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Negative Residual Currency Conjecture4 .pdf



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Abstract
Any system of economies that can be stated in terms of a principle product and a currency that
denominates this product cannot be stable and efficient since the risk cannot be “diversified
away.” Rather, a system of economies can only be stable and efficient if the value of one of
the currencies necessarily opposes the critically constrained product and its currency. Because
any distribution has a mean and any point can be measured in relation to that mean, the most
assured method of creating values that counterbalance each other is to state one product’s
value in terms of its positive residual and the other product’s value in terms of its negative
residual, thus implying the existence of a currency based on a negative residual that represents
the most likely method of stabilizing the economic system. Since dollars represent carbon
consumption, a tradable coupon that represents a unit of carbon saved is a de facto currency
that opposes dollars. As the amount of carbon that a dollar can buy changes, so changes the
amount of local currency that carbon avoidance buys.

Economics as a System of Efficient Markets
Let’s examine the simplest economic system possible where every individual belonged to an
economy:
(1 Economic System) = (Product B, Economy A, Money M) + (Product B’, Economy A’, Money M′ )

Given a set of individuals who organically produce both Products B and B’, everyone must trade
for some individual optimal ratio of Product B/Product B’. Everyone can choose whether to
assume a role as a buyer or seller of Product B in Economy A or Product B’ in Economy A’. We
can assume that each rational individual has no incentive to offer higher or lower sales or
purchase prices due to the assumptions of a perfectly competitive market.
Considering the mechanical definition of efficiency, we understand that the value of M will grow
over time so that M / B and M’ / B’ will each approach 1, indicating no loss of energy
throughout the system. Considering the economic definition of efficiency, no individual could
gain an advantage by switching from one economy to the other, or from switching from a
buying position to a selling position. Thus, if the net flow of individuals from Economy A to
Economy A’ equaled the net flow of individuals from Economy A’ to Economy A while the output
equaled the input, then we could confirm that the system was in equilibrium and efficient.
The Problem
The constraint of Product B is the critical problem. In Economy A, where all members’ rates of
returns are constrained by Product B, the rational sellers of Product B know that demand will be
inelastic. In a marketplace transaction modeled as an economic game where players choose to
transact in one economy or the other, the seller is free to give the buyer the smallest possible
return, keeping as much of the return (profit) as possible.

Sellers, wielding price inelasticity, have a unique advantage. If they can reduce the input
(decrease supply of Product B) or increase output (increase demand of Product B), they can
reap a disproportionate percentage of the return. Here rise the questions of equity, aggregate
utility, and stability: is Economy A necessarily better off while sellers earn a substantially larger
payoff than buyers?
If the seller lowballs the buyer, the buyer’s best course of action would be to revert to Economy
A’ where they have a competitive advantage, offering to sell Product A’ for Money M’. As
players choosing not to transact in Economy A defect to Economy A’, the unit prices of Products
B and B’ necessarily change as the competition for buying and selling the products stiffens and
slackens.
Money M’
M / B = M’ / B’ when the system is in equilibrium, but Product B and Product B’ are inversely
related. If M/B = M/B’ rather than M/B = M’/B’, any change to Product B implies a change to
Product B’, which seems to imply that money M can increase and decrease simultaneously. For
this reason, we infer that Money M’ is separate and distinct from Money M.
Using Economy A’, Product B’, and Money M’ to stabilize Economy A, Product B, and Money M
works perfectly well if Product B and Product B’ are perfectly inversely correlated, thus creating
a stable and efficient economic system. In the case of a pricing error in economies with a nonzero correlation, there will almost certainly be a cascade of changes rather than an organized
and structured response to the change. We must consider a range of possible occurrences in
Economy A and their implications in Economy A’: supply of Product B increases or decreases;
demand of Product B increases or decreases; supply of Money M increases or decreases;
demand of Money M increases or decreases. All of these changes must also be considered as
changes of Economy A’ and their effect on Economy A.
The Proposed Solution
The most likely way to ensure that the unit values of Product B and Product B’ are inversely
correlated is to define them as inversely correlated via their relation to a common mean value.
Considering some distribution of Product B0 that necessarily creates a positive individual value
in terms of either Product B or Product B’:
𝑀𝑜𝑛𝑒𝑦 𝑀
(𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝐵0) − 𝑀𝑒𝑎𝑛(𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝐵0)
𝑀𝑜𝑛𝑒𝑦 𝑀′
𝐼𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑐𝑜𝑛𝑜𝑚𝑦 𝐴′ =
𝑀𝑒𝑎𝑛(𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝐵0) − (𝑃𝑟𝑜𝑑𝑢𝑐𝑡 𝐵0)
Thus individuals with some quantity of Product B0 greater than the mean value will have positive
value of Product B, while those below the mean value of Product B0 will have positive value of
Product B’. In this case, each individual, by falling somewhere in the distribution of Product B0,
by definition owns quantities of Product B and Product B’ that change inversely as the
distribution of Product B0 changes. The result is a self-organizing system that constantly
maintains an equilibrium as the value of the exchange rate from Economy A, Product B to
Economy A’, Product B’ changes by defining value in Economy A’ in terms of a product not
used, a difference from the mean, which seems to be a new economic concept.
𝐼𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑐𝑜𝑛𝑜𝑚𝑦 𝐴 =

