PROTOCOLS FOR POSTCAPITALIST EXPRESSION

Agency, Finance and Sociality in the New Economic Space

By Dick Bryan, Jorge López & Akseli Virtanen

[Colchester / New York / Port Watson: Autonomedia / Minor Compositions, Forthcoming 2023]

ECSA ECONOMIC PAPERS

[Chapters 1 & 2 for Close Collaborators, March 2023]

TABLE OF CONTENTS

Foreword: On Economic Intelligence

CHAPTER 1

INTRODUCTION

ECSA team discussing the Ch1, Nov 1, 2022

1.1 Contesting the current order

Despite a deepening climate disaster, consecutive global economic crises and a socially devastating pandemic, the last two decades have found us living in an era of capitalist triumphalism. In almost all capitalist countries, political leaders celebrate their achievements in promoting economic growth and stock market record highs while ‘successfully managing’ wage growth. State ‘reforms’ of all kinds have seen growing precarity of those whose living standard is low and growing wealth and security for those at the top. Indeed increasing inequality seems to be the current engine of economic growth and it is only in the very recent past that concerns for the biosphere have looked like a constraint on that momentum.

At an individual level, it is now clear to many people that the economic aspirations of a previous generation are no longer available to the majority of the population, and especially younger people. The combination of education, finding permanent employment, and saving diligently in a bank or pension fund is no longer a formula for life security – it's not available and increasingly it’s not aspired to. Education is now about debt accumulation with no guarantee it will generate the capacity for repayment; permanent employment and the idea of a predictable, secure income is, for a growing proportion of the working population, both unavailable and oppressive, and saving in banks sees negative real returns while wage payments into pension funds constrain current living standards in the name of a self-reliant old age.

The starkest challenges to capitalist triumphalism have not come from what we would call the traditional ‘left’: the trades union or the socialist organizations. Predominantly, they have been in defensive mode, trying to hold back change. The emerging challenge is from a different source: people who simply don’t want to play by the rules of capitalist economics; who want to define themselves outside its discipline and its system or rewards.

Generally, these people aren’t in trades union or political parties; they may not see themselves as being on the ‘left’. So how do we profile these people? Perhaps they are open source developers, but their designs can’t be easily monetized, or won’t be funded by the internet monopolies. They may well create social benefits, but their innovation doesn’t comply with corporate business plans. Perhaps they see themselves as a custodian of the commons, but can’t see a way to expand the organization of that role to the scale required. Or maybe they care passionately about environmental decay and work to build biosustainability. But they know that, for all the official posturing about sustainability and concessions to green industry, the current system will never pursue deep changes that will save the planet, because returns to investors will always shout loudest in any debate. They might work in various forms of human care, for low or even zero income, and generally without much social recognition, but they know their contribution is socially essential and should be rewarded with a reasonable income. Or perhaps they work in art and design, and hear governments pronounce on the importance of cultural creation, but see them deliver miniscule funding to people who are indeed performing critical social roles.

What all these endeavors have in common is that they generate social benefits but aren’t recognized as profitable in a capitalist sense; indeed as not creating a surplus, to use a more general term. In a Covid-dominated world, with state fiscal austerity and protracted economic downturn awaiting, their financial future is bleak. Will audiences return with spending power; will governments still give grants; will philanthropists feel as generous?

An alternative for these sorts of people could be to participate in an economy that values differently: both in the sense of different modes of calculating economic ‘value’ and with different collective social and ethical values. This would be an economy not driven specifically by profitability, nor reliant on state subsidies or philanthropy, but one which draws on aspirations and affects, to value social, creative and environmental benefits, without reducing all contributions into a price. Artists and designers, along with people performing care roles – care for people or for the environment – could be rewarded for what they actually contribute to society.

This is the economy that we are aspiring to see built. We are pitching our network design particularly to the generation of people who want to do it differently: who know from personal experience that the conventional economic system is not serving them well individually or collectively, and are looking for ways to participate in building a collective future of their shared design.

Our proposal is that analysis must start at the frontier of current change, and work out how to subvert its momentum. A critical factor in framing this direction is the recognition that social and economic power has shifted dramatically since the 1970s from industrial capital, and the workplace-based unions who battled it, to finance, where there is little organized resistance; at least not the old kind of resistance. Finance is too elusive, too liquid and mobile to be trapped in power battles with organized labor, and the people employed by finance are not generally in a union-based labor force.

Economically and politically, if we want to build postcapitalism, we must start by recognising this power of finance and challenge it by building a different finance. The ultimate goal is an economy of production, animated by alternative social and ethical values, and the starting point is finance.

Finance is both dynamic and fragile. In its current dominant form, it goes to where the profits are greatest, but it instantly retreats when the profits are not appearing. So it is a direct discipline on those who need finance: they must deliver profits, or they suffocate.

But its liquidity and mobility is also its vulnerability, for finance depends critically on the state to provide it with a money instrument and to underwrite its social reputation and its profit. The US-initiated sub-prime crisis of 2007-2008 and, even more emphatically, the 2020s Covid pandemic have revealed how the fast and free movement of finance can undermine its own conditions of existence. In both periods we have seen nation states (predominantly through their central banks) having to throw money at financial markets to secure liquidity and sustain financial market profits. In 2008, the US Federal Reserve Chairman argued behind closed doors that the state has to do whatever it takes to preserve financial market profits or economic disaster would follow. By 2020, the financial institutions were themselves confidently asserting the demand for the state to guarantee their profitability.

Somehow, we have collectively fallen into the position where these institutions hold the key to our viability. The oppression of the treadmill of working for wages and the intrusion of the logic of finance into daily life now express both the triumph of capitalism and the reason so many people are resisting its consequences.

But if the current era is about the shift from the power of industrial capital to the power of financial capital, then the new, emerging forms of opposition need to be uniting around finance. Some have been tried, but ultimately they succumb to the power of what they oppose. In 2011 Occupy Wall Street was the initial instantiation of this opposition in its contemporary form, but it was conceived as a protest and a spatial obstacle in the movement of financial actors; not an alternative finance. Occupy could be dispersed by the state power of the police. In 2021, social media mobilized a crash of hedge funds short-selling GameStop (GME) shares, and with short-term success, but ultimately at significant cost to participants. Neither was sustainable.

The idea that there could be a different finance, or that certain monetary roles could be performed outside the current financial system and without state backing, had already emerged in 2008, but not initially in a recognizable form. That new possibility came into being with Satoshi Nakomoto’s Bitcoin White Paper (2008). Its implications have become worrying for states and big financial institutions alike, for it usurps their power to determine the rules of finance and how the economy should operate.

This is where the domain of cryptographically enabled decentralized economic-organizational systems (a.k.a cryptotokens) opens the possibility of a challenge to capitalist triumphalism in a way that the old industrial-based organizations of the left now cannot and probably never could: it challenges the state’s and financial institutions’ monopoly over finance.

This challenge means taking finance outside the state and the current financial institutions. We propose networks of people, with their own financial capacities – units of account, distributed credit issuance and ways of investing, measuring and rewarding – building a collective alternative to capitalism in a way that the traditional left no longer can.

That’s still not how most people are thinking of crypto, although attitudes are changing rapidly. One widespread image, especially from those invested in the current financial status quo, is of cryptotokens as scams and crypto markets as casinos of speculative bets. An alternative image is of a libertarian anti-statism of freely associating individuals, pursuing their own goals in the name of some individualistic conception of ‘freedom’. Both of these views warrant direct critique, and these will be developed in subsequent chapters. It will be revealed that they may not be ‘wrong’, for there is evidence of all these characteristics, but the critiques are trivial and dangerous in equal measure. They are trivial because crypto token design keeps evolving and markets in aggregate seem resistant to the effects of scams and volatility (though some individuals certainly lose wealth). Continual predictions of the pending demise of the cryptocurrency markets are consistently wrong. The critiques are dangerous because they are premised on the idea that, with sufficient diatribe, crypto currencies and the technology they represent will simply disappear. So they encourage the perspective of crypto as a cult, and thereby discourage the importance of a wider population inquiring into the potential for new ways of thinking with cryptographically enabled technologies.

