Friday, April 12, 2013

Currency, anonymity, privacy, and the state

I've been reading a lot about bitcoin lately, and I just heard about Ripple. (Click on Buce's other link too.)

I might or might not post something more coherent and elaborate, but for now, I have a few random thoughts on the subject of stateless/anonymous currency.

First, it should be obvious any means of payment that can be used privately can be used illegally, i.e. for fraud, money laundering, and payment for illegal goods and services. The only reason to avoid the scrutiny of the state is do something the state considers objectionable. Obviously, there's no guarantee that what the state considers objectionable is something that the people consider objectionable. However, unless you're an anarchist, the solution is not better money but a better state.

Nothing is truly anonymous, and, as Karl Denninger, BitCoin is not anonymous. If we grant the state any legitimacy, then it has the power to defeat any attempt at anonymous transactions, including transactions in physical cash. All we can do is make it more difficult to ascertain the identity of those involved in certain kinds of transactions. Cash or BitCoins, you oppose the state at your own risk.

If you don't like state currency, and you have no intention to do anything objectionable to the state, it is legal in most countries to hold physical gold. Nothing stops you from holding your wealth in gold if you believe gold is a more stable store of value than currency, private or public bonds, equities, or other socially-constructed contracts.

Money is the relationship of the state to the economy. Money is the fundamental public good that the state provides, and only a state can provide money as money. (People can, of course, still barter, but even gold-as-commodity is, by definition, a commodity, not a money-thing. It is only by the action of the state that anything, including gold, can serve as a money-thing.

Money is a tool; it is an instrument of the will of individuals, groups, organizations, and institutions. One of those institutions is the state. It is nonsense to assert that anyone or any institution, the state included, has an a priori or objective "obligation" to use a tool in a particular way. If you want me to do something, you waste your time asserting I have moral obligation; you can succeed only by making it somehow in my interest to do what you want me to do. Likewise with the state. If you, like Denninger, want the state to contract the money supply in an economic contraction, you must show that it is in the interest of the state, or in the public interest, to do so. (I'm not sure that Denninger is substantively wrong: it might be the case that it is in the interest of the state or public to stabilize the currency in some sense. His moral argument, however, that the state has an obligation to do so in return for its privilege of seigniorage during an expansion, fails to be persuasive.)

As I've noted before, I don't think anarchism in the literal sense of "no state", is possible or desirable. In the sense that it means "no relations of subordination," I also disagree; I think that in many (but not all) things, the individual should be subordinate to the majority, because, paradoxically, it is in the broad interest of most individuals to subordinate themselves to the majority. Needless to say, this idea requires more elaboration. Money represents the ability for an individual to demand goods and services from the society, therefore for it to be money-as-money (and not merely barter, which is not demand), money has to be socially constructed. Because money is the quintessential non-excludable, non-rival public good, it requires the use of violence to marginalize free riders.

Saturday, April 06, 2013

How economists conceptualize economics

Classical economists conceptualize the economy as an ecology. It can be studied, carefully, and gently, but it cannot be actively managed. To a classical economist, the best way to take care of an economy is the same way an ecologist would advise taking care of an ecosystem: the primary goal is to keep it pristine, to keep outside forces from fucking it up. An economy, like an ecology, changes over time, but those changes are internal, "organic," and usually slow. Even when changes are not slow, the best advice is just to let the economy (like an ecosystem after a forest fire) work itself out internally. Indeed, the forest fire analogy is very apt: as best I understand ecology (which is not that well), we do the ecosystem a disservice by preventing forest fires; even catastrophic change is baked into the structure of the ecosystem. Similarly, we do the economy a disservice by preventing depressions, crashes, bubbles, etc. We lose Schumpeter's "creative destruction" by a too-stable economy.

Keynesian economists conceptualize the economy as a city full of people. A city is kinda like an ecology, but not really: no one can "control" a city, but it requires active intervention to stay alive. Individuals will work a lot of things out on there own, but there are too many areas that cannot simply work out individually. There's no magic Keynesian bullet: an economist has to really look at individual cases and situations to see when intervention or regulation is needed. But, unlike a classical economist, a Keynesian will say that we can make a case for intervention and regulation more than just those necessary to enable markets and keep the ecosystem from getting fucked up.

Central-planning communists see the socialist economy like a spacecraft. It has to be intentionally and specifically built, by experts, with all the bureaucratic management seen in any very large corporation. Just as the free market would never have got us to the Moon*, the free market is never going to get us to a socialist economy. Typical people cannot vote on how the economy works any more than they can vote on the design of a rocket engine.

*Sorry, Bob, but it just wasn't going to happen.

