The Totality of the Proposal: Ideal Money

The ICPI or consumption index, that John Nash suggests would be the ideal basis for backing a currency, is really a theoretical point only.  Hayek’s point about how only the markets can determine the proper prices for commodities becomes relevant here.

On the one hand ideal money is to be printed in relation to an ideal basket of commodities and on the other Adam Smith showed that excess monies printed beyond the value it represents, necessarily returns to the banks.

Nash points out this “return” necessarily effects price.

Thus the quality of a currency is seen in relation to the amount a currency grows or contracts with respect to the underlying value it represents.

There is a suggestion then that in order to reign in the suppliers of each respective currency (Keynesian/central banks), one simply needs to create a market for the currencies so the players can sort out the value.

Because of bitcoin, a decent (but not ideal!) barometer (and especially since it is available in each country), the result of market competition is that any currency wishing to survive must necessarily evolve to better represent it’s respective underlying ICPI.

The solution for “pegging” currency to an ICPI therefore happens without actually ever determining an ICPI or any formula or implementation for it.

There is then an asymptotic approach to global stability-a true monetary standard!