Last week, I discussed a simple case with just 10 individuals interacting by emitting IOUs. We saw that when a large number of IOUs had been emitted, many of them can be made to magically disappear in a puff of smoke with a little bit of housekeeping work behind the scenes. Obviously, it's trivial to notice that if the Baker owes the Electrician €8, and the Electrician owes the Baker €3, you can cancel out one of the IOUs by subtracting €3 from both - leaving the Baker owing the Electrician €5.
But it gets much more interesting when the network is much larger. My postdoc Jake told me that this is a standard problem in Graph Theory, and that the question of eliminating loops in directed graphs is a well studied problem. Essentially, we need a bit of software that examines the structure of the IOUs within the entire population, looking for loops. For example, consider the following
- A owes B €10
- B owes C €12
- C owes D €10
- D owes E €14
- E owes F €10
- F owes A €11
- B owes C €2
- D owes E €4
- F owes A €1
There's another very interesting thing that can happen if you include not just individuals in the network, but also a public authority, such as the local council. Each citizen might be required to emit an IOU to the council to cover the cost of provided services such as road repairs, a public library, administation and so forth.
In turn, the local council could partially pay its staff using the same IOU system for doing things such as road repairs. But it could also reward other citizens with IOUs for performing other useful work in the community such as looking after the elderly and disabled, providing after school actitivies for school children, or providing gardening services for communal gardens.
Now that the council is involved, there will be a wide range of new ways of cancelling out IOUs. Suppose that an unemployed person owes the Baker €10, the Baker owes the Council €10, and the unemployed person does some useful work for the community that the Council considers merits an IOU of €10 (for example, by helping a disabled person do their shopping). In that case, we have a new loop, and all three IOUs can be cancelled. In effect, the unemployed person has managed to pay his bill at the Baker's by doing some useful work for the community.
And the truly wonderful thing about such a system is that no-one had to go and borrow money from a Banker to make those transactions, and that means that there is no interest to pay! It demonstrates just how stupid we have been for so long by allowing commercial banks to create the money we need for commerce out of thin air, and then charging us all interest to rent their money.
We really can create as much "money" as we want, free of debt.
Right now, I'm looking seriously at the possibility of modifying the Cyclos4 software system to allow this sort of IOU based system to be implemented. Cyclos4 is a remarkably sophisticated payment system that can be used for developing a wide range of alternative currencies. You can make payments using a smartphone app, or by SMS. So far, I haven't quite worked out how to replace actual transfers by IOU emissions, but I'm confident that it could be done. A bit more programming round the back to detect loops in the graph, and we would have a fully usable system.
If you would like to help me get it up and running, do get in contact! Owe'm could be just around the corner!