Beneath these ideologically-defined polemics, ‘crypto’ simply offers various versions of a technology of communication and exchange: the possibility of coordinating chains of interactions without a central 3rd party authority. And basically that’s all it can do. Economic protocol design must be much more, but critically built on that game-changing technology. So our project is to push past this ideological polemic and immediately frame crypto technological innovation as a site of social contestation about the sorts of social interactions we are seeking to facilitate, built on top of a technology of communication and exchange.

Our project is to design a network where participants:

• interact in the creation of new outputs (not simply gamble on price movements);
• communicate in the determination of what is deemed value-creating (not driven by private appropriation of profit);
• coordinate the assemblage of production (not corporate);
• bind in the building of a commons (not individualistic); and
• launch the capacity to scale and reproduce in sustainable ways (not reliant on on-going injections of external funding).

We cannot, and should not, pre-determine the outputs that people produce, nor what constitutes value or the content of the commons. The people who have participated in building the Economic Space Protocol outlined in this document all have views about what sorts of outcomes we would personally like to see, but it is critical that these are not predetermined in protocol design, that distributed network interactions and not a central authority coordinates network development. That’s why we frame our work as a political project as well as a project of network design.

1.2 What does the future hold?

Blockchain-based innovations for economic and financial design are evolving rapidly. Most recently, DAOs, DeFi, stablecoins, DEXs, liquidity farming, NTF markets and creator and community tokens offer expansive new possibilities. But what will be the next frontier; the next big development?

What does history suggest?

By today’s standards, history moved in slow motion. It records that money, roughly as we now know it, dates from about the 7th century BCE. Recognizably modern banking developed in the Northern Italian coastal cities of Florence, Venice and Genoa in the 14th century, driven by the funding requirements of long-distance trade. This banking evolved over the next few centuries from funding commerce to funding the rise of industrial production, and a system we call capitalism. The formation of joint stock companies and a liquid stock exchange in the mid 19th century transformed ownership of capital to decentralized protocols, though the division between ownership and management served to re-centralize the control. This is the corporate capitalism we know today.

In cryptohistory, that long evolution looks like it is happening over little more than a decade. Bitcoin as a new, distinctive p2p form of money arrived in 2009, with DeFi (decentralized finance, or banking protocols) becoming prevalent a decade later; funding new kinds of distributed exchange and money games. Governance mechanisms of DAOs and in-house treasury functions, broadly replicating the roles of the corporate form, followed immediately afterwards. History would say that these developments must surely evolve to the funding of a new era of production as its next logical step. But that next step is yet to emerge, and its possible shape is still unclear.

It is already clear this future will be ‘post-industrial’, with information at the center, as both its predominant input and output. But what will be its social shape; what technical capacities and social relations will it build upon? There are two complementary, contemporary developments that are critical: distributed money and the iteration of the internet that brings decentralization back into its heart; also known as Web3 or the Economic Web.

First, distributed money. The development of blockchain technology opened the possibility of re-thinking money: what it is, who issues it and who controls its value. Bitcoin initiated a new form of money, but it remains centrally issued and controlled by the global virtual agent that maintains the ledger in singular blockchain. Network protocol design creates the possibility for a distributed money system where there is no central money issuer. All agents can be issuers, while network-recognized collateral for such lending means the money system can nonetheless remain stable. These are already the foundations of current shadow banking. Such a money system is elaborated below.

Distributed ‘money’ can then be put at the service of pursuing postcapitalist economic values (modes of calculating), effectively superseding the profit-based calculus that is embedded in the price of and access to conventional money. In relation to capitalism, we can now have a parallel (but interacting) money system, associated with a parallel (but interacting) value system.

Second, Web3. We have designed an economy that draws on the data and network capacities that were driving the initial development of the internet more than forty years ago: an internet native economic system. We have built on the vision of Web3 and the re-imagined potential in the internet: its capacity for trust and verifiability, for scalability and decentralized relations, with users owning and in charge of their own data. The potential of Web3 opens a new economic imaginary, where peer-to-peer economic networking protocols can create performances and outputs out of information creation and exchange, distributed computation, connectivity and network relationships. Codified incentives and enforcement can motivate new economic relations, with informational value transmitted as tokens. There is a lot to absorb in these last sentences, and the process tagged here will be elaborated in the chapters below.

We see Web3 engaging the native potential of the internet, challenging and going beyond the power of the current major internet players (tech companies, financial institutions and other collectors and users of consumer data) who have channeled, and even prevented, the realization of this potential by means of copyright, paywalls, advertising, data extraction, etc. so that internet expansion remains consistent with tech company profitability. A blockchain-based distributed money doesn’t need to ‘take on’ these corporate giants; it is sufficient simply to sidestep them.

Web3 offers the potential for what we call ‘economic media’ for expressing economic-organizational relationships and networks. The capacities of distributed economic communication have yet to emerge. Bitcoin, for all its innovation, preserves fiat money’s monologic monetary value (‘price’), not the broad sweep of social meaning that can attach to exchange. Other crypto designs (such as Ethereum) have attempted through smart contracts to make this expression on the blockchain more robust by creating programmable money, but the full development of a cohesive and expressive, decentralized medium of value networks has not yet been achieved. We are building on this aspiration.

When we turn to finance, we see the same processes that were just depicted in relation to the internet. Credit, which is essentially a system of IOUs, requires systemic trust, scale and collateral. The current world of institutional banking and finance performs these and other functions in a way that extracts wealth from, and imposes surveillance on, those who borrow and lend. Decentralized Finance (DeFi), like Web3, is offering the alternative to this corporate control by developing decentralized credit issuance and other financial products of risk management. But can DeFi develop the extra stage and link to the funding of investment in new systems of production? We believe that this requires an analytical leap: to think of stake (ownership of investment) as the preferred collateral for reciprocal issuance of credit. It will give credit a material and expandable foundation. Financing investment in new forms of production (performances) will itself open up new possibilities for DeFi that link to the ‘real’ economy.

For us, the goal of realizing the potential of Web3 for economic design, extending DeFi into investing and staking, and building an economic space of many collective values are all parts of the same vision. These connections are our depiction of collaborative finance (CoFi), and the proposition that it is through finance that a network most actively coheres. But, in connection to our starting question of what the future holds, we need a clear stepping off point. In capitalism, it is the state that economically ties the present to the future. It issues treasury bonds and oversees the yield curve, it sets the base interest rates from which commercial rates follow and it manipulates exchange rates, etc.. But in a new economy, it can be the protocol designs of distributed finance that economically links the present to the future. So it is critical that the interaction of credit, investment and exchange – all dimensions of CoFi – are integral to protocol design.

The subsequent chapters of this analysis work systematically through these issues, moving from the creation of new products (Chapter 4) to staking their creation and distributing their outputs (Chapter 5), to a system of credit that keeps the system of performances and distribution flowing (liquid) (Chapter 8).

1.3 A new economic space; new economic performances

To conceive of a viable postcapitalism that gives focus to collective, shared futures, we start from the proposition that the economy is a network: a group of agents interacting under certain agreements, (i.e. protocols) which define the relations that form the network, and how its state may change.
Protocols involve design choices and they can embed the capacity to be redesigned at the will of the network itself. A postcapitalism must be built ‘inside’ capitalism and find its own way to emerge ‘out of’ capitalism.

Our approach combines the radical rupture of bitcoin with the integration of CoFi and adds to them the agenda of expressing different collectively-defined means of defining and measuring value, to build an open, new economic space. Building a whole economy represents a profound change in direction for cryptodesign. We call it the Economic Space Protocol. The Economic Space Protocol is the language that network participants, through their agents, use to interact, program and operate an economic space. These social and economic interactions are of the participants’ own determination, but not in circumstances of their own choosing. It is important to highlight that the existence of the network and its protocols is the foundation of interactions between participants: they interact through the network.

