It’s 2050. The US government just defaulted on its debt. It’s not meeting its social security payments. Hospitals are going down: they can’t operate without Medicare and Medicaid income. Old people line up outside the hospitals. Hospitals don’t service them. They can’t afford it. There's a run on the banks that held too many dollars. They are collapsing. All the governments around the world caught with too much US debt are defaulting. Those with their savings in dollars have been wiped out. They are looking at the last few decades of their lives like an empty ravine.
All of the problems accumulating for nation states are legitimate, and it may already be later than we think in the life-cycle. The problem not addressed, however, has to do with the fundamental attribute that makes a nation-state a nation-state: an asserted monopoly over the legitimate use of force. The means of mass-destruction (thus, mass-coercion and mass-obedience) are concentrated entirely in the hands of the current nation-states. Intersecting challenges like rival currencies and obstreperous (and aging) populations will dampen the marginal reach and ambition of nation-states - but until Google develops its own nukes or Apache helicopters, the nation-state isn't going anywhere. A recent, and relatively limited example of this effect recently played out in Syria; the populace fragmented into assorted warring tribes and suffered greatly, State services collapsed, outside actors put their thumbs on the scale this way or that, but when the music stopped, Syria was still there - because the State had the Migs and Hinds and T90's and Khaibar launch systems, and no known number of cyber-intrusions or nasty tweeting took those away...
I agree. This is the most interesting part of the problem. I'm thinking about it hard. If you have good resources on this, I'll take them. I don't find much on the topic
The means for mass coercion already exist, and the power will be held by some entity (it seems unlikely that humankind would universally give up its arsenals altruistically). Now, traditional nation states evolved with geography drawing primary membranes, and power structures evolved around shifting borders and squabbles over ports and harbors and such. And those real assets will always matter more than BTC. We will know when the paradigm has truly shifted: the morning that CNN covers the drone strikes and commando raids tasked with taking down a crypto miner or thief. Because the guns haven’t been drawn yet over BTC shows us that it’s not serious yet, that that entire universe is still <0.0001% of the pie that the cruise missiles fly over…
Perhaps the future of the nation state is less geographical and more a distributed network of commercial or military (or both) nodes, and contiguous borders may become obsolete. But to imagine the people throwing off every yoke, first watch some Apache gunsight video, and ask yourself honestly - what could you really do against that?
Jan 4, 2022·edited Jan 4, 2022Liked by Tomas Pueyo
You can't do anything against that ... with blockchain. What will truly affect it is the fact that the military needs ... money!
Funding, salaries, shopping, a good retirement, new toys, all of that needs the same money that the nation state is increasingly unable to pay. When new non-nationstate actors steps in to claim a portion of the military's upkeep ... now we have a problem.
Who pays them ... owns them. This is also what happened centuries ago.
Money, in all of its forms, was invented as a convenient means of subdividing ownership of a tangible thing (a goat? a sheep?) without having to kill it first. Funny to think, after everything that's happened since, that money facilitates bloodless transactions in real goods. But keeping the blood in the pipes is a convenience, not a requirement. A rogue military with sufficient power will continue to transact in real goods - starved of money, it will simply sieze the entire goat.
I’m not sure I understand how a drone strike or commando raid could threaten BTC. Doesn’t the fact that it doesn’t reside anywhere -and everywhere- make it an impossible target? Sure, a mining operation could get clobbered, but that wouldn’t affect the millions of decentralized computers around the world holding the BTC ledger. Not being disrespectful; I’m just trying to understand. Cheers, J
BTC is a medium of exchange because it is being tolerated (so far). If the Peoples Central Committee or US Treasury started to seriously enforce their jealousy over the creation and administration of money by outlawing BTC and imposing sanctions on anyone or thing that accepted it, BTC would cease to be in very short order. Printing of money is a perk associated with power; the ultimate lever for contract enforcement is a Trident missile. While blockchain is an interesting alternative method for exchange and storage, it has no power of its own.
Blantons, I agree with nearly everything you said except for this point.
If you kill one piece of the BTC network, the rest survives. The perfect example is China. BTC might have disappeared from China (except for the wealth these ppl are storing outside of China, and the potential they can use it back again with Starlink), but not from the rest of the world. And the more liberal a country is, the harder it is to justify a cancellation
There are about a gabillion steps in the process of rewriting the entire social contract and decentralization of nation-state power; the focus of my rebuttal was the final step - the storming of the Bastille, modern edition. The forces of decentralization must clear the tallest hurdle then, when the powers-that-be fear of being lynched remove all inhibitions. And if the levers of physical power simply change hands, the nation-states live on under new management.
