An Electrical Power Circuit Analysis Analogy, for the study of a new Phenomenon of wealth flow due to Free Money.
A tool for the hive-study of wealth creation in the presence of free money flow.
This story follows on from two previous introductory stories exploring the effects of a new phenomenon; free money, in the presence of global trade and the internet.
Previous research might exist on this subject, but the author finds it most useful for now to explore from first principles, as we are blessed with seeing the phenomenons of free money, and the hive, in operation, for the first time in history.
What is Free Money?
To recap, from the previous two stories, free money is the ultimate conclusion of removing the gold standard from fiat currencies.
This has enabled the value of gold, and the value of currencies to diverge.
To date, that divergence has been something managed, controlled as a very gradual slide in value, such that an approximately linear relationship is maintained between the value of currency, and the value of naturally scarce “assets” such as gold.
In the case that such divergence happens within a financially isolated country, we have seen (Venezuela, the Weimar, Zimbabwe, for example), the currency often “Collapses” into a non-linear, uncontrolled drop in value of the currency, relative to both asset values, and other currencies.
In those isolated cases, each afflicted currency lost its value to trade with other countries, as well as its ability to purchase goods within the afflicted country itself, resulting in widespread hardship amongst the population of the isolated country.
However, in today’s fully networked world, with electronic money, and with all of the world’s reserve banks having debts and creditors in pretty much all others, all of our currencies are connected such that dilution of the value of one, should result effectively in a dilution of the value of all, by the logic of controlled scarcity.
The COVID pandemic has caused a widespread disruption to the world economy with an effect that has technically bankrupted a large proportion of the worlds businesses, including banks, with also huge numbers of individuals who have lost jobs and careers.
This was in the face of ever increasing competition and automation in industry, negating the need for humans in many traditional jobs.
In response to COVID, pretty much all countries have issued trillions of dollars worth of “Stimulus” money to bail out their failing industries, with a relatively small amount allocated to stimulus for individuals.
Although much of the printed money issued to bankrupted big business, and banks, is claimed to be “Credit” (i.e. loans), there appears no possibility that those loans can ever be repaid, whilst further relief continues to be issued, and astonishingly, the dollar value is holding, even gaining, compared with other currencies.
When we look carefully at what is happening, we see the beginning of a non-linear divergence between the currencies of all countries, and fixed assets such as gold and bitcoin.
So it is apparent that the value of currencies is becoming something different, no longer related in any way to the value of assets.
It is free.
The ideas of controlled scarcity require at least some modification.
It is becoming clear that the value of a currency at any time, is the derivative of the rate it is being transferred at, rather than its static face value, sat in an account.
When we look at what is important, the creation of wealth, we see that this actually happens on the movement of money. It has no value as such when it is “tied up” in assets. i.e. it is money in motion which is important.
This limitation of operating our conventional controlled scarcity economy to date appears to have constrained our thinking of wealth, to be mostly in terms of assets, which is obviously incorrect.
We know that wealth is only created when the money is usefully put to a purpose, which only happens when money flows.
Therefore, the issuance of free money to all people, empowering all individuals to create value, is not only desirable, it is necessary, for that country to compete in the new networked world. It cannot be argued that the issuance of free money results in a reduction of ability to compete, when we see its value is sustained relative to its peers, in the presence of continuous, substantial issuance by all.
The ideas of debt driven economy, based on fixed assets need no longer apply, if we see a better way of doing things.
In fact, it seems the only possible way forward. The old system is no longer sustainable, as evidenced not only by the inequalities and injustices we see amongst humans, but also in the damage done to our environment, by all things being profit and debt driven.
To those who have invested much time and money in building assets in the old system, the idea of free money might at first seem counter-intuitive, even destructive, possibly undermining our efforts to date.
No-one can be faulted for working in a less than ideal mode, in the absence of knowing how to do things better.
But there is no excuse for continuing in a fault mode after we realise the fault, and how to clear it. Especially as fixing the fault costs nothing, with everything to gain.
The Hive, is the people of the world, networked as we are, many billions of eyes, and many billions of brains, watching the world, evaluating, and looking to add value to our world.