Specifically, the distribution of Product B0 converges on some mean value per individual, while
the unit price of both Product B and Product B’ continually increases. By this method, the
wealth of each individual constantly increases: the distribution of currency becomes increasingly
uneven, but this hardly matters as the product (i.e. Product B) and its corresponding obviators
(i.e. Product B’) becomes evenly distributed and increasingly valuable. Economy A would
become a consumption economy and Economy A’ would become a savings economy. Further,
it’s worth noting that as buyers and sellers come and go to the product and its corresponding
obviator[s], the input and output to both the consumption economy and the savings economy
can change via the free market’s invisible hand[s].

A Savings-Based Economy
Macro-economically, money is incontrovertibly linked to oil consumption. Any transaction
utilizing US Dollars is highly correlated to oil consumption, while other country’s transactions are
less correlated to oil consumption depending upon where on the exponential curve each country
falls. Thus while the US or any of its members: e.g. states, corporations, and citizens will
necessarily stand to benefit from additional oil consumption, the oil consumption doesn’t
directly benefit anyone. Only the increase in value of the money and the resultant increase in
purchasing power creates an incentive for oil-mongers.
Oil represents value via a saved form of energy. Obviating the constrained resource is equally
beneficial for any individual; removing the work requirement is another form of energy savings.
To restate this idea: the cost of obviating a constraint should be worth at least the cost of the
constrained product. Since dollars represent carbon consumption, a tradable coupon that
represents a unit of carbon saved is a de facto currency that opposes dollars. As the amount of
carbon that a dollar can buy changes, so changes the amount of local currency that carbon
avoidance buys. The value of energy savings can be measured using some other unit, but it
would be incorrect to develop a competing substitute for oil savings in terms of currency that
supports saved energy via oil. A house divided cannot stand.

