Ponzis are not so different to money and business

NOTE HXA7241 2022-01-23T09:26Z

Ponzi and money are both self-perpetuating beliefs, but ponzi transactions are concentrative, whereas money is 1-for-1 ‒ that is the first distinction. Ponzi and business are both concentrative, but business has real value attached ‒ that is the second distinction. A ponzi honestly described is a social game ‒ and that is what cryptocurrency stuff is.


An argument is made elsewhere for the clear distinctness of money and ponzi: http://jpkoning.blogspot.com/2021/12/is-money-ponzi.html

“By ponzi, I am referring to a general class of economic phenomena that can only exist if additional people continue to join up. Under these schemes, old investors are paid with new investors' funds. Once the incoming flow of new entrants dries up, the ability to pay out funds to existing participants comes to an end. The scheme ends. This family of economic phenomena includes not only ponzi schemes but also pyramids, chain letters, MLMs, HYIPs, speculative bubbles, and Nakamoto schemes.”


But ask: why do you need a new player to buy in? People who believe that stuff could keep buying it! That seems very imaginable. The distinction-argument merely asserts that the game simply stops at some point, but why should it, why would it have to? There is not actually anything to run out of, and there seems no reason why it could not keep going around and around. Each participant just needs to sell more than they buy. That is perfectly possible indefinitely.

The distinction-argument example says it stops working because people tire of it, which just means they stop believing in it. But why would they? If they made money on it before, they will buy again, and if they have not yet, well, that did not stop them the first time, so why now? Because they thought it would not work? That seems the only reason, but then we have gone in a circle! ‒ It stopped working because they stopped believing, and they stopped believing because they thought it would not work. Or think: if they kept believing, would it have stopped running? The distinction-argument model seems not to offer any reason why not. And indeed it is what we see: the population keeps playing these games.

So this does after all sound like money: they are both self-perpetuating beliefs. If people all stopped believing in money, it would stop working, and if it stopped working they would stop believing ‒ it is the same circularity. (The bank element of the argument is illusory: they are also only playing because they believe everyone else believes in the whole thing too.)

Then what makes a ponzi/chain/pyramid different from money? A ponzi/pyramid/etc is distinguished by its transactions being concentrative, instead of 1-for-1 like money. If you exchange money you swap 1 unit for 1 unit, and so no matter how much you repeat that operation, you end up with what you started with. But with ponzi/etc schemes you can sell ‘copies’. These two types of operation yield distinct ‘landscapes’. 1-for-1 is differentially flat: it cannot change the distribution. But concentrative is differentially variable: it creates peaks and valleys of inequality.


The immediately funny thing about that is it sounds just like markets/selling/capitalism: that is how anything ‘makes money’ ‒ by concentrating it. The difference is that markets also have real things/value attached, rather than only moving the money around. Ponzi/etc is like a refined market activity purified only to the money, like rarefied trading and arbitrage.

We do not declare business is an impossibly flawed system because there is not an infinite supply of money, that not everyone can get rich, that eventually the number of willing players runs out. It is the same concentrative structure as ponzi/etc, but we see it runs around and around indefinitely.

And say a company was proposed to mine some useful stuff, but there was an obviously strictly limited amount that would be exhausted in five years. Would we therefore proscribe such ventures as illegal? It will eventually fail, people that invested too late would not get their money back ‒ it is just like a ponzi. Yet we are fine with it: with a ponzi there is not anything that runs out, and in other businesses where there is, we accept it. There seems a strange inconsistency here. ‘There is a good chance you might not get your investments back’, ‘the company may fail’ ‒ that is just business! There seem no criticisms of ponzi/pyramid schemes that are not equally applicable to common business.

So it is not that ponzi/etc is intrinsically bad, or that business is not like ponzi, but only that business zero-summness is mitigated by its attachment to real value.


If you set up some ponzi/chain scheme but were totally up-front about it and its mechanism ‒ you might not get returns, you have to work to sell ‒ it seems hard to see why it would be wrong. It is like a competitive game, but run in the social sphere: everyone submits some money, and if and when you play better than the others, you can win. (And this is what cryptocurrency stuff is …) Ponzi/pyramid/etc schemes seem justified as games are: other games can be costly and even dangerous, and this is does not proscribe them.

But unlike common games, these ‘social games’ like ponzis/etc expand across an unbounded field of play, making them under-constrained and over-compelling. In games, one regularly loses, but the losses are strictly confined. Amending that unconstraint should plug the justification hole. Financial investment is a gambling game, but we allow people to play on condition it is clearly presented and regulated. Yes, they are a fairly stupid pass-time, but so are many others. Similarly then for ponzi/etc schemes: they are competitive games, and so also under condition it seems we should let people play.