The Electrical Analogy of our Economy as it Was
In electrical circuit theory, analysing wealth in terms of fixed assets is akin to considering the energy at any point in an electrical circuit, only in terms of the stored voltages in capacitors and accumulators, with little or no consideration of the effects of current flow, despite the latter being the actual mechanism of generation of electrical power.
To an electrical Engineer, our system, now equipped with free money, looks like an electrical system which has never really been switched on.
By itself, a pile of gold, or a static balance in an account is not wealth, it has little practical use to anyone. However, it has a potential to generate wealth.
This concept, of something dynamic, only occurring when things move, seems akin to the mechanical, electrical, and hydraulic power, that we are familiar with in the physical world.
In terms of electrical power, a financial account or gold stock resembles a capacitor, containing an amount of electrical charge.
So the value of a capacitor, giving a density of the charge stored within it can be thought of as a measure of how much the physical nature of the capacitor compresses the charge “Fluid” stored within it.
Electrical charge, normally quantified in Coulombs, in our financial analogy corresponds to the amount of purchasing potential of a particular reservoir of capital, (Analogous to potential energy) which we will simplify here always to a quantity of gold in Oz.
In the electrical circuit, we quantify the flow in the circuit as; I = dQ/dt, seen when the capacitor is discharged into a load.
This gives the amount of fundamental charge flowing per second, and all power generated as a function of it.
Another factor which comes into power generation in electrical circuits is voltage, V, which in hydraulics functions as pressure, compressing the fluid in the circuit.
In electrical circuits, C is specific to the construction of the capacitor, and affects the financial value of the token.
We might assign different values of C, depending on whether the asset is stored as property, stocks and shares, gold, Bitcoin, or cash.
Those might be our different types of capacitor for use in financial circuits.
Logically, C has to be 1, for assets stored as gold. This, like atmospheric pressure, is unaffected by the market, so the market value of all things can be referenced to this.
Power = Voltage x Current = I² x R
So the notional wealth flow of our circuit is I = dOz/dt
We can think of this as gold, flowing in a circuit.
In the form of tokens, we might think of the gold being suspended and distributed thoughout the bulk of a compressible liquid, i.e. quantified in litres/sec, or some other measure of volumetric flow rate.
This gives us a more practical I = dTokens/dt, (i.e. $/sec, £/sec, €/sec. etc), which more readily relates to practical currencies than just the flowrate of gold content.
So we might think of the fluid in our circuit being compressed, as a function of (a) the market value of gold, and (b) the market value of the financial tokens.
The density of the financial “gold fluid” in our circuit is a function of market pressure at all points in the circuit, rather like atmospheric pressure affects the absolute pressure at all points in a hydraulic circuit.
The density is further affected locally by various pressure changes, as the fluid negotiates various electrical elements in the circuit.
So we see an analogy between the fluid pressure at any point in the financial circuit, with the voltage at any point in an electrical circuit, with the same relationships to power (wealth creation) and current (flowrate).
Voltage, in electrical circuits is a measure of the potential of the electrical energy at any point.
In hydraulics, V is analogous to pressure. Increasing the pressure in a closed system results in compressing the fluid in the system, therefore when it moves, more power is dissipated, or generated.
And in the elctrical capacitor; V = Q/C
When a process of moving fluid or current results in a rise or drop of pressure or voltage, there is emission or absorption of power.
Thinking of the Charge as gold, convenient units of flow can be obtained as Oz per second, or grams per second. For this article, Oz per second are used.
The amount of charge (gold) in our financial capacitor is measured in Oz. This is the potential energy of it to do work.
The voltage on the capacitor is a measure of how densely packed the gold is in the account, which in reality is set by the market value of the token.
So, an account balance gives a numerical value for the number of tokens held, where each has a certain gold value, set by the market.
The electrical Q in a capacitor corresponds to the purchasing power, whilst the token count gives the number of tokens held.
The Infinite Financial Current Source
In the presence of tokens which are only differentially related to asset values, we can see that the generation of tokens by an authority is something that can be set arbitrarily.