If nation states start to feel threatened by BTC, I am concerned they will increasingly attempt to regulate/control it. It has already gone from a non-entity in their minds (FBI: "Someone stole your bitcoin? There's nothing we can do about it because it doesn't really exist."), into a legitimate asset (IRS: "Please list any cryptocurrency you sold in the previous tax period, and the amount of profit you realized.").
In other words, if they're starting to truly realize the potential of BTC (or Ether or Ripple, etc.), and they can't kill something that is universally spread across all borders, how will they respond? Will they ban it like China? The nation states won't surrender power without a fight. I'm less concerned about a Trident missile than a media campaign of misleading propaganda. (Of course, so far seems to be shrugging off dire warnings from the likes of Jamie Dimon). But I'm expecting something far worse. But what?
At ~$2.5T, I think that moment has passed. Not enough govs can fight it now to destroy it. I esp can't see the US banning it given their liberal mindset, and since it's the country that carries the most of its value, it's unlikely it will disappear
- A sense of place/team/tribe seems to be an important part of the human psyche. That rootedness runs deep. The Anywheres will need that sense as much as others. Where will they get it?
- Taxes get paid by individuals. Taxing corporations and other legal fictions is just an attempt to disguise this fact. Residents are less mobile than legal fictions. Land is less mobile still. That's where taxation is headed. Further, taxing consumption makes more sense than taxing income, because consumption is the weight that someone put on a society. Income is the stuff that the individual contributes to that society. You want less of the former and more of the latter. Tax the yachts, not the capital gains that pay for them.
I think you're right on the tribe aspect. You're making me think that identity politics is really the future (!!!)
Agreed on taxes paid by individuals. The reason why nevertheless taxes are paid this way is that the more taxed steps you have, the harder it is to game the system.
Correct me if I'm wrong, but if you tax consumption only, it dramatically depresses consumption, and incentivizes saving instead of spending, which is not great for the economy. However, taxing, say, 20% of income doesn't fundamentally change the desire to work.
You might want to check the Inglehart–Welzel cultural map of the world. It's amazingly interesting and their data are online. It shows the "tribes" and what influences them. It's on: https://www.worldvaluessurvey.org/wvs.jsp
I think one way of taxing the rich is by simply having high taxes on luxury goods. So if you buy a yacht that costs $100M you will give $50M back to the citizen. This is what the value-added tax is doing but unfortunately, most governments cap it.
I am no economist but I think that would incentivize companies to lower their prices to remain below a certain tax threshold, increase efficiency in their production, but at the same time keeping quality high to attract rich consumers.
You don't want to extinguish consumption. One way to get it right is to make the tax progressive. I.e., if you consume 50k/year, your tax is 0. If you consume 50m/yr, your tax is...50m.
Which means again that the richer you are the less you consume, and the more wealth you accumulate... You want to do the opposite, incentivize the rich to spend more
The rich will consume more than anyone should, taxes or no. Better for them to invest (their money doesn't sit around.) I don't care how rich they get, as long as their money is creating jobs and goods/services for the rest of us.
Interesting thoughts, so much to digest! A couple of immediate questions. 1. You don't address the fundamental function of nation states - the legitimate use of force to enforce the law. 2. The need for laws and courts to resolve disagreements and define permissible behavior between members of society. 3. The cultural memes and identities that connect and entangle the citizens of a nation state. Will the French really want to stop being French?
It seems that the Internet , Blockchain, and all the other information technologies are more about changing the mechanics of how a nation state may work, rather than eliminating the need for the nation state. Won't the U.S. government establish their own blockchain based currency and manipulate it's value? To an outsider (me) it looks like crypto currencies have their value manipulated regularly (Telsa will take Bitcoin for cars, so value of Bitcoin goes up, wait no Telsa won't take Bitcoin for cars. so value of Bitcoin goes down). Why would we be be better off with private companies/individuals manipulating a currency versus the government?
Love your articles, very stimulating ideas, please keep them coming.
First we need to make a difference between states and nation-states.
There is a need for states in that you need somebody to give you physical services, and some of them require a geographical monopoly. The military is one. Law enforcement is another. Sanitation is another.
