The game theory pioneer, known among students of math and economics for developing the “Nash Equilibrium” for strategic non-cooperative games, has become a pop-culture icon since his recent portrayal in the Academy Award-winning film “A Beautiful Mind,” which gives a fictional account of the scholar’s battle with paranoid schizophrenia.
Shortly after an introduction by Diane Flaherty, Chair of the UMass Economics Department, people who were turned away from the already over-capacity room began pushing though the doors. After security guards were called to secure the room, Nash began his lecture on “Asymptotically Ideal Money,” which is one of his current areas of research.
“The special commodity or medium we call money has a long and interesting history,” began Nash. “Money is the lubrication that causes the efficient transfer of utility.” Utility is a conception in economic theory of the good that individuals can derive from particular allocations of resources. An efficient allocation of resources should lead to maximized utility.
He defined a concept of “good money,” which is money that can be trusted due to low or zero inflation, and suggested that good money can result in a more efficient transfer of utility when people are engaged in trade.
He then explained a theory he developed of “ideal money,” which could be materialized in the use of a global currency. Ideal money would be ideal because it would lack the volatility that our current multiple-currency system has, including possibly harmful effects of irresponsible monetary policy due to “printing of money.”
“I’m not sure exactly what ideal money would be,” said economics major Jon Lhost ’04, who attended the lecture. “I think it would basically be one world currency … He placed a fair amount of importance on this idea discussing countries that haven’t had their own currency such as Monaco and the Vatican as examples of countries that can’t pardon the sins of ‘debt’ because they have no currency of their own.”
Nash used the development of the euro as an example of a move towards an ideal money. “The ‘euro-money’ prospect opens up many interesting potentialities of games of alignment,” said Nash. “In general, membership in a ‘social club’ is desirable only if there are non-members. A good alliance can be reduced to an absurdity by becoming too broadly inclusive. But a global standard could have a value similar to that of standard measures such as those of the ‘metric system.'”
Nash said that the concept of “ideal money” led him to a conception of “asymptotically ideal money … I’ve thought about money for a long time,” he said. “But only recently did I think of this idea.”
Asymptotically ideal money is based in an environment involving a universal economy in which there is no international trade. Instead, trade between countries is similar to trade between states in the U.S. “The citizens or inhabitants of such an empire would not be able to compare their empire’s money with that of another empire,” he said. “But they would be able to approve or disapprove of the stability or instability of prices and costs resulting from the nature of the money used by the empire.”
Nash explained that asymptotically ideal money would be based on a new type of gold standard that no single nation could or would want to control for political means. “It would be appropriate for it to be regularly readjusted,” he said. Nash also proposed linking the currency standard to something arbitrary that has no economic influence, such as the metric standard. “A possible standard of value would be simply the cost of making a duplicate of precisely the same composition and weight of the ‘standard kilogram.'”
Furthermore, Nash explained that in a system where the world has adopted asymptotically ideal money, inflation targeting would keep inflation at a near-zero level. “To me it seems a striking paradox that central banks and their economist advisors can think in terms of having a ‘targeted’ rate for inflation without realizing that that rate should be zero.”
“I never heard Nash give a good reason that inflation is undesirable,” said James McDonnell ’03. “Nash casually dismissed the objection that reducing inflation is costly … by repeating Keynes: ‘In the long run, we are all dead.’ I don’t know if he meant that we should ignore Keynes, or the short-term plight of the unemployed.”
Nash’s lecture was part of the UMass economics department’s annual Gamble Lecture, which has a tradition of bringing Nobel laureates in economics to lecture at the University, according to Flaherty. Nash was awarded the prize in 1994. He shared it with John C. Harsanyi and Reinhard Selten.