A Fraction of Global Market Capitalization as the Best Currency
post by Greenless Mirror (mikhail-2) · 2025-03-31T13:30:03.970Z · LW · GW · 25 commentsContents
Conclusions of my reflections: Everyone would just agree that they aren’t smarter than the market. "Exchanging Money for Money" Goodhart's Law for Currencies and the Production of Money Objection! It's weird. Clarification — it's hard to say out loud. None 25 comments
When I read about how dath ilani use unskilled labor hours as currency, it shattered my suspension of disbelief and I noticed confusion. It's hard to imagine that a coordinated utopia would consciously choose this as the best option.
Every part of dath ilan reads like it was built by some person of strictly average intelligence who'd read about education in a book but never actually gone to school, who spent ten minutes designing all our civilizational systems via a series of fifteen-second casual decisions about how things intuitively ‘ought to work’ that they made without ever seeing the consequences in action (C) Chief of Exception Handling
I’m not as smart as the average dath ilan person, but I spent a little more than 15 seconds to make up the difference.
Conclusions of my reflections:
There’s no reason why money should be measured «from 0 to infinity» instead of «from 0 to 1». If global market capitalization is 100 trillion dollars, and you have 1 dollar, you could instead have one one-hundred-trillionth of the world’s capital. You could use it exactly like regular money.
It may seem like a zero-sum game, but in a growing market, sustained deflation actually increases the purchasing power of your money, even with the same amount. Why would people in a utopia choose this option over any other?
Everyone would just agree that they aren’t smarter than the market.
If your money is tied to gold, you might think of yourself as an investor in gold while using that currency. If your money is backed by the reputation of your state, you’re a "shareholder of the state". You have fewer rights as a shareholder, because the "corporation" can print new shares at will and compels you by law to use this shares while you live in this country, but nevertheless you speculate in these shares on similar principles. And if you think you have a particularly clever reason to believe that gold, the reputation of a state, or stocks or anything else are undervalued, you're most likely wrong. Without unique knowledge, you can’t be smarter than the market.
However, there is a humble form of investment that the Sane Investor Law could use to be as smart as the market. He could invest in the entire market by capitalization. He could see what fraction of the global market is held by company A and invest the same fraction of his money into company A, and do this with companies B, C, D, and so on. Leave this system as it is, without making “smart” exceptions like “company H definitely sucks” or “I’m sure company Q has the future”, and you will be just as smart as the market.
In our world, this doesn’t work because no one knows exactly how large our economy is, and there are different not-perfectly-coordinated exchanges with different rules, political barriers, commissions, and not all companies or sectors of investment are represented in stocks, etc. There are approximately similar financial instruments like index funds, but there is no single red button for “investing in the market by capitalization”. And even if such a button existed, many would consider it beneath their dignity to use such a boring instrument, which gives growth proportional to global market growth, when “you can get more!” (It works until it suddenly doesn’t).
Nevertheless, in an ideal world, many would agree that they are not smarter than the market, and the barriers to investing by capitalization would be eliminated. These people would have one big red button for “investing in the market by capitalization”, or something very similar, covering as many sectors of the market as possible, serving as a universal and the most stable investment benchmark. This would be the best option for the vast majority of people, better than any state currency, resource, cryptocurrency, or stock in a specific company. And people would press this button and be happy.
"Exchanging Money for Money"
Dath ilani do not use fiat money, which is merely dead weight. If the market believes that the price of a company's stock is what it is, it’s likely correct, and thus you can use stocks as a currency equivalent. It would be foolish to have a system where you sell one form of money to buy another form, only to later exchange that for a third form of money, because all sellers distrust each other’s money, right?
However, if from all the stocks in your portfolio you specifically choose some to pay for goods, then for some reason, those stocks are perceived as having the lowest priority in your mind. You’d rather get rid of them, expecting their price to be somewhat lower than the others, which creates mistrust. The seller won’t bother figuring out what stocks you’re handing over, just as they wouldn’t accept a torn banknote as payment.
(I admit, a randomized sample of stocks from your portfolio of the value needed, or proportional shares of your portfolio, might sound like reasonable options, but this violates anonymity and still maintains the distrust and confusion in a system where you don’t even know which stocks you own because you’re accepting random stocks as payment. People typically prefer more control, and this forces them to exchange money for money.)