But nor is the network imposed on participants. Although an agent ensures adherence to the protocol, when the protocols are designed the ‘right’ way, participants operate in an open and coordinated space where they can collectively assert sovereignty over the network; not via a central authority, but via distributed network governance. Choice is individual and sovereignty is collective. The objective of design is to enable a process of sovereignty that sees participant decisions incentivized to enhance shared goals. The effect would be to bring the collective and each participant into alignment.

Framed this way, the economy is a programmable, designable medium: not in a mechanistic, reductionist sense of guaranteed processes and outcomes, but in the sense that how the economy works and its key conventions – the kind of relations, interactions, agents, incentives and values the network operates under – can become simultaneously an automation space and a design space, continuously open to its participants.

We started this chapter with the contention that crypto developments have not yet given focus to new ways of producing, or what we prefer to call ‘performances’. Performances involve processes of new value creation. Understood more broadly than ‘production’, performances can focus on issues of social meaning, shared risk taking, and affect. It is important, therefore, that our initial approach to the Economic Space Protocol centers on performances. The Economic Space Protocol sets out three critical features of performances:

New forms of economic participation. Capitalism produces one form of incentives, one form of ownership, one money system and one stream of value. The Economic Space Protocol enables a different stream of value, with different incentives, ownership and tokens. Agents in the network design their own performance expressions, including the internal relations of performing and the social outcomes they claim for their outputs. These relations, as well as the outcomes of a performance will be evaluated by the network as contributions to the creation of new economic value. The network is not specifying exactly how ‘postcapitalist production’ should be organized, but when protocols are not designed around extractive class relations, the most suitable forms of performance relations are created by agents themselves.

Reciprocal staking. All agents invest in other agents. They invest not from a store of ‘money’, but by giving up stake in themselves. Hence staking is reciprocal. The network will involve an evolving web of connections of stake ownership, creating the conditions for a network commons. Agents therefore have financial, strategic and emotional skin-in-the-game across the network. Individual agents want their performances – their offers to the network – to be evaluated by the network as to whether they are deemed to create value for the network, and this evaluation determines the rewards for staking (‘dividends’).

New modes of valuing. When agents reciprocally stake and make their specific staking decisions on who in the network is creating valuable social output, they are signaling what they believe creates a ‘collectively defined value’. This signaling will be formed into network-generated units of measurement (see Chapter 7), so that agents in the network are participating in both creating value and defining what constitutes a ‘collectively defined value’.

These three features are interrelated in ways that will unfold in subsequent chapters. In effect, we have taken the collective values of the commons and designed a way to reconcile them with market relations.

Our goal is to build distributed economic relations that privilege collectively-expressed values and the creation and distribution of outputs (and their outcomes) that comply with, and are motivated by, those values. So the significance of starting with performances is that it gives focus to shared flows of value creation, and the incentives to risk in generating those flows, not on the issue of individual decisions to buy and sell. This focus is the key to building a network with a collective momentum, rather than being a forum for trading per se.
**

1.4 A note on terminology

By this point, readers will have already come across some terms that are new, or familiar words being configured in new ways. In a project such as ours, it is always a dilemma whether to invent new terms or to try and wrest familiar terms from their narrow historic framings. We have done some of each, and carefully considered how to get that balance right. To assist readers in this interpretation, we provide a glossary to terminology developed in the Economic Space Agency.

There are three terms, which have already appeared, that need some degree of clarification at this stage: staking, tokens and value. The clarification here is definitely preliminary, and we will reprise and elaborate these terms on a number of occasions as the analysis develops.

Staking. In cryptoeconomics, staking has recently become prevalent, but with multiple different points of emphasis. One use of the term arises in the context of ‘proof-of-stake’, where people stake their holdings of a token as collateral to become validators of ledger transfers of that token. A second form of staking is lending tokens that others may borrow (e.g. for use in derivative trades), generating a speculative yield to ownership. A third is collateralizing (staking) tokens for a loan in a stabletoken, which can then again be invested or staked (and the process rinsed and repeated, many times). These practices led to token markets becoming increasingly leveraged, and susceptible to the price crash that happened in 2022.

A fourth use of the term staking involves locking tokens to a protocol's staking contract in return for certain ‘rights’. As a type, this form of staking is one application of our use of the term. In our analysis, staking involves taking on a financial exposure to the success/failure of another person or group’s (agent’s) creation of output. In aggregate, it gives a network a shared exposure to the future. It is a process of investing in new performance, and it generates returns based on the success of that process. Some in cryptoeconomics (e.g. Walden 2020) talk of the importance of intertemporal commitment in an ‘ownership economy’, and our view broadly aligns with this.

Tokens. By definition, tokens are an exclusive, transferable and quantifiable set of rights, but in many people’s initial understanding, they are simply alternatives to the state’s fiat currency, with bitcoin as the chief referenced challenger. In both cases, these are issued centrally by a third party. The state’s issuance rests on the reputation of the state; bitcoin’s on a widespread belief in the blockchain, its finite quantum and its cultural statement. Both are believed (and agreed) to be a store of value; one (for now) deemed ‘safe’; the other volatile, but a store nonetheless.

The tokens we introduce are neither centrally issued nor do they store wealth in themselves: there is no ‘money’ in the conventional sense. Instead, in a distributed network (without a central 3rd party authority), tokens are issued by individuals/collectives (agents) to transfer an exclusive set of rights to an underlying value, be it a good, a service or an asset. Tokens are at the service of a ledger, and the balance on the ledger records the good service or asset being transferred in one direction and a token transferred in the other direction. The question, of course, is what you can do with a token issued by another person. Answering this will take us into details our analysis is not yet ready to reveal but, to give some answer, those tokens are associated with the settlement of credit.

Value. This concept has two general meanings. One relates to values as an ethical frame (as in personal values). The other relates to value as a quantifiable statement of what something is worth. Those two may overlap significantly (a quantified ethics), but the second concept of value has a meaning as a unit of commensuration (or foundation for establishing equivalence), as in Marx’s ‘labor theory of value’. There, the term may be used in relation to the system of value calculation and analysis, or to the quantified worth of a particular thing (the value of/attributed to a cup of coffee, according to the adopted theory of value). We note the importance of the first, ethical meaning but do not discuss it, although we take it as the impulse to frame value theory in a particular way. In our analysis, we use the term value to mean both the abstract system of calculation, and the concrete valuation of particular outputs. However, it needs to be said that theories of value, of all varieties, perform best as indicative of social processes rather than formal calculative systems.

1.5 Capitalist and postcapitalist finance

Earlier in this chapter we gave focus to finance as the frontier of capitalist economic change and from where postcapitalism must develop. We then shifted to our own priority of building postcapitalist performances of value creation. So how do we frame the connection from capitalist frontiers of finance to a postcapitalist economy of value-creation? This connection forms the substance of the rest of this book, but our path into it starts by depicting the difference between capitalism and postcapitalism as a financial ‘spread’.

The core questions that define the financial spread are:

• What counts as liquidity?
• What counts as collateral?
• What counts as ‘surplus’ and
• Who decides each of these?

The liquidity question.Who has the right to issue? In capitalism liquidity is about the state, the banking system it superintends and the money it endorses. When only those state-approved agents can issue, then a liquidity premium (a rate of return on money) can be charged for the risks involved in holding illiquid assets, because an exchange may not be found quickly. The new economic space challenges this hegemony as the source of money issuance, proposing instead p2p reciprocal issuance amongst agents in a network. But what they issue is not ‘money’ as conventionally understood. Tokens in the network we propose are not private money, but claims on other agents: offers from one agent that are accepted by another and registered by the transfer of a token. Where all agents can issue in this sense, there need be no network shortage of liquidity and hence no liquidity premium. The provision of liquidity can be fully collateralized by stake, and this collateral, rather than a liquidity premium, covers lending risk. Because collateral derives from the process of reciprocal staking it is the network overall that carries default risk. Stake becomes the complement of liquidity.

