks start calling in all this stuff? Because the mortgage was secured by the house.

Art: So, let me just try again to state them clearly. We’ve got fiat issuance created from nothing. We have asset backed as in the currency is redeemable for something. We have secured issuance, which means that the promise is secured by something that can be reclaimed, which is not the same as a token holder being able to redeem it. It’s a different part of the cycle. And then you have weird things that flip where is it secured by the issuer, or is it secured by the recipient. So, in the case of the bank money, I’m the recipient of the money, and I am securing the loan. It’s not that the bank is securing the loan. I’m securing the loan. But that’s not always how it works. Sometimes the issuer is also the person providing the security.

Art: I’m sorry. There’s one other type of currency, and that’s a type of currency that doesn’t really get issued. I originally called it a meta currency. Maybe it’s better to be called a currency constellation. But it’s actually one that’s computed or derived from other currencies, like the Dow Jones Index, for example. There’s now funds that you can buy and trade on the Dow Jones Index, but the Dow Jones Index is not actually a currency that’s issued. It is derived from a series of other currencies that are issued, a bunch of corporate stocks. Those are the different types of issuance.

Jim: We didn’t quite get all the way where we wanted to go though, because I did want you to do the same kind of analysis on mutual credit money.

Art: Yeah. That’s the other form of issuance where it is created only with an offsetting debit and credit. So, it can only be done through a spending type of transaction. There are no special issuing type of transactions. You could say that the money is being issued whenever somebody goes into the negative for any portion of their transaction. If I had 20 credits but I’m spending 50, well, 30 just got issued in the process of spending that 50. But you always have offsetting … The total supply is always zero, which is very much not the way dollars work. The total supply is obviously not zero. In fact, we obscure the total supply. We have the M1, M2, M3, and they stopped publishing the larger numbers, because they were shameful, I think, at that point, the amount of derivation, the amount of derivative money that we have happening on top of the base money issuance.

Jim: Actually I have a little story about that, which I like to tell people, so I might as well tell here. The Fed stopped publishing M3 in 2006, because it was seemingly growing at 16% a year, and the economists said, “That’s impossible.” And guess what? It was actually happening in the form of very downstream money creation using a very strange mechanism called rehypothecation of collateral where collateral could be used more than once in the insides of the banking system. It’s very complicated, hard to explain exactly how it works. And so the money was actually increasing that rapidly, and this is as if the physicists had decided to ignore the anomalies detected in the famous Morley-Michelson experiments in the 1880s and ’90s, which seemed to show some strange things about the speed of light. If they would have just said, “Forget that,” then we would never had had the break through of Einstein with relativity, which was derived from the fact they did not suppress that result.

Jim: If the Fed had actually taken seriously this 16 or 18% growth M3 each year, maybe someone would have looked at this crazy mechanism where somewhere around $6 trillion was manufactured in the United States over a few year period. And when that money suddenly exploded downward, disappeared, in the two weeks after Lehman Brothers, that was actually the proximate cause of what took a medium size economic error, giving too many loans to people who had bad credit, and turned it into a financial catastrophe. It actually had nothing to do with the mortgages themselves, but rather it had to do with the secondary effect of the implosion of this very exotic M3 type money, which actually was being created. So, it gives you a warning about what you choose to ignore.

Art: Well, exactly. I think there’s a real reason for this though unfortunately, and I am sometimes hesitant to talk about this. I don’t want to be cast as some sort of doomsayer here, but the reason is that when you have … Now we’ll go back to interest that you brought up before. When you have a fiat currency that has compounding interest, what you end up having is the money supply is forced into this compounding exponential curve, and the underlying economy is forced to attempt to match that curve. And the disparity between the economy’s ability to match that curve and the actual money supply growing is the likelihood of collapse essentially.

Art: It’s showing you how short you’re falling from being able to continue to keep this plane afloat, if you will. It’s like the warning signals are going off that we’ve got the horizon line set wrong, and they’re choosing to mute the warning signal, because we’re outstripping the ability for keeping up with that exponential curve at this point. So, it’s better to mute the warning signal and have everybody stop panicking is what it seems like. That’s the decision that they’re making. So, the question is now, when we turn off too many things on the dashboard to be able to actually see what’s happening and what the gap is, then we get blindsided by its consequences, by its effects. We’re basically flying blind on some of these things now.

