The Pink Police State

Although I have often used the term “Pink Police State,” I didn’t coin the term. Credit goes to James Poulos who actually credits Marilyn Manson for the inspiration. Poulos dug back to the “Dope Show” from Manson’s late 1990s “Mechanical Animals” to throw pointed bombs at Reason’s “Libertarian Moment” thesis a few years ago. Even though Matt & Nick’s book is “new,” the thesis is old staleness in the pages of Reason Magazine.

Poulos railed against a “cultural libertarianism that is snowballing while the snowball of political libertarianism rolls deeper into hell.”

I couldn’t help but think of Poulos after hearing Michelle Bachmann recently address the Sarah Palin rivalry to the media by retorting “the media would love to see two girls come together and have a lesbian mud wrestling fight, but I’m not going to give it to them.”

The Justice Scam

Stephen Metcalf responds the criticism of his earlier piece regarding Nozick and Libertarianism.

The problem with Metcalf, in the end, is that he is just a bad political philosopher. The actual point he apparently is trying to make is that there needs to be a debate about the justice of markets, but libertarianism has created an extremist narrow filter that excludes justice from any debate. Metcalf blames Nozick.

To give an analogy to illustrate this extremism, Metcalf proposes a bizarro world where Rawls is the philosophical father of a Marxist or St. Simon narrow filter of justice that excludes any debate on market discipline. Metcalf then informs us that “bizarro Metcalf” would make an analogous argument against Rawls.

But Metcalf only demonstrates that “bizarro Metcalf” stinks even more as a political philosopher. While it’s inaccurate to thumb Nozick as the “philosophical father of libertarianism,” it’s even more inaccurate to put Rawls at the head of some St. Simon coalition.

Bizarro Metcalf should prompt one to question what Metcalf exactly means by “justice.” We should recall Rawlsian Justice is a set of guaranteed primary goods(liberties) and a difference principle(maximizing the minimum). Rawlsian Justice is not concerned with perfect equality nor minimizing something like a Gini coefficient. Metcalf tosses around justice and Rawls quite a bit, but is he actually talking about “Rawlsian Justice”?

The silliness of Metcalf as a political philosopher culminates with his winning strategy of pitting justice vs liberty in a democratic vote. Of course, Metcalf is choosing the definition for each option, which is a nice scam if you can manage it. It’s nice to play dictator. However, Metcalf concludes by lamenting the lack of unanimity by the left around his own dictatorial preference of justice, noting, of course, we don’t actually know what his own preference is. Of course, there is no such thing as “justice” as a singular thing to begin with; there are as many definitions/preferences of justice as there are voters.

And we can’t rely on an authorities like Rawls to narrow down the choices. Rawls doesn’t survive the vote. What we find is that voters will opt to impose a set of primary obligations to avoid minimizing the minimum. That’s “bizarro Rawls” in the Metcalf world. You can’t blame that on libertarianism…

Brad DeLong Fails the Nozick Turing Test

Contra Brad DeLong, it’s fairly simple to demonstrate how DeLong himself readily fails his own Nozick Turing Test . DeLong’s problem is that he is composing a test of the Lockean Proviso from Locke’s Second Treatise. Anyone remotely familiar with Nozick should know that he considered Locke’s Second Treatise a deficient foundation for the “Lockean State.” In specific, Nozick recast the Lockean Proviso along the lines of:

“no one be left worse off by the appropriation than if the thing remained in common use”

In other words, Nozick added a constraint condition on “enough and as good left in common for others,” that determines the justice of expropriation of land from the commons. Nozick specifically gave an example of denying a Robinson Crusoe’s property rights claim of trespass against any future shipwrecked individuals on the basis that Robinson Crusoe’s claim violated the reformulated “Lockean Proviso.”

DeLong’s “1st Step” in his test “biases” the test:

1) Nobody is allowed to make utilitarian or consequentialist arguments. Nobody.

Although Nozick “constraint condition” would technically be a type of “Pareto condition” and not a utilitarian or consequentialist constraint, it is clear that the 1st Step is a rule that is meant to prevent one from making the Nozick argument. Since no “Nozick believer” would ever propose or follow such a rule, it is clear that the person who composed the rule either (1) does not understand Nozick or is (2) attempting to enforce a strawman argument(arguing Locke and not Nozick). Hence, anyone who obeys the rule gives away their bias. Put another way, DeLong’s Turing Test is a “biased test” and anyone who follows the test reveals their bias. So DeLong fails here…

DeLong’s contention: “I would maintain that only liberals can successfully explain Nozickian political philosophy” is belied, in this instance, by the fact that DeLong fails(either intentionally or unintentionally) to distinguish between Nozick and Locke regarding the “Lockean Proviso.”

It should be noted that there are additional data points regarding DeLong’s shortcomings as an arbiter of liberal theory. For example, this old post by Brad DeLong equates Smithian Self-Interest with psychopathy. According to DeLong, this astute observation “opens up a gap between the libertarian view and the world.” However, I think the better observation would be to question whether DeLong actually has ever read Smith’s “Theory of Moral Sentiments.”