However, in a world where everyone modestly agrees that, as a rule, they are not smarter than the market and thus invest in it as a whole, "a fraction of the global market" becomes a convenient focal point that everyone can trust. So people begin to pay each other with "shares of the most popular index fund covering the largest portion of the market", which gradually becomes simply "market shares", and this becomes the primary currency. They stop thinking of it as stocks and just use it as money, assuming it is.
This is sane. You’re not trying to outsmart the market by buying specific stocks unless you’ve researched them thoroughly. You’re not using currency as "government stock" simply because you were born in a particular country and the law obliges you to be a shareholder. But if you truly believe that you can contribute your unique knowledge to the market and gain from it — for example, you exchange your money for education, and as a result, you create goods for which people are willing to give you their market share — you’re improving the collective intelligence of humanity with every transaction, bringing your unique capabilities to the table. In this way, you really do become smarter than the market.
Goodhart's Law for Currencies and the Production of Money
Money is both a measure and a target. Why can’t you just point to any random object and call it money if, as a result, people begin to exchange it, and through the magic of wisdom fo the crowd, an adequate economy is generated? In principle, you could make shells your currency, but then the person collecting useless shells would become wealthy, and the economy would undergo absurd inflation.
Perhaps, in that case, you would want the currency to be tied to a resource of significance for the economy — so that the "printing press that produces money" could fall into someone’s hands, but only if it benefits civilization. This works somewhat better, but it still inherently creates a dysfunctional incentive to maximize whatever the money is tied to. If you're using energy credits, but energy isn't really needed on such a scale, your demand for energy becomes irrational. If you have cryptocurrency tied to computing power and you burn it on solving pointless tasks just to demonstrate that you have computing power, you're doing something stupid from the perspective of a healthy economy.
If your money is a fraction of the global market, then… in order to maximize your market share, you must convince others to give you their share in exchange for goods or services. There's no clever way to print money — money is limited, and it can be divided into any reasonable number of parts that you need. This system doesn’t need updating after its initial introduction. There's no government that can print as much money as it wants for short-term gains, and everyone simply trusts that it won’t do so — instead, the government is forced to participate in the economy and provide public goods in exchange for taxpayers' money. Poor government, happy everyone else.
I would also like to point out that in this system, you have a minor incentive to increase public welfare, even without the possibility of receiving anything in return, because it increases the purchasing power of your money, acting as a form of deflation. Sacrificing the common good for personal gain, on the other hand, lowers the value of your money, becoming a form of inflation. Of course, on the scale of personal interactions, this effect may not mean much, and to an Earthling, it might seem similar to "burning your money to fight inflation".
However, the effect becomes more significant when dealing with larger agents or groups of agents, such as states or corporations (or simply well-coordinated individuals). If you're a corporation owning 2% of the global market and you have a Supercriminal Mastermind Conspiracy Plan to sacrifice public welfare for personal gain, a ratio of public good destroyed to private good gained greater than 50 to 1 makes the strategy ineffective, and even less harmful strategies "create inflation equal to 2% per good destroyed" on your money.
(You can keep your money in assets other than world market shares, which you expect to appreciate in value and survive the public good share destruction that you are planning. But you still have a significant amount of purely financial assets that you cannot invest better than in world market shares, equivalent to holding fiat money, so the minor incentive remains)
Money is both a measure and a target, and if your money is "global capitalization share", then your drive will be to increase global capitalization, not reduce it.
Objection! It's weird. Clarification — it's hard to say out loud.
It’s hard to imagine exchanging “one-hundred-trillionth fractions of the global economy” instead of dollars. It’s just such a long phrase! ...In a utopia, if you refused to use an efficient currency because you couldn’t say something like X*12^-12 in a short phrase, people would look at you very awkwardly. Orders of magnitude, like numbers, are just common enough that we can assign them monosyllabic words, throw your language where you found it and create a new one.
If you’re uncomfortable with infinite divisibility implying purely digital money, you could make it fully or partially paper-based. For example, banknotes could function as standardized ‘checks’ or ‘promissory notes’ linked to accounts in a central system, automatically redeeming or renewing every X years to prevent lost bills from turning into Dead Money. Or just use digital money — you’re in a utopia, free from tax evasion worries or hacker threats.
This currency is stable and universal. It guarantees a huge influx of liquidity and investment during the implementation phase, when people start pressing the "invest in the market by capitalization" button instead of holding fiat "dead money". It creates a minor altruistic initiative for coordinated agents to improve public welfare. It doesn’t require careful regulation or maintenance once it has been implemented. It even works well for relative value assessment.
