Money is memory

Some thoughts on a 1996 paper by Narayana R. Kocherlakota.

After the usual “money solves the medium of exchange problem” example, he describes monetary allocations are large interlocking networks of gifts, but they are gifts which others agree to honor as well.

It is fairly obvious from his proofs that a single currency improves the probability of allocation matching, meaning it improves the odds a transaction will be remembered and honored.

He defines an “autarkic equilibrium” as a state where an economy is self-sufficient and does not rely on external factors for its growth or survival, and states that either money or memory is necessary to allow allocations that are better than autarky.

His conclusion is that…

The message of this paper is that the only thing that money adds to a society is a (limited) ability to keep track of the past.

I think money is better than memory, both because of privacy concerns, and because eventually memory becomes too much to usefully process.

Some thoughts

I briefly considered if Fureai Kippu wasn’t both, but in fact it’s mostly money - you do not know why or how someone came upon a ticket, you (at best) only care that you can use it later to get care for someone.

Kocherlakota’s idea of money as a perfectly durable good makes me think of ledgers. Why wouldn’t it be perfectly durable? Does Ethereum provide a small amount of utility when burned, since it makes it deflationary?

It is curious that we now have systems with perfect memory, where we can remember every past interaction (Ethereum, Solana, etc.) but still use them to create money. It might be because of skeuomorphic reasons, or it might be because money actually adds value.

Effectively, in crypto, transactions, money, and information are the same. Kocherakota does recognize that the transactions/money ratio is growing over time because it’s every cheaper to store and access information.

And then there is the issue of Privacy and Memory.

On an ideal scenario, memory would be the an universal collateral. Meanwhile, money will do. But there is something in your specific memory bundle being seen as a hyper-locam Diem, a currency basket that changes value based on its components.


Ricardo J. Méndez