Jim: Yeah. We’ve had all these new means to paper over the fact that the whole financial structure is out of whack. They keep inventing new goodies. That was the QEs first. Now it’s buying any kind of crappy-ass asset it and holding it on the Feds’ books. Yeah, you can keep that came going for a while, but I don’t think for very long. We’ll find out.

Art: But I want to get back to the different types of currency and in particular kind of the asset backing and what that really looks like when a currency can be asset backed. Well, there’s futures trading, for example. That’s actually backed by the delivery of a container of corn or whatever the thing is at the end of the period. And until that time, people are trading the futures on it based on the value. That’s an example of kind of a backed currency, but it’s a backed currency optimized for a strange gambling market on the futures better.

Jim: It’s actually good for farmers. Farmers use that very legitimately to lock in the price for their crops at an appropriate time where they’re in the black. I live in an agricultural area, and that’s a very important part of managing your farm is playing the … Or, not playing, but using the futures market appropriately to hedge your crop.

Art: Right. The original purpose was to give the farmers upfront liquidity at the beginning of the growing season when they needed to be investing the most so they could basically pre-sell some of the stuff and get the value upfront and then deliver on the product. So, it provides an essential liquidity also to the farmers. But the problem, as has happened with our whole economy, and the problem with the futures market and its happened with our whole economy is actually the way I think about it is the tail wagging the dog. What’s happened is that our whole economy has moved into where … I don’t know what the current number is. Somewhere around 10 years ago, it was around 98%, and so it’s probably even higher now with millisecond trading and everything. But 98% of the daily volume of dollars transacted is in the speculative economy, not in the productive economy.

Art: So, there was once a time where you could think of a nation’s currency as being correlated to the productive capacity of that nation, and that was how currencies were kind of offset with each other or valued relative to each other. At this point, it’s really all gambling markets. It’s all speculation. And the same thing has happened in the crypto markets, in part because there’s so little productive capacity to play with in the first place. It’s all speculative stuff. We have the tail wagging the dog. This is exactly, sorry to bring back to HoloFuel, Holochain, that kind of stuff, why we’re doing some different currency design patterns is to bring that center of gravity back into the body of the dog, if you will, back into the productive capacity in our case of the hosts providing hosting power, or in the case of Joules, a food backed currency, in the case of the farmers providing food, or RedGrid’s Internet of Electricity type currency backed by kilowatt hours.

Art: So, when you bring it back to the ability to produce something and have the valuation of the currency get tied to this asset, it stabilizes currencies again. It’s not like a stable coin where it’s fixed to a particular number, but it’s tied to what it takes to produce that number, what it takes to grow the food or provide the hosting power or generate the electricity. You start having a more stable center of gravity based around the productive economy instead of the tail wagging the dog of just what speculators are pumping and dumping, which tend to largely only benefit big speculators. When other people get caught in the crosshairs of trying to participate in the productive economy or even smalltime participate in the speculative market, often they’re on the wrong side of those curves, because they’re not the ones manipulating the market, where the speculators have their strategies for manipulating the market. What we’ve been trying to do is create a new class of crypto currency that’s resilient against that type of manipulation.

Jim: Yeah, I like that, the backed currency idea. Though of course it has a limitation, which it can only … At least I haven’t seen any proposals to how it works with nonfungible goods. One of the reasons that mortgages are the way they are is that every house is different and nor are they dividable. You can’t go and say, “I want a hundredth of a house.” It’s a specific house in a particular place in a specific condition, et cetera, unlike, say, electricity or HoloFuel processing capacity, which one could think at least as roughly fungible and also approximately fully dividable. So, it’s a better fit in some ways for a money system.

Art: Yeah, it’s true. I think there are some things where I think we can actually also tap into transportation and housing, but it’s housing a little bit more a la Airbnb than property ownership. It’s like bed nights, room nights, if you will, are a little bit more of a fungible unit. And not to say that everyone is equal, but there’s a more predictable range. So, part of my goal really is to have a series of these things, food, energy, hosting, which is code for communication and collaboration on all scales. That’s required hosting in this day and age. Housing, transportation. As we build out that suite of baseline currencies, it creates the possibility of a whole other emergent economy to be built on top of those things, if those things are stabilized.

