Time: Wed Aug 06 08:52:11 1997
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Date: Wed, 06 Aug 1997 08:47:52 -0700
To: (Recipient list suppressed)
From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: "The Internet and the End of Monetary Sovereignty" (fwd)

>by Bill A. Frezza 
>Wireless Computing Associates 
>Almost 40 years ago, Ayn Rand, in her novel Atlas Shrugged, posed the
question "what would happen if the men of the mind--the producers and
creators of wealth--went on strike?" Her allegory about the coordinated
withdrawal of the industrialists and the collapse of civilization served as
a dramatic backdrop for the elucidation of her moral philosophy. That
philosophy, rooted in laissez-faire capitalism, posed two questions
relevant to the topic of this conference: What creates the value of money
and who stands sovereign in a struggle between individuals who use their
productive powers to create wealth and governments who wield coercive force
to redistribute it? 
>While a generation of free-market thinkers were deeply influenced by her
ideas, Rand and her followers were unable to generate a practical political
program. The fact that the value of money rests not on the power to compel
but on the ability to produce remains a mystery not only to the public but
to many economists. History also tells us that sovereignty in economic
affairs has never been based solely on a web of consensual agreements.
Instead, it invariably rests on the power to confiscate, imprison, and
coerce. If there is any doubt on this point, even as applied to the world's
most civilized democracies, imagine how long the IRS would stay in business
if it lost this power. 
>The romantic notion of a conspiracy of the productive rebelling against
the facts of life make for a great novel but is hopelessly impractical as a
blueprint to reverse the growth of the leviathan state. What Rand could not
foresee, and the challenge that confronts us now, is that technology would
create a new world in which the fundamental facts of life have indeed
changed. That world is called cyberspace and its growing backbone is the
Internet. The Internet will not merely make our existing forms of commerce
more efficient, but will support the emergence of self-organizing,
supranational communities whose economic intercourse can be based on
exactly the principles Rand espoused. 
>It will never be possible to transport wheat or steel across a wire, and
real economies will always continue to produce and consume wheat and steel.
But any product of man's mind can be communicated as a stream of digital
bits. And it is exactly this sector of our economy--the product of our
minds--that is growing the fastest. It is in the information industries,
broadly defined, that the majority of the world's new wealth is being
created, the wealth upon which the value of money will someday be based. 
>We know that wealth can be exchanged electronically, both in the form of
new monetary instruments and, equally important, in the actual content of
the products and services that will be delivered over the Internet. It is
possible, then, that a link to external physical commodities or existing
fiat currencies may not always be necessary to establish the value 
>of money in cyberspace. While a self-supporting cyberspace currency may be
impractical today, the possibility of achieving an independent electronic
currency will certainly increase as the portion of the world's wealth that
exists in cyberspace grows. After all, in a few generations a significant
fraction of the world's economy might well have no material existence
whatsoever. While this may sound bizarre, it is no more radical an idea
than imagining, back at the turn of this century, that our nation could
feed 250 million people with only a small proportion of the population
employed as farmers, or that we could sustain an advanced standard of
living with a shrinking minority of our citizens engaged in manufacturing. 
>The pressing question, then, is how might a political economy based on
exchanging intangibles in cyberspace differ from a political economy based
on exchanging wheat or steel in the real world? 
>First and foremost, privacy in cyberspace will not be an abstract
political right based on the vagaries of geography, government policy, or
cultural norms. In the future, electronic privacy will be an absolute
algorithmic certainty. The science of cryptology, long an exclusive
province of government security agencies, has taken root in the private
sector. While governments may retard the promulgation of strong encryption,
they can at best forestall the inevitable. The failure and irrelevancy of
the current administration's Clipper Chip key escrow initiative is a
testament to the futility of trying to control this technology. The day
will inevitably come when the amount of effort required to breach the
shield of privacy provided by low-cost, widely available encryption will
exceed the value of such an attack by so many orders of magnitude that it
will not be economically feasible to base public policy on such invasions.
Governments of the world will have to live with the fact that they will be
