Part X of the Bitgenstein Serialization

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Anyone who accumulated large amounts of wealth while remaining independent of military-political command structures faced the problem of safeguarding what he had gained. Unless a merchant could count on the protection of some formidable man of power, there was nothing to restrain local potentates from seizing his property any time his goods came within reach. To gain effective protection was likely to be costly — so costly as to inhibit large-scale accumulation of private capital.

- William McNeill

Bitcoin is often framed as “competing” with fiat currency. This is true in a sense but I fear there is a rhetorical danger of invoking the wrong kind of “competition”. It is not a fight, for example. There is no conflict. Bitcoin is not trying to damage or sabotage its opponents, because it isn’t trying anything and it knows no opponents. It has no awareness whatsoever of who might oppose it or why. It is simply an alternative; an exit valve; an opt-out. It is competing only insofar as it is proving to be a far superior alternative. It is not a sword for Theseus to fight the Minotaur, but a thread to follow to exit the labyrinth. Bitcoin is Ariadne.

There will be tremendous value in normalizing this rhetoric amidst the likely growing chorus of opposition desperate to smear Bitcoin as inherently nefarious, or hostile, even. Opponents must be forced to explain what is wrong with people interacting freely, and why true goodness can only follow from coercion, in their understanding. Should those who have found a way out of the unbearable labyrinth of capital strip mining not take it? What do they owe the Minotaur?

Does anybody really believe that, having fully understood the choice they face, any individual would choose to save in a self-referentially mispriced toxic loan rather than a provably sound digital bearer asset? Or, more simply still, that they will think it makes less sense to hold money that is a pure asset than money that is literally defined as a liability? Why not opt into a financial system that is built on trustless verifiability rather than unverifiable trust?

Threats of violence, perhaps? After all, the only way to “seize” properly secured bitcoin is through torture. In, The Pursuit of Power, historian William McNeill interprets efforts in early modern Europe to industrialize and standardize weaponry and military drill as having the effect that, “the magnitude and controllability of organized violence per tax dollar went up — spectacularly.” It seems reasonable to suggest the potential for a similarly spectacular fall in such returns of late, as German prosecutors and Reuters alike recently discovered:

It is worth working through the optics of any decision to engage with Bitcoin in a truly hostile manner, because it is certainly coming. McNeill reminds us that, even some seven-hundred-or-so years ago, “the breakdown of established patterns of conduct always appears deplorable to a majority of those who witness it.” By no means do I have a utopian outlook on this subject — rather, it is something of an intellectual rite of passage to accept the nonzero utility of dystopian paranoia. Bitcoin will be banned, many times, in many places. But a ban is an open admission of practical and moral failure and is arguably the best advertisement of all. A ban is the Berlin Wall; fragments of any ban will one day become souvenirs of the folly and cruelty of repression. Bitcoin doesn’t force anybody to stay. They come, and then they stay, because they want to — because it is both practically and morally superior.

As with East and West Berlin, it is also worth working through the likely ripples on society at large of the foundational difference of valuing and enshrining voluntary interaction. Yes, Bitcoin has different mechanics — I will get to this further down — but from these mechanics follow different behaviors; from these behaviors, different cultures; from these cultures … who knows?

I don’t profess to know, but I can offer some ideas. First, we are wholly unprepared for the societal implications of making most wealth and much capital entirely mobile. We have been edging in this direction for decades as software has eaten the world, as Marc Andreessen, professional baller, famously put it. As I articulated here, Andreessen’s text remains probably the most important treatise on finance written this century, and yet many in finance have not read it, and many who have think it is not about finance but about tech. It is only about tech insofar as by “tech” you mean “software”, by “software” you mean “everything”, and by “everything” you mean “finance”. So, you are right, but in at least three different wrong ways. Maybe more.

My preferred philosophical abstraction of Andreessen’s argument would be something like the following: software is productive capital for which the raw ingredients are coherent human thoughts. This has recreated the independent skilled-laborer-cum-entrepreneur as a class of economic agent whose capacity for capital creation is human, not financial. This class has arguably been minimized in the economic landscape at large since the Industrial Revolution morphed the Venetian blueprint of capitalism to its vastly more complex successor stage dependent on organizing and directing labor around immobile capital. Such agents have vast bargaining power over financial capitalists, which they tend to exercise currently by demanding equity. But note, the equity stake grounds capital creation in the existing financial system. This power was only ever forward-looking — such workers could bargain over and make mobile wealth they were yet to create.

But Bitcoin has severed the final link. Vastly more capital is, in theory, now mobile as it no longer needs to be moored to a given financial system. By “everything” we need not mean “finance”, but can actually mean “everything”, particularly since a silver lining of the nightmare of lockdowns seems to have been normalizing knowledge work from just about wherever the workers want rather than a handful of unliveable metropoles. Kotkin laments that,

Rather than a base for upward mobility, the great cities have largely become magnets for those who are already well-to-do. Few working-class or middle-class families can now afford to move to places like Paris, London, Tokyo, New York, San Francisco. Many former residents, like Chicago’s black middle class, have left to make their future elsewhere. Many who still work in those cities are forced into intolerably long commutes. As the middle class dwindles, it leaves behind a marginal urban population who depend on the city for a livelihood but often can barely get by.”

But likely no longer. And of course, wherever this high-skilled, newly mobile capital-cum-labor recongregates, all other forms of work will be viable as well — this need not be understood at surface level as an elitist prediction, but rather as baby steps towards feasible localism, at long last.

Physical capital still matters, clearly. So does cultural capital. These are so obvious as to be weird to need to point out. But those in a position to extract protection rents on physical capital, likely with the allure of cultural capital, will need to adjust to this new reality. Sticks are out, carrots are in. What are you gonna do about it? Build a wall? Good luck with that.

In the remarkable essay, Economic Consequences of Organized Violence, historian Frederic Lane emphasizes the importance of sovereign competition in using and controlling violence in an era of more mobile capital than we are used to today:

“If all the tribute was used for conspicuous consumption, a term which seems particularly appropriate for the court of a prince of the ancièn regime, growth was slowed by lack of investment. Merchants who gained protection rents from international trade and colonization, although not entirely inconspicuous in their consumption, probably had a lower propensity to consume. If so lower profits for governments and higher profits for trading enterprises meant more capital accumulation and more growth.”

McNeill similarly observes that in the wake of the eleventh-century upsurge of Venetian and Genoese private commercial activity in the Mediterranean,

“Rulers of old-fashioned command societies were simply unable to dominate behavior as thoroughly as in earlier times. Peddlers and merchants made themselves useful to rulers and subjects alike and could now safeguard themselves against taxation and robbery by finding refuge in one or another port of call along the caravan route and seaways, where local rulers had learned not to overtax the trade upon which their income and power had come to depend.”

We may well be heading back to such a dynamic, with the wilds of the Internet the spiritual successor to the high seas.

But what does finance look like in such a society? It certainly doesn’t follow from the above that finance disappears. Surely it just changes — but to what? I think there are two helpful strands of answers. The first is programmable, which, by its nature is unpredictable except by its potential. Analogies to the early web are cliché, but with perfectly good reason. With open access and a programmable interface, who knows what will be invented? Who knows how quickly inventions will be iterated and combined? The second is Islamic.

continue to Part XI:

or go back to Part IX:

n.b. This is a serialization of my previous trilogy on Bitcoin, economics, and capital markets: Wittgenstein’s Money, The Capital Strip Mine, and, Bitcoin is Venice.

follow me on Twitter @allenf32

maybe a squirrel. maybe not. views my own, not my employer’s.

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