Totemomics, hubris and hype.
by Matthew Slater
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This first article is from our beloved, spicy, long experienced monetary theorist and Community Currency Engineer Matthew Slater, which you can read more about in his website and follow on twitter at @matslats
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Totemomics, hubris and hype.
When Bitcoin burst into my consciousness, around 2011, I had been dabbling in community currency design for some years already. I had worked out that commodity-type monies such as gold (and Bitcoin) generally worked in favour of the rich whose wealth enabled them to steer the markets of the monetary-commodities in their own interests. Meanwhile the credit-type currencies were more democratic because in principle credit can be created by anybody and is never in short supply.
The narratives around Bitcoin were very different to the narratives around me. Almost everybody around me was working on credit schemes. Ryan Fugger was doing Ripple, what I call the first ‘mesh credit’ payments network; the LETS and the timebanks are all based on mutual credit; there was, and still is, the ‘business barter’ sector — a whole viable industry offering mutual credit accounting between companies. Bernard Lietaer was doing books and lecture tours telling bankers and politicians that, for the good of the planet, money should be decentralised and diversified. I was attempting to inform the public that 97% of our money was created for profit by banks — not by the government as most people assume. There was a Positive Money documentary on the subject and a couple of TED talks. All this was long before the Bank of England confirmed it to our amazement in 2014.
The revelation
Into all this, crashed Bitcoin. Bitcoin was a big ‘up-yours’ from a clique of shit-hot mathematicians to the issuers of money. Its testosterone saturated message went something like this: “We don’t need government to manage our property; we don’t want financial censorship and surveillance; we don’t trust central banks not to erode our hard earned savings; we can automate all that stuff now and nobody can stop us; join us in fixing economics and get rich” At the time it was a rallying cry from an ally I didn’t know I had. But the more I read, the more I realised that the field was devoid of coherent monetary theory; it seemed to me at least, to be premised on a prevailing misunderstanding that money was basically a token issued by the government, accumulated by the rich, and lent to the poor.
Intellectually, Bitcoin best resembled the Gun Toting American survivalists who orient their whole lives around ensuring they survive an imminent political collapse. Its monetary narrative veered between some Hayekian tropes and a foaming-at-the-mouth market ideologue called Murray Rothbard who suggested, amongst other things, a flourishing free market in children.
Crucially Bitcoin advocates offered a critique of the money system which tapped into fears about abuses by governments and elites. For example it is clear now to all but the ruling economists’ clique that quantitative easing is an unjust and ugly desperate intervention. Similarly, many (or most) governments have ‘higher’ priorities for monetary policy than those who work, produce and create wealth. And I also believe that fiat money and ponzi schemes have a structural similarity — perhaps the most important difference between the two is not structural but the fact that one will never lose confidence because it is backed by the oblivious taxpayer!
Building a house on sand
As the early promise that “anyone” could mine bitcoin narrowed to “those with the fastest chips and cheapest electricity and largest risk appetite”, the number of lingering questions grew.
Did Austrian economics still apply if the monetary commodity was redeemable for nothing and less useful than gold? Deflation might be good for the hodlers, but wasn’t that at the expense of everyone else, many of them hard-working, wealth-creating people, who weren’t hodling? And nobody ever, ever, talked about commercial banks and the 97% of money which they issued, as debt, for profit, in such quantity as suited them. In this respect the nascent field resembled neoclassical economics, which Steve Keen memorably dismissed with “Neoclassical macroeconomics ignores banks, and private debt, and money”
I started to realise that credit wasn’t just excluded from the narrative, it was completely outside the paradigm. Part of Bitcoin’s being ‘trustless’ meant that debt, negative balances were unthinkable.
The Way, the Truth and the Life
As the recession ground on, more and more of the world’s capital migrated to the crypto-sphere, where much of it was reinvested. But most of the money wasn’t following the creation of wealth, it was following the other migrating capital into supposedly scarce assets. Like almost all money these days, it was more interested in exponential returns, and the favourable risk/reward ratio of a rapidly developing sector than in the technology itself. That’s why the white papers produced read more like sales brochures than the technical descriptions which white papers used to be. Their purpose was to convince people looking for high risk investments that these tokens would probably increase exponentially in price as the new technology was adopted and hopefully even established a new monopoly.
The narrative template goes something like this:
The Token aims to have, or contain, or capture, an ethereal substance called ‘value’ which is undefined, but in practice always means market price. Doing things this way round ensures that the token is structured as a speculative instrument because the ‘value’ in it fluctuates with market sentiment. The fixation on this rather limiting mechanism, which often seems like a fetish, is what I call ‘totemomics’.
Having no value of their own, tokens serve only as vehicles of value created elsewhere towards whoever can master the markets. Thus Totemomics knows much less about the creation of wealth, than about the creation of Tokens and the capturing of ‘value’ from the market.