Libertarianism on the Rise?

I suppose with statistical trends pointing to increases in libertarian attitudes, something Nate Silver neatly summarizes here, we shouldn’t be surprised with the increasing frequency of libertarian deconstructionism from the ranks of non-believers. Some fairly positive; some not so much. An example of the former would be this recent exposition on Herbert Spencer, How an agnostic, libertarian hypochondriac invented “survival of the fittest”. An example of the latter would be this takedown, The Liberty Scam, of Robert Nozick, the supposed “philosophical father of libertarianism.”

A closer examination of this contention of “scam” is in order. Stephen Metcalf writes:

With libertarianism everywhere, it’s hard to remember that as recently as the 1970s, it was nowhere to be found. Once the creed of smart set rogues, H.L. Mencken among them, libertarianism all but disappeared after the Second World War. What happened? The single most comprehensive, centrally planned, coordinated governmental action in history—that’s what happened.

Yes, I would agree that the consolidation of “Corporate Liberalism” after two world wars eliminated any variant of radicalism, not just libertarian variety, from the general political scene. At least for a while. And I suppose you can cast these wars as “the single most comprehensive, centrally planned, coordinated governmental action in history,” but Metcalf’s prose implies this was a good thing, almost as if he were thumping his chest when he composed the line.

Metcalf continues:

By the ’50s, with Western Europe and America free, prosperous, happy, and heavily taxed, libertarianism had lost its roguish charm.

Ah, another instance of the progressive, a presumed forward-looking creature, with feet firmly planted in the idyllic 1950’s of “Leave it to Beaver.” Of course, this bucolic period was just an artificial product of this “single most comprehensive, centrally planned, coordinated governmental action in history(SMCCPCGAIH)”, and it lasted all of about a decade. By the 1960s, the oligarchical regime of mass production(“What’s good for GM is good for America”) and it’s cultural conservative norms were being challenged. In a real sense, the same people responsible for SMCCPCGAIH were also responsible for the planned obsolescence of the GM model, given that the post WW II Bretton Woods Institutional model was meant to standardize global corporate competition. And the Vietnam War, a product of the progeny of SMCCPCGAIH, threw gasoline on the counter-cultural revolution. Certainly, by the late 1960s, radical politics had returned in full force to America.

However, it is safe to say that libertarianism would really be the only radical form of politics that would emerge on the other side of the 1960s–i.e., the 1970s. And here is where the irony perhaps becomes a bit thick for the progressives to digest.

At the turn of the 20th century, libertarianism, i.e, “individualist or liberal anarchism” was a minority subset(more of an intellectual movement) compared to the population of left, “social anarchism(more of a labor movement).” However, even libertarianism was anti-capitalist. But Corporate Liberal consolidation essentially subsumed the “social anarchist” movement(i.e., labor) and beat the remnant of the libertarian movement like a pathetic, yelping dog over to the capitalist side.

In 1926, Benjamin Tucker, in a postscript to his original “State Socialism and Anarchism” essay, argued for an educational propagation of a libertarian remnant to allow the possibility of a future movement to gain political power to execute a massive redistribution of political power to break the monopoly trusts. But Tucker’s libertarian remnant would not survive. Instead, “the remnant” would survive via the so-called “Old Right,” which was a network of businessmen, journalists and the refuge from the crumbled regime of Bourbon Democrats. Tucker’s “radical political redistribution objective” would be supplanted by an objective for the revival of “Lockean liberalism,” which would entail the restoration of the “social contract” along Lockean terms, and not the outright abolition of all political authority, which is what libertarianism proper demanded.

The New Left Critique against Corporate Liberalism that emerged in the context of the political radicalism of the 1960s was an academic critique. But there was no “civil society” of labor, a “remnant” so to speak, that could actually take advantage of it and run with it. The “new” social anarchism of the counter-culture communes was no match for the realities of latter-half 20th century Global Corporate Capitalism. Libertarianism was the only radical framework that had built up a “civil society,” or a “market,” that could take the New Left Critique and run with it in the context of 20th century Global Corporate Capitalism.

The reality is that the New Left inadvertently played an important hand in spawning “anarcho-capitalism,” the capitalist version of individual anarchism in the late 20th century-early 21st century America. So the reason that, say, Gabriel Kolko is not eulogized today as the father of “modern American Syndicalism(a movement, of course, which does not exist)” is the same reason that Nozick should not be eulogized as the father of libertarianism.

In short, Nozick did not create the libertarian movement; rather, he was the product of it. Nozick’s “Anarchy, State and Utopia” may have “legitimized” “libertarian theory” in academia, but as we saw with Kolko, academia does not “father” a context; often, it is smack, dab embedded in the middle one. Kolko himself, at least early on, was horrified that his deconstruction of corporate liberalism had been expropriated by radical libertarianism.

Frankly, “Anarchy, State and Utopia” should actually be construed as a critique of libertarianism. The book more or less had two objectives: (1) to counter the distributive justice theory of Rawls (2) to counter the libertarian claim of illegitimacy of the State by demonstrating that libertarian social theory(specifically, the anarcho-capitalist one) would result–without any rights violations–in a State.