I can't imagine a better currency. I would be surprised to hear an explanation of why, in a coordinated utopia, people would use anything BUT this as currency, why "energy credits" or "unskilled labor hours" or just "dollars" would remain the equivalent of value. So I would welcome your criticism and further discussion of this concept.
25 comments
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comment by Yair Halberstadt (yair-halberstadt) · 2025-03-31T16:35:33.705Z · LW(p) · GW(p)
Firstly a word of advice: this would come off better if it was less needlessly antagonistic. "Here's a cool idea I had" is a lot less pleasant than "isn't this guy stupid for not thinking of the cool idea I had".
Also I don't think this is obviously a good idea. The S&P 500 swings hugely in a small space of time. Prices meanwhile are meant to be stable, indeed this is the chief purpose of prices, as a stable means of comparing costs of different goods. If each unit of currency denotes a fixed percentage of all publicly traded firms, then each day prices will need to be reset according to investor confidence. This makes it much harder to know whether a shop is providing you a good price or not.
Even worse you can't automatically adjust this because there's no way to measure investor confidence - the value of all ETFs is approximately constant.
You are of course right that most Dath Ilanis would keep most of their savings in ETFs. But they will exchange it for fiat currency when they need to buy things, and with good reason.
Replies from: mikhail-2, yair-halberstadt↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T17:36:02.654Z · LW(p) · GW(p)
I love and respect EY, and the "every part of dath ilan was invented in 15 seconds" quote was written by him, so presumably it can't be meant to offend him, and I thought "it took me a little more than 15 seconds to think" was obviously self-deprecating, because "a little more" means "orders of magnitude more", but apologies if that wasn't clear. I wouldn't come up with hours of unskilled labor in 15 seconds, and maybe that's the optimal solution if you need to give your final answer in that time frame.
I think the world market cap (not the S&P 500) is pretty stable, plus you can have fixed prices for simplicity even if your world economy fluctuates? It's okay to have prices rounded to 0.99 1*12^(whatever) and not update them when the market fluctuates just because it's convenient, but it's usually going to hurt buyers because with a constant amount of money and a rising market, prices are usually going to go down, not up. Any further stability comes at the expense of profits.
If most dath ilani consider ETFs stable enough to store their money in, why wouldn't they also use them as currency? Assuming we're talking about the same ETF representing a share of the world economy.
Replies from: yair-halberstadt↑ comment by Yair Halberstadt (yair-halberstadt) · 2025-03-31T18:19:19.752Z · LW(p) · GW(p)
Sorry if I misunderstood, thats how it came across to me. I didn't know that was a self deprecating quote because there's no link to its origin.
The relevant index is the FTSE global all cap. It doesn't include privately traded companies, but then again neither would Dath Ilan be able to.
It has far lower growth than the S&P so is worse on that metric. Around 2021 it fell by over a quarter in the space of a year, and over the last week it's gone down by 3%. Depending on how competitive the market is, these aren't numbers that can just be rounded away.
The reason why stability is more important for prices than savings is they have different purposes. If my net worth goes down by 3% that has very little impact on my day to day choices. On the other hand if one shop is 3% more expensive than another shop, that will impact which shop I go to, and if one good gets 3% more expensive I will consider substitutes. This is much harder to do if goods fluctuate in price in correspondence to the stock market. You have an intuition for how much a coffee should cost. Eliezer's proposal is to make that price even more stable to help your intuition out, your proposal makes it much less intuitive.
I also imagine that investment advice in Dath Ilan is to split your savings between Fiat, Bonds, ETFs and other investments depending on appetite for risk, just like on earth. They probably have fewer hedge funds.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T18:38:55.538Z · LW(p) · GW(p)
I didn't know that was a self deprecating quote because there's no link to its origin.
Corrected to "(C) Chief of Exception Handling" which I hope isn't a spoiler because it adds virtually no information, but it makes it clear that this is a joke from within the dath ilan? And this is easier than hiding the whole thing as a spoiler? My illusion of transparency will kill me.
Around 2021 it fell by over a quarter in the space of a year, and over the last week it's gone down by 3%.
Wow, okay. I would expect that in an efficient market, a quarter reduction in global capitalization would correspond to something like a mass extinction? Maybe this problem can be solved with a higher level of sanity, but it points to why this is a very utopian model that is far from implementation, at least for Earthlings. I did a little less Googling than was necessary and instead looked at GDP, which seemed like a reasonable guide to global market growth. Of course, you don't store stocks in GDP, but I would expect stocks to gravitate toward it.
