Franz Hörmann’s Infomoney, Part I

(Part II here)
(Part III here)
(Part IV here) 


Recently, George Monbiot proposed changes to Greece’s money system as a solution to their seemingly intractable predicament. Varoufakis has capitulated to the EU’s austerity demands, perhaps to buy time. The question is, for what? Can Syriza survive now? Greece cannot meet Europe’s demands, and given the boundary conditions I listed in an earlier post, neither should we want them to pursue the perpetual growth course, implicit in EU demands.

I’m sure it must be increasingly clear to more and more people that the System is broken, and thus that solutions must revolutionise the System to have lasting success.

So, what is the System? Is it capitalism itself? What is capitalsim, exactly? Is it fractional reserve banking? Is it perpetual growth? Is it casino/crony capitalism? Your answer will determine how radical your solution is. I believe perpetual growth is a fundamental aspect of the System, that waged labour is on its last legs, and that consequently an entirely new sociopolitical economic paradigm is required. The mainstream and most people appear to be as far from this view as they were in 2008, despite the visible awareness in the mainstream that each boundary condition I reference is in force (sadly, they do not explore their combined relevance and their interwoven nature).

A Columbia University study suggested that with a fleet of just 9,000 autonomous cars, Uber could replace every taxi cab in New York City – passengers would wait an average of 36 seconds for a ride that costs about $0.50 per mile. Such convenience and low cost will make car ownership inconceivable, and autonomous, on-demand taxis – the ‘transportation cloud’ – will quickly become [sic] dominant form of transportation – displacing far more than just car ownership, it will take the majority of users away from public transportation as well. With their $41 billion valuation, replacing all 171,000 taxis  in the United States is well within the realm of feasibility – at a cost of $25,000 per car, the rollout would cost a mere $4.3 billion.

Source (I recommend reading the article in full, it is extremely sobering.)

Interest on savings deposits is at around plus/minus 0%. Official inflation is far higher. In the first quarter of 2014, the first German bank (Skatbank, a subsidiary of a Volksbank in Thüringen) introduced a punitive negative interest rate. At the end of November, Germany’s second largest bank (Commerzbank)  talked of introducing a “fee for credit” for large businesses, groups and institutional savers with large balances.

Even Deutsche Bank does not rule out negtive interest rates. Jürgen Fitschen, Deutsche Bank’s joint CEO and President of the Deutsche Bankenverband: “Every institute has to tackle this issue.”

[…snip…]

So the next step will and must be that proposed by top economist Kenneth Rogoff: make cash money illegal. According to Rogoff, central banks would “therefore find it easier to implement negative interest rates and so better stimulate the economy.”

Rogoff realises that “paper money is the main obstacle to further lowering central bank interest rates”. In his view, eliminating paper money would be a simple and elegant solution to this problem. For then we would all be fully controllable.

Source (Die Welt, my translation.)

By definition, the elites are the gatekeepers of the system du jour. They will do whatever they can to keep it operational enough to maintain themselves as its primary beneficiaries. Negative interest is promoted by a few people for different reasons, and is an idea I find interesting. But, it is not a silver bullet, and implemented simply to reignite growth and in the absence of other fundemantal changes, it would be nowhere near radical enough, and quite destructive. A more reasoned use of negative interest rates is part of the “Plan B” (advocated by the German outfit Wissensmanufaktur) I outlined a few years ago.

However, the solution I find most interesting is Franz Hörmann’s Infomoney (Informationsgeld), and this post begins my translation of some of the website he has dedicated to explaining that plan. The idea is not perfect, it is just a proposal. I have my own quite serious reservations (including the excessive use of bold!). I offer it here in the spirit that Franz Hörmann (a professor of accounting at the University of Vienna) offers it: an idea to be discussed, and if possible tested (a German social-media forum called Osbee is doing just that, albeit at what looks like a very small scale). As a side note, Hörmann has been in touch with the Greek government to present his proposal, but I am not aware of any interest on their part.

Information money, part 1

The deed of partnership

Today's economic system is characterised by exchange between individuals. In other words, the system's participants complete bilateral contracts out of which arise claims and liabilities between the parties involved: a service rendered generates the realisable expectation of a prompt consideration (return service) that should be as equivalent as possible in terms of value.

If, due for instance to the scarcity of the means of payment in the money supply, this consideration cannot be rendered as payment, the parties to the contract sue each other. In other words, they fight. The initiating reason for this systemic development is always how banks keep the money supply restricted. (Apparently, banks perceive "increased credit risk" because of insufficient solvency on the part of the debtor, or feel they are faced with "increased refinancing costs". How this can be the case when bank money is created via a simple accounting entry on the liabilities side of the bank's balance sheet, no one can say.) In today's system, (bank) money is an abstraction of a medium of exchange: when people think of money, most imagine some equivalent of scarce gold coins being handed from person to person in economic circuits. But the "coins" we imagine don't really exist; modern money is primarily accounting entries treated and misperceived by the general public as real notes and coins.

