Synopsis: The government is nothing more than a big fat stationary bandit that robs productive citizens to feed the welfare state. In the Information Age, the cognitive elite will take their business to cyberspace, under whatever jurisdiction they choose. Taxation can then become a voluntary exchange where the provision of protection is a business service, not a racket.

The Sovereign Individual was published in 1996. The first time I encountered it, I dismissed the authors as crackpot megalomaniacs. Two decades later, replace “welfare state” with “special-interest groups” and the predictions are not so ridiculous.

Forget Prostitution: Violence is the oldest profession

For 99% of human existence, hunter-gatherers assembled in tribes. Violent conflicts were usually resolved with the weaker group running away. Then came the Neolithic Age and agriculture. Farming created stationary capital, which presented an opportunity for theft. Those who didn’t farm could take up a career in violence to protect or plunder. Sometimes there was competitive plundering, or anarchy. In denser regions, warriors would organize a local monopoly of theft, protecting against outside marauders while stealing from their subjects. This is also known as government.

Governance was decentralized. Constrained by transportation and communication, even kings and pharaohs recognized their dependence on local authorities. This type of feudalism lasted until the Industrial Revolution.

Farmers are invested in their land, but factories require huge capital outlay and infrastructure. This upped the stakes for protection. Not only were industrial mills ripe for looting, machines also turned unskilled workers into taxable entities. Previously, rulers had to negotiate with powerful landlords to extract protection payment, because peasant incomes were not worth the cost of individual collection. While a cohesive nobility had the power to resist extortion, the scattered private citizens did not.

And that brings us to today.

Welcome to Galt’s Gulch

At the time of The Sovereign Individual’s publishing, cryptography was a regulated munition and DigiCash was gonna turn the internet into a tax haven. The authors thus urge productive citizens to move their business to “cyberspace”. We don’t need to pay the government for protection — in the future, assets will be secured using “unbreakable encryption”.

The authors are wealth managers, not engineers. Temporarily allow magical internet technology to be assumed into existence.

Individual sovereignty not only means freedom from government theft, it also means freedom from wage slavery. And by wage slavery, the authors mean that employers won’t be held hostage by minimum wage laws or labor unions. [Magical internet technology] will turn corporations into an assembly of free-market contractors, also known as a decentralized autonomous organization. Presumably secured with unbreakable encryption.

The authors of course acknowledge Oliver Williamson’s theory of the firm: Market negotiations are expensive, employee turnover is expensive. Modern corporations exist because a long-term employment contract reduces transaction and coordination costs. BUT! Self-sovereign organizations will use [magical internet technology] to automate these costs away. And organizational slack will be curtailed with mass surveillance. So, basically it’ll look like the inside of an Amazon warehouse today.

Free-Market Protection

Sovereign individuals still need some protection, of course. Encryption can’t protect us from physical assault, or morally repugnant things like universal health care.

People will learn to see themselves as customers of protection rather than wards of the nation-state. As customers, they can emigrate to any jurisdiction they like. The book recommends Switzerland, Singapore, and Hong Kong. Eventually we’ll see a proliferation of sovereign mini-states, like the feudal towns offering refuge to citizens of the pale.

Self-sovereigns are already working on alternatives to nation-states. Peter Thiel has his seasteading project, Larry Page has Google Island, Elon Musk is gonna colonize Mars, and Tim Draper wants to vivisect California to make Silicon Valley a ministate.

Capitalists can stop worrying about the tyranny of workers: It’ll be easy for the cohesive nobility to fight labor unions from the safety of Peter Thiel’s floating raft.

Missing Pieces

The authors expect that maybe 1% of the global population will accumulate enough wealth for individual sovereignty. If the aristocracy flees to Galt’s Gulch and abandons the underclass, how do they remain wealthy? What are they producing? Are they deploying capital to the hinterland and reaping returns from autonomous corporations? Who is buying their products? Are they simply circulating goods amongst themselves at increasing prices? Is this how art markets work? Is that how wealth is created?

The authors don’t propose a solution for what they call “constituencies of losers”, but those who worry about the future of the United States should remember that the future need not include the United States. Worrying about the fall of Rome would not have stopped the fall of Rome, and peasants ended up better off as freeholders anyway. During the Middle Ages, the clergy worried about the loss of church power and banned the printing press. It was the Protestant Reformation that pushed Western civilization into the modern age.

Unfortunately, we haven’t seen an exodus of the 1%. In fact, international “customers of protection” seem to be taking their business here.

The authors portray the USG as a burgeoning autocracy that brutalizes the wealthy, but everyone knows that rich people don’t pay taxes. Why would they need the government for protection? They can hire private security detail. You know, like lobbyists and high-powered lawyers.

Maybe the other jurisdictions aren’t as nice to live in. Moving to Mars sounds pretty awful, as a matter of fact. Maybe we can use Thiel’s ocean rig as a penal colony, kind of like how Britain shipped all their convicts to America* (and then Australia, after the Revolution). State hospitals can send the homeless to Google Island, instead of shipping them to San Francisco like they currently do.

Everyone else can move to the blockchain.

*Only a quarter of colonial immigrants arrived with their freedom.