This note summarizes the paper “Ledgers” by Chris Berg, Sinclair Davidson and Jason Potts, version 6 April 2018.
Abstract
This paper develops the ledger-centric view of the economy. Ledgers
provide an underlying infrastructure for exchange by allowing actors to prove, validate, and verify property ownership. In this sense ledgers map economic, political and social relationships. This paper provides some theoretical distinctions to frame the analysis of the economics of ledgers.First we offer a philosophical and institutional definition of ledgers.
Second we provide three analytic categories of ledgers (general, actual, and perfect).
Third we offer a ledger theory of the firm as a map of relationship between labour, capital, production processes, and information, and emphasise the economic significance of ledgerisation in the history of entrepreneurial firm creation.
Fourth we draw some implications of our theory for the development of complex economies.
This paper is based on the theory of institutional cryptoeconomics which was developed to understand the economic implications of distributed ledger
technologies.
Everything in human society is based on a ledger - a record of transactions and interactions that have occurred. This applies to social relationships (communication exchanges), ownership (property sale and purchase), and more.
In the context of economics, ledgers record and verify information about ownership, identity, relations and exchange. Ledgers create structure and value for firms (organizational charts), ownership (property title registers), direct redistribution (recipients of social security or salary).
Changing ledger technology = changing structure of an economy.
Ledger science: the confluence of information theory and institutional economics
Institutional cryptoeconomics: applies institutional economics to the analysis of blockchains, or distributed ledger tech. Seeks to understand:
- how an economy based on distributed ledger tech differs from an economy based on centralized ledger tech.
- how changes in ledger tech affects economic activity through its effect on institutions and transaction costs
In institutional economics, the core analytic concepts of a transaction is the unit of economic analysis. In neoclassical economics, the unit of analysis is the allocation of resources in commodity space.
- What is an economy made of? (transactions vs resource allocation)
- What is the core economic problem? (efficient institutions to economize transaction costs vs economically efficient allocations of resources)
| Economics | View |
|---|---|
| Classical economics | resource centered view of the economy |
| Neoclassical economics | commodity + market centered view |
| Evolutionary economics | knowledge centered view of the economy |
| New Institutional Economics | transaction centered view |
| Institutional Cryptoeconomics | ledger centered view of the economy |
Changes in ledger technology affects
- population frequencies
- structure of economic organization
- transaction costs
- production costs
- productivity dynamics
- economic activity
Institutions are the mappings between a ledger and the real economy, and these mappings determine social facts and the conditions under which they change.
Undestanding Ledgers
Pomata (2011) describes as an ‘epistemic genre’, that is, a standardised textual format governed by prior knowledge and norms. Examples of ledgers as we conceive them:
- shipping manifests
- organisational charts
- family or genealogical diagrams, and
- blockchains
The ledger provides an authoritative account of the state of the world at a given moment in time.
A ledger is a tool for the creation and use of knowledge.
- imposing classifications on observed phenomena <> simplifying sense data (observations) for the purposes of organization, and entering them into a legible format (a ledger)
- allows that information to be acted upon. A material object consulted to inform human action.
Ledgers are intersubjective. They record and determine institutional facts. They constitute and record collective agreement over status.