Jim: Okay. This is interesting. I’m just trying to think this through. Suppose we have multiple of these fungible, deliverable, or quasi fungible, deliverable currencies all in operation simultaneously. How does one exchange amongst them? One of the great advantages of a mutual currency like gold is I cam swap my wheat for gold, and then I can go buy eggs with it. Suppose I get transportation miles currency because I operate a fleet of automated AI vehicles. What could I buy with that? How does that get exchanged for other forms of currency or get providers to sell me eggs or a new suit or whatever for my miles based AI robot car generated currencies or backed currencies?

Art: Well, realize first of all, again, that this provides a base layer. You could say that when dollars were backed by gold, people still used dollars for all this other stuff. In fact, more people use dollars for all this other stuff, not because they were ever trading it in and out of gold, but because it provided a backstop, it provided stability for it, for another emergent layer.

Art: So, when we look at HoloFuel being backed by hosting power, yes, there are people who will want to redeem HoloFuel for hosting, because they have communication, collaboration tools, things that they want to power on hosts. Great. But there’s also going to be other things where I want to run my Airbnb-like site and I’m going to collect my service fees in it. I want to collect my membership fees, my subscription fees, and then it’s going to start expanding out from there. Same thing with a currency with an underlying layer for food or for electricity. The fact that you know that it can always in the end at least by redeemed for power or for food, then it means that you can actually run more stable business models on it.

Art: One of the challenges with kind of sort of stable, respectable businesses getting entangled in the crypto space is, if I accept payment from my customers in crypto this week and it drops in value 50%, how do I pay my rent at the end of the month? So, if you want to make the space safe for people to play and build their more emergent business models on top of, they can use these currencies just as that unit of account, just like dollars are used as a unit of account. They don’t have to trade miles for hosting or whatever as if they’re going to use either. But all it takes is having an account on both systems to do so, where I get debited on one system and credited on another with my transaction with somebody else who has an account on both systems.

Jim: I may have to think that through. What about the fact that, at the end of the day, the currency system has to be careful not to get itself into a speculative bubble where there’s a lot more of these currencies running around than there is the ability to actually deliver, let’s say, the hosting? If you don’t get to that point, how does the amount of currency become significantly larger than the actual market for the hosting and hence have some additional capacity to be able to use it in these general ways? I’m not sure I see that.

Art: Well, let’s take the hosts’ credit limit for example. The credit limits don’t expand if there’s not a demand for hosting. That’s a very tight feedback loop. Because if it’s based on your last few months of hosting power, if the demand for hosting is dwindling, then so are the credit limits shrinking. It’s a feedback loop that’s very actually tightly coupled.

Jim: But if that’s the case, then how many of these hosting backed currency units will be available for something other than buying hosting?

Art: HoloFuel’s a weird example, because I’m such a weird currency geek. HoloFuel is a hybrid of fiat, backed currency, and mutual credit issuance. The host example where we’re talking about their credit limit is the standard classic mutual credit thing where the supply expands and contracts based on market behavior. Then the reserve accounts where you can buy into HoluFuel using a currency like HOT Tokens or using dollars or euro or something like that, that’s an asset backed scenario where you have dollars that back the units that you’re buying, and hosts can redeem out for those dollars or those euro or for the crypto currency. So, you only issue credit limit to that reserve account and as the outside currency is placed on reserve. So, it’s a backed currency in that scenario.

Art: Then the ICO that we did where we basically gave an initial line of credit to Holo as the infrastructure provider or creator is kind of an act of fiat where we’re saying we’re building out this infrastructure, and we got a large multimillion dollar credit to being with, and now we have to pay that back over time, but we’ve got this big credit limit to begin with. The accounting is all actually being done through a mutual credit currency, but because there’s different classes of accounts with different types of credit limit algorithms, it allows us to simulate those behaviors of a fiat, a backed, and a mutual credit currency all in one mutual credit currency.

Jim: Ferananda, you’ve had your hand up for while. What did you want to add to the discussion?

Ferananda: Well, in and out and in out, because the discussion goes here, goes there. But I wanted to give another example on how we’re thinking about Joules, and Joules stands for JustOne Organics Living Economy System. JustOne is a company that produces beautiful food crystals out of organic vegetables and fruits that have a very weak shelf life. The mission of the company is to be able to grow regenerative soil and help farmers or by helping farmers to grow food. So, part of the design of Joules, which is a constellation of different currencies … One of them is a coupon, which you can think like, “Oh, coupons. We see them everywhere.” Right? And they’re not unusual. So, they’re easy Joules coupons that you will be able to get food with, then get a coupon, and then the incentive is to keep the coupon for as long as three years so that then JustOne Organics can build more capacity, and by doing that you grow as a buyer of the coupon. You keep getting a wider percentage of food.