But those states don't need to be nation-states.
Then, on top of that, nation-states are bundles of services that:
1. In many cases don't need to exist, it's just a choice
2. In many cases they don't need to be geographically locked. Why is redistribution reasonable to your compatriots but not others?
And how will these non-nation-states operate? How will solidarity work? Based on what? People need some metaphysical principle or myth to glue them together. Those founding myths tried to go beyond that limit of hundred of people they may feel related to.
Allow me to remark this: it is not the nation side of nation-state, but rather the state side of it that has its power eroded by Internet and Blockchains.
Another very interesting article! Thanks for writing it. As nation states weaken, it's not clear what alternatives will replace them. Maybe networks of anywheres who can agree on provisional rules to guide shared interests. But also maybe libertarian anarchy, with rogue players exploiting systemic weaknesses to their benefit and many other's detriment, such as the rash of ransomware attacks on public entities like hospitals and utilities. I don't see how ransomware pirates exploiting the internet and blockchain to take down ICUs and sewage processing systems are an example of any positive post-nation state system. Btc holders may enjoy their freedom from government taxing and tracking, but the extreme fluctuations in valuation suggest that there is inherent instability in crypto-currency as a an alternative medium of exchange. Another concern with a post-nation state world is what will prevent global problems like pandemics, climate change, starvation, and poverty from becoming even worse? Why should the Elon Musks of the world care about these problems when they can hunker down on their island refuges or depart for Mars? I'm not disagreeing that we're seeing the unraveling of old-order nation states, I'm just worried about what will replace them... really worried the more I think about it!
I do think cryptocurrencies will stabilize, and that will be a source for good.
I also think anywheres will coordinate. But it might require things to get worse before they get better.
I actually think global pbms might be easier to tackle, since nation-states have proven bad at it.
Your Elon Musk example is perfect. Because Elon Musk, does care and that's why he created Tesla. So does Bill Gates. And so do many billionaires. Of course, for every Bill Gates there's ten Carlos Slim, but even then, I don't think we can assume they'll just pack and go. After all, once you have it all, what's left to achieve except for saving mankind?
I like your optimism and wish I shared it. I hope you're right about anywheres coordinating, and agree that things may get much worse before they improve. I don't share your view of the eventual altruism of billionaires, however. I live in Seattle, home of the the world's two richest people, and get to watch how these tech giants operate on a local level. Bezos was one of the largest funders of an intense media campaign in opposition to a voter intiative to levy a state income tax on individuals earning > $400K that was spearheaded by Bill Gates' now-deceased father, one of those old time philanthropists who gave to the community without expecting to profit from his donations. WA has the most regressive tax system of any state and lives on sales and property taxes, both of which disproportionately burden those with lower income. Bezos moved Amazon to WA because it doesn't have an income tax and he wasn't about to let voters pull the rug out from under him. That initiative lost. Bill Gates was the primary funder behind initiatives to allow charter schools funded by state education funds to operate in WA. The initiative lost the first time, Gates paid for signatures to put it up a second time and it lost again, and then did it again a third time and funded a media blitz that barely pushed it over the line by 50.1%. Gates and his foundation are invested in for-profit charter school businesses. So I hope that the future of whatever comes after nation states doesn't depend on the kindness of billionaires.
These examples are unique though in that the public interest is in diametric opposition to the personal interest—which, in their view, might also be the public interest since if they make more money they can redistribute it intelligently.
It's a different thing if you talk about global benefits. There, it's not as much a non-zero sum, and Gates, Buffett, and Musk are good examples of positive forces.
But as I mentioned you don't need to counter that. For every Gates there's ten Carlos Slims and Koch Brothers
Thanks for the fascinating piece. Indeed, seems like your last question - what will replace nation states? - is the key. An alternative that's attractive to most will be needed for change to happen.
For all the flaws, most people except the richest few would prefer to have health, education, social security, currency, normative processes, etc. managed by a democratically elected entity. Not to mention police, wars, nuclear weapons... All these new tech companies can do is maximise profit for their shareholders, in the short term, externalising as much as possible. Not sure they can provide all that a society demands.
The reformation had a positive message of liberation that resonated with the masses. Tech companies and blockchain are attractive alternative powers for a few, but for the rest of us, what good do they bring compared to governments and today's currencies?