Those whom the gods have blessed with the power to summon money, (even when money is rushing towards them with the force of a tsunami) hold a high place in any field, and the totemomicists became the priesthood of the Blockchain religion. They re-appropriated a whole litany of words, like ‘decentralised’, ‘staking’, liquidity, until they were unable to communicate with anyone but their most devoted disciples.
Many white papers, even today, convey much more mystery than what I would call substance. Try reading this blog explaining the AAVE protocol, and see if you can work out what affects the value of the tokens. The novelty of the language underscores just how remote it is from conventional finance and how Decentralised Finance (DEFI) is mostly creating ever more exotic products for managing or leveraging risk of blockchain assets only — the real economy is still very far away, and these kinds of tools probably aren’t attracting it very strongly.
Metaphysics of blockchain
Totemomics leaves little room for questioning the notion of property itself, the proprietor’s absolute freedom to dispose of it to the highest bidder. The Token, in its essence, as handed down to us over the millennia since 2009, is a piece of imaginary property; not property like your house, which is hard to sell and divide; not property like your car, which depreciates with time and usage, not property like leather shoes, which have moulded to fit your feet, not property like money which can be created by certain parties and taxed by others, not property like gold which you have to protect from thieves; but the purest abstraction of property: anonymous, immutable, incorruptible and inviolable (excepting $5 wrench attacks). The Token is totally alienated from anything real.
This very abstraction, this lack of inherent meaning or utility Tokens it to be put to so many uses.
- What, after all is money, if not a limited edition, reassignable piece of symbolic property?
- What, after all is a share in a company, if not a limited edition, reassignable piece of symbolic property?
- What, after all, is a vote, if not a limited edition, reassignable piece of symbolic property?
- What, after all, is a carbon emission certificate, if not a limited edition, reassignable piece of symbolic property?
Essential elements of these institutions are lost if and when they are deconstructed into different instances of limited edition, reassignable pieces of symbolic property. It is a worldview that misses the essence of the thing like a behaviourist who denies that anyone else has an inner life and who dies alone.
Decentralised business as usual
Not all decentralised financial services use tokens in their core mechanism, but all are being financed through token sales, which means they are nearly all controlled by speculative money looking for the highest (and often the fastest) return — much more so than in other sectors of the economy.
The same destiny always befalls reassignable pieces of symbolic property: after a flurry of trading and a few fortunes made, the rich own and control everything. As a teenager I saw Mrs Thatcher going to great pains to sell the water, gas, houses, phones and more to the public, but who owns all those things now? When Marx talked about owning the means of production he didn’t intend that they be sold right back to the bosses.
So blockchain finance might out-compete conventional finance, but it is obliged, and by the same mechanism as ever — ownership, to make as much money as possible in a free market. The logic of capitalism is not challenged, nor the logic of the rich having the most power.
Not-so-decentralised business as usual
Many of the more successful projects in the blockchain world seem to be using the blockchain only peripherally or incidentally. That is because blockchain tech is like a tank factory in peacetime that has invested heavily in salespeople to find new markets for tanks in construction, supply chains, leisure, education, food and personal hygiene. To serve all these functions major aspects of the tank must be ignored, re-engineered and augmented with un-tankish accessories. But only a cynic would ask why you had to use a tank in the first place.
- For example most apps that want to read the ethereum blockchain can’t run a full node — that would be absurd — they use one of two trusted third parties.
- NFTs live on blockchains but are mostly accessed through the API of a single company which therefore has a strong capability to censor or alter them.
- This blockchain microcredit project is not lending tokens, but money. It seems to be using the blockchain as a way of keeping the lender’s accounts transparent. Is this using a hammer to crack a nut?
- The whole DAO movement is a new way to cooperate at scale, but while the organisation accounting is on-chain, the meaningful activity of these organisations is off-chain, like a small business which uses a tank to run errands.
It seems to me that blockchains and tokens are finding all these uses not because the technology enables them, but because the money brings attention to the tech. The tail is wagging the dog.
Token-mediated relationships
In its essence, finance is not about who owns what, but who bears the risk and who gains the reward for large ventures; it is a partnership between people who have money but don’t need it now, and people who don’t have money but do need it now. Since there is always the hope of gain and the risk of loss, finance means making agreements about who gains and who loses in the fluid circumstances of commercial life. Finance is fundamentally an ongoing relationship which decentralised, essentially anonymous infrastructure is designed not to facilitate.
That’s why I feel deeply unsettled when I see finance framed in terms of ownership of financial assets. If I borrow money, and that debt is an asset ‘owned’ by the creditor, does that sound like a partnership to you, or a medieval contract of fealty?
Government, insurance, and speculators already intermediate in most financial relationships, ensuring they are largely anonymous, and when that debt is sold on a secondary market any relationship has been quantised into a mere probability of repayment.
Step by step, this anonymisation and automation of financial relationships seems to transform what should be a partnership into a power relationship with creditors over debtors.
And when shit happens and I’m struggling to repay, my creditor doesn’t come to my door seeking my wellbeing because his investment depends on it. No, a bailiff comes to my door to strip my remaining assets because, according to the algorithm that’s the best likely return on the investment.
