Arnold Kling  

Mencius Moldbug, Sighted but Uncited

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Edward Stringham writes,

In an alternative conception of a non-government monopoly system, which is composed of vertically integrated proprietary communities that provide law, each region may include only one law enforcer but one that is private and motivated by profits. In some sense one could think of it as replacing public governments with profit motivated shareholder "governments."

This is Mencius Moldbug, standing on one foot. If Moldbug is peeved at Paul Romer, I cannot imagine what he will have to say about Stringham.

Whatever institution that is currently holding Moldbug is evidently giving him a temporary pass to make a brief speaking engagement at the Seasteading conference.

[UPDATE: A reader points me to Pete Leeson's criticism that "A monopoly proprietor maximizes profits by optimally extorting his tenants in violation of voluntary contracts."

Perhaps the term monopoly is not what we want to use here. More like monopolistic competition. If I stay at a Hilton, it has some monopoly power until I leave. But the fact that I can leave takes a lot of that power away. If I have decent exit rights (I'm being deliberately vague about what I mean by "decent"), then proprietary government works fine. If I don't have decent exit rights, then I have....what I have now. /UPDATE]

Comments and Sharing

CATEGORIES: Political Economy

COMMENTS (14 to date)
Grant writes:

Monopoly vs. monopolistic competition seems to only be a matter of degree. All institutions face competition, the question is what is the cost for the consumer to switch from one provider to another. Because governments are so expansive and horizontally integrated this can be very expensive.

tom writes:

Inspired by Will Wilkinson's weird reply to you a few weeks ago, we could make the theme "Our Charter Town: Love It, or Leave It!"

Dirtyrottenvarmint writes:

Mmm, even without exit rights a private, for-profit monopolistic enforcer is probably better than a "public" one that operates not for profit but for power, prestige, ideology, or whatever else their sick and evil minds can think up. A for-profit monopoly has little incentive to incarcerate or kill me unjustly (or perhaps I should say "unnecessarily"). It would be a waste of an asset. Certainly having exit rights would be preferable, but even if I am a slave, the successful CEO is going to make sure that I am reasonably cared for, comfortable, and happy, since this is encourages me to be productive. And is cheaper than hiring a huge staff of slave overseers. (Too much middle management - rarely good for the bottom line.)

The most efficient option is probably to breed a bunch of laborers brainwashed to follow orders unquestioningly, allowing them the illusion of free will so as to keep them happy and productive. We continue to improve this methodology.

Once upon a time rulers (or their surrogates) had to go around and physically collect taxes. The king's man banging a club on your door was an honest reminder of what would happen to you if you didn't pay. It was also an implicit promise that this man-at-arms and a few more like him were around in case of any trouble. Today we pay our taxes automatically, in advance, without even being asked.

ajb writes:

But a private enforcer is at the mercy of whichever great power enforces domestic order and international defense. This will involve politics, rent-seeking, credibility issues and ex post holdup problems. It will also be vulnerable to domestic revolutionaries agitating for democracy and changing the rules 50-100 years later. Hence any enforcer state will always be a joint system between the official private enforcers and the true backer political powers as well as the compliance of domestic coalitions. And in some cases, schemers from abroad with an interest in suborning or undermining the system.

Patri Friedman writes:

I agree w/ every word of Arnold's post and all 4 commenters. You guys rock.

Isegoria writes:

Stringham's opening emphasizes an important point: bundling law with real estate makes the law enforcer the residual claimant and creates incentives for them to not to expropriate their clientele.

If, as ajb suggests, democratic agitators and schemers from abroad make the residual claimant doubt his ownership, then Mugabe-style expropriation starts looking like a much surer strategy.

Matthew C. writes:

I notice that the US government seems to go as far as possible *away* from exit rights -- witness the absurdity of claiming the privilege to tax former citizens for *10 YEARS!* after they leave.

All the noise about "tax harmonization" and the like falls in this same category of cartelizing government and eliminating inter-governmental competition.

Mencius writes:

The only possible answer is "nothing bad, I should hope!" - since I started blogging in 2007, and Stringham's paper is dated 2006. Fortunately, since I am not actually a professor, my corpse is not good eating.

Of course, as Stringham discusses, many people have had this basic idea in the modern era, most famously Nozick. This is because it's basically a good idea. Of course, it is not a new invention at all. It is simply a recovery from a dark age in which everyone was browbeaten into thinking, that Plato, Aristotle and Socrates were morons. Thus it is directly accessible to anyone - especially in the era of Google Books.