Ferananda: So, we were in that, in that design with the coupons, and we figured, “Oh, well, wouldn’t it be great when people have 10% more food or 20% more food? How are we going to do that with our current packages which are just 100 grams?” And we started to play with how we were going to do that, and then we started to think, “Well, but that’s not the only thing they can redeem for,” because actually people are using the crystals to get and produce other foods like pixie sticks for children or purees or soups. So, there’s a whole production that starts to happen with that food, because you can really create so many things with it. Then we started to see how easy it would be to create a whole marketplace of things that then people could trade for within the realm of food.

Ferananda: So, if we start thinking conventional and then we really want it to work like money and we want it in the end to be able to trade it for my AI whatever or a cellphone, well, it might not work. This might just not be for that. Just go and get another currency that would work for it and play with the Joules in the realm of food. So, we create new asset, new marketplaces, and new possibilities, because the mission that we have as part of the Commons Engine, because we do currency design and we teach currency design, is to be able to provide solutions for our biggest challenges, not to make people rich or create a new elite, like it happened with the tokens. It’s actually target currency into the solution of real world problems.

Jim: That’s certainly interesting and good if we can actually do it. What’s a good example of a currency y’all created? Let’s not use HoloFuel, because it sounds like it’s so complicated. It’d be very, very hard to deconstruct all the way down. But a simpler example where a currency design solved a real world problem.

Art: I feel like I do a lot of that, but this is in the domain of currencies that people don’t necessarily always think of as currency. And I want to give an example that I like where I was trying to encourage people to solve a real world problem. It’s just a very vivid example, I think. Unfortunately they didn’t use it, but it’s still I think a worthwhile example, because it’s so obvious to see how it solves the problem. At Occupy Wall Street, they had this reinventing money work group that wanted to create some sort of Occupy dollar so they could actually pay the people that were contributing various things, food and sleeping bags and stuff like that, in these Occupy bucks.

Art: They came to us, we were talking about this, and I was like, “Are you having a problem with those flows right now?” They’re like, “Well, no. Everything’s going really great.” I’m like, “Why would you want to insert a currency into it? Why would you want to put something in place that’s designed to change the pattern of flows in a pattern of flows that’s working? Let’s take a pattern of flows that isn’t working. Let’s take a real world problem that you want to solve that’s going on in this.”

Art: “Well, for example, we have problems sleeping. The police often just send people down here when they’re getting released from jail, saying, ‘Hey, there’s free food and tents and sleeping backs down in Zuccotti Square. Go on down there,’ and those people aren’t always here for the same reasons as us and they don’t always follow our rules about quiet time after 10:00 PM or no substance use and things like that. Then for those of us that actually have jobs and have to work, but we’re still staying down here and that kind of thing, we end up not being able to sleep.”

Art: “You’re not able to address that in the general assembly?” And like, “No, because it keeps being turned into a personal issue, and it’s harder to see the overall pattern.” I’m like, “Great. Okay. Cool.” I think actually Eric Harris-Braun came up with the first part of this, was just like, “What happens in the morning? Where can we get this feedback and make it visible to everyone? Well, there’s a breakfast line, and you can have everybody as they get in the breakfast line give them a coffee bean and have three jars with a green, yellow, red lid, if you will, or tape on them or whatever. Ideally they’d be narrow and tall jars. And they drop their coffee bean in the jar appropriate to whether they got great sleep, green; horrible, not enough sleep, red; or somewhere not so great but in the middle, yellow. Just every day you can actually have the community see the health of the community from the sleep, from how tall which jar gets stacked up inside of there.”

Art: So, this is sort of like a reputation currency. It has limited issuance for you getting in the breakfast line. But it’s more reliable than going around and doing some kind of survey because of sampling bias and all that other kind of stuff. And you don’t even have to count it. It’s kind of a nonnumerical currency. If you just make the jars the right kind of shape, you can see the levels. You’re just eyeballing what is the health of the community here. Not very many people are getting good sleep or whatever. And we’re solving a very practical human need with a currency, be able to see the flow of sleep.