The collateral question. Who gets to determine what ‘assets’ are, and how they can be utilized for leverage? In capitalism, asset prices, and hence value as collateral, are linked to their capacity to generate future profit. Workers’ primary asset – their capacity to work – is only collateral in the context of slavery and student debt. In the new economic space, agents’ performances that create ‘value’ (as defined collectively by the network) forms the basis of collateral, for stake price is linked to value creation. In capitalism it is the capacity to create profit that defines stake as collateral; in postcapitalism, it is the capacity to create collectively defined value that defines stake as collateral. And because performances will be undertaken within non-extractive work relations, all participants have a stake and hence a claim to collateral.

The surplus question. What proportion of output is in excess of the costs of producing it, and who lays claim to the excess? The former is a measurement question; the latter the social access (class) question. Historically the determination of surplus was a process of extraction. In slavery and feudalism the surplus is that output in excess of the costs of sustaining slaves or a peasant class of producers. It is predominantly a surplus in the form of goods and services. In capitalism surplus is a financial concept because it is implied that all the components of output and hence the ‘excess’ can be commensurated, via units of value. Surplus takes the financial form of rent, interest or profit. Postcapitalism opens the question of how a surplus is to be defined (how costs and outputs are to be specified and measured: units of value and the unit of exchange) and claims of access to this surplus. In particular, where value is not defined by reference to profit, (some part of) surplus may be attributable to a commons.

The ‘who gets to decide?’ question. ‘Who has financial power?’ is the financial version of ‘class’. In capitalism, wealth and power are expressed critically in the capacity to decree the issuance of money and the valuation of assets. In postcapitalism, all agents can issue assets to be used as collateral, other agents in the network have the capacity to accept these assets as collateral, and all collateral can serve to back liquidity. Implicit here is the idea that a postcapitalism, when framed through finance, can be depicted as an economy of abundance. This is not in the sense that too many commodities are produced, or that no-one will want for anything, but that when ‘value’ has diverse forms (not just profit-based) and is determined via distributed processes, we will all discover an abundance of economic activity, verified by a plethora of economic data analytics, which was hitherto performed without social recognition, and thereby no doubt under-performed.

We have mentioned the speed of change in cryptoeconomic history. Decentralized Finance (DeFi) has already introduced stablecoins as mechanisms for token exchange rate stability with respect to fiat currencies and pooling mechanisms for stabilizing token prices. More recently, it is introducing to cryptoeconomics the possibilities of distributed banking and insurance: that assets need not lie idle, but can be mobilized for borrowing and lending and with mechanisms of insurance offered on the side. The emergence of a rapidly-growing market for Non-Fungible Tokens (NFTs) is further accelerating this development, creating marketable assets whose sale creates collateral for further rounds of lending. Lending is then giving rise to the potential for leverage: borrowing in order to take positions in markets. That, in turn, is opening up issues like collateral requirements with margin calls and default risk. Predictably, we are already seeing the issuance of derivative financial products like credit default swaps (CDS) and collateralized debt obligations (CDOs) designed to on-sell default risk from those who wish to avoid it to those prepared to carry it for a fee.

We can note in passing that these latter developments have the hallmark of the sorts of derivative products being traded in the lead-up to the 2007 global financial crisis. Whether they are pointing to crypto’s ‘Minsky moment’ ’is another matter, for the products themselves were never the source of crisis; it was their governance, expressed in pricing models and the conditions of access to leverage they were built upon. It is not surprising, therefore, that the emergence of ‘crypto-derivatives’ and a focus on DeFi governance are emerging concurrently. Whether they are emerging compatibly remains to be seen.

Nonetheless, we should note the enormous potential in the development of NFTs as derivatives on performances. The current focus in relation to NFTs creating a market for digital images should not obscure the potential to frame performances – value creating processes – as NFTs, and hence the ownership of NFTs as a financial exposure to the processes of future value creation. The relative simplicity of their issuance could open up a vastly new vision of how NFTs could be central tools of social innovation.

What sorts of derivative products might be exchanged in the new economic space? The answer is that there could be any and all of the above: agents can offer for exchange whatever they decide to. Governance of the network must be cognisant of the potential for ‘Minsky moments’. In general, our interest is in derivatives that embed the social. We invoke, after Randy Martin, the ‘social logic of the derivative’. As ’the social’ in the new economic space is conceived as a network, we will use the term ‘network derivatives’. This means taking the logic of financial derivatives (futures, options and swaps) and giving them network application as a collective value creating process. Here, the emphasis is on decomposed ‘things’ conventionally conceived as singular into their exposures (information, potentials and risks) so that they may be reconfigured as new creative directions. They enable the network to take positions on what counts as value, what counts as collateral and how liquidity creates social connection.

In particular, our financial approach to derivatives requires designing the optimal combination of price-determination conditions (what conventional economics calls decision-making under uncertainty) and flow-of-value conditions (what Marxism calls accumulation). When we get that balance right, we can target the ways to depict positions (decision-making) on social volatility (a flow). In effect, we are defining the potential of a spread in which agents risk. Expressed as stake choices and value creation, it sees agents making individual decisions to embrace a social conception of what is valuable.

1.6 The immediate proposal: living in the spread

Our proposal is framed in the spread between the network capacities of the current capitalist economic system and those of the Economic Space Protocol.

We have seen people active in art and design, the p2p movement and open source software engineers show close interest in our proposal, and we feel confident that the appeal of our vision will spread as its insights are understood. The proposition is not that we will simply ‘transfer’ to the new economy, but that we can spend part, and a growing part, of our economic lives in the new economic space.

Financially, we can frame capitalism and postcapitalism as a spread. Investing in the new economic space is trading the spread, taking a long position of an alternative to capitalist modes of valuing. But we also depict it as a short position: those who recognize pointers to capitalism’s loss of legitimacy may want to place a bet against capitalism. Bitcoin may be a short position on capitalist money. Our proposal offers a short position on the capitalist economy and culture.

Our aspiration is that people will traverse the spread by being drawn towards participation in our postcapitalist vision and, in so doing, will in some degree reduce their current engagement with capitalism. Our hope is that more and more people will spend more and more of their time engaging with and through the Economic Space Protocol. But in reality, we will be living inside the spread.

But we must conclude this introduction with a caution. All the above propositions assume the citizen capacities of liberal democracies and, within those democracies, there is the presumption that states will not regulate so as to subvert the development of proposals such as those of the new economic space. The threat of subversion-by-regulation points to a general political struggle for the right to think and organize differently,without denying the importance of the principle of the rule of law. We also understand that, in certain societies, distributed protocols, for all their internal stateless organization, are under the surveillance and control of centralized states intent on enforcing ideological compliance. In these places, there is no capacity to ‘live in the spread’. These serious concerns point to a politics-beyond-choice; to forms of fascism. We emphasize our opposition to these regimes, and note that the struggle against them is a struggle for us all.

APPENDIX 1.1

DESIGN PRINCIPLES OF THE NEW ECONOMIC SPACE

The socioeconomic principles of the new economic space are:

• Postcapitalist. Economic protocols that can enable a progressive development beyond capitalism that use the devices of markets and finance to enable interoperability between contemporary capitalism and the new economic space.
• Open. An internet-native economic system with internet architecture; with no central data broker, host or owner.
• Unified. The systemic layer of unification becomes the economic grammar (the Economic Space Protocol) that enables transparent economic communication and empowers every agent equally. The social layer of unification to be designed through financial contracts.
• Power-symmetric. All agents in the system have the same default capacities (they can fully express through all the capacities of a shared economic language). This is the precondition for production to be organized through reciprocal economic relations and the pursuit of collectively-agreed outcomes, devoid of embedded or encoded extractive relations.
• Socially valuable. The capacity to express both tangible and intangible production processes by encoding them as ‘performances’, and to benchmark all performances to an agreed measure of the social good.
• Harnessing change. Open-ended exposure to the potential of change. This entails embracing and harvesting volatility; not designing it away.
• *Equitable. *The risks and rewards of innovation must be distributed across the network in intentional and rightful ways.
• *Risk-sharing. *We aspire to ‘risk together’, but in a measured way – in the sense of being both quantified and strategic. The long position may be risk taking, but the strategy itself needs to be low risk. This implies focussing on both the upside and downside of risk and the desire for individual choices within a ‘together’ strategy.
• Economically interoperable. The new economy will require a bootstrapping phase, centered on the conversion of capital market funds denominated in fiat into tokens to provide startup funds to new agents. Current economic forms can still be encoded in the new economic space, yet they can begin to actualize and experiment with the new tools.