What this modern political-science tradition has mostly avoided, whether through ignorance or discretion, is the eerie resemblance of their discoveries to the classical or pre-democratic law of nations - eg, as laid down by, say, Vattel. And also well-known as the antique jus gentium. What is a "proprietary community?" L'etat, c'est moi. (You can see that in Stringham's case it is discretion, because surely he has read Hans-Hermann Hoppe. But does he cite Hoppe? Nooo...)

For example, what is the economic policy you'd expect a sovereign run on the profit motive to adopt? A: mercantilism. Look at how the early free-traders scoffed at their Colbertian predecessors for amassing huge reserves of gold and silver. Wall Street has another name for this: "retained earnings."

For extra credit: in the '30s, what economic policy was most dramatically effective in restoring commerce and ending unemployment? In what country was this policy most conspicuously practiced? Hint: its leader wore a mustache shorter than his lip.

So this great herd of professors has come around, painfully and quantitatively, to what Robert Filmer knew in 1680. Presumably once they realize the political implications and translate them into Anglo-American history, they will all be Jacobites like me. Prince Alois to the throne! Gentlemen, it is not too late.

Devin Finbarr writes:


The basic problem with for-profit government is that it is not a stable Schelling point for the military. The soldiers may be convinced by a mob of peasants that the "people" are the rightful rulers, rather than the monarch. Then you get the worst of all governments - the revolutionary government. Or one general may try and knock off another general to put his own mouth to the hose of state revenues. Revolutions and battles over secessions were endemic among pre-democratic regimes.

Our system has many ills. But the theocratic civil service state with a veneer of democracy has one major advantage - it has been a very successful military Schelling point. Do you really think a return to proprietary government would be worth breaking the Schelling point? Why?

Mencius writes:


(1) Yeah. That's why you need a cryptographic command chain. In the 21st century, technology obviates loyalty. (And therefore makes the military infinitely loyal - if the weapons ultimately respond only to the shareholders, the Schelling point becomes very, very strong.)

(2) Yeah. The problem is: it is not stable, but decaying...

Devin Finbarr writes:


Yeah. That's why you need a cryptographic command chain.

What? How is that stable?

What if the military just decides to buy a whole lot of non-crypto locked weapons? How would the shareholders stop it? Every military needs and R&D lab. How do the shareholders ensure that newly developed weapons get locked? What if the military provokes a war, FDR style, gets the weapons unlocked and then uses the unlocked weapons to seize the state? And who controls the software managing the crypto-locks-to-shareholder connection?

And which country is going to be the guinea pig while the bugs with this system are worked out?

A slightly more realistic solution would be to divide the shares in a way to make upholding the government a better Schelling point. For instance, give 30% of the shares to the soldiers and their families, 20% to charities, cultural institutes, and ideological organs such as the universities/state church, 30% to the citizens. Military shares and citizen shares would be returned to the state upon death. The last 20% would be publicly traded, voting shares.

I like the idea of separating the problem of dividing the pie from the problem of growing the pie. The joint-stock organization form is the best solution know to date for achieving this separation. But for a sovereign state, the division of the pie must align with formal power. I am incredibly skeptical of crypto-locks being able to force the alignment. It seems like creating the Schelling point via a proper division of shares would be much more reasonable.

Mencius writes:

Under an end-to-end cryptographic command chain, the military is commanded by the CEO but responsible to the shareholders - much as our military today is commanded by the President, but swears its oath to the Constitution.

So there are two classes of coup: the autogolpe in which the CEO is in on it, and the classic coup in which he isn't. Both must be precluded. Under cryptographic command, once the CEO double-crosses the shareholders, he is obviously no longer the CEO and finds himself competing with an authorized replacement.

In either case, you have a civil war between units responsible to the shareholders and renegade units. The point of cryptographic command is to make this civil war never happen, by ensuring that the responsible units will almost certainly win - because only their weapons, at least heavy weapons, work.

Note that a military under civilian control works today with *no* cryptography at all. Civilian control of the military is capable of functioning on pure loyalty with no physical security at all. What cryptographic enforcement does is to ensure that a coup, which is almost always a bad bet anyway, is an extremely bad bet in any conceivable scenario.

As for your scenario in which the military gradually acquires uncontrolled weapons, it can't happen, because it constitutes a gradual military coup. There is no such thing as a gradual military coup. After the first disloyal act, the die is cast. You can only imagine this scenario because you think of governments as a morass of power bases all scheming against each other, which indeed was normal in the 20th century - even under nominally dictatorial regimes, such as Nazi Germany.

But I would most certainly dispose initial shares much as you describe. I would even add lock-in clauses to keep them in the hands of a responsible political base for a transition period. You cannot have too many security measures. Also, as you point out, the technology needs to be developed in the first place. Cryptography can preserve a stable regime, but not create one.