Am I somehow fundamentally wrong here that a quarter drop in global capitalization should NOT look like literally "wiping out a quarter of the world's assets" including, for example, the corresponding number of people? It's hard for me to imagine why exactly these fluctuations are so large.
Replies from: yair-halberstadt, JBlack↑ comment by Yair Halberstadt (yair-halberstadt) · 2025-03-31T18:55:12.238Z · LW(p) · GW(p)
Well GDP is about production, which should be relatively stable.
Stock prices are related to expectations about the future, which are far more variable. They essentially measure the interest adjusted value of future profit, and small changes in revenue/costs can lead to huge changes in profit since profit is a small percentage of revenue.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T19:09:30.857Z · LW(p) · GW(p)
Understandable, but would you expect that in an efficient dath-ilani-like rational market, expectations would tend more to... match production with minor deviations? This is probably the crux here - if no reasonable amount of average person thinkoomph changes the radical fluctuations in expectations, then this currency is inefficient for regular shopping purposes and I say oops. I still can't imagine what currency would be better than this, though, because I can't think of a better way to say "I'm just as smart as the market" than to put my entire stake in the market.
Replies from: yair-halberstadt↑ comment by Yair Halberstadt (yair-halberstadt) · 2025-03-31T19:21:17.638Z · LW(p) · GW(p)
To the extent they don't have epidemics or handle them better, and don't elect Trump, it's probably more stable.
I still can't imagine what currency would be better than this, though, because I can't think of a better way to say "I'm just as smart as the market" than to put my entire stake in the market.
Why are you assuming that the unit in which you denominate prices, and the way in which you store your savings are the same thing? Even on earth, most wealthy people only keep a small percentage of their net worth in cash.
These have two different purposes, so are done in two different ways.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T19:46:21.235Z · LW(p) · GW(p)
Because only the most wealthy people on earth keep their money in stocks, but they need to somehow communicate with all the other people who don't, so they only exchange "money for the worse money everyone else uses" when they trade. If everyone kept their money in stocks, I would expect people to exchange them directly without exchanging money for money, because you actually have to analyze MORE if you have two different currencies that you use for different purposes.
To the extent they don't have epidemics or handle them better, and don't elect Trump, it's probably more stable.
Not enough. In my understanding, GDP is REALITY and shares as a representation of your expectations somehow do not correspond to reality by tens of percent, which is worse than even our earthly prediction markets. If you, say, build a power plant with a payback in 10 years, in an efficient market the expected repair costs, service life, the chance of displacement by other technologies, and so on are already included in the price of this asset, so the increase in GDP (the cost of the plant as an asset) and the capitalization of shares (expectations) should correspond?
Replies from: yair-halberstadt↑ comment by Yair Halberstadt (yair-halberstadt) · 2025-04-01T03:32:05.334Z · LW(p) · GW(p)
It is perfectly possible that they directly exchange stocks but denominate prices (and wages, contracts etc.) in a much more stable unit. The bank takes care of working out how much stock to transfer to make a given fiat denominated payment.
↑ comment by JBlack · 2025-04-01T00:53:38.643Z · LW(p) · GW(p)
Market cap is a marginal measure of desirability of shares in the entity represented. It mostly measures the expectations of the most flighty investors over short timescales. If a company issues a billion shares but only one of those is traded in any given day, the price of that single share agreed between the single seller and the single buyer entirely determines the market capitalization of that company.
In practice there is usually a lot more volume, but the principle remains. Almost all shares of any given entity are not traded over the timescales that determine share (or index) prices and hence market capitalization. In addition, market price has very little to do with the value of an entity's assets. Such assets may be instrumental in generating profits, but the relation is weak and very far from linear.
GDP, too, does not measure what you appear to think it measures.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-04-01T07:09:26.848Z · LW(p) · GW(p)
I admit my mistake in intuitively assuming that GDP and stock market valuations should be closely linked. But it still seems strange to me why they aren’t, and I want to understand that better. Shouldn’t they at least be highly correlated in an idealized model?
Think of stocks as a kind of prediction market for a company’s value. The stock price should reflect expectations about its future earnings, but those expectations are built on something—maybe a new technology they’ve developed, or an undervalued specialist. If that’s the case, then why isn’t the market naturally structured in a way that adjusts salaries dynamically based on predicted contributions? Why don’t we have, say, ‘patent usage shares’ that investors can buy to increase expected royalties on a promising technology?