APPENDIX 1.2

SOME KEY DISTINCTIONS BETWEEN THE ECONOMIC SPACE PROTOCOL AND OTHER PARADIGMATIC BLOCKCHAIN ARCHITECTURES.

Secrecy versus Privacy
As an architecture, the Economic Space Protocol’s approach to architecture is one where the protocol distributes records across a network of physical devices residing in different locations. There is no singular shared recording data structure, that is, the blockchain, but a network of nodes, each holding its records with remote references to those of others. Rather than relying on secrecy through cryptographically encoded records, it relies on privacy, where records start by being accessible only to their owner and located in the node where the owner created them. It is the owner who progressively shares them according to the logic of the network's protocol. So in the network there are private records, shared records, public records, and everything in-between. The protocol connects these records through remote references, creating a physically distributed data structure instead of relying on a partially encrypted globally replicated linked list as its recording medium.

Agents can determine which of their records they share at any point in time through offers (smart-contract offers) that outline how the information may be used by and through the network.

There is no need to pre-determine the bounds of the information that the network can collectively store, leaving it a programming choice. This architecture is necessary for the Economic Space Protocol, and the economy it creates, as it keeps economic information private and economic instruments, distribution logics and performances, programmable. The architecture is thus very different to current blockchains and the token economies they enable.

Regulatory implications
The Economic Space Protocol does not rely on a discourse in which ‘regulatory authorities’ are to be evaded or avoided; instead, it empowers users by allowing them to determine key features of their agent's behavior: how it should be constrained or regulated through protocol; what information to share, and what information to keep private.

Are tokens securities?
Tokens in the Economic Space Protocol carry specific utility and are not passive investment vehicles. Although all agents in the network are issuers and holders, agents utilize tokens to enable their economic activity. Tokens are functional and implement specific elements of the protocol.
Whether this will be subject to various states’ regulation remains to be seen. However, we expect regulation only to be applicable in the on-ramp and off-ramp between the new economic space and the conventional economy.

CHAPTER 2

FROM CAPITALIST TO POSTCAPITALIST ECONOMY

ECSA team discussing Ch2

2.1 Designing an economy

Is cryptoeconomy just a refinement and acceleration of a capitalist economy or can it create new economic space? It could be either or, indeed, both. The platforms that utilize blockchain and cryptographic technologies can be placed at the service of values that are essentially capitalist, or postcapitalist protocols that are conceived more cooperatively and commons-oriented – designed around shared aspirations, financial innovation and risking together. The technology permits both capitalist and postcapitalist versions to be designed centrally or in a distributed way. Importantly, framed this way, the postcapitalist agenda can be seen as no less practicable than a formally designed, distributed capitalism, and we can provide a clear depiction of the difference between the two. In both cases, there are cost and speed advantages of cryptoeconomic platforms because of the absence of need for central clearing houses, and we already see large corporations and states adopting the technology for fast, reliable, low cost and accurate record keeping. But there is a politics here, too. The emergence of central bank digital currencies is a stark statement. It is not essential for states to digitally replicate their current money, but they realize they need a foothold in the space of crypto.

So we are proposing the protocols of a postcapitalist economy in full awareness that this is a political as well as a technological project and, for us, that means that our analysis must be based in the lessons of history.

Our proposition, as it unfolds, points to the need to re-think some basic economic questions. We are not just opening the possibility of addressing new goals, and proposing more efficient ways of getting there. That would be to suggest that we know the end point. Rather, our objective is about network processes without specifying particular outcomes and hence without claims to their efficiency or harmony. We want to build the protocol on which narratives of the future can be built. We need to rethink what we mean by ‘production’ of value, where what constitutes ‘value’ is an open question, and where the motivations for engaging in, and staking, value creation are themselves as important as the outputs created. We need to reframe what markets are and what they could be as network relations without reference to profit and without a centralized operator. These dimensions will be revealed as the analysis unfolds.

2.2 An economics primer

While we are proposing to build an economy that is new in many respects, we cannot do so in a social, intellectual or historical vacuum. We must note what we can learn from capitalist modes of calculation, and we must engage an audience which may not have considered the possibility of building an economy on principles other than those identified with capitalism.

Accordingly, we turn to some basic principles of capitalist economics and start to focus on the ways in which they might (and might not) articulate with the potentials of a cryptoeconomy. In particular, our agenda is to pick apart certain standard economic categories in a detailed way, to ensure that we don’t simply carry over concepts and approaches that will ultimately inhibit our project. But nor do we assume there is nothing to learn from the conventional knowledge. On the contrary, we need to blend the new with relevant lessons derived from the old.

Economics is a broad and contested discipline. It is also an old one, with Adam Smith’s Wealth of Nations almost 250 years old, and Karl Marx’s economics 180 years old. Back then it was debated as ‘political economy’, with a narrower discipline of ‘economics’ – locking the social into a set of simplifying assumptions – dating only from the late 19th century. That narrowing involved the emergence of ‘neo-classical’ economics which remains hegemonic, more than 100 years on. It has, of course, significantly evolved over the past century, but the approach to ‘the social’ has varied little. It reduces the social to a set of behavioral abstractions (protocols), generally idealizations (homo economicus as their agent), which equate social goals with the operation of ‘free’ markets (businesses maximizing their profits; consumers maximizing their ‘utility’) and restrict the state’s role to market facilitation.

Theoretical innovations have generally been about adding complexity (e.g. game theory) and exploring ‘distortions’ (e.g. asymmetrical information; behavioral deviations from homo economicus). It presents as an orthodoxy, quite unlike the rest of the social sciences that are conceived in continuous theoretical and methodological debate. Moreover, it is not merely an orthodoxy but, as a socially decisive discourse, it is performative: this theory of markets and homo economicus are less an attempt to describe society, than an engineering effort to remake society in its own image, predicated on the assumptions of individualism, self-interest and the universal aspiration of profitability articulated through (predominantly) market relations. It has the template for the kinds of people and interactions it wants and, if permitted to run, it will find and train players to behave according to its model. In the era of cryptoeconomics we can describe this engineering effort as building protocols of social performance.

But that orthodoxy is under new challenge, especially with the capacities of cryptocurrencies and cryptographically enabled distributed systems. We see the rise of a sub-discipline of ‘cryptoeconomics’ as a distinct field of analysis. However, we are concerned that the propositions of cryptoeconomics have so far engaged in a limited way in the social and political theory that lies behind their ‘alternative’ economics.

Generally, challenges to the orthodoxy depict themselves as ‘political economy’, picking up on the 18th and 19th century recognition that economics and politics (the social) cannot be separated.

In modern usage, ‘political economy’ emerged in the 1950’s as part of a radical rejection of capitalist class relations. Some branches reached back to Marx’s propositions about the contradictions of capitalism and the emergence of a politicized working class to resist oppression, creating the way for a self-organizing society.

Others developed a political economy that focussed on reforms of the state intended to make society fairer, more equal and more sustainable. Rather than a revolutionary politics, these reformers advocated a social democratic state, often looking to Scandinavian societies as their model.

Both schools of political economy lost potency in the 1980’s and 90’s. On the one hand, the fall of the Soviet Union and the ‘marketisation’ of China had reputational implications for Marxisms of all varieties, including those that despised the Soviet Union as much as they despised capitalism. On the other hand, the rise in the west of ‘neo-liberalism’ saw the state operating as the obstacle to ‘progressive’ reform, not as its agent. Simply advocating what a ‘good’ state should do lacked any real politics.