I hear you on the reformation, but I can imagine ppl at the time despairing about what would happen to the world without a strong church protecting their souls. And they were right—for centuries at least, while the transition happened.
These needs you outline are human. But nation-states don’t have a monopoly on their provision.
Your reminding of the turbulent transition periods of history got me scared. So if the tech trend is predictable and irreversible, the biggest question may be: how do we decrease the probability of war during the transition(s)? I guess your getting us to think about it is a good fist step.
The optimistic scenario would follow something along the lines of the end of the Cold War. The East's leaders still had guns, tanks and nuclear weapons, but had lost the motivation to use them.
If sufficient numbers of the world's citizens felt closer in ideology to each other than to others in their nation state, then the appetite for fighting might not be there.
Perhaps we need a cynical politician to create an external threat which will unify us all. Bring on those aliens...
Another factor to consider: a huge reason for invasions is taking over natural resources—and, in the past, people.
As nation-states emerged, people weren't a viable resource to take over (they were more likely to resist than cooperate, and slavery is out of fashion, both morally and economically (because it dramatically reduces productivity).
And as more and more of the economy is digital, there is less and less upside in invading. You can take Iraq's oil, but if you invade Ireland, do you think you will keep their international corporate tax income?
You made some points I hadn't anticipated - like the aging population without retirement age increase. Good stuff.
Do you think that the nation states, like the US, will fracture before default? Will a state like California read the tea leaves and split off - potentially fracture further into multiple countries itself?
I'm inclined to believe that city-states and groupings of small countries are what come next. We end up with ~ 500 or 1000 countries and maybe the UN rises in importance for mediation.
Glad to hear! I'll cover these topics in a next installment!
Here ppl are not paying enough attention to the details of how this will happen. It's very hard for new polities to emerge. They will though. But timelines are impossible to say. Look at Honduras: a decade and a couple of projects might start getting off the ground.
My guess is all of this will take a long time, and "the end of nation-states" doesn't mean all of them will disappear. I think it will be a bit like the Catholic Church in Medieval Europe: it was THE power and the ONLY church. Now they're still here, but they have substantially less power, they charge substantially less, most of what they do is through endowments, they don't have as much scope, there's many more churches...
So in the future our current nation-states will continue, but they will be very much weakened compared to what they are today.
Love your articles! But in this case I think there is a misunderstanding of the nature of money and its role in the nation state. Cryptocurrencies are NOT money because they aren't backed by anything.
By contrast FIAT money is a debt--ALL MONEY IS THE DEBT OF THE ISSUER.
SEE: Debt: The First 5,000 Years (David Graeber, 2012)
FIAT money is backed by taxes--taxes drive the currency. i.e. we seek to earn the nation's otherwise worthless FIAT money so that we can pay our tax obligations. (Chartalism: State theory of money)
FIAT money is just the federal government's IOU (debt). So the federal government has debt, but it doesn't 'borrow'--you can't borrow your own debt. And you can't run out of your own IOUs.
"[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit." Alan Greenspan, Chair of US Fed (1996)
But what does the government 'owe'? It owes a tax credit--that's it. So the government 'debt' is simply the amount of money that has been created that has yet to be collected back in taxes. i.e. The federal government spends new FIAT money into existence; taxes simply reverse the process, thereby DESTROYING the money that the government previously created.
As the pandemic has shown us, the government is RESOURCE limited; NOT fiscally limited. It can't run out of its own money, but it can run out of things to buy (e.g. N95 masks, PPE, vaccines, etc.) So with respect to entitlements for seniors, the question is NOT how much money it will cost, but whether or not we can train enough doctors, nurses, caregivers, and build enough retirement homes, etc. to take care of our seniors.
"...there is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you setup a system which assures that the real assets are created which those benefits are employed to purchase?" Alan Greenspan, Chair of US Fed (Mar 2, 2005)
The main problem with cryptocurrencies and gold standards is that the amount of is FIXED. But a growing economy requires a growing money supply. And growth is exponential, which is why debt growth looks so scary--it must also grow exponentially with the economy.
SEE: Princes of the Yen (Richard Werner)--a book and documentary on the rise and fall of Japan from the end of WWII to present day. Werner coined the term 'Quantitative Easing' when he was chief economist at Jardine Fleming in Tokyo during the 1990s.
