But my audit training and experience centred on data processing. On verifying that the systems were properly designed to pick up on input errors through built-in checks and feedback.
I believe I actually do understand accounting systems and data handling.
And, for the reasons I've already given, I'm not convinced.
Chris, I have no vested interest in accountancy. I hated it and got out of it as soon as I could.
You and me both: my accountancy experience came with a job in Insolvency.
Sassafras:
But my audit training and experience centred on data processing. On verifying that the systems were properly designed to pick up on input errors through built-in checks and feedback. I believe I actually do understand accounting systems and data handling.
I am sure you do, and, like Todd, much better than I. But in the model I am (poorly) describing there won't be a separate input.
eg in the commodity market.
A deal is struck on the phone, after a Yahoo chat (the entire global oil market takes place in Yahoo chats....)
So: this <market message setting out price and terms of a crude oil deal> is the deal we did; Yes or No?
If you agree, you message back, and the "transaction" is then tagged on both our systems, and the market network server is aware of it from now on, and through the settlement cycle. The tag, coupled with the "market user agreement" / protocol we are both signed up to gives the transaction binding legal effect.
This "straight through processing" simplifies the existing system massively and dramatically cuts "operational risk" through input errors etc.
The questions then come down to issues like I am who I say I am? And even if I am, do I have the power to make the agreement?
Not all transactions rely on one-off payments. At the moment accounting fudges this with things like standing orders and direct debits and settlement periods. But if you could attach a completely arbitary method to any transaction - pay X% of the profit from Y on the Zth of each month except under these circumstances - you could have something interesting and possibly useful.
Except - it would still be leaky, because people would still use cash for certain things, and unless you accounted accurately for all of the sources and sinks you'd really have a record of legal responsibilities mediated through finance, and not a complete accounting system.
And people who weren't online wouldn't be able to participate.
And governments would certainly want access to records for tax and legal reasons.
And you would inevitably create dependency trails, which would have to be calculated instantaneously to eliminate arbitrage and would have to be absolutely robust.
And so on.
It's not a totally insane idea, but outside of limited applications like trading rooms the implementation is going to be science fiction given today's technology and politics.
Incidentally, 'object oriented economics' - which is what this is - has already been outlined in one Charlie Stross novel.
I should really post a mini-review here. He covers a lot of similar ground, and I think people here might enjoy it.
That's a flat system and it's not nearly clever enough.
Quite. It needs more and better brains than mine to implement. And today's technology isn't tomorrow's of course, which is why the process of implementation will be a dynamic and organic one.
But we have to get "there" from here. The end game is IMHO a networked "flat" "Society 3.0" - and this in turn requires a new technological and communications architecture, and a legal framework within which generic transactions/ clearing may take place.
This is already evolving, and indeed this thread is part of the process.
What I see coming is a bottom up, linked and networked clearing system (Keynes' International Clearing Union, but bottom up, not top down), probably involving mobiles as payment devices. It will for the foreseeable future still be necessary to have paper as well, but I would only see that for locally "fungible" value circulation.
I believe I have identified and refined some new tools which will assist in enabling this process.
This has consequences in every part of Society, which have undoubtedly been considered by better intellects than mine, albeit I suspect, on the basis of a different set of assumptions.
A review of an "object-oriented" economics would be interesting. We do currently treat Money and Property as Objects, but we proceed on the (Subject-oriented?) approach that only Labour has value and may therefore be "productive".
I guess it is possible to conceive of an economics where only Capital has value. That is what I would think of as an "Object-oriented" economics.
But that is definitely not what I have in mind. I regard the relationship between Subject and Object to be the source of Value.
Now, the approach of Binary Economics is that both Capital and Labour are "productive" and I share that view, but not their approach to "Money" and Property as "Objects". Theirs is analogous to a Newtonian approach, I think, where the existing paradigm is still Ptolemaic, but they still believe in Absolutes.
My instinct is that Value is not definable (other than in relative terms)and lies in the Relationship between Subject and Object.
I think this leads to a "Relational" Economics - the Schumacher Associative Economics is down this road, as I understand it, and they published an article of mine a while back in their Journal.
But, whatever the "orientation", if you follow through the process, you realise that in fact the role of governments in taxation dwindles to virtually zero, since it is collected at the point of "value transfer", and "pre-distributed" as far as possible.
