[The original used the &= notation, this has been changed to the ξ notation for time-values.]
The briefest explanation of Finite and Infinite games from http://en.wikipedia.org/wiki/Finite_and_Infinite_Games says:
“a finite game is played with the purpose of winning (thus ending the
game), while an infinite game is played with the purpose of continuing
I realized a while after hearing about this that the current cyclic credit system we have been suffering with for the last couple of centuries is most definitely a cyclic “finite game.” The booms begin the cycle and the busts or recessions end it until a new game begins. Now I’m sure that most bankers aren’t thinking of the game of finance as one where they’re intending on winning, but the “web of debt” that grows from the beginnings of fractional reserve lending at the beginning of a cycle acts just like a finite game–eventually the interest due to all of the debt created overwhelms the players and ends the game.
In TAM, there isn’t any defined “ending” to the game. New capital is introduced for every new “player” to trade with the other players. The act of using this credit is voluntary, you cannot be compelled to spend your credit. There are many incentives to joining the system though:
- Credit Origins The more people join, the more credit everyone has. 200 people participating in a market have about ξ5.3 of credit to use. 20000 people get ξ9.9 of credit. 2000000 people get ξ14.5. The formula is simply: ln(unique members) hours. [ln() is the Natural Logarithm.] The more people there are, the more opportunities there are to sell. The amount of credit however grows very slowly–as a control against inflation. 300 million people are getting ξ19.5 of credit. 3 billion people must work with ξ21.8.
When you use your credit, you are working within your limit, and you are “loaning youself.” There is no interest payment due to yourself. So, there is no cumulative “web of debt” to create cyclic economies. However, once you’ve spent your credit up to your limit, you cannot have “more” instantly. Your micro-economic decisions have to be made immediately–there is no “buy now, pay later.”
- Credit Regeneration Everyone is “bankrupt” equally. Instead of punishing the individual for “maxing out” their credit and forcing them to declare bankruptcy [with expensive fees and counseling] and wait seven years or whatever fantasy-rules credit reporting agencies have decided to play under–everyone has their credit slowly regenerated back to the limit according to the same formula. If you spend up to your credit limit, you must wait for it to recharge before you can spend more. Every ln(people) hours, your credit regenerates1/ln(people) hours. 20000 people then are seeing ξ0.24 added to their credit every day until it reaches zero-usage. So, instead of a money supply originating from a central bank [with all of the issues with central planning, deciding who gets it first and the resulting web-of-debt problem that crashes the system every 20-years] it originates from the individual. When there are more people participating in the system, the slower the rate of regeneration becomes. 2000000 people see ξ0.11 added instead of ξ0.24h in the smaller market. While the individual is getting a smaller amount, the aggregate market is still finding a large amount of credit being made available in the system. 20000 people collectively get ξ4894/day and 2000000 people collectively get about ξ228027/day. What takes this money out of the system? [Update: Regeneration is no longer automatic, because this would be a systemic source of inflation. The updated model requires some individuals in the economy to “save,” that is, not use any credit and earn ξ. The aggregate earnings of all savers is divided equally into new credit for the rest at intervals that increase with the size of the economy. (Nov 2010)]
- Investment With your credit, you can choose to buy equity in private business–but it doesn’t work like a “stock” where you buy a share and hope for its “price” to go up to be sold later. Once you’ve bought it, you own a percentage of the future dividends of the business until the business fails. The time that was spent on the equity goes into the business as capital for operations. If the business spends the time and fails to earn income (operating at a loss) then the operating loss is what removes the time from the economy–just as if you gave someone gasoline to run their car. Once its is used up, you cannot give it “back” unless you have received some more. If the business needs more capital from investors, they can choose to provide it or not. Bad businesses fail quickly. Successful businesses earn well and pay dividends. Since equity cannot be sold (your risk was immediate, not “buy now, sell later”) you don’t need to worry about the price of the stock [shorting, etc.] to resell. All that you want to worry about is: is this business operating with a plan that will return a dividend? The books of the business must demonstrate income outside of investment to pay dividends–otherwise, the business is operating as a Ponzi scheme. No value creation–no dividends. So in this small ruleset of TAM, we can say how much credit is available and how fast it regenerates and how it is removed from the system. There isn’t an “end” to the system even if everyone is foolish and spends all of their credit investing in a very bad business–here will still be a recession but instead of waiting 1-2 years for “things to pick back up”, the market regenerates full credit again within 40 days for 20000 people or 127 days for 2000000 people, assuming they did nothing while waiting for the credit to regenerate. [Anti-equity wasn’t conceived of when this post was written–some will have realized that the money still is in the system after equity is purchased, the purchaser just has no right to get the ξ back except through dividends –acryl.]