So a source of tokens from a token authority (Government or reserve bank), with the capability of indefinitely generating a constant stream of free tokens, regardless of the market value of the tokens, resembles an ideal current source which is capable of offsetting whatever effects market pressures have on the token, whilst maintaining a constant flowrate.
This happens to be even more convenient for analysis than in the case of physical systems; we often use ideal sources for convenience, and yet actual examples of ideal sources do not exist in real physical systems.
In the case that tokens are explicitly returned to the source, such as in the case of tax collected, an explicit return path can be shown in the circuit.
Otherwise, it seems enough to show only the source and destination, each referenced to a common ground.
In the figure above, a lamp is chosen as a typical electrical element, which might represent a consumer, emitting both useful, and waste power.
When we explore the concept of wealth creation and destruction as being akin to the power dissipated and absorbed at various points in a circuit, then we obtain a useful picture of the scenario of freely printed money, in a global, networked, multi-currency economy.
Wealth creation then, appears to relate more to the effects of power emission and absorption, which is characterised in terms of current flow as I²R, than as the static voltage on a capacitor, as it appears to be currently, and historically until now.
Example by Simulation
In the circuit above, the blue elements are the circuit under test, and the black elements are measurement and simulation elements, used to exercise and measure the circuit model. There are two consumers represented as incandescent bulbs, in series with variable resistors, representing the mechanisms we might use to regulate the funds we allocate to our activities in life, where the light from the bulbs is what we define as the useful power from the circuit.
The simulation is run with the resistor values swept in opposite directions; the first going from fully off, to fully on, whilst the other is swept from fully on, to fully off.
To the top right, can be seen three “Scopes”. These capture the power emitted from each consumer, and the combined power emitted by all.
The results of the simulation appear below
In the first and second graphs, we see the power emitted by each user, controlling their individual flows, from a common current supply, such that the supplied current is divided between the users, with the proportion of flow between them operating on a zero-sum basis; if one demands more, the other loses.
The first user obtains maximum current, generating maximum power, somewhere between 0.1 and 0.15 on the timescale.
The second user obtains maximum current, generating maximum power between 0.35 and 0.4 on the timescale.
Both users separately achieve a maximum power output of just over 18 Watts.
But maximum power between them occurs at 0.25 on the timescale, with a maximum combined power output of 32 Watts.
So we see that in the circumstance where funds (Current) are distributed unevenly, such that additional funds to one are at the expense of the other, the maximum combined output power from both is reduced.
This is a demonstration of the maximum power transfer theorem in action, well known in electrical circuit theory.
It coincides with an underlying mechanism of the Gini Coefficient, well known in economics, which is a figure of merit, measuring the value of an economy, affected by inequality.
So we see already a demonstration of the value of applying electrical circuit theory to financial circuits, based on the new phenomenon of free money.
This goes some way towards proving the validity both of the concept of free money, and how to analyse its effects in the new economic reality of its presence.
The Financial Resistance
R is an electrical load, which in our financial circuit represents an element which emits or absorbs power for a given flowrate (expenditure, or revenue).
A change in voltage occurs in any situation where I²R results in power emitted or absorbed.
We should expect that value to be reflected by a corresponding change in the market value of the token, since we are equating power emitted with the value perceived by the hive.
In reality, an actual circuit will have many loads, working in both series and parallel topologies.
Since the all-seeing market (the hive) evaluates all activities, it is sensitive to, and effectively monitors all power transfer points in all circuits and all elements at the same time.
Each point generating useful power (wealth creation), results in the hive estimating the market value of the associated tokens upwards. Similarly each point generating non-useful or unwanted power (wealth destruction), results in the hive estimating the market value of the associated tokens downwards. The net evaluation is the result of useful power minus non-useful power, with the resultant setting the effect on the associated token value.
In electrical circuit theory, by the maximum power transfer theorem, we know that to get maximum overall power from a circuit, or combination of circuits of the same kind, the power emitted from each element should be as close as possible to equal in all elements and circuits, in other words, the current supply to all should be equal, thus all people should receive equal amounts of free money, at the same time.