Taking the approach that private rights of use of a Commons should involve a payment by the user to Society, I would advocate a percentage of all land rental values to be collected at the clearing level, pooled and then automatically distributed equally to all citizens, or held on their behalf for the purposes of (consensually) agreed investment.
Similarly in respect of the "Commons" of Non-Renewables, a levy may be applied to all carbon based energy transactions and pooled, the resulting fund then being invested in renewable energy projects which are then "owned" by a Custodian on behalf of the community.
And so on, Intellectual Property is another candidate.
--Each ETer owns or rents a property in ETopia. --Each ETer also has a job in ETopia. These jobs are 'baker', 'butcher', 'maker of wind turbines', 'artist', 'banker', 'fabric designer', 'bicycle mechanic', etc. --Some ETers live where they were born in ETopia; others have moved; others are about to move; and yet others are about to move back to where they were born. In all these groups there are 'renters' and 'owners' of property
Bill (one of our ETers) is a baker. He is also handy with machines. He wants to learn how to paint. He currently rents where he lives but is planning on moving back to the property he owns. He has two children, aged 14 and 7 (girl and boy.)
Could you in a diary paint me a picture of a typical day in Bill's life in Society 3.0?
Specifically I would like to see:
Bill obtaining the materials for his bread making process Bill dealing with one of his ovens going pffft. Bill going to the shops to buy food Bill sorting out an art lesson with the local artist
If they all look exactly the same as now except that what happens to the money is different, could you take any one (or more!) of those activities and describe a/the (possible) transaction process(es) that are happening behind the scenes?
Also...
It would be interesting to have a look at Bill's accounts, in particular:
What's going on with those payments he's making as a renter (is he making any? How about his contributions to the community?)
What's going on with those payments he's been receiving on his property back home?
What sort of agreements might Bill be negotiating now that he has decided to move back to the property he owns?
Regarding those, how (if at all) are they connected to the various payments Bill is expected to make to ETopia for things such as street lights, electricity refueling stations (no smelly petrol engines in ETopia), the schools, the hospitals, the local health clinics, the opticians, dentists...police, fire, ambulance, law courts, judges...how does the infastructure suck money out of Bill and how can they coerce him to pay his way?
(Let's make Bill the baddie. He owes lots of people money (is that possible in Society 3.0?) and plans to run away from his societal debts. He also mistreats his dog and often punches people for no good reason. How do the laws of Society 3.0 work with regard to Evil Bill?)
;) Don't fight forces, use them R. Buckminster Fuller.
I guess that means I'm going to have to write the book that Solveig's been on at me about for the last 6 months
I've had Pluto Press lined up to publish it ("The Last Big Thing" is a working title) for two years, but I hadn't really brought all the threads together in relation to investment in land, but now I think I do.
So yes, all will be revealed.
But not in a Diary, grasshopper...
Certainly I think to get more traction you're going to have to find at least one model (involving Bill and his contacts, not strange abstractions) that ecapsulates your new paradigm--and gets heads nodding here at ET (or elsewhere.)
I think 'napsterisation', 'peer to peer', 'Society 3.0', & etc. make perfect connective sense to you; but everyone else is still scratching his or her head--or waving angry fists in your direction.
For me the clue that clicked was "property and money are not objects"
Tie that to "all values are relative" (using the 'but we all need to eat' model--'that is only if you give human survival value, and judging by our current world processes that's dubious'...yack yack...)
Ya know, a book sounds good--but if you're not going to offer anything in a Diary (glasshopper), then it seems...I dunno...not right in some way to use diaries to promote the vague (is how it comes across, judging from comments) idea(s)...if you're refusing to concretise--cement (margouillat!) them in some way.
What with me being into synthesis and all!
So: I think that means I'm suggesting I could offer you zer colours for your monotone blueprint--and MMM LLP--will...er....hmmmm... Don't fight forces, use them R. Buckminster Fuller.
Resources, Events, Agents (REA) is a model of how an accounting system can be reengineered for the computer age. REA was originally proposed in 1982 by William E. McCarthy as a generalized accounting model, and contained the concepts of resources, events and agents. REA is a popular model in teaching accounting information systems (AIS). But it is rare in business practice--companies cannot easily dismantle their legacy systems to meet REA's radical demands. The REA model gets rid of many accounting objects that are not necessary in the computer age. Most visible of these are debits and credits--double-entry bookkeeping system disappears in an REA system. Many general ledger accounts also disappear, at least as persistent objects,--e.g., accounts receivable or accounts payable. The computer can generate these accounts in real time using source document records. ... ... Here's an example of the basic REA pattern:
REA is a popular model in teaching accounting information systems (AIS). But it is rare in business practice--companies cannot easily dismantle their legacy systems to meet REA's radical demands.
