Something that has bothered me for some time has been the insistence on the gold standard by what I can only describe as the twin cults of Rothbard and Rand. This is just a rambling note of some of my thoughts on the matter – they are freely given and probably have the same value.

This gold standard cult became more apparant to me when I was rereading some of my cybernetics books by Norbert Wiener. Something that both Wiener and Friedrich Hayek were deeply sceptical of, was the use of mathematics in the social sciences. It was why Wiener refused to develop applications of his techniques to economics. This has been done today, to great distress for the mathematician Benoit Mandelbrot and the popular author and trader Nassim Nicholas Taleb.

When reading Wiener, it seems that he took the early research of Mandelbrot very seriously, although this was before much of Mandelbrot’s work with fractals. Mandelbrot is mentioned quite a few times in his books, especially in Wiener’s famous layman’s version of the Cybernetics tome, The Human Use of Human Beings.

This relates very much to the DRM discussions today, as it looks quite obvious to me that money in the digital age is nothing more than a form of information, and would be subject to the same sorts of phenomenon as any information is. That is, it follows a direction exactly opposite to entropy – it is an economics of plenty and not an economics of scarcity. The gold standard is a form of “DRM” system – it tries to force an economics of scarcity onto what is virtually an unlimited resource – money. This probably should inform us in virtual worlds as we go forward – a real money transaction system or a fixed transaction system to a government-regulated currency might be a more viable option.

Governments do not adopt the hard DRM method, rather they try to control the money supply via interest rates. This is more like the “jamming of signals” that Wiener has described. The reason for this, and this was a key insight of Milton Friedman, that the money supply needs to grow. But I feel that Friedman may not have gotten the whole picture. He believed in a money machine that would just keep printing money at a fixed rate. (eliminating the role of the central bank) I’m unsure if that was a correct view, though I do sympathise wholly with what Friedman was trying to do. Rather it becomes more obvious to me that the money supply needs to flex with the size of the population. As human population has been inflating, it makes sense that you would need to inflate the money to keep up with the population. But as a population shrinks, it also makes sense that you can end up with massive inflation.

When thinking about a better method to control digital rights in the virtual world, we probably should be thinking more like the government – we need to “jam” the signals in order to maintain a virtual economy. The “DRM” of scarcity is clearly not popular with users and should be abandoned just as the gold standard was. This is going to take a central role of a trusted authority, and a pretty strong campaign on pirate distribution – the reselling of these files. It is encouraging to see prices for MP3s become more normalised as i-Tunes and other legal distribution channels come available for buying digital content at a reasonable price.

Now when I talk about Second Life, and the permissions system, which works just fine for what it was intended for, I want to make clear this is not a DRM system. It is a “jamming the signals” system. The files themselves are not protected by any sort of DRM. Rather they transfer plain old file attributes common to any operating system, which transfers the wish of the person who sent the files for the network, they do not always restrict transfer or copying, they only do this here and there in a “jamming the signals” way. This system does not exist outside the network operating system – the files themselves are in fact, DRM free. This is essential to displaying the data in the viewer, of course. We can’t have real DRM or we’d never be able to display the files.

Just a short note about Brownian motion, which Wiener was famous for extending on the mathematics of Einstein. I believe there is a critical error in this, and it started with Einstein. Einstein used the observation of a pollen grain floating in water,  which lead to his proof on Brownian motion. However, a pollen grain is round, and water molecules are very uniform as well. This leads to the “normal distribution” of which is a nemesis for Mandelbrot and Taleb. This in fact does not invalidate Brownian motion at all – it invalidates the normal distribution as the only assumption for Brownian motion, as not all molecules have the same shape. Much of econometrics relies too much on notions of equilibrium, and this can lead to false predictions and incorrect assessment of risks. An even deeper fault in econometrics is that humans do not act rationally all the time. Game theory is only for the casino.

I shall show how this notion about the Brownian motion of ellipsoids was proven in 2006 by the University of Pennsylvania. The random walk of an ellipsoid does not follow the Gaussian normal distribution.

http://www.upenn.edu/pennnews/article.php?id=1035

Twenty seconds of a measured random walk trajectory for a micrometer-sized ellipsoid undergoing Brownian motion in water. The ellipsoid orientation, labeled with rainbow colors, illustrates the coupling of orientation and displacement and shows clearly that the ellipsoid diffuses faster along its long axis compared to its short axis.

“The experiments confirmed the theorys curious description of how an ellipsoids random motions are different from those of spherical particles.  On average, particles undergoing Brownian motion do not move very far.  For example, in one second, the largest number of particles will stay very close, say within one micron, of their starting point; a smaller number will move between one micron and two microns; a still smaller number will move between two microns and three microns, and so on.  A plot of the number of particles traveling specific distances yields the famous bell-shaped or Gaussian curve from statistics.  The Penn researchers found that the same experiment, carried out on ellipsoidal particles, produces a curve that is not Gaussian.

“Since ellipsoids are longer than they are wide, they experience more water resistance going in one direction than the other,” said Yilong Han, a post-doc in Yodhs research group.  “These effects are larger in two-dimensions than in three, and the coupling of the rotational movement – spinning – with the translational movement – the distance traveled – give rise to the weirdly non-Gaussian behavior we observed.”

Food for thought.