Jim: That’s a very interesting example actually. And they didn’t choose to do that?

Art: No. They’re like, “That’s not a monetary currency. We’re the reinventing money group.” I’m like, “You said you wanted to solve a problem. You told me a problem. We came up with a currency that solves it.”

Jim: Clever. Clever. Let’s actually talk about this. Something that we talked a little bit about offline before we got started is that you have done some thinking about non numeric currencies, and there was a good example. How would you distinguish a non numeric from a numeric currency, and what are some other examples or what kind of classes of problems would non numeric currencies be useful for?

Art: Well, I think it’s really important to recognize different forms of formalization when you’re building a currency. So, I can’t think of his first name. Somebody Stevens, Howard Stevens maybe? A social scientist put in place these different methods of metrics used in social sciences. In the physical sciences it’s easy to make everything fully quantitative often, not always true, but it’s generally to make things fully quantitative. In the social sciences, it’s not always as easy to make them quantitative in the same way. So, what he introduced was these different types of things of you have rational numbers, things that can actually be divided into parts, have ratios of things. You have interval or integral numbers, integers, whole numbers. You have ordinal numbers, rankings of things. And you have nominal. We’d not call them numbers. We’d have nominal categories, names for things.

Art: What’s really interesting is you can make currencies embody any of these kinds of patterns. Typically most good reputation currencies steer very far away from the rational end of that spectrum, if you will. You say you have a bachelor’s of science in this or a PhD in this. That’s a nominal currency. That’s the name of a particular level. Then you even might also name the issuer, from Harvard University or whatever, if you also want to ride on the nominal status of that university. We use jobs and titles for the same thing, CEO or … These are nominal currencies that carry a bunch of reputational signals in them. They’re not numeric. What’s interesting is how you can design currencies to resonate with different audiences based on how you formalize them. And you may have initially collected some numeric data, your grades and test scores and your credits. Your grades and test scores may have been rational numbers. Your credits were interval, integral numbers, integers, whole numbers. But then you get a degree that’s issued in the form of a nominal currency.

Art: So, if you’re creating reputation systems on a website or an online community or something like that, often what you want to do is not have the reputation be a number at all. You want to have it be a name that you’ve achieved this level of citizenship or this type of help or this type of mentor, this type of whatever the different kinds of things are, and you embody the values of the community and the kind of appreciation of the community in the naming of those levels. It makes all the difference in the world how you encode these things. We could get into a whole other spiral dynamics conversations about sort of the different colors of memes that the different formalizations resonate with.

Art: We all have had so much experience of being dehumanized by money, by these rational numbers. You are dealing with green meme people that are trying to sort of rehumanize and build communitarian types of values into things, and you bring a currency system to them that’s all about these rational numbers or even rankings and social status. You’re going to repel people from participating. What you want to do in that scenario is have whole numbers of contributions and named levels of participation, named types of participation, that type of thing, and that resonates very strongly with the green meme. I’ve got a whole map around these kinds of things for when you’re designing currencies. Who’s your audience, and how do you make sure your design actually maps to the right social frame?

Art: Like we were originally talking about around reputation currencies and such or anything type of currencies, the further you go from the social frame of who you’re trying to have participate, the more cognitive overhead there is. There’s a lot of work there for that, and you can solve very concrete, real world problems with this. Went into a school, a small, private school that had basically collapsed. All the staff quit two weeks before school had started. I stepped in as the temporary executive director and turned Manhattan Free School around into an agile learning center, and agile learning centers then have took off and have grown to, last I checked, about 92 schools all over the world, but it was all through these types of current-sees, setting up the feedback loops so that the community could see themselves and manage themselves more effectively.

Jim: Okay. Very interesting. Again, some of it’s back to the past, as we talked about the medieval guild systems had all kinds of intricate ranks, and none of it was numeric of course. In those days, it had to do with items of dress that you were allowed to wear, the sumptuary laws. Depending on where you were in the social system, you were allowed to wear lace or you were not, or you were allowed to have buckles on your shoes or you were not. These were highly analog symboling systems. And your hypothesis is people who are in the postmodern epoch are more likely to react well to these kind of analog signals as opposed to digital signals? Is that part of your hypothesis?