Unlike the US, the Eurozone countries do not have the ability to 'print' a single Euro--this ability lies solely with the European Central Bank which lies outside the control of any government. This is why Greece, Italy, Portugal, and Spain went bankrupt. Likewise, Weimar Germany, Venezuela, Argentina, and Zimbabwe borrow in FOREIGN currency, which they have no ability to 'print', so they are also fiscally limited. TAKE HOME MESSAGE: Don't have obligations in someone else's currency!!!
Your article is fascinating, and the future you speculate about is exactly what Neal Stephenson wrote about in his books Snow Crash and The Diamond Age. The first depicts a world where federal governments still exist but neighborhoods are run by "franchise governments" that compete for citizens like corporations compete for customers and handle law enforcement even up to capital punishment, including local defense but with the federal government still existing to provide defense from rival nation-states. The latter takes place much later when this process has led to humanity being organized into "tribes" that are voluntary groups of geographically scattered colonies of those who want to live according to a particular culture (one example is Victorian). I highly recommend both as a vision of the evolution of nations states into scattered cultural groups, including some major failings of this arrangement.
Really interesting piece, and very thoughtful. It got me thinking about three areas nation states provide outside of typically finance (currency/trade/taxation) and what you think would rise to replace these functions:
1. Defense of territory/military. Nation states provide for defense and respond to conflict.
2. Investment/subsidy. Governments play a huge role in subsidizing private companies and innovation through investments in fundamental technologies (either direct or through tax relief), money for research at colleges/institutions and through subsidized production (particularly in agriculture).
3. Creation and enforcement of laws and property rights. Smart contracts through blockchain enable a chain of trust but who will mediate conflicts or enforce the rights of ownership when threatened? Who will create and enforce new laws that protect individual sovereignty?
I was thinking about it yesterday, and I reached similar themes.
For me right now I put violence in one bucket (military is different from police, because it's very different to dissuade a state than an individual in the use of force), redistribution (because it's very nice in theory but if rich ppl don't want to be redistributed away, you have a pbm), and legislation creation. So some mapping to yours. But this question requires a LOT of depth to understand and properly respond!
Being part of the 200 million crypto community I would love to see an option for paying the subscription to Uncharted Territories in crypto. I was forced to use my credit card for doing so, which I regret. I hope you give us the option ASAP.
1. I do not agree when you say that the 200 million users who have bought crypto already have the alternative mindset. It is difficult to estimate how many of them follow the trend because it is fashionable but do not even know what the blockchain is (without mentioning all the institutional investors)
2. You say: 'But why can’t a community emerge where citizens around the world can pledge support to the politicians that do want climate change policies? Why can’t they make that pledge a public, automatic commitment on the blockchain?'
Up to certain extent this is already happening with Extinction Rebellion movement in UK and many other countries (or the international youth movement of Greta Thunberg)... both of which in my opinion follow other past regional/global movements like Arab Sping/15M/Occupy Wall Street.
1. It is difficult to mention a percentage. We humans change our mind frequently... I am sure that when bitcoin was above $50,000 the percentage of 'believers' would be higher than when it was on $20,000. I know that Bitcoin is not blockchain but I am not sure that most people holding crypto bother about the difference.
2. Yes. I agree with you. As Spaniards, we know how painful and slow is to deal with bureaucracy. Smart contracts are a great idea and blockchain has huge potential.
However, with all technology I tend to think that the best use often comes from unsuspected places (just look at all the military inventions and how they were adopted in civil society). You know as well as I do the 'hype cycle' and I cannot guess how long will be for blockchain and in which final shape it will transform things (if it finally does).
More than 10 years ago a couple of scientists based in Manchester, where I live, came up with the invention of a new material called graphene. The whole discovery is a fascinating story and make them win the Nobel Prize. I remember that when graphene was presented the possibilities were huge. However, it has still not had a substantial impact on society... it might or might not.
Your great and deep article here reminded me of a fascinating if little known XXth Century scholar, Norbert Elias, who in his theory of civilization describes in details how historically the nation-state evolved as an advance in civilization after kingdoms. He also shows in his very clear prose writen in the 1940's-1960s why the nation-states have started failing. Elias then points to multi-states entities as the most likely next step in the evolution of human civilization, which the current convulsions of the UN/WTO/etc..., the USofA, the EU, as well as India (maybe) and definitely China as expanding continental entities, might well be part of.
Your piece read like the following part to his work, the one showing how things are indeed collapsing.