The Financial Inductor
An electrical inductor serves to preserve current flow, in the presence of a varying voltage. V=L*di/dt. This seems similar to the phenomenon of a market which generates further transactions in response to buy and sell actions. A large sale of an asset by an investor results in further divestments of the same asset by other investors, somewhat preserving the money flow. Thus we see something similar in terms of current flow, to the action of an inductor.
The combination of an inductor and a capacitor in an electrical circuit gives us a resonator element, which has a natural frequency value.
In market trading we see a phenomenon of “Pump and dump”, where the balance of an account can be ratcheted up, by repeated buying and selling of the same asset, to and from the account.
This seems akin to the action of the action of a charge pump, which works using a capacitor inductor combination, in conjunction with the black box controller of the market.
The market can be treated as a black box controller, which monitors wealth creation, sets a value by assigning a price to each currency, and activates currency flows by buy / sell.
Observations, Questions and Opinion
For those who still have some skepticism as to whether or not free money, could “Work”, here are some observations, thoughts, and points to ponder:
- There are around 300 million people in the US. In each of the previous three months, more than three trillion dollars were issued per month in the US alone, which works out at around $10,000 per person. In that time, rather than the market value of the dollar going down, it actually went up.
- Do we honestly believe cash issued should repaid? By whom? For what reason, does it need to be repaid? It was printed for free, just like sunlight, given to us, and empowering us, for free. There is absolutely no reason to expect anything in exchange for its issuance. As should be clear from the analysis above, it is a Medium of value, rather than a store of value.
- How much of that freely issued money did you see? What would you do with that, if you had that full amount, or even more, free, guaranteed every month? What would you, your partner, and your kids, your family, your friends, and all their families do with theirs?
- If you were a criminal, would you still feel like crime is necessary if you, and all of your family and friends had that?
- Would anyone still feel the need to keep guns, to defend themselves from people still willing to risk their lives to have more? Would anyone still feel so desparate?
- If you were a member of the police, would you still feel like you wished to carry on working with that free income?
- If anyone “owed” money to you, would you still expect it to be repaid?
- If you were a member of the military, would you still feel prepared to give your life, towards what seem increasingly questionable military intentions, with that?
- If you were a rentier, would you still feel the need to own property that others struggle to pay to live in, to make you an income?
- Would anyone still feel like owning property is even necessary?
- Would you still choose to own a car, with no further need to commute, or transport goods?
- If you own a shop, club, or public facing small business, would you still feel the need to profit from your business? Would anyone?
- If someone offered you a dream job, unpaid, except maybe bonuses, doing something you always wanted to do but couldn’t, with an income of free money already, would you still feel like you couldn’t at least try your hand in that dream job?
- If you always had a business idea, but never had the time, would you still have no time for it?
- Would we still feel the need to trade stocks and shares for profit? What would the market for stocks and shares become, if not for profit? We should realise it would not stop, because we would still wish to participate, to express our wishes on which governments, currencies, organisations, and perhaps even individuals, that we would like to see being further rewarded, by boosting their currencies with injections of our own. In other words, that market would become worldwide fine-grained democracy in action, no less. Our criteria, would be what good we see those things doing for the world, thus would assure the well-being of the environment.
- How best should it be implemented? Will the first country to implement it achieve a lead against the others with the value of their currency? The author believes absolutely yes. Any government truly working in the interests of its people should look at this very closely, and consider it, together with the alternatives. Is it really that clever to try to keep flogging a system which has failed, with the awful costs to humanity which we can see? What does anyone gain, by having the most wealth, perhaps even being the last to survive, in a wrecked world?
Inspiring conversations with many folks, including Stephen Stillwell, 🖋⚖🎙🎧🎹 Let's get inspired!🎻🎸🔎💡🪔, Kitty Hannah Eden, Sola Ratione, Farida Haque, An Everyday Light Worker (Amli), Maarten van Doorn, Aellé, Magda Erockfor Ayuk, Andy Zmolek, Rowan Bircumshaw and many more that I will try to add later; lets look forward to a much better future.
Tools used: Matlab Simulink(TM)