In an efficient system, I’d expect the market to fragment into these kinds of sub-sectors—where you can bet not just on the company as a whole, but on specific assets or individuals within it. And you love all these equal-surplus deals, so you're interested in getting that kind of accurate valuation. If you believe a specialist is undervalued, you don’t just buy the company’s stock, you invest in their salary in exchange for a share of the revenue they generate. If you believe a company’s R&D is its most valuable asset, you invest in the future licensing income of its patents rather than the entire stock.
If this kind of structure existed, wouldn’t stock prices and the actual underlying value of companies align more closely? And if they don’t, does that mean GDP is failing to capture certain kinds of value—like knowledge, which isn’t easily tradeable? Or should stock prices themselves be less volatile than they currently are?
I also don’t see how the fact that share prices are set by the latest trade changes this dynamic. If I’m missing something fundamental here, I’d love to hear your perspective. I understand that simply saying ‘the market is irrational’ is not a good correction—it’s probably smarter than I am—but maybe it isn’t structured in the most optimal way, for example, it doesn't pay people for their expected value, or there’s something key I’m overlooking?
Replies from: JBlack↑ comment by JBlack · 2025-04-02T02:01:17.976Z · LW(p) · GW(p)
Going into all the ways in which civilization - and its markets - fails to be rational seems way beyond the scope of a few comments. I will just say that GDP does absolutely fail to capture a huge range of value.
However, to address "share prices are set by the latest trade" you need to consider why a trade is made. In principle, prices are based on the value to the participants, somewhere between the value to the buyer and value to the seller. A seller who needs cash soon (to meet some other obligation or opportunity) may accept a lower price to attract a buyer more quickly. In our hypothetical and simplified one-trade-per-day scenario, that seller may accept up to 20% less than the previous day's trade price, though they find a buyer at only 5% less. So the company's market cap drops 5% even though 99.9999% of the investors and potential investors still value it exactly the same as yesterday.
This scales up since there are many highly correlated and often very short-term factors that influence desirability of shares vs cash vs bonds vs commodities vs ...etc. It's not just "what do I think this is worth to me", but also "what do I think that other people think that the market price will be tomorrow" and so on, and this can result in self-fulfilling predictions over surprisingly long time spans.
↑ comment by Yair Halberstadt (yair-halberstadt) · 2025-03-31T16:46:08.936Z · LW(p) · GW(p)
It is perfectly possible that in Dath Ilan all bank accounts are by default denominated in a global ETF, and you only exchange that for fiat currency at the point of use. It still makes sense to denominated prices of fiat currency.
comment by Oskar Mathiasen (oskar-mathiasen) · 2025-04-01T10:42:08.989Z · LW(p) · GW(p)
Here are some relevant quotes by Eliezer from a discord discussion on dath ilan currency:
Note that i have skipped parts of the conversation between each paragraph
Replies from: mikhail-2dath ilan does have an artificial currency used as a medium-of-exchange, meant to track the value of unskilled labor hours (note unskilled qualifier) as they're regularly auctioned in Taskrabbit-like markets about that, and this currency also serves as the notional definition of a medium of account because it fluctuates less than unskilled labor prices.
Nobody is supposed to be holding currency; it's strictly a medium of exchange to instantiate a unit of account, not at all a store of value. Value is held in investment accounts.
the unit of the account affects quite a lot because people do negotiate contracts about future delivery of milk, priced that way, and many small businesses prefer not to adjust all the prices on their Web Page on a daily basis.
there's also a coordination problem when you have a complicated supply chain; everyone wants to be first in line to raise prices, but everyone wants to be last in line to lower prices
yep. dath ilan's system is not meant to be superior to an NGDPLT-indexed inflationary unit of account, holding fixed the part about stores of value being held mainly in equities and the land taxes and so on. they're just legit not at the optimum there and got to their current position via NGDPLT having not been invented by the time of the historical screen, and earlier generations being not quite that smart and being much more bullheaded about "downward nominal wage rigidity is a BIAS and we will TRAIN PEOPLE OUT OF IT and COORDINATE AROUND LOWERING PRICES SUCCESSFULLY so we can RETAIN OUR IDEALISTIC COMMITMENT to the unit of account being something that EVERYONE COULD PERSONALLY SELL"
↑ comment by Greenless Mirror (mikhail-2) · 2025-04-01T11:36:37.296Z · LW(p) · GW(p)
Thanks for the info, I'm not active in the discord but will consider joining now, sounds interesting. As I understand it, the "NGDPLT-indexed inflationary unit of account" is not the "fraction system" I proposed, and in fact Eliezer thinks that using inflation-deflation is adequate because even utopian coordination and higher average intelligence are not enough for everyone in the economy to simply behave adequately. Now I wonder if the system can simply be so sane that deflation in particular will not have a negative effect and people will simply efficiently preserve jobs, set and accept prices, and market cap is stable and close to GDP, etc. If it is really possible to train people out of bias or create a system with lower structural bias so to say.