Rather, Nozick’s book should be viewed as the one of the definitive modern apologetics of enlightenment liberalism revival. Nozick himself viewed ASU as a more satisfactory foundation of the Lockean social contract than Locke’s own “Second Treatise.”

The typical failure to discern the actual fundamental rifts in modern American libertarianism between the historical libertarian position and enlightenment liberal revival accounts partly for the confusion when critics of libertarianism circulate in the popular press.

This lack of discernment is full display in Metcalf’s piece. Much of the piece is a critique against Nozick’s minimal State utopia, that is, a State that permits individuals to closely approximate the life they actually want to live. Metcalf attacks this position by claiming that Nozick’s utopian outcome rests upon a utopian assumption of perfect competition, an ideal that doesn’t exist. Without this ideal perfect competition, Nozick’s utopian outcome results in a predatory outcome. This is the gist of Metcalf’s argument.

But this is actually a bad critique of Nozick. One might guess that Metcalf perhaps read only part of the book because Nozick’s minimal State depends on a Natural monopoly in protection firms, something that could never happen under conditions of perfect competition. If Nozick were to assume perfect competition, then there would be no State to begin with. Robert Nozicks entitlement theory of justice does not depend on perfect competition.

At the conclusion of his critique, Metcalf proposes an alternative formulation of the debate, one that–I’m sure unbeknownst to him–is borrowing from the radical libertarian model: libertarianism vs authoritarianism. That the real division is between libertarianism vs authoritarianism goes back to Benjamin Tucker, articulated in 1888 essay, Anarchism and State Socialism. In our modern setting, this framing of the division is particularly associated with Anthony De Jasay. In the De Jasay model:

Libertarianism involves a presumption of liberty, which means any denial of a liberty claim has to be rooted in a falsification of that claim(demonstrate specific harm). Authoritarianism, however, is rooted in the presumption of authority, which is an un-falsifiable claim(the burden is to demonstrate that a liberty claim would do no harm under any objection). The former is consistent with the epistemological foundation of science and the latter is not.

The presumption of liberty leads to the libertarian principle: “Anything peaceful is tolerated”
The presumption of authority leads to the authoritarian principle: “Anything not explicitly permitted is prohibited”

De Jasay’s rational choice methodology, operating under a presumption of liberty, is more or less able to demolish any claim to political authority vis a vis any hypothetical social contract. You cannot get to Rawls by way of a “libertarianism vs authoritarianism” framework; if you propose such a framework, you will be forced to concede to the libertarian conclusion against political authority(mind you, without any need to introduce the dialectical contextualist tools of “class theory”).

In conclusion, it should be noted that Metcalf’s piece was generally panned in the blogosphere because of factual inaccuracies and charges of misrepresenting the libertarian position. The first criticism is true and the second partly true. But then again, I think the libertarian movement largely misrepresents and confuses the libertarian position to begin, so it’s impossible for anyone not to “misrepresent it.”

Simply, the modern American libertarian movement is incoherent. If you want to attack it, that’s how you attack it. Case in point, this Cato rejoinder against Metcalf. Writes Aaron Ross Powell:

libertarians don’t believe that liberty is the primary value, we believe that liberty is the primary political value.. Like so many critics of libertarianism, Metcalf does not understand the scope of the libertarian argument.

Really? With this “rise in libertarianism,” I’m seeing libertarian pro vs. con case for every political issue under the sun. The Libertarian case for abortion, the libertarian case against, the libertarian case for immigration, the libertarian case against, the libertarian case for Wal-Mart, the libertarian case against, the libertarian case for privatizing social security, the libertarian case against, the libertarian case for tax cuts, the libertarian case against, the libertarian case for War XYZ, the libertarian case against…On and on, etc, etc…

In short, with any rise of libertarianism, the last thing you would perhaps want to experience is “liberty as a political value.” The source of the modern American libertarian incoherence revolves around the debate of the legitimacy of political authority. But, so far, this is something the popular press has failed to flesh out.

Matt and Nick’s Declaration of Futility

Reason Magazine is promoting Matt Welch’s and Nick Gillespie’s new book, The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong With America. The premise of the book is built around wishful thinking, namely: why can’t politics be more like lifestyle consumerism.

Everywhere in America, the forces of digitization, innovation, and personalization are expanding our options and bettering the way we live. Everywhere, that is, except in our politics. There we are held hostage to an eighteenth century system, dominated by two political parties whose ever-more-polarized rhetorical positions mask a mutual interest in maintaining a stranglehold on power.

Matt and Nick claim a corrective mechanism that will break the two-party duopoly and make politics more like the expanded set of menu options one would have, in say, purchasing a smart phone. This corrective mechanism:

“The Disintermediating technology of the internet, coupled with the rise of political independents” creates a built-in corrective mechanism that now prevents the political duopoly from crushing expanded sets of political choice menu options. That’s the premise.