I didn’t know him. Thanks for sharing! I looked him up a bit and his theories seem quite interesting. I’d love a good (20 pages?) summary of his ideas. The point that feudalism was a continuum that evolved into nation-state is interesting (even if I don’t know how it mixes with Italian / German history).
A good overview of his masterpiece on civilization can be found by two authors who worked with him and edited his complete writings in English, reference is Andrew Linklater and Stephen Mennell, History and Theory, Vol. 49, No. 3, October 2010, pp. 384-411 (that can be for example at : https://www.jstor.org/stable/40864499 )
Elias as a German scholar went to England for obvious reasons in the 40s has also writen a whole volume on German history, which covers its differences to France and touches on Italy. So Italy and Germany definitely fit in his model which is deep enough to cover different historical timelines and processes, and still capture key drivers.
And although he has a very western-European view, the principles of what makes civilization grow appear to be usable elsewhere, but the historical proofs remain to be established. I recently saw a PhD on how this applied quite nicely to Japan.
Happy good read and welcome to the superb work of Elias :-D
We are at that dangerous point of history when the new way of living is still not strong enough to venture out on its own, but not weak enough to be ignored by the existing powers: the nation states (in reality, the nation states at the top of the power heap).
Remember how snowden had to run to russia? I expect a lot of similar unsavory alliances with dictatorships and the like.
So now we get to see what happens when an entity that believes it is a nation state tries to impose its will on another in the age of the internet and modern warfare. Already we can see fissures developing in the Russian nation state narrative and the development of a coalition of forces opposing it in all sorts of ways.
How connected to the rest of the world are the Russian people and does this override their attachment the the idea of Russia as a nation state?
Are we dealing with Bad Vlad or Mad Vlad? What seems evident is that his model of reality is a fair distance away from the generally accepted reality of the rest of humanity. That doesn't matter as long as the two don't actually clash head on, or that the resolution of this conflict of realities takes long enough for him to adjust to it. 🤞
After the printing press, religion wars increased. It took centuries for the nation-states to become more powerful than different churches. So I don't think these things will happen fast.
But yes, you're getting to a core piece: for Russia, right now, this is a fight between the value of the network and the value of the nation.
It’s been a few days and I’m still thinking about this piece. To your ultimate question, I do think we’ll see states create bubbles (civilization states? Empires? Treaty organizations?) big enough to wall off internet and maintain a semblance of control. There isn’t a palatable answer to the demographics.
But there is a lot to worry about at the individual level and how it seems we are destroying intermediate layers of peoples lives. To the point where nothing really matters between the family (if you are lucky enough) and the national level.
All of the problems accumulating for nation states are legitimate, and it may already be later than we think in the life-cycle. The problem not addressed, however, has to do with the fundamental attribute that makes a nation-state a nation-state: an asserted monopoly over the legitimate use of force. The means of mass-destruction (thus, mass-coercion and mass-obedience) are concentrated entirely in the hands of the current nation-states. Intersecting challenges like rival currencies and obstreperous (and aging) populations will dampen the marginal reach and ambition of nation-states - but until Google develops its own nukes or Apache helicopters, the nation-state isn't going anywhere. A recent, and relatively limited example of this effect recently played out in Syria; the populace fragmented into assorted warring tribes and suffered greatly, State services collapsed, outside actors put their thumbs on the scale this way or that, but when the music stopped, Syria was still there - because the State had the Migs and Hinds and T90's and Khaibar launch systems, and no known number of cyber-intrusions or nasty tweeting took those away...
I agree. This is the most interesting part of the problem. I'm thinking about it hard. If you have good resources on this, I'll take them. I don't find much on the topic
The means for mass coercion already exist, and the power will be held by some entity (it seems unlikely that humankind would universally give up its arsenals altruistically). Now, traditional nation states evolved with geography drawing primary membranes, and power structures evolved around shifting borders and squabbles over ports and harbors and such. And those real assets will always matter more than BTC. We will know when the paradigm has truly shifted: the morning that CNN covers the drone strikes and commando raids tasked with taking down a crypto miner or thief. Because the guns haven’t been drawn yet over BTC shows us that it’s not serious yet, that that entire universe is still <0.0001% of the pie that the cruise missiles fly over…
Perhaps the future of the nation state is less geographical and more a distributed network of commercial or military (or both) nodes, and contiguous borders may become obsolete. But to imagine the people throwing off every yoke, first watch some Apache gunsight video, and ask yourself honestly - what could you really do against that?
