Gauge Theory, Gold, and Bitcoin | The Weinstein Series | Episode 1

Checkout the What is Money episode page and show notes

Key Takeaways

  • In essence, Gauge theory is a fancy way to say differential calculus where rise over run is measured from a reference level that is set internally within the theory
    • In ordinary calculus, you have one reference level, in Gauge theory, you scale both the function and the derivative.
  • The ruler of prices is goods, the ruler of goods is prices, both rulers are moving around and we call the measurement devices price and quantity indexes (CPI, GDP, etc.)
    • The Marginal Revolution in economics mistakenly uses ordinary calculus. However, all of economic theory is a naturally occurring Gauge theory that has not been recognized.
  • An important problem with Keynesian economics is trying to describe a physical system where human interference heavily impacts how the system behaves
    • In that sense, all analysis and equations are just guesses and modeling of how central bankers behave
    • Keynesian or not, a monetary system isolated from competition invites the least competent and most corrupt to control an economy
  • Satoshi effectively moved the physical world into the logical world by creating locally enforced conservation laws. However, the problem is having a blockchain recording everything permanently.
    • Consider this, who would want a new form of gold that is constantly recording and announcing its transaction history?
  • Beyond money, imagine porting rules of the physical world into the logical world. For instance, storing genes in a cell or on a hard drive, and creating one from the other

Intro

  • Eric Weinstein (@EricRWeinstein) is a mathematician, cultural commentator, and managing director of Thiel Capital
  • Host: Robert Breedlove – (@Breedlove22)

Introduction to Gauge Theory

  • In mathematics, derivatives measure rates of change. Thus, something is constant if its derivative is 0, in other words, it’s not changing
    • Covariant differentiation is a graduate school mathematics concept whereby you don’t only have multiple functions to consider, but multiple derivatives.
      • This reflects the real world that has many changing variables
  • Gauge theory: you don’t have a universal reference level (imagine a carpenter’s level). There is no set concept of the reference level where you measure the rise from
    • In ordinary calculus, you have one reference level, in Gauge theory, you scale both the function and the derivative.
    • Explained differently: Gauge theory is a fancy way to say differential calculus where rise over run is measured from a reference level that is set internally within the theory
  • General relativity introduced the idea that measurement devices (rulers and protractors) can vary from place to place
    • The insight in Einstein’s field equations was to allow the measurement devices to become a dynamic part of the system
    • By contrast, in special relativity, once you set the measurement devices in one point in space-time, every other point in space-time inherits the same devices.

Gauge Theory in Economics

  • The ruler of prices is goods, the ruler of goods is prices, both rulers are moving around and we call the measurement devices price and quantity indexes (CPI, GDP, etc.)
    • In other words, Prices are ratios of exchanges expressed in money and they enable economic calculation.
    • Wittgenstein’s ruler: ‘Unless you have confidence in the ruler’s reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler.’
  • The Marginal Revolution in economics mistakenly uses ordinary calculus. However, all of economic theory is a naturally occurring Gauge theory that has not been recognized.
    • Eric predicts that “Every serious client of the ordinary differential calculus will become a client of Gauge theory within say a 100 years”
    • Moreover, it’s backward compatible, anything you could do in the old differential calculus you can do in Gauge theory
  • In Chapter 8 of The Physics of Wall Street, author James Owen Weatherall discusses Gauge Theory and how it applies to financial markets.

Ordinal vs Cardinal Utility

  • The Marginal Revolution defied the view that individual objects have quantifiable intrinsic values. Instead, it argued that all value is subjective to market actors ordinal preferences
    • A case in point is the declining marginal utility of money: dollars you earn while poor provides greater utility than those you earn as a millionaire
  • In the St. Petersburg paradox, a player plays a game of flipping a coin where the expected return approaches infinity, yet there is a 50% probability of zero outcome, should they keep playing?
    • Bernoulli’s solution explains that when summed, the cardinal value doesn’t result in infinite returns
    • In other words, people value the remote possibility of huge pay-outs less than the likelihood of getting nothing from the game
  • Economics is based around a series of bundles and derivatives that make it one of the most beautiful geometric theories that can be encountered outside of pure maths and physics
    • However, “There is not even a generally competent group of economists to review the claim” – Eric Weinstein

Competition is Critical for Scientific Progression

  • Austrian economics is based on Praxeology, compared to Keynesian economics which relies on mathematics and analytics
    • An important problem with Keynesian economics is trying to describe a physical system where human interference heavily impacts how the system behaves
      • In that sense, all analysis and equations are just guesses and modeling how central bankers behave
    • “In essence, I understand that the field doesn’t want to acknowledge that it doesn’t know what it’s doing, but it doesn’t” – Eric Weinstein
  • Keynesian economics may aim to prevent economic seize-ups, but in the process, it gives a select few the right to play God. Even worse, it attacks people instead of addressing claims.
    • Keynesian or not, a monetary system insulated from competition invites the least competent and most corrupt to control an economy

Gold as a Gauge Theory

  • A free market naturally seeks the most invariant money to express prices and perform calculation, that is to say, minimizing the derivative
    • Gold became superior money because it had the most predictable ratio of rising over run
  • Gold 197 originates in rare neutron-star collisions. As a result, it’s chemically stable and we are unable to manufacture it, this is why we use it as money
  • Gold’s physical gauge theory shows up in logical gauge theory as a double-spend problem being solved
    • Even more, there is no blockchain or record of transactions, gold assaying is the way to verify you have gold

Satoshi Practicing Logical Physics

  • Satoshi effectively moved the physical world into the logical world by creating locally enforced conservation laws. However, the problem is having a blockchain recording everything forever.
    • Who would want a new form of gold that is constantly recording and announcing its transaction history?
    • Can we dream of distributed computing without being entangled with a universal ledger?
  • Beyond money, imagine porting rules of the physical world into the logical world. For instance, storing genes in a cell or on a hard drive, and creating one from the other
  • “I would like to see the logical world accept a port of the physical world” – Eric Weinstein
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Notes By Mostafa Khaled

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