However, this premise is flawed in that it more or less simply ignores the duopoly model of Cournot Competition. Cournot Competition is a game of strategic substitutes, that is, a game where firms play strategies that mutually offset one another. This means that a strategy of Firm A is a strategic substitute of Firm B’s strategy if the more Firm A wants to do it’s strategy, the less Firm B wants do of it’s own. The converse is true regarding Firm B’s strategy being a strategic substitute of Firm A’s strategy.

Cournot Competition is not “perfect competition.” Cournot Competition leads to a result of higher prices and lower output. Disintermediation(i.e., in this context, “party bosses” don’t hand pick the candidates) and declining brand loyalty do not convert a Cournot Competition model into one approaching perfect competition. This can be empirically verified, in our political context, by noting Disintermediation and declining party identification have been ongoing trends for the past 40 years. Yet, these trends have had little effect on the Cournot behavior of the 2-party duopoly. If anything, these trends have coincided with the Cournot duopoly approaching more of a monopoly model.

The only “conversion mechanism” for Cournot –> Perfect competition is a reduction in the the barrier of entry. That is firms {A,B} –>{A1,A2,…An}. But this would require a major change in the rules of the system–in essence, the abolition of the plurality rule election system. And this would require the institutional underpinning of a major political reform movement, something completely out of scope for the Gillespie-Welch lifestyle voter.

Indeed, the plight of Gary Johnson, the ideal Gillespie-Welch “lifestyle politician,” illustrates the public goods problem of this voting block. Johnson does not spring from any institutional party infrastructure nor is he a product of any formal or informal institutional network. He is essentially a one-man show, someone who was elected governor as the result of a fluke. In a majority Democratic state, Johnson was able to overcome a weak GOP establishment to win the primary and then defeat a Dem Establishment Pol in a general election. But this doesn’t translate on the national scene. Johnson insists that his “resume” gives him a seat at the table. But it actually doesn’t. It reaffirms him to be a fluke, someone without any formal or informal institutional support. His “Our American Initiative” project didn’t build any genesis of a lifestyle voter political reform movement. Johnson, after being excluded from the recent NH GOP debate, is now making the rounds volunteering his new found disillusionment with “the system.”

In short, Gillespie-Welch’s new book is not a serious social science book. Rather, it’s mere journalistic wishful thinking. In this short critique I’ve pointed out that there is a serious public goods problem for the Gillespie-Welch voting block to radically change the system rules in order to shift a Cournot Competition model toward one more resembling perfect competition. Contra Gillespie-Welch, libertarianism is not merely an “adjective,” it is also a “noun,” meaning it has a historically well-developed political theory that is able to easily shoot down lazy premises.

Lastly, I would be remiss not to point out a delicious irony with respect to Gillespie-Welch’s lazy scholarship. In particular, I’m referring to their contention that this Gillespie-Welch voting block is a reactive product against the marginalization of the “venerable tradition in American politics of Jefferson/Thoreau/Goldwater.” Of course, in reality, Goldwater, or should I say, his “Shakespeare,” that is, Karl Hess, the one responsible for the penning the prose that made Goldwater Goldwater, killed off the myth of this “venerable tradition” himself with his essay, “The Death of Politics.” Published, of course, in Playboy Magazine, the original bible of the revolutionary lifestyle libertarian. Nick, Matt, read your bible…

Money is what the Free Market says it is

This Bitcoin screed by David Kramer should remind us to define our terms when we speak of “Free” Markets. Free refers to:

(1) Free as in “free” of serving political/economic ends
(2) Free as in “free” of being tethered to specific moral judgements/preferences and/or outcomes

This definition of “free” allows us to critically examine the remarks of David Kramer who writes:

(despite) the fact that it was voluntarily created by the marketplace, I’m afraid that those people are losing sight of how a real medium of exchange arises in a free market.

As a logical truth statement, this can be written as:

If p, then q

p=”Free Market”
q=”Gold Warehouse Receipts as medium of Exchange”

The truth statement can be rewritten:

If ~q, then ~p.

The rewritten truth statement violates my above definition of “free” since it makes a “preference for gold as a medium of exchange” a necessary condition for a free market.

Now Kramer’s truth statement is not illogical, that is it does not rest on any logical fallacy by itself. However, when presented with a counterexample, resorting to a “No true Scotsman” claim is resting an argument on top of a logical fallacy. Here, the “true Scotsmen” are only those who truly understand the Austrian rationale for gold.

Almost 4 years ago at Freedom Democrats, I posted an article that succinctly outlined the Misean position for Gold Warehouse receipts. In that same article, I outlined two other competing ideas, namely free market fiduciary money and free market fiat money. The overall point made was that money was a “coordination problem,” which thus makes it a type of coordination game. The Misean treatment affirms this because of it’s reliance on the “Misean Regression Theorem” to resolve the paradox of the “Austrian Circle” when applying a marginal utility treatment to the price of money. Coordination games typically do not have a unique equilibrium which thus introduces the problem of equilibrium selection in the case of multiple equilibria. The case of Gold Warehouse Receipts being an established convention–which would thusly terminate the coordination problem since the payoff from the conventional solution would greatly exceed other payoff equilibria–is not an empirical one.