Ultimately, however, shares are either negotiable instruments or not. If so, they will be traded and drift around the financial sphere. If not, they turn into votes rather than shares, and you get something much more like the Venetian Republic. Not necessarily the worst possible outcome, but not as intended.

Devin Finbarr writes:


So there are two classes of coup: the autogolpe in which the CEO is in on it, and the classic coup in which he isn't.

Where does the board of directors fit in?

The problem I see is that the shareholders have no way to organize a response to a coup. Let's say the Board of Directors, CEO, and the top staff of the military are all in cahoots. They secretly smuggle in crates full of unlocked weapons. On coup day, the leaders order the soldiers to break open the crates grab the weapons and seize the state for the military. The soldiers are only too glad to take it from the hands of the fat, rich, decadent shareholders.

How do the shareholders respond? It's possible there might be one branch of the military that is still loyal. But how to do the shareholders organize and figure out how to turn off just the weapons of the disloyal troops?

BTW, is the crytpo-link actually embedded in each share? If so, you then have to worry about people buying shares, duplicating the mechanism, then selling that share, and then buying another, etc..

And yes, civilian rule often works without crypto weapons. But your case of pure formalism - 100% shares in the hands of anonymous rich people who bought the shares over the exchange, and a state that doesn't care what its people think - is probably the most instrinsiclly susceptible to disloyalty of any type of government yet invented. At best crypto weapons would be a nice supplement. But priority one would still be designing a system that the military believes in.

Perhaps your system does eliminate the system of scheming factions. But it creates something brand new - a complete misalignment between the management and the ownership. Every person in the chain of command, from the Board of Directors on down, knows that a) the state is very profitable b) they are not getting a share of those profits. Thus instead of having scheming factions, you have an entire chain of command who's interests are completely opposed to the interests of the state owners. This has never been seen before, and it's very hard to imagine it being stable.

Ultimately, however, shares are either negotiable instruments or not.... If not, they turn into votes rather than shares, and you get something much more like the Venetian Republic.

You could make the non-negotiable shares (for the people, institutions, and military) non-voting, preferred. Then only make the trading shares voting shares. Thus you ensure a distribution of profits that aligns with power, but keep management control in the hands of people who are more competent and are profit motivated.

Mencius writes:

The problem I see is that the shareholders have no way to organize a response to a coup.

Sure. All they need is a way to transmit valid keys to loyal units. Given the existence of satellites, etc, blocking key distribution is an almost unsolvable problem.

The only reliable and practical way to solve this problem is to have *no* loyal units at all. This brings us to...

Let's say the Board of Directors, CEO, and the top staff of the military are all in cahoots. They secretly smuggle in crates full of unlocked weapons.

This is an almost impossible coordination problem - in fact, it is comparable to the problem of organizing a coup in the US today. Even if one general, director, etc, is so crazy as to think a coup might be a good idea, mentioning it to anyone else brings an automatic end to his career. Unless he has the same idea, which he almost certainly doesn't.

As a group your strategy might win, but this assumes the coordination problem is solved. Whereas the individual's best strategy in this case is always to defect, and blow the whistle. You have to get hundreds if not thousands of people to cooperate in this scheme - at this point, the first whistleblower will reap much greater rewards than any cooperator, even if the cooperation succeeds.

Democratic countries don't generally experience coups, because the military is subordinated by law and custom to an external power structure whose legitimacy is absolute. For voters, read shareholders.

In a democracy, this subordination is reinforced by the natural sympathy between voters and citizen-soldiers. In a state based entirely on physical security, a component is needed to replace that backstop, forcing the conspirators to acquire an impossible level of unanimity and making their success unlikely. Cryptographic weapons locks seem to fit the picture, although they may not be the only solution.

You could make the non-negotiable shares (for the people, institutions, and military) non-voting, preferred. Then only make the trading shares voting shares. Thus you ensure a distribution of profits that aligns with power, but keep management control in the hands of people who are more competent and are profit motivated.

You certainly could, but this does not solve the problem of the non-voters colluding to cut out the voters. After all, less for the latter is more for the former. Suppose, to simplify, that all the common shares are held outside the country; then the potential profit of the coup is the amount of money exported. The existence or nonexistence of preferred shares, bonds, or other non-voting instruments is irrelevant.

If you start by distributing temporary non-voting, non-negotiable common shares, restricted by a lockup period which is shorter for voting than negotiability, you get three phases. One, a detox phase, in which you have bought support from these institutions without ceding any power to them. Two, a political phase, in which the now-cemented regime is now supported by people who are seeing the positive results, both in improved government and in dividends. Three, a post-political phase, at which point shares unlock and shift to a distribution which is more financial than political - preventing long-term degradation into an oligarchical mode, like Venice.

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