2.3 The Hayekian turn: knowledge, price and spontaneous order

But there was an emerging undercurrent of political economy, now coming from the ‘right’ of politics, that came to the fore in these contexts. It is most readily associated with the name Friedrich von Hayek – a rather marginal libertarian economist living in the shadow of Keynes and the (broadly) Marxists, but who came to public prominence in the 1970s as the theoretical guru of UK Prime Minister Margaret Thatcher: the person many attribute as the instigator of ‘neoliberalism’.

We start with Hayek not because we see ourselves as being in the tradition of Hayek – quite the contrary – but because Hayek is so popular within the cryptoeconomic community. We will later have reason to draw on other economic traditions, especially Marx, Sraffa and Keynes. But in all cases the agenda is not to give a ‘Hayekian’, ‘Marxian’ or ‘Keynesian’ take on cryptoeconomics: indeed we believe that the technologies of the internet, cryptography and a blockchain would have been challenging for all past thinkers and would have caused them to re-think some of their core analysis. But what we can do is look at their methods (rather than their conclusions) and ask how these might be applied in the current era, to see what insights we can glean. Indeed, we conjecture that this framing will lead to conclusions often quite different from those that appear in the emerging cryptoeconomic literature.

Hayek was vehemently anti-socialist, but he had major conflicts with the neoclassical economists too. He embraced individual self interest as the premise of social order but thought the neo-classicals adopted two positions he opposed.

First, he opposed their conception of ‘equilibrium’ as an optimal state. His preferred notion was ‘spontaneous order’. That term might seem a close approximation of equilibrium, but the difference is critical. For Hayek, the quality of markets he affirmed was that they process complex information into simple information (prices). That is an intrinsic virtue, distinct from any claims that markets would somehow gravitate to balance or optimisation. It is the process that Hayek valued; not the outcome. Information processing is clearly critical to programming an economy; it is an issue to which we will return.

Second, Hayek opposed the conventional endorsement of the state in economic management. The state, he contended, is innately authoritarian, imposing its will on society: sometimes well-intentioned but flawed; other times clearly enhancing the power of the state itself. The market, claimed Hayek, is the natural site of freedom of expression and a means to generate spontaneous social order.

Of course the popular critique is that markets, if left to themselves, create massive inequality, environmental destruction, etc.. Not so, said Hayek. It is the inadequate specification of property rights and the rules of markets (that we reveal as a distributed protocol) that are the problem, and when states tinker with outcomes (levies and bounties) they generally mess up. Most critically, they mess up the provision of a state-sanctioned money system (fiat money).

Not surprisingly, Hayek has had great appeal in cryptoeconomics. On the surface, they are a near perfect fit. A cryptoeconomic order conceived in a rejection of the state as economic manager, including as provider of the sole monetary system, and instead focussing on data analytics and optimizing individuals in contractual transactions, seems to resonate deeply with Hayek. So too does the idea, expressed in his The Fatal Conceit (1988), of the need to break up conventional, secure but distorting practices.

We can readily source essays on cryptoeconomics that celebrate the self-directed individual and claim foundations in Hayek. It should be noted that, knowingly or not, the idealization of individualism, profit and the market as foundational social relations come as integral to the Hayek package and those foundations are being transmitted, perhaps not always intentionally, into cryptoeconomic culture. This adoption leaves unquestioned the issues of what we count and how we measure: both of which embody the potentially transformative politics of cryptoeconomics.

In creating new economic space, we are opening the opportunity for a different economic calculus. Our proposition is that knowledge, prices and their relation to markets need to be re-thought. What Hayek and conventional economics, and their digital disciples, take as foundational in relation to markets, we think are protocols. As protocols, they are designable in different ways. But Hayek and his followers seem to think not. They analyze ‘the market’ as a platform: culturally foundational and economically ‘natural’. For them, the market is depicted as a neutral technology into which individuals bring their strategic interests and which, if allowed to operate as it ‘should’, will create ‘equilibrium’ (neoclassical economics) and ‘spontaneous order’ (Hayek). The social ‘good’/’harm’, the commons, the environment, that sit outside these individual interests can only be framed as ‘externalities’, and hence second order considerations.

What stands as contestable and where we will focus our analysis, is the question of what we mean by ‘markets’, ‘price mechanisms’ and their relations with ‘society’. Markets are socially constructed, not ‘natural’, and they embed particular social protocols. Markets transmit a range of information; not just price. Moreover ‘price’ itself transmits information, but it is always encoded in a particular way of measuring. So markets need not relate to profit, but can be designed to generate the sorts of information a network needs. As they currently are utilized, they are fundamentally directed to serving the pursuit of profit-making. In summary, market processes are not innately capitalist and their logic is not innately extractive (expressing social dominance).

If we can isolate the process of market interactions from a social context of wealth, power and inequality, and redesign them at the center of a distributed postcapitalist economy, they can be seen as means of voting for economic outcomes, articulating individual views about what constitutes value. Issues of social benefit and harm, the environment, etc. in capitalism must be either contrived into profit calculus or treated as ‘externalities’, and essentially outside of market calculus. We want to bring them inside market calculus by adapting market processes to value the things that we know to be socially important, but which are left out of capitalist markets. We shouldn’t conflate markets-under-capitalism with markets-as-information-transmission processes.

In the new economic space, markets are explicitly defined by distributed network protocols. They are spaces of exchange and valuation: they structure the space of possibilities for interactions and for the economic properties of the objects populating such spaces. A market is a network and is defined by offer, matching, netting and clearing protocols that its agents must adopt in order to interoperate as a coherent whole.

2.4 Hayek’s dead end

To get to the logic of the new economic space we don’t simply go via a simple refutation of Hayek, for his emphasis on markets as mechanisms of information collection and transfer is important. It is worth teasing out Hayek’s view so as to subsequently clarify what is distinctive about the new economic space.
In the mid 20th century, Hayek and his Austrian School colleagues opened a debate with advocates of (broadly) Soviet-style planning. It became known as the Socialist Calculation Debate. Here is not the place to review that debate, although it warrants noting that there is a recent literature riffing off it to address the emergent computational capacities for efficient large-scale central planning.

Hayek’s proposition, which is hard to refute in historical context, is that Soviet central planning was always authoritarian and operating with inaccurate and out-dated data when making resource allocation decisions. It was, at the time, an easy critique given the level of Soviet information technology and a war-ravaged economy, although the debate drew some creative interventions about how central planning might be integrated with market processes in a combination known as ‘market socialism’. Some of these interventions, applying neo-classical economic criteria of efficiency, were more challenging for Hayek to refute, but his argument always came back to the point that markets provide superior information and enable the pursuit of individual freedom (read self-interest).

In the context of the Socialist Calculation Debate, Hayek made statements about markets and information that have clearly resonated in cryptoeconomics. It is worth quoting Hayek at some length:

It is in this connection that what I have called the ‘economic calculus’ proper helps us, at least by analogy, to see how this problem can be solved, and in fact is being solved, by the price system. Even the single controlling mind [the central planner], in possession of all the data for some small, self-contained economic system, would not — every time some small adjustment in the allocation of resources had to be made — go explicitly through all the relations between ends and means which might possibly be affected. It is indeed the great contribution of the pure logic of choice that it has demonstrated conclusively that even such a single mind could solve this kind of problem only by constructing and constantly using rates of equivalence (or 'values,' or 'marginal rates of substitution'), i.e., by attaching to each kind of scarce resource a numerical index which cannot be derived from any property possessed by that particular thing, but which reflects, or in which is condensed, its significance in view of the whole means-end structure. In any small change he will have to consider only these quantitative indices (or 'values') in which all the relevant information is concentrated; and, by adjusting the quantities one by one, he can appropriately rearrange his dispositions without having to solve the whole puzzle ab initio or without needing at any stage to survey it at once in all its ramifications.