The REA model gets rid of many accounting objects that are not necessary in the computer age. Most visible of these are debits and credits--double-entry bookkeeping system disappears in an REA system. Many general ledger accounts also disappear, at least as persistent objects,--e.g., accounts receivable or accounts payable. The computer can generate these accounts in real time using source document records.
...
... Here's an example of the basic REA pattern:
Chris "doesn't do detail"
Exactly (I am seeing a writerly role I can invent for myself here--offering Chris my version of the "TBG narrative", in honour of ThatBritGuy's having pushed the concept it 'till I got it--)
Now--from what you understand (with your powerful brain), is Chris's problem one of communication or of concept? Or a bit of both? I'm bashing away at the communication in order to understand the concept. Don't fight forces, use them R. Buckminster Fuller.
So, that is what a "basic pattern" looks like. And, to make matters worse, Chris "doesn't do detail".
Cheap shot, Migeru.
...and the flow diagrams in a double entry accounting system look like what exactly.......?
But I believe it consists of one ledger, two accounts, and a debit and a credit repationship. That is, five blobs in a line.
IMHO what REA advocates is a detailed object-oriented model of economic activity as the foundation of accounting. That diagram is just for one kind of transaction, a "sale". Other kinds of transactions have other diagrams of the same general level of complexity.
That doesn't make REA wrong, but it makes it a lot more complicated (hence potentially bug-ridden and definitely less robust) than double-entry accounting. It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
A lucid critique of REA, which, as you say, replaces one set of issues with another - probably worse set.
But please don't think that I am defending ("object oriented" ?) REA (which I had never heard of), any more than I would defend some of the other concepts Todd has worked on, and which others eg
ripplepay
are working on..
It's just that I feel that at least one of the concepts he has arrived at - the "Shared Transaction Repository" - is exactly the same as my own conclusion, but from the other end of the telescope, maybe.
Maybe in a similar way to the way relational databases were revolutionary, so may be relational accounting, but it will only come about within, and probably as a result of, the adoption of a new enterprise model.
Maybe in a similar way to the way relational databases were revolutionary, so may be relational accounting
Now, some of the originators of relational databases claim that SQL is not actually an implementation of the relational database principle and therefore that most "relational database management systems" (such as, say, Oracle) are nothing such. It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
I think you're conflating two distinct meanings of relational here.
Quite likely. I did say "maybe" ;-)
I think a Relational Economics may not be dissimilar to an "Associative" Economics, but maybe without the Schumacher spiritual dimension which obscures it (to me).
Perhaps a "Relational" model in this context is an Associative Model of Data?
Just like categories can be formulated within set theory, so the associative model can be implemented using relational databases.
If the analogy I see is meaningful it would mean that the associative model of data is more suited to representing processes while the relational model is suited to representing things.
Finally, double-entry accounting can be represented in the associative model by having accounts as entities or items and ledgers as links or relationships. It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
The markets deal with very complex transactions which rely on complex systems and - more or less - work reliably.
So if the specification is clean enough, there's no reason in principle an object-oriented approach would be any more opaque.
The machine-readable issue is a side-point, because as long as you have systems that can translate the raw data to and from readable input and output, you don't need to worry about what's going on inside the files. If your network dies you're screwed anyway, even if only some of your transactions are virtual - which they already are today.
No one has a problem with PDFs even though you can't read them as binary.
The problem is really conceptual - do you want 'money' to be something that exists with a specific ledger value at a specific time, or do you want to graph the network of relationships around a 'business' in a dynamic way, which can be parsed to provide a traditional book-keeping view on request, but can also provide other views on demand?
Indeed - and beautifully put.
Each ETer also has a job in ETopia. These jobs are 'baker', 'butcher', 'maker of wind turbines', 'artist', 'banker', 'fabric designer', 'bicycle mechanic', etc.
I think one of the sticking points - not related to Chris's idea, but worth pointing out anyway - is the concept that people have fixed roles.
If you open this out to make it possible for anyone to do anything, subject to reasonable evidence of skills and experience, or at least a have-a-go attitude where first-time success isn't essential, I think it's possible the economy might become much more fun and interesting for everyone.
I've suggested before that work could easily become project-based rather than job or company based.