comment by Darklight · 2025-03-31T14:46:31.953Z · LW(p) · GW(p)
The idea of labour hours as a unit of account isn't that new. Labour vouchers were actually tried by some utopian anarchists in the 1800s and early experiments like the Cincinnati Time Store were modestly successful. The basic idea is not to track subjective exchange values but instead a more objective kind of value, the value of labour, or a person's time, with the basic assumption that each person's time should be equally valuable. Basically, it goes back to Smith and Ricardo and the Labour Theory of Value that was popular in classical economics before marginalism took hold.
As for your proposal, I'm having a hard time understanding how you'd price the value of market capitalization without some other currency already in place. Like, how would you sell the shares in the first place? Would you use the number of shares of various companies as units of account? Wouldn't that eventually lead to some particular company's shares becoming the hardest currency, and effectively replicating money, except now tied to the successes and failures of a particular company instead of a country like with current fiat currencies?
Or maybe your currency is a basket of one share of every company in the world? I'm not sure I understand how else you'd be able to represent a fraction of global market cap without otherwise resorting to some other currency to value it. There's a reason market cap is usually denominated in something like USD or whatever local currency the stock exchange is located at.
You mention something about your currency effectively representing goods and services actually generated in the economy, but that seems like a different notion than market cap. Market cap can, in practice, swing wildly on the irrational exuberance and fear of stockholders. I'm not sure -that- is what you should base your unit of account on. As for goods and services, GDP is calculated in existing currencies like the USD. This is for the convenience of have a common way to compare different goods and services, otherwise you'd have to represent all the possible exchange values in-kind, like a unit of iron ore is worth x units of wheat, which is convoluted and unwieldy. Soviet style central planning tried this kind of thing and it didn't go over well.
So, my impression is you may want to look into more how money actually works, because it seems like this proposal doesn't quite make sense. I am admittedly not an economist though, so I may just be confused. Feel free to clarify.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T17:05:51.852Z · LW(p) · GW(p)
I wasn’t surprised by the idea of using labor hours itself, but rather by the assumption that people in a system with free choice would naturally settle on it as the ideal solution.
Sure, I’ll try to clarify. You seem comfortable with the idea that global market capitalization can be expressed in a single currency, like the dollar. Let’s assume the world’s total market cap is $100 trillion. Let's say Apple’s market cap is $3.5 trillion, or 3.5% of the total, so if you had $1, you could conceptually allocate 3.5 cents to Apple, 3 cents to Microsoft (which has a $3T market cap), and so on across all investable assets.
This is how index funds work and I hope there’s nothing inherently strange about it.
If there are non-equity assets you can’t invest in, you still aim to expand your investment base to represent the entire market as proportionally as possible. In a perfect world, you could also invest in governments, crypto, individuals, but even an approximate model works well.
But of course you’re not doing this manually and this world, an index fund - like a "Vanguard S&P 500", but larger - handles it for you. You give them your money, and they allocate it proportionally across the entire market. Since this is the most stable strategy, many people trust it and invest in this company until they can effectively exchange shares of this fund among themselves as equivalent to money.
And when the network effect becomes broad enough, the rest of the world economy uses the shares of this fund as a currency, and from that point on, the entire economy is measured in it, because you literally store money in it as an a priori option, and given that it is invested by capitalization, it represents "fractions of the global market". So from now people exchange fractions of the global market.
Yeah, this technically depends on the "success of one company" - but the success of this index fund depends on hundreds or thousands of companies it holds. You don’t expect this "one company" to collapse unless the entire economy does, and not due to any mismanagement of a single firm. And this company does not "own all the money in the world", but simply acts as an intermediary.