It’s easy to think that any social advancement will necessarily create a net benefit: drop in
crime rates, reduction of greenhouse gas emissions, and eradication of diseases. While the
current existence of disaster is inherently problematic, eliminating challenges to human survival
increases costs of resources such as land, food, and water. A savings-based currency allows
profit to be realized in some form other than a physical good: e.g. time, energy, quality, etc.
While this is technically possible via money, examples of water savings, food savings, or land
savings are painfully absent in our modern economy. A savings-based economy creates a neat
solution for the all-too-near problem of how to solve the human productivity dilemma in which
humans are far too productive per capita and don’t need to work, but there is no other method
to distribute goods and services other than “make-work.”
Practical Implementation
In general, any local currency that gains value as it opposes oil consumption will approximate
such an efficient currency M’, in the simple economic example. Any organization can issue a
currency which will be accepted to the extent that the organization can verify that something
was forgone and that the members accrue some benefit from the forgone consumption. This
concept of creating a self-sustaining economy focused on forgone consumption is far from new;
in eras gone by some of the world's more popular religions were founded on this idea. More
specific to our time, non-profit organizations provide a good or service at low-cost while
incurring minimal overhead. The members pay for products via a mix of money and personal
energy- skilled-time, i.e. billable hours of service.
Sales
A new currency can be considered as a tradable coupon that differentiates between customers,
with more valuable customers receiving more valuable coupons. Macro-economically, it is
relatively easy to differentiate those industrial sectors that benefit the local economies by
spending money locally or harm the local economies via negative externalities: e.g. pollution,
industrial accidents, and erratic employment. Micro-economically, it is possible to differentiate
groups of individuals that benefit the local economy by spending their money locally.
Operations
Although academics have suggested that the US economy is efficient, there is little reason to
think that any company in any sector comes close to efficient operations. Companies whose
processes include waste, whether physical or meta-physical, add cost to their products. Since
organizations (government, business, and non-profit) focus efforts on growth and consumption,
there is little incentive to measure and reward reductions and savings. Again, anyone is
welcome to argue that an organization can grow by reducing waste, but substantial
demonstrations of such activity are rare and far outweighed by growth strategies.
Removing waste from operations is not a new idea, but offering a new currency that represents
a savings of something that would have been wasted is a new idea. Operations focused on
efficiency would necessarily utilize lean production principles in vertically-integrated non-profit
organizations to provide critical goods and services with minimal waste. Considering the
percentage of revenue that services rent, taxes, and profit- all of which could be substantially
mitigated via a non-profit organization- substantial cost reductions could quite possibly be

passed on to members across many sectors: food service, child care, vacations, skilled trades,
health care, etc. Although the business models and methods are different from modern forprofit organizations, there is little reason to think that a new organization specializing in quality
products could not compete in any sector. Again, the reason that lean production has not
borne fruit is that there has been no currency that designates the value of the savings that
could possibly support such an effort; indeed, confirmation that lean production has not borne
fruit should be verification that something in the economy is absent.
Supporting Economics Theories
Some physicists have hypothesized the existence of a currency that opposed money based on a
negative unit of consumption (Schmitt et al, 2014). The idea of a currency opposed to
traditional money- representing savings as opposed to consumption- does seem to be on the
very edge of plausibility.
Plenty of economists have developed ideas that support such intrinsically linked diametricallyopposed currencies without stating the need for a currency based on a negative unit of
consumption. To name a few: John Kenneth Galbraith's American Capitalism identifies the need
for countervailing strategy that helps its members save without explicitly stating the need for
such an organizational currency, while his comparison of communism and capitalism implies
that the two systems have as much in common as they do in contrast; FA Hayek wrote about
Choices in Currency and Denationalization of Money, the combination of which practically
assumes the existence of a competitive local currency that provides increasingly large benefits
for the exclusion of foreign products; EF Schumacher's idea that small organizations can be
successful is nearly self-evident when individuals can benefit from availing themselves to
smaller organizations.
It’s worth noting that local currencies are inevitable upon the inevitable death of a national or
international currency. Moreover, such a diametrically-opposed currency based on negative
residual product would have the advantage of a robust exchange rate impervious to money
supply fluctuations. For example, were the nominal price of M / B to rise without any change to
the real price of M / B, the exchange rate of M / M’ could easily be adjusted to counteract
individuals switching from Economy A’ to Economy A. This negative residual conjecture argues
that if a disintegration to local currency is inevitable and that the market relies on perfectly
uncorrelated returns, then a local currency that was diametrically opposed to a national
currency would be quite helpful.


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