To be slightly less charitable, some central-planning communists see the socialist economy like an army. As bureaucratized and inefficient as all national armies are, no free-market army has ever effectively fought a war, much less run one. Similarly, although it might seem bureaucratized and inefficient, an economy run along the lines of an army should, in central-planning theory, outperform a free-market economy just as a centrally commanded, rigidly hierarchical army always outperforms an individualistic, free-market army. There are, of course, a lot of different ways to run an army, and army-paradigm communists have a lot to disagree with among themselves, but the debate there is not whether, but what kind.

All these economists say they have scientific disagreements, but the differences are primarily moral. Ecosystems are as rigidly hierarchical as any engineering bureaucracy or any army. Scientifically, physically, we can see the economy as an ecosystem, a city, an engineering project, or an army. These distinctions are not imposed by nature; they are human choices, and choices have to be seen in a moral context, not a descriptively scientific context. (Of course, a scientific understanding of psychology and sociology can tell us something about the kinds of choices people want to make, and we need an ordinary scientific understanding of the physical world to effectively implement our choices.)

Thus, whether to view the world as a classical economist, Keynesian economist, or central-planning communist economist is a choice, a moral decision, and reflective of the preferences of the economist. Hence my view that economics is an essentially normative endeavor, whose central project is explicitly or implicitly promoting one philosophical view of the economy. For example, the idea that economics should be entirely descriptive implicitly promotes the classical view of economics as an ecosystem that can be studied but not managed, which is itself a normative choice. Because I see both ecosystems and bureaucracies as rigidly hierarchical, I conclude that people choose to see economics as classical or centrally planned are those who prefer hierarchies, either because they are at the top, or because they believe they would be at the top of a new hierarchy. These preferences may be consciously suppressed (or advocates just might not understand the implications), but I think they really are there.

I see myself economically, in broad outlines, as a Keynesian. I prefer the Keynesian "economy as a city" paradigm. We can run the economy as a pure ecosystem, but I don't like the results of that: the cutthroat competition, the incessant narrowing of niches, and the relations of dominance and subordination. We can run the economy as an engineering bureaucracy, but thirty years as an engineer have taught me the limits of what an engineering bureaucracy can do, and I want to do more. And I have no interest whatsoever in anything that even looks like a military.*

*Which is not to disparage my friends who are or have been in the military. As a part of society (and leaving aside the uses to which the capitalist system puts the military, military-style organizations are fine for those who like them. I just don't want the whole economy run like an army.

However, I see myself politically as a democratic communist. Keynes notwithstanding, I believe that Keynesianism is incompatible with private ownership of the means of production, i.e. a distinct capitalist class. It's quite ironic: the capitalist class has never forgiven Keynesian economics for saving capitalism from itself. Without Keynes and Roosevelt, Western capitalism would have fallen, probably to central-planning communism, in the 1930s.

Capitalists hate Keynes because Keynesianism undermines the central capitalist premise of capitalist power over and subordination of the working class. The capitalist class is not and has never been about consumption. Even though they have built a system that is a thousand times more productive than feudalism and monarchism, most capitalists consume less in absolute terms (compare Versailles and the Hearst Castle), and therefore far less in relative terms. Capitalism has been about the inherent value of subordinating the working class to the will of the capitalist class. Keynesianism fundamentally undermines that subordination, by politically allocating economic demand to the working class, and places not the capitalist class but the professional-managerial class as the fundamental ruling class.

We know from the late 1940s to the 1970s that when the working class has a lot of economic demand, the economy performs extremely well; the problem is not that economically independent workers won't work; they will work, and work hard. The problem is that economically independent workers cannot be subordinated. Economically independent black people cannot be discriminated against. Economically independent women cannot be sexually and socially subordinated. People with economic independence demand rights: autonomy, dignity, and respect. The economically independent cannot be controlled and subordinated to the will of the capitalist class. And that's what capitalism is really about: the power of capitalists to subordinate the working class to their own will.

Something else must be found. The capitalist class has decisively wrested control away from the professional-managerial middle class. They now face only the forces of inertia is dismantling the Keynesian political allocation of economic demand. However, as we are seeing even now, when they finally manage to do so, they will face the problem of the falling rate of profit and capitalist over-accumulation. With nuclear weapons, they can no longer rely on war to address over-accumulation. As we have seen in both Russia and China, it doesn't take all that much time to revolutionize even the most authoritarian-submissive population. Ironically, as capitalists increase the subordination of the working class, they will make the working class more susceptible to revolution, by making them more disciplined and accepting of authority in general. A revolution is inevitable; capitalism is snatching defeat from the jaws of the victory the Keynesians handed them.

There's no predicting the outcome of a revolution. The best I can do is put myself into a position where, if a lot of things break my way, I can be of some use to the winners of the revolution. I hope that's enough.