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan. (Hayek 1945: 225-26)

So Hayek has identified a critical issue: that markets, as a protocol, construct indices of measurement, in this case a rate of exchange, so that any small component of the economy can be commensurated against the whole, for this is the condition of tracing how a change in that small thing impacts the whole. This is an issue we return to consistently: the construction of distinctly postcapitalist communication networks and ways of measurement.

Hayek’s notion of ‘free’ markets and prices transmitting information may be one technical ‘solution’ (if we leave to one side the conceptually trivial and therefore socially dangerous idea of ‘free’ markets), but it is only one, and a decidedly capitalist, ‘solution’. For Hayek, price is the reduction of complexly-layered knowledge to a single index. With everyone speaking the language of price and the pursuit of profit as a singular objective for decision-making, market interactions are said to generate spontaneous order, but what they actually do is to structure the space of the possible. Hayek’s mid 20th century advocacy of ‘the market’ and trust in ‘prices’ may stand strong as an alternative to Soviet central planning, but 75 years on the argument must be different.

It is important to understand that alternative economic indexes can be based in different knowledge, producing a different logic: a different space of what is possible. We want indexed movements to measure economic performance(s) and surpluses and to trigger trading strategies for agents that lead to wider economic decisions about what is produced and how. We want to avoid automatic reliance on indices that embed profit maximizing strategies or situate in monetary processes driven by interest extraction. We depict our preferred measures as the performance indices of the new economic space. Performance indices are explored in Chapter 4.

We should note the way in which Hayek depicts price as a simplified index that obviates the need for agents to hold full knowledge. Via cultural enmeshment, agents come to believe that price can be trusted to incorporate knowledge.

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the price movement. (Hayek, 1945: 526-27)

It would be a misrepresentation of Hayek to read from this quote that prices are the only data on which agents make decisions: after all, no-one buys anything simply because of its price! Price may initiate exchange as the trigger information, but it is not sufficient information to explain exchange. Individuals are also ‘readers’ of themselves and of the ‘market conditions’ and they trade on the basis of their subjective preferences, informed by whatever information they choose to utilize. The brilliance of markets, he thought, is the reduction of a complexity of data to a single index of exchange. Through price signals, markets transmit ‘tacit’ or ‘dispersed’ knowledge. But, for all the information individuals may potentially generate – including their affects and velleities – it is only the transaction-at-a-price that triggers a data entry.

In Hayek’s framing, price may be the condensation of a complex set of knowledges, but knowledge is not intended to be reverse engineered from price. All other data about an output and the interactions around its creation and exchange are thereby lost when price is elevated as the form in which knowledge is transmitted. Yet we now know that, in the current world, social media and on-line marketing are assembling all sorts of data about individuals, their velleities, ‘attributes’ and networks. In these ‘attention markets’ price is just one amongst many data points valued by corporations. A postcapitalist economy not driven by extractive relations or surveillance, will nonetheless need data-rich architecture. This issue is taken up in Appendix 2.1

Price is not the condensation of knowledge. Price is, after all, no more than one index: it measures relative exchange values (between commodities; over time). But in the hands of Hayek (and the neo-classicals), with their version of ‘the market’ naturalized as a platform, price can be treated socially as an absolute social measure. Indeed this is the analytical objective: to create the impression that price formation is the social expression of the natural order of markets. Prices slide from being technically relative values framed in a particular social and economic context to being presented as socially absolute values.

Here is where many crypto analysts who profess dissent from capitalist values get unwittingly trapped: by celebrating the creation of a monetary system freed from the state, but embracing the reliance on markets and self interest they embed the values they are seeking to escape. How we frame markets, prices and units of account are the central economic questions of a distributed postcapitalist economy.

2.5 Prices freed from profit

Our starting point is that information must ‘from the start’ be an expression of social values, in the same way that Hayek’s information ‘from the start’ expresses capitalist values. Our postcapitalist network will require data on flows of intentions, affect and emotional commitments – expressions of the sorts of values that will frame the direction of this economy – for these data will inform the debates and choices about making that future.

Prices in a capitalist economy are determined, generally, by the interaction of supply and demand. Demand may be all about individual ‘tastes’: their values, aesthetics, needs, etc.: a domain generally inaccessible to economics, except as data. Supply in a capitalist economy is more telling. It is dictated, other than in exceptional cases, by the condition of profitability. Whether adopting a competitive market explanation or a post-Keynesian mark-up (cost plus a rate of profit) explanation of prices, profitability is at the center. Producers will not supply to a market unless it is profitable to do so. The value of capital assets are defined by their profit-generating potential, and so on.

Further, prices-linked-to-profit are based in the way profit is calculated, and that points to the structure of accounting. There exists an extensive literature in the history of accounting, tying the system of double entry book-keeping to the rise of capitalism. Double entry book-keeping, as it developed, became central to the way wealth is specified as ‘capital’; how profit (the extraction of a surplus from production by the owners of capital) became legitimized by the mode of its inclusion into the structure of corporate accounts, and how the concept of ‘profit’ evolved as capitalism itself has evolved.

A postcapitalist economy cannot adopt capitalist modes of accounting. Yet, in parallel with our contentions about prices and markets, it is important to differentiate the particular capitalist application of double entry ledgers – the units in which measurement is recorded – from the logic of ledgers formulated with a system of entries and counter-entries. The use of tokens and a ledger-based accounting system are central to the Economic Space Protocol and in later chapters we will explore the way in which an economic space, with double entry book-keeping measured with a different units of value, opens the possibility for a different determination of ‘prices’ and designation of a surplus, and how these link to designing postcapitalist value.

Indeed, as will be explained in Chapter 4, combinations of information, and propositions of their economic significance (what we call ‘performances’), come to the fore as the critical, frontier products of the new economy. Giving meaning (even competing meanings) to information is the critical economic agenda for the future. This is about using information to create narratives of the future, as a way of opening up new possibilities, rather than codifying data into price for individual market choices. Why then is ‘price’, as it is currently measured, the privileged index of valuation? Why do we not use (for example) sociality (social impact) as the privileged index of valuation? Or environmental impact? The answer is that these issues are not currently being tracked in the records (the ledgers) on which the current economy operates.

We are interested in focusing on the richness of information flows and not just with the specific indices (‘prices’) that get generated as part of the flows. And we want ‘price’ (or the quantum attributed to an output which has been validated by the network through market expression) to itself express ‘social values’; not profit per se.

2.6 Turning Hayek on his head

The challenge we’ve mounted is to make clear that in the process of price formation ‘price’, as it is conventionally understood, can be re-framed as just one set of protocols but not, as Hayek would have us believe, the only one. In the context of distributed ownership and distributed issuance of ‘money’, the social processes of the economy will be profoundly challenged.

Three challenges are pivotal, and they drive the analytical agenda of our analysis:

Network value. How does a network place a value on outputs not produced for sale in a market, for example an art display, creating green spaces, new open source technology and human care?? Outputs-with-no-price cannot be interpreted in a Hayekian framing. Our preferred approach comes not via value in exchange, but via how agents in the network place a value on the performances which produce the outputs. We are interested in the performance of care; the vision of green space, the potential of open technology, and these cannot be framed in standard market analysis devoid of time, affect and contingency.

The role of the Economic Space Protocol is to build ways to express the value of outputs, without reliance on a direct price (see Chapter 3.5.). Moreover, those who create outputs-with-no-price should participate in rewards based on social assessment of their contribution. The reward is to be understood simply as a share of a surplus created in production (see Chapter 5 and Appendix 5.2).

Time. Hayek works with a limited conception of time as purely linear, clock time. In credit, interest accrues over time, but time itself is analytically passive. Investment is explained as a return to entrepreneurship and foresight. Capital is a riddle: ‘Why’, asks Hayek (1941: 60), ‘should the more time-consuming methods of production yield a greater return’, and he answers it by reference to the requirements of technical change in production. In each case, there is simply clock time, and its importance is only to compare rates of return.