Art: No, analog and digital doesn’t quite map, because obviously many of these things are still coming through digital media. But it’s not quantitative. It’s not numeric. When you’re wearing the dress of the carpenter with the two zippers down the front of your pants and that kind of thing, it’s sending a particular visual signal. It’s providing cues for what role you play in the community. So, you still need signaling systems for those cues, but numbers are not necessarily the best signals. In fact, numbers are kind of horrible signals.

Ferananda: I can give you an example of that, if you want.

Jim: Sure.

Ferananda: That’s something that I would like to see designed for organizations, and communities could do the same. Let’s say that you wanted to see what is the morale or what is the energetics of people in a given field within an organization to set this example. And people become sometimes stressed, or sometimes they’re flowing and happy, and you don’t get to know that, how they come, unless you ask them, “Hey, how you feel today? What’s up for you? What’s new for you?” But what if we would have a way in which people could have a color spectrum, like a rainbow type, and we just decide that the value of each of these colors? And let’s say that red is when we’re really stressed, and yellow is when we’re really happy and centered. Then people come, and they just choose a color in the day. Then you see a dashboard of what’s going on with the organization in the middle of the day and you get a sense.

Ferananda: And sometimes, as working in organizational architecture I can tell you, would be so valuable, because it provides a sensing for me as a person in HR or a person in community building to be able to know what is happening fast without having to go to ask people. If sometimes it’s red, maybe it’s accurate even to what was matching my own personal sense of “Oh, today’s a red day. Of course. We just started the COVID. Everybody’s sent home. They didn’t really know. Of course we’re red. I don’t have to do anything about it.” But on another given day, it could be like, “Oh, they were all just happen and dread. I wonder if there’s something else happening that I need to ask about.” But you get an immediate … In collective intelligence, we say the word holopticism. You get a holoptical view, a sense of the whole, with a dashboard that provides you certain colors of a spectrum.

Jim: That’s interesting. I think we’re about out of time here, about to wrap up, but I will ask one question that maybe teases at this a little bit. If we think about what’s probably the most powerful reputation system at least that I’m aware of in the United States, maybe the world, it’s the Amazon star rating system. People pay a lot of attention to that. It actually kind of works. And it’s interesting that it is both analog and digital in some sense. You rank one to five stars, or it’s integer and real number at the same time, and yet the resultant thing that I think we all tend to work on is some estimated real number, average number of stars. They also do clever things like show you other dimensions. They’ll actually show you the histogram if you know how to get to it, et cetera. How does the Amazon star rating system fit into your design space?

Art: Well, frankly, I think it’s a little poor. It’s not dimensional enough. There’s a whole thing I wrote up once about this actually regarding the eBay rating system that exists. If you’re trying to figure out what it is that a buyer needs to know, there’s the quality of the product, there’s quality of communication if there’s a problem in sorting out things, there’s the speed of delivery. Now, Amazon’s gotten the speed of delivery down a lot, and they try to give you that information in the checkout process anyway. But this was originally for eBay that I’m talking about. You want all of these things to be different dimensions. You don’t want to give just a plus one or minus one. You actually need to give the person dimensionality so that they can make smarter decisions.

Art: In fact, I would diverge from your example of Amazon as maybe the most influential thing, and I would look, for example, at Olympic gold medals or Olympic medals, just when you consider that they shape the participation of millions of athletes in every country all over the world. Then there’s all the subsidiary currencies that are involved in the score making that allows somebody to get into the Olympics, that allows them to win a medal. The medals are just an ordinal currency. They’re just first, second, third. They’re called gold, silver, bronze, but it’s not because of the value you can melt them down for, that they have value. It’s because of the reputation that they have value.

Art: There’s such an intricate, rich system of dimensional currencies where every sport has its own set of currencies. Now, they still come down to a gold medal, which is you come in first, second, or third. They’re still coming down to your ranking, but the things used in diving and gymnastics versus in shooting and decathlon and basketball, there’s very different measures and metrics used in each one of these, and yet they are the things that measure the flow that occurred and are the indicator of the excellence of the athlete. So, we’ve created this super complex currency system that goes in behind these Olympic medals, and look at how many millions of people’s behavior that they shape.

Jim: It doesn’t strike me … It doesn’t have an influence on me as far as I can tell. So, I probably don’t think of it, but I can see your point. Well, I think on that point we will wrap her up. We’ve been going at it here for a good period of time. We’ve covered a tremendous amount of ground.

Production services and audio editing by Jared Janes Consulting, Music by Tom Muller at