Interestingly, in the original piece, reproduced below, I mentioned E. C. Riegel’s dictum: “money is but a medium of evidencing barter balances.” This is the economic principle underlying Bitcoin more or less. The key word here is “evidencing,” which we can substitute the more modern term, “verification.” When Kramer writes that bitcoins are arbitrarily created out of thin air, he should research the thing he is criticizing before offering up his criticism. Bitcoin money creation is tied to a “competitive market” for transaction verifications. It is not the result of an arbitrary process.

Lastly, one more note about “convention.” The “Misean Regression Theorem,” which establishes Gold as a convention, based on a regression series for a demand for money that can be traced back to a barter economy where gold emerged as a medium of exchange, also can be viewed as a progression series terminating in totalitarian fiat currency abolishing gold as a medium of exchange. And the the only thing that can undermine this state of affairs is something that likely arises out of a 21st century digital barter economy. Conventions are just that, conventions…they should never be mistaken for universal principles.


Money as a Coordination Problem. Originally published at Freedom Democrats, December 2008

tarran over at the The Liberty Papers makes the case for Free Banking. From a libertarian perspective, given that the US Central Bank these days is effectively in the business of “corporatizing” money and credit, it would seem that Free Banking should be experiencing a revival or sorts(well at least among those who take a dim view of such things as corporatization).

tarran essentially lays forth the Misean View of Money and Credit that treats the demand for cash balances(a good not to be consumed itself, but to be held to exchange for later consumption) the same as the demand for any other good, subject to the same principles of marginal utility and subjectivism. In this context, money is more or less a commodity or good, and “the Bank” is treated more or less like any other firm that rises to supply goods. However, there is an implicit “coordination problem” with the Misean view of money, one that is typically characterized by Austrians as the “Austrian Circle.” Specifically, given that money itself is not a directly consumable good, a marginal utility treatment of money presupposes some coordination when it comes to it being valued as a good in and of itself. Mises posited his “regression theorem” to assert that such coordination ultimately must germinate from a barter economy and that historically, it has been Gold that has emerged from such barter economies as that commodity that has demonstrated such utility. Thus from a Misean perspective, Gold plays a central role in any conception of “Free Banking,” and any notion that money can originate either from government edict or by some form of social compact is rejected (As a corollary of sorts, it should be noted that State Fiat Money then, to subsist, must necessarily evolve out of something originally based on a commodity such as gold).

If we take the Hayekian perspective on the fundamental role prices play in terms of economic coordination, then a necessary a priori proposition is that money itself must have some sufficient level of immunity to economic rent seeking. Otherwise, the market price system will invariably break down. Historically, it should be noted that Hayek himself more or less took for granted the existence of a central bank until the 1970s stagflation/inflation radicalized him more towards the Free Banking position. Hayek, however, was largely dismissive of the need for Gold in Free banking, viewing it as an ancient convention/superstition that could be superseded by modern day spontaneous orders.

Thus, an interesting dichotomy between the likes of Mises and Hayek when it comes to money. Of course, both Mises and Hayek were classical liberals, not anarchists, and the presumption of Free Banking in the context of the State has become a moot point. Although Mises was hostile to the notion of anarchism, the reality is that State Failure lies at the nexus of any practical application of “free-market money” these days. An interesting development of late is the growing popularity of barter-based monetary systems. In the current conditions of “tight credit,” agents may be resorting to bartering exchanges to preserve cash balances. However, if the large amounts of liquidity being injected into the financial system eventually leads to a stagflation or hyperinflation scenario, the popularity of these barter-based monetary systems would skyrocket as demand for cash would plummet.

An interesting observation is that in instances of State Failure, spontaneous alternative currencies tend to follow models suggested by E. C. Riegel rather than Mises. Riegel’s dictum that “money is but a medium of evidencing barter balances” is a subjectivist case for free-market fiat money arising from voluntary exchange. This competes with the Misean warehouse receipts version of commodity money(Gold) arising from barter exchange. No doubt, the Misean conception of warehouse receipts is rooted in history, specifically, the British tradition, but it’s debatable whether the British Tradition is really rooted in free-market, spontaneous order. In any event, the likes of David Friedman, for example, has made a compelling argument that private commodity money would likely result in fractional reserve banking. So-called “fiduciary money,” of course, is an anathema to the Misean notion of money that equates fiduciary money with either theft or fraud. However, as James Leroy Wilson notes, there’s no real case for fraud to be made as long as the notes in circulation are ultimately backed by other assets of equal value belonging to the bank. This was essentially the same point that David Friedman made with the caveat that the the value of such assets not be linked to the value of said money–for example bank corporate stock. Indeed, Friedman pointed out there would likely be little preference for banking with “limited-liability corporations,” so that in the case of failure, the assets of the investors would be fair game to satisfy depositor claims.