A network requires a different conception of time, for time is the condition of contingencies and what matters is the sequence of events (what financial markets call ‘tick time’).

In an exchange, the ledger-based processes of offers, matches, netting and clearing may all happen virtually instantaneously, as if timeless, but may take time to execute. Our analytical focus is the duration, or on the set of state changes required for the exchange. It logically forms an interval, and within the duration of this interval, while certain mechanical processes may be risk-free, contingencies are critical. In ‘performances’, as we are framing them, this interval is occupied by the momentum for innovation, affect and social change. In standard analysis, these would be cast as ‘subjective’ and unmeasurable, though when they manifest in ‘price’ they suddenly become objective and measured! Tick time is defined by the rhythm of those momentums and dynamics: the focus is on the repetition of occurrences and patterns. It gives quantifiable access to the way in which people respond to a duration. More abstractly, and as we will explore in relation to units of account, tick time opens up the question of what is measured (what is deemed by the network as important to measure), how to measure it and the meanings of duration.

When we add time and contingency we open the conditions of a derivative framing not addressed by Hayek. In the era of blockchain and big data, and in the language of Gilles Deleuze we can ’dividuate’ knowledge: break it down into its underlying, determining elements (that Hayek thought were too complex to code), but without necessarily aspiring to see those elements combined so as to ontologically privilege the totalized category of a singular ‘knowledge’, linked to ‘price’. Knowledge is a synthetic asset; an assembly of processed information. Its purpose does not have to be the formation of ‘market price’.

Liquidity. In Hayekian analysis (and in conventional economic analysis) all markets are assumed to be liquid. The presumption of liquidity is required in order to assume that there is a single price for any good or service: there will be no need to discount from normal prices to secure a trade. This assumption forms the foundation of financial pricing models and conceptions of efficiency, be it the efficient markets hypothesis, the capital asset pricing model or the Black Scholes Merton options pricing model. Marx’s analysis also assumes liquidity: that buyers and sellers are in sufficient numbers to enable outputs to sell ‘at their value’. The absence of liquidity is a definition of ‘crisis’.
Where there are two prices – a bid-ask spread – it is unclear what is meant, in Hayekian discourse, by ‘price’, and hence in the depth of knowledge that is said to condense into price. A spread framed simply as two prices points to inefficiency or distortion, not innovation (or an impossibility of telling the difference) and the momentum that gets focus is not the dynamic of innovation, but the dynamic of arbitrage and the process by which the spread closes. The point is that price risks are embedded in price but cannot be separated from price: a price alone cannot disclose the probability of the price changing, though a price spread can! Prices cannot be disentangled from derivatives of prices.

There is more here than this technical point, and our proposal needs to identify two critical factors.

First, in a network or mutual credit issuance (which is yet to be elaborated), liquidity is an index of sociality: the preparedness of agents to issue credit and make markets is an expression of social engagement and trust in network protocols. The basis of trust is not that the state monetary authorities or banks will ‘do the right thing’ in their policy discretion, but that there is knowledge that a) all credit is fully collateralized (Chapter 8); b) default risk will be spread across the network (because ownership is dispersed, see Chapter5) and c) all agents understand the liquidity requirements of others by understanding their own liquidity requirements (Chapter 8). A breakdown of liquidity, such as happened in the 2007-2008 financial crisis and the 2019-2022 pandemic crisis, is itself a breakdown of sociality because the centralized financial system highlighted the difference between individual interest (wanting to receive liquidity, but not give it) and collective interest. In a distributed economic system, all economic agents must take responsibility for the provision of liquidity, and performance indices must produce measures to verify the need for and conditions of liquidity. This is why the mutual issuance of credit is critical to the Economic Space Protocol, for it makes provision of liquidity and the distributed, not hierarchical, sociality of the network integrally related.

Second, markets will see bid-ask spreads that cannot be presumed to close in the time interval implicit in an automated market making function of the network. In an equilibrium framing, this is a market failure, where prices aren't adjusting to clear the market. But where the focus is on innovation, spreads are always opening up, the propensity is not towards balance, but dynamic change and the creation of a surplus by the network-as-a-whole. In the conventional analysis of a bid-ask spread, a profit is presumed to accrue by trading on the spread. In a postcapitalist network, the question to be addressed is: who lays claim to the surplus, and how can it be realized as a social surplus rather than a private one? This issue is addressed directly in Chapter 5.3 and Appendix 5.3.

2.7 Implications

We have gone through an engagement with Hayek (but also, indirectly, Marx, Keynes and others) to give focus to the proposition that markets and the prices they generate do not have to connect to profits, and profits are not the sole, nor indeed primary, measure of economic achievement. Our goal has been to contest these assumed links not just as an ethical stand in the name of social goals of equality and respect for the biosphere and humanity, but as an analytical proposition. We can ’unpick’ the apparent logic that links individual interest to markets and markets to profits and ‘design’ market relations quite differently. They need not focus on prices, or profits or individuals, but they can generate information systems that can utilize indices other than price; a range of goals and of inter- and intra-agent relations. But they will still be markets! The objective of protocol design is to give an orderly opportunity to re-imagine the ways in which economic goals are set and measured. We are seeking to develop the protocols for utilizing network-generated data to keep social goals – multiple goals – at the forefront of calculative processes.

APPENDIX 2.1

DO ‘BIG DATA’ CHANGE THE STORY?

There is now a growing literature proclaiming that the emergence of big data is dramatically transforming, even abolishing capitalism (e.g. Zuboff, 2019). Often Hayek’s work forms a point of departure. Viktor Mayer-Schönberger and Thomas Ramge, the authors of Reinventing Capitalism in the Age of Big Data, for example, tell us that we no longer need to see all knowledge reduced to ‘prices’. Directly-accessed data will supplement and in some ways supplant prices as the critical source of information. This, they say, challenges the role of money in a capitalist society.

We half agree. The standing of a unitary measure of price as the driver of exchange can and should be under challenge. Other metrics will themselves be indexified and those indices tokenized. Diverse tokens will express a ‘market’ for innovation in social valuation: a market potentially far more important than competition over prices. But we do not agree that this is a challenge to the role of money, nor to capitalism itself.

In popular debate, big data are framed as individual surveillance by corporations and states, and hence a privacy and civil liberties issue. This, too, resonates with a Hayekian focus on the rights of individuals. Yet big data are also what national and international statistical agencies collect to enable a monitoring of dispersed processes in order to build an aggregate depiction of the economy, and to feed into economic policy formation. Clearly, the categories in which those data are assembled themselves embed a particular social and economic approach to society. So there is an immediate contradiction that big data, cast as a digital record of ‘the social’, will be used against society. For Hayek this combination of issues saw Soviet-style central planning as The Road to Serfdom (1944): that central control of data and planning was innately authoritarian and contrary to the rights and freedoms of individuals. We know that this understanding is not specific to mid 20th century so-called socialist planning: in the digital era there is a clear record of social media companies – including the largest global companies in the world – mining personal data and manipulating both individuals and political processes.

Conversely, Posner and Weyl (2018), in what they take to be the spirit of Hayek, advocate that individuals should own and trade their own data. From our perspective, people’s ownership of their own data is fundamental, but the Posner and Weyl proposal is at most a second best alternative. Individuals may receive a fee for their data, but will then lose control over how those data are used once sold. It does not address the loss of control; it simply prices it!

Our preferred position, embedded in the protocol design of the new economic space, is that individual data are considered the property of individuals, but it is also recognized that pooled data are critical to identifying the health and dynamism of the network.

Instead of an individual data market, the new economic space proposes a data commons: individual agents can choose whether, and to what degree, to share their data with the commons, and in return acquire access (according to the degree of sharing) to the aggregate data of the commons. The protocols of the commons are considered in Chapter 6. In the current context, we note simply that mutual staking of a commons enables a distributed but shared position on economic design, securing both individual rights of engagement and the benefits of co-operative endeavor.