This isn't possible at the moment because employees are farmed by corporations for their time and effort. This means people have to turn up at certain times and locations even if they'd be better off doing other things, and being managed - or self-organised - by people with better insight into what's needed.
A participative rather than a proscriptive economy would be more flexible.
It would also be more chaotic, and evidence of previous successes would become much more useful.
So in theory if someone decides they want to be a baker today, or help with the baking, or learn how to bake with a view to committing some time to it, they might be able to do that without taking on a job label as a permanent identity marker.
(Milo explaning Society 3.0 to Colonel Cathcart) Don't fight forces, use them R. Buckminster Fuller.
The end of "Labour" and "Jobs" is inherent in this. Also the end of "Organisations" (such as Companies) and the evolution of "Frameworks" which may be project specific.
ThatBritGuy:
ie towards capability demonstrated by a portfolio of peer reviewed experience rather than "qualifications" per se.
ThatBritGuy: That's a flat system and it's not nearly clever enough. Quite. It needs more and better brains than mine to implement. And today's technology isn't tomorrow's of course, which is why the process of implementation will be a dynamic and organic one.
Crackpot index
A simple method for rating potentially revolutionary contributions ... ... 10 points for each statement along the lines of "I'm not good at math, but my theory is conceptually right, so all I need is for someone to express it in terms of equations".
10 points for each statement along the lines of "I'm not good at math, but my theory is conceptually right, so all I need is for someone to express it in terms of equations".
But that is not to say I'm offended by it: it's a relevant observation. Anyone who trespasses beyond the conventional runs the risk of being labelled a crackpot.
very little I write about did I "invent", apart from maybe the odd phrase and associated concept. And I only came up with these phrases to make sense of what people are actually doing and then suggesting (talking to myself, most of the time) where I think this is maybe leading Society.
I don't mind criticism - particularly constructive criticism - in fact I wouldn't be able to get anywhere without it.
I'm interested first and foremost in explaining things to myself and then if people ask me, I can give a view, which they are free to agree with or not.
If people are prepared to work with me to test that view empirically, then that's cool too, and maybe more fool them as fellow crackpots.
If I'm right, on the other hand, that could be beneficial for everyone.
That is not my observation at all. My observation is about revolutionary claims and excuses for not substantiating same. It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
My observation is about revolutionary claims and excuses for not substantiating same.
Ok. Substantiation can only come about from implementation.
I've got a few irons in the fire, and there are others out there taking some of the ideas and running with them their way.
It will be interesting to see what works, and what doesn't.
If that transaction is real-if it's designed to happen, then a number of things are going to have to be kicked off by this ledger entry.
Unless money has no place in this system, then the seller's bank is going to register the payment for the sale.
Unless delivery has no place in this system, then despatch has got to be organised, and stock records updated.
So they'd be making the same transactions and ledger entries as with double entry. There is no simpler alternative to double entry because every piece of information has a use. Of course it can be framed in a linear way, but you then lose the self-check of the trial balance (all the debits must equal all the credits) and need detailed knowledge of the specific system invented by that particular company in order to check it.
This thread was originally about financial transparency. Simplicity is transparency. I bet there isn't a reader of ET who couldn't learn the basics of double entry in an hour.
As things are, any of us can walk into almost any company and know what's going on (I'm not talking weird financial derivatives here, obviously). In double entry we have a simple, elegant and self-correcting international language for the recording of financial transactions. Is it really a step forward to replace it with something no one can understand?
And there isn't even anything inevitable about double entry leading to a profit and loss account. It leads to a trial balance. Just because the trial balance can be arranged so that "profit" falls out of the bottom doesn't mean it has to be so.
It really doesn't help his credibility that he doesn't seem to know this.
A bank is not necessary as an intermediary. In the event that a sale is made on credit terms I believe that this may be achieved through the use of a mutual guarantee backed by a default fund into which both buyer and seller make suitable provisions.
That still requires the recording of "Accounts Payable" and Accounts Receivable" of course. My account receivable is also your account payable, and both are tagged, and therefore both linked and legally binding.
I don't see why it is necessary to have any more entries than these and the equal and opposite transfers of title, but as I understand it, that is what you are also saying. Such a linked system is essentially "self reconciling" which would save a great deal of time and trouble.
Agreed. It's not just about a shared transaction repository, it's also about a shared title repository.