Does this make more sense? If, hypothetically, all traditional currencies vanished and were replaced by shares of global market capitalization - so that instead of dollars, people traded "hundred-trillionths of global market cap", ranging from 0 to 1, and no new money was printed - what effects would you expect, and what makes you think this system wouldn't work or would work worse?
Speaking about the volatility of the global cap... what are you comparing it to? It seems to me that any national currency with inflation steadily falls, unlike the world market, which, with fluctuations of several percent, generally grows. "More stability than this" most likely means less profit, if you knew that - conditionally - gold will always rise in price, this would be taken into account in the global cap to make this growth slower than the relative growth of the entire economy.
Replies from: Darklight↑ comment by Darklight · 2025-03-31T17:56:42.763Z · LW(p) · GW(p)
I guess I'm just not sure you could trade in "hundred-trillionths of global market cap". Like, fractions of a thing assume there is still an underlying quantity or unit of measure that the fraction is a subcomponent of. If you were to range it from 0 to 1, you'd still need a way to convert a 0.0001% into a quantity of something, whether it's gold or grain or share certificates or whatever.
I can sorta imagine a fractional shares of global market cap currency coming into existence alongside other currencies that it can be exchanged for, but having all traditional currencies then vanish, I think that would make it hard to evaluate what the fractions were actually worth.
It's like saying I have 2.4% of gold. What does that mean? How much gold is that? If it's a percentage of all the gold that exists in the market, then you'd be able to convert that into kilograms of gold, because all the gold in the world is a physical quantity you can measure. And then you'd be able to exchange the kilograms with other things.
0.0001% of global market cap, similarly, should be able to be represented as an equivalent physical quantity of some kind, and if you can do that, then why not just use that physical quantity as your currency instead?
For instance, you could, at a given moment in time, take that fraction to represent a percentage of all shares outstanding of all companies in the world. Then you could create a currency based on an aggregated "share of all shares" so to speak. But then the value of that share would be pegged to that number of shares rather than the actual capitalization, which fluctuates depending on an aggregate of share prices. So, in practice, your fraction of global market cap can't be pegged to a fixed number of shares.
Also, fractions assume zero-sum transactions. If you have 0.0001% and get an additional 0.0001% to make 0.0002%, you must take that 0.0001% from someone else. There is no way to increase the money supply. Assuming some people hoard their fractions, the effective amount in circulation can only decrease over time, leading to effective deflation.
The value of each fraction, assuming there is some way to account for it, would also increase over time as the global economy grows. Thus, relative to other things, a fraction will become more valuable, which is also effectively deflation.
This many causes of deflation seem like it would become something people would further hoard as a way of speculation, again assuming there are still other things that can be exchanged for it, like commodities, even if other currencies no longer exist.
My understanding is that a good currency is stable and doesn't fluctuate too quickly. Modern economists prefer a slight inflation rate of like 2% a year. This currency would not at all be able to do this, and not work well as a medium of exchange.
And keep in mind, you can't really make all the other currencies go away completely. Gold is a commodity currency that people would try to price your global market cap currency with. You'd have to outlaw gold or remove it all from everywhere and that doesn't seem realistic.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T18:21:21.985Z · LW(p) · GW(p)
Modern economists prefer a slight inflation rate of like 2% a year. This currency would not at all be able to do this, and not work well as a medium of exchange.
Why not? Like, the S&P 500 can vary by tens of percent, but as Google suggests, global GDP only fell 3% in 2021, and it usually grows, and the more stocks are distributed, the more stable they are.
If you imagine that the world's capitalization was once measured in dollars, but then converted to "0 to 1" proportionally to dollars, and everyone used that system, and there is no money printing anymore, what would be wrong with that?
Of course you can still express money in gold if you want, it's just that not so many people store their money in it, and that would require exchanging money for money. If dath ilan heard a plan to ban all currencies, they would quickly come up with Something Which Is Not This.
It might seem like deflation would make you hold off on buying, but not if you thought you could get more out of buying than from your money passively growing by a few percent a year, and in that case, you would reasonably buy it. If it made people do nothing, the economy would slow down enough for deflation to stop, for them to start doing things again, and so they wouldn't get to that point in the first place. Every transaction you make is an investment of your knowledge into the global market in the area where you believe you are smarter than the market and can outpace it in some sense.
Replies from: yair-halberstadt, Darklight↑ comment by Yair Halberstadt (yair-halberstadt) · 2025-03-31T18:42:31.428Z · LW(p) · GW(p)
The main reason economists like inflation is because it allows companies to lower real wages of underperforming workers without having to actually give them a pay cut.