The information money system does not use bilateral contracts. All the system's participants complete a deed of partnership with the entire community (the social network, the "Democratic Central Bank"). These contracts consist of: individual price systems (how much information money is spent (destroyed) on goods and services: accounting entry: "Expense on cash"), individual tariff systems (how much information money is created for rendering services to the community by a particular individual: accounting entry: "cash on equity"), and individual shopping baskets (which and how many goods and services of what type and quality are desired at what intervals). Therefore, information money is not a medium of exchange but an individualised KPI (key performance indicator). Information money can therefore be compared with a person's blood pressure: blood pressure levels are not used as a medium of exchange, and it makes little sense to compare them between different people. On the other hand, it makes perfect sense to compare your blood pressure level of today with last week's. A personal KPI is therefore not fully comparable between individuals. It is most relevant on the time axis of an individual's unique biography. In the exchange money system, bank money amounts represent the abstraction of a physical medium of exchange. In the information money system's deed of partnership, however, we interact with the abstraction of a contract partner. The Democratic Central Bank is a "dummy", a proxy for a contract partner. This means the deed of partnership can be adapted to the particular needs of each individual at any time. Because there are no bilateral contracts in this system, individuals are freed to cooperate, the constraints of the zero-sum game of double-entry bookkeeping are transcended and we enter the plus-sum game of a cooperation-based society. Information money would establish an economic and social system that can be fine tuned to the needs of each individual. The constant systemic pressure to adapt individuals to a rigid (the "only" ideologically correct) economic and social system would become a relic of history.

Individuals will be accompanied by a personal life coach when designing their social contract. Life coaches are specially trained to assist and accompany 25–30 people's pursuit of happiness by helping them develop their full potential. In other words, life coaches help their companions discover what it is they really want to do with their lives: that which springs from their deepest being. These activities are then added to the individual's tariff system in the knowledge that those activities that truly excite and inspire the individual will be most beneficial to the community.

Because information money is individually created and destroyed for each person, it generates and supports a social system that is cooperative and requires no redistribution. Neither exploitation (redistribution from below to above) nor expropriation (from above to below) are needed, desired or even possible. This social system transcends the zero-sum game of double-entry bookkeeping and initiates the plus-sum game of cooperation: we can all improve our standard of living, and this improvement is never at anyone else's expense.

Asymmetrical prices

In today's system, one price is agreed between buyer and seller that is the same for both: the bank accounts of each will be altered by this agreed amount. This procedure simulates the transfer of gold coins (that no longer exist).

But even today, no numbers (bits and bytes) are transferred from the buyer's to the seller's bank account. What actually happens is that the buyer's account is reduced by some amount, and the seller's account is increased by that same amount. And the fact that that amount is the same in each separate action is due solely to the pre-existing claim and liability (likewise of the same amount).

In the information money system, the buyer and seller each have their own individual deed of partnership. The tariff system in the seller's social contract stipulates that she "receives" amount X each time she renders a particular service (regardless of to whom) individually and freshly created (accounting entry: "cash on equity") directly to her account. One of her customers pays amount Y for this service – as stipulated in the price system of his own deed of partnership. This means that this amount of information money is deleted from his "account": accounting entry "expense on cash". Another of her customers has amount Z recorded in the price system of his deed of partnership. That amounts Y and Z are different (each customer pays a different amount for one and the same service) is perfectly fair. Information money is not comparable between individuals. Each participant operates within their own unique economic system, with its personalised price and tariff systems and shopping basket. The amounts Y and Z are also not comparable. To compare them, we would have to compute a special exchange rate that would be of no use to anyone: information money cannot be transferred (exchanged). It is a medium of cooperation, not of exchange.

Many goods, e.g. new cars, are still waiting in stock to be sold because they are too expensive. But if the seller could sell at the price she wants and her customer buy at the (different) price he wants to pay (asymmetrical prices), the markets would clear in no time at all.

All account activity is, however, individually transparent and legally regulated. Information money can only be used for goods and services bought by the end customer. Production occurs cooperatively and without the use of money. The means of production are made available by the community (the Democratic Central Bank) at no cost in the interests of cooperation. Only the products themselves are distributed to end users (consumers) using information money. 

Information money is individually created and individually destroyed. It is therefore like virtual subatomic particles that appear and disappear in the vacuum (quantum noise), and not like e.g. solid gold. Further, it cannot be compared between individuals. For this reason, it only has relative meaning within the individual biographies of each citizen.

This means that the principles of quantum physics and relativity have been echoed in economics. Information money is thus relativity- and quantum-theory money that is a medium of cooperation, not of exchange. It can guide us from exchange-based to cooperation-based economic and social activity.