Holochain Forum

Sovereign money and mutual credit: what about freeloaders?

Very interesting. But doesn’t that mean that the new money (as means of a tradeable promise) is just as good as the reputation of the single seller and not the whole economy?
Of cause, you could treat this new money just as the other money. But this would mean that you have to take care parties gaming the system by issuing new money with a plan to pass on the newly created money in the system and default on it some days later. Of cause they can’t do this often. But you can easily found a new company and do it again with this new participant. in theory, you could even do it indefinitely with freshly created entities.

(Note to readers: this discussion was forked from the FAQ on mutual credit.)

In a way, yes. The person receiving the credit (the seller) has to make a judgment call about the quality of the promises of the person creating the credit (the buyer), and AFAICT the seller is making that call on behalf of the entire economy. To my mind, that does create the possibility of a sort of ‘inflation’ where more credits exist in the economy than can be cashed in for things of real value. A few thoughts on that:

  • It should be fairly easy for the seller to make judgment calls about the quality of their counterparty’s promises based on their history — you can mine it for all sorts of information like average balance, velocity, time to zero balance, etc.
  • The economy can probably absorb a certain amount of freeloading fairly graciously before its immune system kicks in and actors as a whole choose to stop accepting credits from the freeloader in question.
  • Throwaway identities (limited-liability corporations consisting of one person) should be disallowed for this to work well. There should be only one identity per person to prevent the sort of throwaway identities you’re talking about. This indicates the need for (pseudonymous)-proof-of-personhood — either through zero-disclosure proofs of gov’t identity (e.g., a signature from the driver’s licensing office that agent A with public key 1234aEq37G has a valid driver’s license) or through some sort of P2P proof-of-personhood. (@resilience-me has some interesting ideas about this.)
  • I’ve got this sort of intuition that, when money is free and simply a unit-of-account/medium-of-exchange, and credit limits are a matter of collective discretion and not policy, supply inflation doesn’t necessarily equate to devaluation of the currency and runaway prices. When it’s not scarce, you can use it as a stable unit-of-account without worry. But I’m not 100% convinced about my intuition.

In short: I expect that good quality social structures are what help this sort of thing work. Western society has a lot of work to do on that front, so I’m really curious about what emerging economies can teach us if they adopt ‘new money’ before us.


Ryan Fugger’s Ripple solved freeloaders in mutual credit systems 15 years ago in 2004 by limiting all exchanges to trusted relationships, and then routing payments via people who trust one another, hopping from person A to person B to person C in a way similar to how information hops between relayers in TCP/IP.


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I get the point for a real person with a unique ID. If the system will only allow a re-entry with the same ID he wouldn’t try to play tricks as he would start with a fat minus. So even a newbie in the system can be given a m/c, especially if his counterparty trusts this new person in the system, as the counterparty knows the new player to have acted trustworthy before in other systems.

But the problem remains with legal entities. And we are not only talking about one person Limited etc. If one of these is newly founded it will receive a new ID. And you can found one pretty easily.

I wonder if the connection to the personal IDs of all shareholders would help. When a Limited with 2 persons goes down the drain, both persons would have “a spot on their vest”. If it was a clearly fraudulent action they might have a very hard time in the system in the future.

But even this doesn’t stop fraudsters from hiring people that have no interest to take part in this economy anyway and “sell their ID” to the fraudster.
Of cause if the new system would go really wide and cover every aspect of life, selling your ID would be no good idea.

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=> Yes, leapfrogging to a new more trustworthy, stable … currency system might really boost their economy while we are still stuck in our old ways.

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@pmonien I’m sort of picturing that legal-structures-as-insulation-from-past-mistakes won’t exist in many of these systems. There are definitely good things about it — after being taken to court on a spurious claim by a client who was trying to hide their own failures, my father-in-law was quite grateful to be able to throw away his corporation and start fresh without any black spots on his own personal name. But it’s a double-edged sword; the potential for abuse is, as we know, huge.

I like your idea of having the corporation’s history tied to the humans who created or run it. I never thought about the possibility of bad guys hiring people to do their dirty work for them, but yes, if you know that your history is going to follow you around beyond your relationship with a fraudster, it would probably give you pause.

Another concern: I recognise that these systems of persistent reputation and history have a lot of good things going for them. But one thing humanity is pretty terrible at is mercy/forgiveness/grace. How can we design a reputation system that allows for redemption and a magnanimous forgetfulness of others’ past sins?


Maybe introduce a half-life mechanism for reputation, so that something I did ten years ago ways less than what I did last month. That way past bad behavior might not go away entirely. But It will be outweighed by my recent good behavior.

Funnily enough, just today I was thinking of a similar half-life mechanism for a mutual credit currency as well.

It does make perfect sense when we understand currency as oblogations between individuals.
If I mowed your lawn last month, you can rightfully expect of me to mow your lawn (or an equivalent service) next month. 20 years from now however, that dept should be barred and me insisting that you should mow my lawn after that long a time is just petty.

So likewise it would make sense for a dept (in the form of mutual credit) to gradually lose validity over time. Even a small number, like half a percent per year would have a stabilising effect on the whole system, slowly reducing inequality.

Such a mechanism would also insure the flow of currency, fostering econimic activity. And without a centralizing mechanism like compound interest, the only way to actually accumulate and hold monetary wealth would be to continuously contribute to society.


Great point. I know several cases where one partner was the reason of bankruptcy. Tricky.
And yes: Foregiving should be also be build in.

Interesting, even with a 0.5% = 200 year perspective.

True, this kind of demurage currency is used on a regional level in Germany (Chiemgau region). Met David Wood who told me about the systems he introduced in Africa (was it Kenia?).
Still have a banknote from him with places to add stamps to keep it valid. :slight_smile:

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He is the inventor of it, and Keynes said: we will learn more from Silvio Gesell than from Marx in the future…

Look up the : worgl experiment only in the wiki link.

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Yep, know Silvio Gesell and Wörgl already. Even been there in Wörgl. :slight_smile: Quite popular. Was closed down by the government as it was too popular and they wanted to keep control of the money.

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If the roof, the maximal amount of credti/debit is low at the beginning maybe the circuit itself could buy things from the “outside economy” and resell it in the circuit for balancing the missing goods value.
Sardex does like this, but there they have also support from the state to treat sardex debts like euros debts.

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The problem represent itself if u allow big entities to take part of the circuit (the Sardinia region was almost entering the Sardex circuit but than the politician changed and everything stopped if i understood well) than the bigger user will have a bigger maximal and to return to balance will be hard,…

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