impotent to pry into many of their citizens' economic affairs. 
>Second, cyberspace differs from our everyday world in that coercive force
cannot be projected across a network. It is not possible, within the
confines of the Internet itself, to compel anyone to do anything. This is a
discomfiting revelation to most legislators, who like to pretend that their
power rests on the consent of the governed rather than the barrel of a gun.
Sooner or later, however, any assertion of sovereignty over actions that
take place entirely within cyberspace--whether it is the transmission of
banned materials, the regulation and taxation of consensual economic
transactions, or even the creation of money --must resort to acts of
physical coercion or threats thereof. 
>To do so, however, requires that the target be identified and located. It
will always be possible to do this for Fortune 500 companies, whose vast
visible assets make them conspicuously vulnerable. Those large entities,
therefore, may never be able to fully avail themselves of the new freedoms
that will emerge in cyberspace. But it is going to get very difficult to
keep track of the growing number of individuals and contingent or part-time
knowledge workers who are rapidly learning to ply their trades on the
Internet. Sophisticated networking tools guaranteeing anonymity, such as
the chains of anonymous reforwarders being set up worldwide, will make
unwanted identification and location harder and harder, particularly if the
number of people using these tools in the routine course of business grows.
And given the globalization of commerce made possible by the Internet,
allowing even solitary individuals to transact business around the world,
the target of any particular act of coercion is as likely as not to be in a
political jurisdiction inaccessible by the aggrieved government agency. 
>What does that mean in a practical sense? It means that ordinary people
will be able to create and exchange wealth outside the prying eyes and
grasping hands of sovereign powers. And they will not have to retreat from
society to a utopian enclave to do that, or make a full time career out of
tax avoidance. In fact, most individuals will not even have to quit their
day jobs. All that will be required is a PC, some off-the-shelf software,
an Internet account, and a little excess time. Imagine the consequences if
a significant fraction of the world's most productive people took a portion
of their work output and used it to engage in unrestrained commerce within
an economic system inherently immune from government scrutiny. The wealth
produced--that is, the underlying products of their creative output upon
which the value of money will be based--may never exist in the physical
world. And since this wealth may not have to be exchanged for government
fiat currency in order to be useful, there may be scant opportunity to
seize it. 
>This possibility is going to treated as a grave threat by most national
governments. A battle for cyberspace most certainly lies ahead, and you can
expect entrenched bureaucrats to do everything they can to demonize the new
technology by associating it with pornographers, child molesters,and
drug-money launderers. Judging from the sensational and wildly distorted
coverage of the Internet in the popular press, the old media appear to be
fully cooperating in this propaganda campaign. But can this approach be
sustained as the Internet achieves mass-market penetration? Can the
behavior of millions of people really be controlled once unequivocally
verifiable, mathematically unforgeable, and unconditionally untraceable
digital cash appears in widespread circulation? Who will be able to resist
when, with the click of a mouse, it will be so easy to disappear? Imagine
what would happen if the productive efforts of millions were invisible to
the IRS, gone from the GNP statistics, blind to the balance of trade, and
immune to social or industrial policy mandates. 
>Perhaps, in cyberspace, a new liberty lies ahead, one in which Rand's
strict Objectivism can finally be reconciled with Libertarianism, a
political movement whose anarchist elements Rand so much despised. Perhaps,
for the first time, sovereign individuals will have the tools to construct
a practical realization of laissez-faire capitalism without having to
resort to a problematic social contract with an all-powerful state to
create the conditions necessary to sustain a stable political economy. At
the root of this system will be new monetary institutions that must
inherently rest on the consent of the participants. 
>Cyberspace, which promises to shield individuals from the ravages of
coercive force and allow them to conduct their affairs in secure anonymity,
will bring forth a burst of creative human genius not seen since the last
time a new world was discovered. If Atlas Shrugged were written today,
imagine how it might turn out. 
>Prepared for the Cato Institute's 14th Annual Monetary Conference, May 23,
1996. Washington, D.C. 

Paul Andrew Mitchell                 : Counselor at Law, federal witness
B.A., Political Science, UCLA;  M.S., Public Administration, U.C. Irvine

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