It also has other advantages - it allows a central bank to set a negative real interest rate, giving them more flexibility in the usage of interest rate as a tool.
Deflation meanwhile is considered very bad. Some of the reasons wouldn't be relevant here, but the key one is that meeting agreed on contracts becomes much more expensive than expected. If the wages you pay to your farm workers are tied to the stock market, but the income you get from selling farm produce is not, you have a real problem.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-03-31T18:49:36.095Z · LW(p) · GW(p)
The main reason economists like inflation is because it allows companies to lower real wages of underperforming workers without having to actually give them a pay cut.
Yeah, I remember this part, and also the part where dath ilan don't use it anyway, because instead they can just "order everyone to step to the right once" and accept those wages and people are sane enough to do so.
↑ comment by Darklight · 2025-03-31T22:44:13.771Z · LW(p) · GW(p)
Why not? Like, the S&P 500 can vary by tens of percent, but as Google suggests, global GDP only fell 3% in 2021, and it usually grows, and the more stocks are distributed, the more stable they are.
Increases in the value of the S&P 500 are basically deflation relative to other units of account. When an asset appreciates in value, when its price goes up it is deflating relative to the currency the price is in. Like, when the price of bread increases, that means dollars are inflating, and bread is deflating. Remember, your currency is based on a percentage of global market cap. Assuming economic growth increases global market cap, the value of this currency will increase and deflate.
Remember, inflation is, by definition, the reduction in the purchasing power of a currency. It is the opposite of that thing increasing in value.
If you imagine that the world's capitalization was once measured in dollars, but then converted to "0 to 1" proportionally to dollars, and everyone used that system, and there is no money printing anymore, what would be wrong with that?
Then you would effectively be using dollars as your currency, as your proposed currency is pegged to the dollar. And you stopped printing dollars, so now your currency is going to deflate as too few dollars chase too many goods and services as they increase with economic growth.
As you are no longer printing dollars or increasing the supply of your new currency, the only way for it to stop deflating is for economic growth to stop. You'll run into problems like deflationary spirals and liquidity traps.
It might seem like deflation would make you hold off on buying, but not if you thought you could get more out of buying than from your money passively growing by a few percent a year, and in that case, you would reasonably buy it.
Deflation means you'd be able to buy things later at a lower price than if you bought it now. People would be incentivised to hold off on anything they didn't need right away. This is why deflation causes hoarding, and why economists try to avoid deflation whenever possible.
Deflation is what deflationary cryptocurrencies like Bitcoin currently do. This leads to Bitcoin being used as a speculative investment instead of as a medium of exchange. Your currency would have the same problem.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-04-01T08:21:10.357Z · LW(p) · GW(p)
In dath ilan, inflation and deflation are not used as macroeconomic tools because people are rational enough to accept wage reductions if their purchasing power remains unchanged, or to voluntarily pay the government to prevent crises without the need for a hidden tax that dilutes money by printing more during a crisis. Interest rates on loans could be lower if you expect returns that outpace deflation. If people can afford not to work, they are expected to do so, and they would spend more "shares", redistributing them in favor of those who are more eager to work. Perhaps you aren't really interested in having people work that much or that often, especially if you're aiming for a utopia with a four-hour workday, or something similar. How relevant are these issues in a world where "every person is economist in the same way every earthling is a scribe by medieval standards"?
Replies from: Darklight↑ comment by Darklight · 2025-04-01T16:21:53.211Z · LW(p) · GW(p)
Ok fair. I was assuming real world conditions rather than the ideal of Dath Ilan. Sorry for the confusion.
Replies from: mikhail-2↑ comment by Greenless Mirror (mikhail-2) · 2025-04-01T18:01:53.068Z · LW(p) · GW(p)
To be fair, before publishing I thought this currency could be implemented in a real world environment with less improbability. My current main doubt is "how can the market cap be so volatile with a stable GDP, and would they be closer to each other in a more adequate equilibrium?". And I've basically switched to "okay oops, but under what conditions could this theoretically work, if could at all, and could you imagine better theoretical peak conditions?" mode. Deflation seems like a reasonable danger, I just can't see how it could be avoided if everyone used market fractions at least to store their money if not to exchange. Because, like, you don't introduce a random money-making machine into the system to solve your psychological problems at the cost of 2% of your money, there's no place for it, so I'm guessing that people would adapt to that, and there's a fictional example of dath ilan that such adaptation is real.