I think you are trying to solve a different problem: I think you are trying to ensure that "enough" fees are paid to secure the network as the block subsidy goes away. Yes?
I think this is the problem foolish_austrian is trying to solve, yes.
We used to have a tragedy-of-the-commons situation with zero-fee transactions, but we solved that by rate-limiting them based on priority. And we have a working market for zero-fee transactions (see the graph
here).
If you have a chance, please could you explain the graph in a bit more detail as I am not sure I understand it.
There is no tragedy-of-the-commons race to zero transaction fees, because miners do not have infinite bandwidth, memory or CPU to accept and validate transactions.
Gavin, you may well be right here, I do not know. Although, I still think there is some risk of a tragedy-of-the-commons race to zero/lower transaction fees scenario, you and others have convinced me this is smaller than I thought. I think the theory assumes that the marginal cost of bandwidth, memory and CPU for each additional transaction added to a block is becomes very low such that there is no longer any relevant marginal cost. The argument for this is similar to the reasons you put forward for the increase in a block size limit being ok, which is that the costs of these may decline exponentially over time.
Thinking about the above further, I don't think the race to
zero is necessarily the issue, what matters is the overall mining cost curve and that there is sufficient differential marginal cost of adding transactions for different miners. If all miners have the same marginal cost of adding transactions to blocks, e.g. zero, then I think there is a risk that a race to the bottom type scenario could occur, however unlikely one may think this is. foolish_austrian's proposal is interesting as it ensures miners have a different marginal cost of adding transactions, although it causes many other problems.
I advocate keeping a block size limit not because it directly solves the differential marginal cost problem, but as an alternative mechanism to ensure fees are high enough such that we dont run into this potential issue.