Totemomics is building the infrastructure for all this, but outside the law.
Machines cannot look into our hearts, and consider the endlessly complex and ever-novel world around us and decide if any specific person should put their resources in the custody of another. That’s why blockchain is to finance what a vending machine is to your local cafe. The products will be cheap and available to all, but rigid and impersonal. And like vending machines, when they break it is always you, the customer who ends up out of pocket and with no-one to hear your cries of injustice.
I’m reminded of the autobiography of Benjamin Franklin, whose 18th Century diary several times tells of businessmen financing each other without even a blockchain between them.
Win / win — / lose
The main selling point for these cumbersome decentralised systems was from the beginning and still is to evade the scourge of ‘centralisation’, which is short hand for government regulation, taxation, and monopolies and cartels who interrupt the theoretical functioning of the truly free market. I am as angry as anybody about uneven playing fields, and lack of transparency and democratic accountability, but the DEFI rhetoric about working outside of any framework does nothing to reassure me.
Peer to peer finance might create a win/win situation for both parties, but this is still a zero sum game, and you only have to pan out to see the stakeholder who is losing. The #RestOfTheWorld provides all the natural resources for free, raises and trains the workers, eats all the pollution, and gets poorer and poorer from absorbing all the hidden costs.
This ‘off balance-sheet accounting’ is already a problem in mainstream economics, where companies appear more profitable if they don’t pay the costs of ‘environmental services’ or ‘educating the workforce’, even though many of those things work out much more expensively for others.
Ecological and ethical economists have always faced this conundrum, that sharing, responsible and sustainable practices are simply non sustainable within our capitalist politique. Accounting fairly simply makes an organisation unable to compete with organisations who put their costs on the #RestOfTheWorld. The trends towards deregulation, decentralisation and depersonalisation can do nothing about this. It can probably only be done by more (and better) regulation.
#RealValue still out in the cold
More than a decade later, I’m still waiting to see some material benefit to the real economy from all the innovation and wealth transfer happening in the blockchain sector. This is because the token economy is capturing value which the real economy is producing.
The two economies think about money and value in different ways. The real economy actually uses money as an instrument for creating goods and services, while the tokenonomy sees money more as an end in itself, a repugnant attitude which it shares with the wider financial sector.
The real economy, while it has to turn a profit, actually runs on credit, and for that it needs the value of the borrowed asset to be stable, or preferably even decreasing in value. If the borrowed asset increases by 20% in a year that would wipe out all a typical producer’s profit. Meanwhile the token economy only creates assets which are unstable, and which all aspire to increase in value. The blockchain being a ‘trustless’ technology, has no way to record or enforce debts. What passes for ‘lending’ is more than 100% collateralised by other crypto, which is no use to businesses which can only offer their own productive assets as collateral.
If the crypto sector is to actually engage in financing the real economy, in replacing the dollars now borrowed from banks, it will need to question its very foundations. Any system of finance in which participants are anonymous and untrusted and who can therefore only have positive account balances is bound to be extremely limited in scope and can do little for an economy and culture based on credit and other people’s money. Totemomics has helped draw a lot of other people’s speculative capital into developing itself but so far it’s hard to argue that any wealth has actually been created or any important problems solved.
Conclusion
Narrow design spaces force us to be more creative than when anything is possible, and it’s clear to me that entrepreneurs and innovators faced with a single conceptual tool, the token, have been very creative.
But for me it seems that the creativity happening in blockchain space is a natural result of the money flowing in, more than a response to the needs or indeed the crises in our society. Consequently the most successful initiatives are either just piggybacking on blockchain, or they are antisocial expressions of anarcho-capitalism, and tools for the most regressive and powerful elements of our society.
Last year I attended the Crypto Commons Gathering in Austria, and was really struck by the optimism and sense of possibility in the air. Coming from the never-funded community currency field, it was clear to me that this optimism and energy was the result of money sloshing around as surely as water makes the garden grow. Several people there had received minor windfalls from airdrops, which enabled them to be self-directed rather than chained to a desk, to experiment without worrying about hunger, to invest in interesting ideas with confidence that funding was available. This is the opposite of what happens in the declining mainstream economy where there’s no money for risk, for innovation, for blue-sky thinking.
It made me realise how, even if we are not hungry for it, money directs our attention, and all the money in crypto generates interest and excitement and possibility however limiting the raw material, the Token, actually is.
It is quite legitimate to try to work in that space and try to capitalise on it, but lets try to remove the green-tinted spectacles and see what is really there. Blockchains are machines that do accounting in predictable and transparent ways, and this prevents some types of problems and opens up some new possibilities in organisational design. Organisations can operate beyond the borders of any state, and perform many management and accounting functions transparently and automatically, theoretically not even needing directors or managers. This is interesting.
But we must not allow our work to be used as R&D for the next totalitarian order. We must not allow the monied elites to direct our attention wherever they throw money. Never forget, the revolution will not be funded.
Enjoyed?
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