I believe that the creation and settlement of an account receivable may be better accompanied by changes of title in respect of (say) units of energy (with a value in exchange by reference to a "Value Unit") or units of land rentals (with a value in exchange) instead of a change of title to Bank IOU's based upon nothing much at all.
But that's another story.
A bank is not necessary as an intermediary.
Except that your repository is roughly analogous to a bank - without it nothing happens, no transactions are logged, and no money moves.
The repository doesn't lend money, and it doesn't hold money in escrow - which is kinda sorta what banks do while they're taking three days to clear your payment.
But it's still an intermediary between agents.
Effectively you'd be splitting the book-keeping and account management function of banks away from the investment and lending function - not a bad thing, but not quite the same as removing all intermediary entities.
And you would - presumably - still need borrowing and liquidity management of some sort.
I think it would be hard to prevent the usual gravitational accretion of value and power around whichever entities offered that service. You could have Grameen style micro-banking for day to day borrowing, but big-ticket projects would still need some form of investment.
Random networks of investors might not be ideally skilled to do the risk assessment needed for financial management at infrastructure levels.
Not if it's a "Custodian" member of a partnership, where the other "member" stakeholder groups are:
(a) the system/service users, and (b) the system/service providers.
Within a partnership there is no "Profit" and no "Loss" - just creation and exchange of "value" - and there is no "agency" within a partnership either.
Effectively you'd be splitting the book-keeping and account management function of banks away from the investment and lending function - not a bad thing, but not quite the same as removing all intermediary entities. And you would - presumably - still need borrowing and liquidity management of some sort.
Exactly. But in this model credit (aka "time to pay") is simply extended from a Seller to a Buyer.
The Seller records an "Account Receivable" and the transfer of title to the Seller of something of value.
The Buyer records the acquisition of title to something of value (ie "money's worth") and also an "Account Payable".
Time to Pay, or "credit" is agreed because the buyer has a "Guarantee Limit" of £x from mutual membership of one or more "Guarantee Societies". Both Buyer and Seller then pay - for as long as the account receivable remains open - for the use of the Guarantee, which protects them both.
This payment or "provision" is made into a "default pool" held by the "custodian".
The point I am getting to is that a Service Provider formerly known as a Bank is responsible for:
(a) setting guarantee limits;
(b) operating the default fund (which pays the seller if the buyer cannot provide money or "money's worth" acceptable to the Seller); and possibly
(c) managing the communications and accounting platform (ie with suitable operating partners).
In this model Banks do not put any Capital at risk as credit intermediaries providing an implicit Guarantee backed by proprietary capital. Instead banks operate purely as service providers and "outsource" the guarantee - which is what Banks have been doing, extremely opaquely:
(a) permanently - by "securitising"; (b) temporarily - through credit derivatives; and (c) partially - through credit insurance with "monolines".
"Money as Debt" (and as an "Object") no longer exists in this system. Instead, "Money's Worth" - probably involving "fungible" units such as energy and land rental units - circulate backed by mutual guarantees.
It's essentially a "mutualised" banking system operating "Not for Loss" with money implicit in the relationship.
So there is no "interest" for the use of Money as Debt issued ex nihilo: instead, there are shared defaults and operating costs.
The outcome is what Keynes called a "Clearing Union" which would result from the linking together of networked local clearing unions backed by local and functional guarantee societies (which in turn may be members of area and regional societies)
Reconciliations between your own ledger and the debtors'/creditors' own statements aren't just to give accountants something to do. Their virtue is that they are an independent document and investigating any differences will show up any errors or fraud.
If I've got this right, he wants to make the system linear (removing the trial balance) and do away with third party verification.
In layman's terms, he wants to do away with all the independent checks and balances currently used to detect errors or fraud.
But it's apparently beneath him to explain his alternative.
What's more, I can think of one example where the brave new world of finance this envisages may already partly exist.
A cooperative cluster of businesses, with shared title and quite possibly already with shared stock records. The sort of shared ledger system suggested would make perfect sense to record transfers between the partnership entities.
The business I'm thinking of is Tesco.
A cooperative cluster of businesses, with shared title and quite possibly already with shared stock records. The sort of shared ledger system suggested would make perfect sense to record transfers between the partnership entities. The business I'm thinking of is Tesco.
Of course. That's an "internal" shared transaction repository within the Tesco legal protocol.
It's a "closed" market, where (say) the oil market is an "open" one.
I see the Tesco shared repository gradually extending to their stakeholders....