In the absence of the State, money is what the free market says it is. Hayek classified economics as a coordination problem, which certainly includes “money” itself. Mises may have posited his regression theorem to resolve the money coordination problem in favor of gold and warehouse receipts, but the same regression theorem technique can be applied, for example, to demonstrate that free-market fiat money can arise out of barter exchange as well. Coordination problems typically do not have unique solutions. Free market fiat money, free market fiduciary money, and free market warehouse receipts are all “solutions” to the money coordination problem. In conditions of market anarchism, where there are no legal-tender laws, an inferior solution is not going to drive out a superior solution. Clearly inferior solutions will die out on their own.

Bitcoin and Agorism

We are working with the government to make sure indeed the long arm of the government can reach Bitcoin
Jeff Garzik, Bitcoin Developer

Two days ago, on the show, What’s Trending, Bitcoin developer Jeff Garzik remarked that despite the opinions of the libertarian user base of Bitcoin, the success of Bitcoin required cooperation with government regulation. This echoes the opinions of Bitcoin technical lead, Gavin Andresen. Here, “regulatory cooperation” specifically refers to “regulatory compliance” of Bitcoin exchanges. A Bitcoin exchange is where government fiat money is exchanged for the Bitcoin “free market” fiat money and vice versa. Regulatory compliance means reporting the details of each of these transactions, including the user identities linked to a Bitcoin address for each exchange transaction, to the Government.

It’s not like the Bitcoin development team has nefarious motives. Even though the original whitepaper by “Satoshi Nakamoto” was perhaps ideologically motivated by crypto-libertarianism, the development has since been turned over to a team more concerned with practical adoption than ideological ends. A fiat currency requires a “network effect” to ultimately succeed. Since Bitcoin “mining,” that is the creation of new bitcoins, is (1) an incentive reward for a clearinghouse node completing a proof-of-work requirement for verifying the current block of unverified transactions and given (2) that the increase of CPU power of the Bitcoin network(i.e., the addition of new nodes) dictates that clearinghouse nodes specialize(following a “division of labor” hierarchy) as “number-crunchers,” so most nodes now will no longer participate in block transaction verifications(they will “turn off” the Bitcoin mining option), it follows that (3) most new entrants(new “nodes”) who want to acquire bitcoins will do so by buying them from a currency exchange.

Hence, the Bitcoin development team’s position that the network effect(wide-spread adoption) depends on “white-market” currency exchanges as entry points. Without regulatory compliance, these exchanges won’t exist and/or continue to exist. The Bitcoin development team consider themselves acting in the capacity of entrepreneurial agents, not ideological agents. In other words, they have an entrepreneurial interest in wide-spread adoption(the “network effect”). But the means here conflict with the original ideological intent. This is an example of why I am not a Rothbardian Agorist.

In Rothbardian agorism, you would have:

(1) no white-market currency exchanges. You would acquire bitcoins by exchanging a product of your labor. In other words, if you wanted a product/service being offered in bitcoins, you would have to discover and offer a product/service that others would be willing to pay for with bitcoins. In the limited Bitcoin ecosphere, this would likely entail huge opportunity costs. These opportunity costs are exactly why the libertarian economist Walter Block dismissed agorism as being “economic suicide.”

(2) you could have grey-market exchanges. Agorist theory would require “protective agencies” to evolve, in an entrepreneurial capacity, to defend these transactions. However, we are seeing that the entrepreneurial actions of the Bitcoin development team working against this outcome. From a practical sense, you can see why. “Conspiracy” in US Law is totalitarian. A grey-market exchange + “a bitcoin market trading in illegal services/goods” = criminal conspiracy that could land anyone associated with the project in jail.

Bitcoin, Laissez-Faire and Bureaucratic Compliance

Bitcoin fantastically illuminates the distinction between “regulation” and “compliance.” Statists rely on conflating the two concepts. In the “Laissez-faire” tradition, the entrepreneur is a “regulatory mechanism” and the bureaucrat a “compliance mechanism.” Statists will call Bitcoin an “unregulated monetary ponzi scheme.” But what they really mean is that it is simply “non-compliant” with the lawlessness of the US Political economy. What Statists call “unfair advantage of early adopters” is simply the entrepreneurial reward for resolving a coordination problem. There is no need for “regulation” because it works quite regularly as expected, according to the rules adopted.

A fair, non-compliant(!=unregulated) exchange between government fiat money and free market fiat money resolves the opportunity cost problem outlined above, and absent that constraint, it’s likely that the free market fiat money would experience it’s network effects. However, compliant(!=regulated) exchange between government fiat money and free market fiat money is not likely to result in any network effects. It should be realized that if the State, particularly one that has “oligarchicalized money and credit,” particularly one whose currency serves as the global reserve, lost it’s monopoly on money, it would likely collapse. So, it’s a bit naive to think that the State would comply with such an outcome.

A valid criticism of the Bitcoin development team would be stop using the term “regulate,” and instead use the more accurate term, “compliance.” Compliant Bitcoin Exchanges would have to be considered “Snitch nodes” on the Bitcoin network. Snitch nodes obviously compromise your anonymity in terms of participating in the Bitcoin network, but whether this is sufficient, along with other techniques, to compromise your anonymity for any given transaction, is another matter.

