When I hear freedom minded individuals mourning the demise of our God-given rights in the eyes of the state, I am tempted occasionally to join them. New usurpations are piled on top of old, and our far-flung masters in the statehouses seem to spend hours each day devising more ingenious methods for stealing our liberties. Perhaps the greatest lament is that so many of our countrymen and fellow world citizens seem blind to the dangers that the world faces from the evil and misguided ideologies that taint most of the individuals in power today. To all those who doubt, I say to you Rejoice! We won, and nobody seems to have realized it yet.
Freedom, says Ayn Rand, is the fundamental requirement of man’s mind. If that statement is true, then all of humanity is striving in some way to increase freedom. Although many individuals and almost all governments, especially western liberals, tend to promote ideas and policies that are anti-freedom, almost everyone on the planet wants more freedom. Socialist intellectuals routinely disguise their poisonous ideas in freedom's language. The empirical evidence supporting property rights, free markets, and intellectual liberty is unassailable. Despite the heavy-handed tactics of the state, freedom seems to be ascendant everywhere on the globe. This may not seem obvious, or even prima facie absurd, but I assure you it is not.
Why we won.
Besides the fact that we are on the right side of history, we are also on the cusp of the greatest transformation of human society ever. The Network Age is upon us, and just as the industrial revolution allowed freedom (and tyranny) to spread across the world, the Network Age will continue both trends at a rapidly increasing velocity. Unfortunately for tyranny, the balance of power has now shifted to the Networked man. As the ability to transfer vast amounts of data anywhere in the world at nominal cost increases for each individual, it will begin to further alter the way that individual deals with information, including what he can do with that all important piece of information money. The value of money comes from its perceived value someone who did not know what a dollar was would not trade you gold for it. Today, however, we value worthless bits of paper because they convey a very specific amount of information, and most of the world values them for the same reason. When that information is released into cyberspace it begins to take on some very wonderful qualities.
Before going further, it is important that the nature of these technologies are understood, specifically encryption and ‘bots. Encryption allows a user to safely, anonymously, and invisibly transmit data from one place to another. Even simple encryption makes it almost impossible for someone to decipher the contents of a transmission, even if they have access to the most powerful decryption systems on the planet. As privacy and security become more serious concerns for those involved in ‘net transactions, encryption will become stronger and far more prevalent. According to Richard Rahn in his groundbreaking The End of Money, the use of encryption to secure financial transactions is the only outcome compatible with a free society. Allowing a government unlimited access to the financial activities of its citizens will inevitably lead to tyranny. Even though the US strictly limits the use of cryptography, it is readily available today from such companies as PGP (Pretty Good Privacy), and efforts to put the genie back into the bottle will fail spectacularly. Although governments worldwide are trying to thwart the use of encryption, far too many people are already using it here and abroad to effectively eradicate it.
‘Bots are simple programs that allow a user to more effectively use information. The ‘bots specific to this article are enabled by their user to perform various financial transactions, thousands per minute if necessary. Users authorize the ‘bots to engage in certain transactions such as transferring money from one account to another, purchasing items at their lowest cost, and investing the users money in mutual funds that meet the users requirements regarding risk possibilities and return potential. All of these transactions can be encrypted and executed in a few nanoseconds. The user does not even have to be active in most of these transactions, and later generation versions of these programs will be so simple and user friendly that even the most techno-illiterate person will be able to use them with ease.
As noted by Frank Shostak, chief economist at Ord-Minnett, Australia, in his recent article on digital money, it will be linked at first to government fiat money, and thus subject to the pitfalls of any fiat currency. What Mr. Shostak does not point out is that in a highly networked world, weakness in one currency does not mean similar weakness in other currencies. People using digital currency will be able to program their ‘bots to seek out the best and most stable currencies, and exchange them for dollars (or whatever currency say, shares of Microsoft the seller wishes) when purchases are made. Furthermore, since millions of transactions will be taking place somewhere at any given second, no regulatory body in the world has sufficient resources to monitor and decrypt even a small percentage of them. These technologies are nascent today, but rapid maturity is natural on the net.
The limits are only on our imagination.
Illustrating the possible outcomes of this technological transformation is limited by the fact that dozens of companies are working on competing versions of these high-tech money systems. PayPal will allow any two or more users to exchange funds via infrared transmitters on Palm Pilots or over the internet. E-gold offers a similar service, but uses privately held gold reserves as the medium of exchange. As these technologies are refined and integrated, new iterations of the exchange market will appear. Although barter is a relatively inefficient means of trade today, the ability of the internet to put everyone in instant contact with everyone else means that barter exchanges could quickly become a significant portion of our economy. What follows are two simple scenario's that hint at the shape our near future will take.
Bob is a 20 year old computer whiz in Tennessee. His day begins with a quick check of his liquid assets. At his age, the majority of his assets are in medium and high risk mutual funds, with only a quarter or so in truly stable companies. He runs a small business from his apartment, writing patch scripts for a couple of big clients. As soon as he transmits a patch to his client a deposit of $100 is transferred into his mutual fund account. His "bots" immediately exchange the dollars for shares, purchasing $55 in high risk, $20 in medium risk, and $25 in low risk bonds or gold. The high risk ‘bot has located a one-man company in India who has put out a credit call, and invests $2. Later this week, the Indian man will offer up a $7 buyback on his shares, but the ‘bot will retain $1, selling only $1 back to the company which is about to release a video killer app, making that $1 share worth $20. Meanwhile, Bob has decided to go to lunch. One of his ‘bots has been entrusted with watching the market and making the payment to the restaurant at his next mutual fund high point. An unusual spike triggers a sell-off because he had programmed a ‘bot to buy a certain bicycle if his wealth reached a certain amount.
Liz is a 35 year old lawyer in San Francisco. When a client wishes to pay, the dollars are immediately transferred to a bank in Vanuatu, where they are used to purchase shares of her personal mutual fund. When Liz receives a bill from her landlord for her office rent, her ‘bot requisitions money from her account and pays the landlord, creating an entry in her books showing taxable income. The same goes for such physical expenditures as property taxes and difficult to conceal purchases such as a car or home. However, for most of her nominal purchases she uses a blind credit card that draws funds from the bank in Vanuatu but leaves no trace of who the actual owner of the credit card is. Although Liz stills pays sales taxes on these purchases, no readily available information exists to allow authorities to track the origin of these funds for the purpose of income taxation. Better yet, she conducts a majority of her purchases online, making it possible for her to avoid sales taxes as well.
What it all means.
Why does this mean that free minds and free markets have won when it seems most of the world is aligned against them? People who would never cheat in their personal business dealings feel few if any pangs of guilt at skirting tax laws by hiding wealth or not reporting cash transactions. The ability of a state to control its citizens lies solely in its ability to collect taxes. As more and more citizens opt out of the traditional structures and once it is quick, easy, and virtually impossible to get caught, they will by the millions the state will be forced to try and restrict more and more freedoms in a vain attempt to stop the scofflaws. Once a small minority begin to use this power to protect their wealth from government parasites, the tax burden on those who remain inside the system will begin to rise. The fact that the top 10% of wage-earners pay over half of the taxes means that only a small number of the super-wealthy would have to start protecting their money in this fashion for it to have a significant impact on the governments yearly haul of loot. Even those who believe wholeheartedly in the power of the socialist state and happily pay their taxes will begin to protect their assets from intrusion once they see their friends and neighbors reaping the benefits that a unilateral tax cut brings. History shows us what happens to totalitarian regimes that don't have enough money to survive a vampire cannot feed on a target that won't let him bite.
July 13, 2000
Richard Dale Fitzgerald II is a network consultant in Tennessee.