What’s clear, in observing the rapid appreciation of Bitcoin on the exchanges the past 30 days, is that this matter is soon coming to the fore…

Odds and Ends…

My little blog, which I started after Freedom Democrats went defunct, has now reached it’s one year anniversary. One thing I have definitely learned the past year is that if you want to implement a “traffic-killing” strategy, post intermittently on the rational choice foundations of libertarian theory. Guaranteed to kill your traffic, unless,I suppose, you happen to be a well-known professor/scholar in the field.

A traffic-generating strategy, on the other hand, has proven to be to post on topics related to your specific areas of expertise and post often. So my “techie” stuff usually does decent traffic and occasionally does explosive traffic. For example, my post on the immixGroup-VeriSign-ICE triage behind the domain seizures, an inner working that I was able figure out, got significant linkage from a number of major tech publications. My Wikileaks Watch posts, for the brief time I was maintaining them, got good hits. In short my niche would be “Applied Cyberpunk,” although this would involve none of the literary or cultural aspects of that genre. Perhaps a more accurate but less chic term would be “Internet Political Economy.”

Still, my “theory” posts, although not widely read, have helped me flesh out my own rational basis for libertarianism, one that has steadily moved toward moral contractarianism, the only framework that I now think can be consistent with Laissez-Faire. This moving to the later Benjamin Tucker position, but instead of “Rational Egoism,” we are substituting Game Theory Rationality.

Lately, many of my “theory” posts have been attacking the premise of “Bleeding Heart Libertarians.” This is not because I don’t share the same moral judgments as BHL, because, in actuality I do. It’s because there really isn’t any rational or social choice basis for distributive justice. So, advocating libertarianism as a basis for distributive justice principle is a dead-end road. Indeed, the libertarian principle has already been demonstrated to lead to cooperative equilibrium.

David Gauthier demonstrated that one shot non-cooperative games where agents play a tit for tat strategy, where cooperation is constrained by (i) minimizing the concession and (ii) the libertarian principle results in the equivalent Kalai-Smorodinsky bargaining solution. The Gauthier ideal non-cooperative game relies on conditions of (a) modest scarcity and (b) relatively equal agents. It ties the libertarian principle to a boundary constraint on non-cooperative games between reciprocal cooperators. In some respects, it’s an ideal analogous to Neoclassical perfect competition.

Moral Contractarianism does two things (1) counters the typical claptrap that equates libertarianism with a morality that underlies a social theory of selfish defectors (2) the libertarian principle as boundary constraint obviates attempts to use it as a foundation for an initial-value principle.

Defining Libertarianism

i) Political Theory: Denies any rational or social choice normative basis for political authority

ii) Social Theory: Libertarian Justice not a moral theory, rather it is a theory of rational moral constraints. Significant but subtle difference.

Addendum: Natural Law + contractarianism incompatible and dangerous. Natural Law=preferred or natural ranking of moral preferences. Contractarianism to enforce a natural or preferred ranking of moral preferences violates the libertarian principle boundary constraint.

Moral contractarianism perhaps may work work great for sentient automata. It may break down for humans under an expanded treatment of evolutionary norms for reciprocal cooperators. A punishment problem potentially arises. A biological problem(implying perhaps the need for Transhumanism?)…

Bitcoin and Moral Judgments

Bitcoin, I think, plays into the moral contractarian framework I’ve outlined above. Libertarianism, as a social theory, is not a theory of moral judgements; rather it is theory of rational moral constraints. That is, we are not concerned with the moral preference ranking of Agent A and Agent B; rather, we are concerned with the moral constraints on A and B as reciprocal cooperators. We do not want a contractarian order that favors/enforces the moral preference rankings of either A or B; otherwise, it violates the libertarian principle boundary constraint.

In reading the Bitcoin forums after the Silk Road and Schumer publicity, there is an obvious divide in moral judgments between the Bitcoin development team and the Bitcoin user base. The former is in favor of integrating Bitcoin into the legal and regulatory environment of the State. This means, for example, that exchange organizations, that convert Bitcoin to State currency would fully comply with reporting the conversion transactions to the authorities. The Bitcoin technical lead,
Gavin Andresen, has expressed opinion that the Bitcoin community should work with law enforcement to aid in the arrest of those who use Bitcoin for illegal drug transactions. This is in sharp contrast to the forum user base, many of whom are of the crypto-anarchist variety.

So Bitcoin provides us with a model of a clash in moral judgments. This is a test of the political economy of Bitcoin. It reinforces the point why moral judgements cannot underlie a libertarian social order. It also demonstrates that Bitcoin is not actually an “agorist construct,” precisely because of the differences in moral judgements. That Bitcoin will still potentially work despite the clashes in moral judgements is an overall point I’ve tried to emphasize. It also goes to show that to be good “Applied Cyberpunk,” one probably has to avail oneself of the rational choice foundations, tedium notwithstanding…

Chuck Schumer’s New War on Bitcoin

New York Senator Chuck Schumer probably occupies a top place in the libertarian axis of evil. A bigot, a religious fanatic, a nanny-state totalitarian and a crook, Schumer epitomizes the libertarian critique against political authority. This is a man who is accustomed to barking orders at a servile populace, a man who counts intimidation and threats to be among his preferred methods of executing governance. So this video and story of Schumer’s outrage over Silk Road and Bitcoin, likely facilitated by a recent Gawker article, is vintage Chuck. Conjure moral outrage, summon the TV cameras, bark orders…

But, unfortunately for Chuck, this ain’t Four Loco. Ordering the Feds to shutdown the website and “seize the domain” was comedic display of Mussolini buffoonery. I suppose it’s sad that no one in the press corp had the technical wherewithal to challenge Schumer’s stupidity, but it’s amusing that Schumer’s aide, the one that set up the TOR client to access the site, didn’t have the cojones to prevent Chuck from looking like a moron. But then again, I suppose it’s probably career suicide to stand between Schumer’s moral outrage and a TV camera.

Silk Road is running as a TOR hidden service on the TOR P2P tunneling network. This means it’s being run from someone’s anonymous box that generally can’t be identified. It can be anywhere in the world. Anyone who downloads the TOR software can setup a hidden service. There’s no “domain name” to seize here and the only way to stop this sort of thing (at least until the “Internet Kill Switch Bill” is enacted) is to ban the TOR protocol outright, which would counter the government’s interests because: (i) it would cast the US in a bad authoritarian light (ii) more importantly, it’s used by US intelligence organs as a secure communications tunneling network with international assets. After all, it was the US government that originally developed it, and it was released into the wild because it’s useless, like any other P2P network, without a robust number of nodes. In particular, here, a TOR network of nodes consisting of just the spies, informants and US bureaucrats would be “stick out like a sore thumb” tunnel; these tunnels need lots of “noise,” that is, lots and lots of other tunnels to be effective. Also, of course, if the software was “classified,” there would be an obvious distribution problem of getting the software into the hands of the intelligence assets, a vulnerability(which could be exploited, because the acquisition method of the software could be compromised and tracked) that, combined with the “stick out like a sore thumb” intelligence-only tunnels, would make TOR useless. And this is why the US government released TOR into the wild.

Chuck hasn’t gotten the memo on TOR yet, but I imagine he will get the intelligence organ “sit down” on that. It’s not TOR that’s the threat, it’s Bitcoin. Schumer called Bitcoin a “money laundering mechanism;” certainly he is ready to take the lead in Senate hearings to foster drafting new legislation that would outlaw any unauthorized crypto-currency. However, the government, particularly the intelligence organs, is a bit ahead of Schumer in that the CIA is sponsoring a presentation by the Bitcoin lead developer.

Hitherto, the problem of crypto-currencies, in terms of being any threat to the State, was the need of a central authority to regulate against fraud. Anyone can define an electronic coin as a ledger/chain of digital signatures. One obvious problem is how to prevent Agent A, who is wishing to transfer ownership of the coin for a good/service, to simultaneously use the same coin to buy something from Agent B and Agent C, that is, more or less simultaneously digitally sign over the coin to Agent B and Agent C. This problem would seem to require a central authority to referee between A’s transaction with B and A’s transaction with C.

The Bitcoin algorithm, from I gather reading the technical whitepaper, solves the problem of transaction verification by incentivizing every node in the Bitcoin network to race for verification of outstanding transactions. In other words, every node is in competition to serve as the clearinghouse for the current existing block of unverified transactions. The verification is done by timestamp. All transactions are broadcast to all nodes, but in a P2P network, Node X’s timestamp for the current unverified transactions may be differ than Node Y’s timestamp for the same. The timestamp verification that wins out, that is the node that wins the clearinghouse game, depends on that node solving a “proof of work concept” that is able to solve a difficult mathematical problem of converting a hash representation of it’s own block into a required leading zero-bit format. The winning node then broadcasts it’s time stamp block to all nodes that readjust accordingly. The winning node is awarded a certain amount of bitcoins which serves as the first transaction in the next block of unverified transactions that will need to be verified.

Bitcoin is able to use competition to resolve the clearinghouse problem(clearinghouse nodes are incentivized by new coin creation). It ingeniously self-corrects for the introduction of cpu power by making the mathematical work of proof problem geometrically more difficult. This allows scalability without monopoly capture, but it does create a division of labor scenario where clearinghouse nodes invest in GPU cycles over CPU cycles(the investment in GPU cycles allows the system to handle the clearinghouse needs of an expanding system). However, the system constraints cap the total coin creation which means that clearinghouse nodes will eventually only compete over transaction fees.

The question concerning Bitcoin is two-fold: (i) can it survive a coordinated hacker attack (ii) can it survive government censorship/banning. We are probably about to find out about (ii). The thing about the US is that it is not a hard censorship regime; it’s a soft censorship regime. An actual honest-to-god crypto currency, however, is it’s worst nightmare. The US government will release something like TOR into the wild, but it would never release something like Bitcoin into the wild.