1. You can have new states with geo footprint but that aren't nation-states.
2. The technology of violence is changing rapidly. So much so, that you might be able to project physical defense at a distance
You can't do anything against that ... with blockchain. What will truly affect it is the fact that the military needs ... money!
Funding, salaries, shopping, a good retirement, new toys, all of that needs the same money that the nation state is increasingly unable to pay. When new non-nationstate actors steps in to claim a portion of the military's upkeep ... now we have a problem.
Who pays them ... owns them. This is also what happened centuries ago.
Money, in all of its forms, was invented as a convenient means of subdividing ownership of a tangible thing (a goat? a sheep?) without having to kill it first. Funny to think, after everything that's happened since, that money facilitates bloodless transactions in real goods. But keeping the blood in the pipes is a convenience, not a requirement. A rogue military with sufficient power will continue to transact in real goods - starved of money, it will simply sieze the entire goat.
You should read Debt: The First 5,000 years
I’m not sure I understand how a drone strike or commando raid could threaten BTC. Doesn’t the fact that it doesn’t reside anywhere -and everywhere- make it an impossible target? Sure, a mining operation could get clobbered, but that wouldn’t affect the millions of decentralized computers around the world holding the BTC ledger. Not being disrespectful; I’m just trying to understand. Cheers, J
BTC is a medium of exchange because it is being tolerated (so far). If the Peoples Central Committee or US Treasury started to seriously enforce their jealousy over the creation and administration of money by outlawing BTC and imposing sanctions on anyone or thing that accepted it, BTC would cease to be in very short order. Printing of money is a perk associated with power; the ultimate lever for contract enforcement is a Trident missile. While blockchain is an interesting alternative method for exchange and storage, it has no power of its own.
Blantons, I agree with nearly everything you said except for this point.
If you kill one piece of the BTC network, the rest survives. The perfect example is China. BTC might have disappeared from China (except for the wealth these ppl are storing outside of China, and the potential they can use it back again with Starlink), but not from the rest of the world. And the more liberal a country is, the harder it is to justify a cancellation
There are about a gabillion steps in the process of rewriting the entire social contract and decentralization of nation-state power; the focus of my rebuttal was the final step - the storming of the Bastille, modern edition. The forces of decentralization must clear the tallest hurdle then, when the powers-that-be fear of being lynched remove all inhibitions. And if the levers of physical power simply change hands, the nation-states live on under new management.
If nation states start to feel threatened by BTC, I am concerned they will increasingly attempt to regulate/control it. It has already gone from a non-entity in their minds (FBI: "Someone stole your bitcoin? There's nothing we can do about it because it doesn't really exist."), into a legitimate asset (IRS: "Please list any cryptocurrency you sold in the previous tax period, and the amount of profit you realized.").
In other words, if they're starting to truly realize the potential of BTC (or Ether or Ripple, etc.), and they can't kill something that is universally spread across all borders, how will they respond? Will they ban it like China? The nation states won't surrender power without a fight. I'm less concerned about a Trident missile than a media campaign of misleading propaganda. (Of course, so far seems to be shrugging off dire warnings from the likes of Jamie Dimon). But I'm expecting something far worse. But what?
At ~$2.5T, I think that moment has passed. Not enough govs can fight it now to destroy it. I esp can't see the US banning it given their liberal mindset, and since it's the country that carries the most of its value, it's unlikely it will disappear
Some points:
- A sense of place/team/tribe seems to be an important part of the human psyche. That rootedness runs deep. The Anywheres will need that sense as much as others. Where will they get it?
- Taxes get paid by individuals. Taxing corporations and other legal fictions is just an attempt to disguise this fact. Residents are less mobile than legal fictions. Land is less mobile still. That's where taxation is headed. Further, taxing consumption makes more sense than taxing income, because consumption is the weight that someone put on a society. Income is the stuff that the individual contributes to that society. You want less of the former and more of the latter. Tax the yachts, not the capital gains that pay for them.
Amazing. Very interesting. Thanks for sharing.
I think you're right on the tribe aspect. You're making me think that identity politics is really the future (!!!)
Agreed on taxes paid by individuals. The reason why nevertheless taxes are paid this way is that the more taxed steps you have, the harder it is to game the system.
Correct me if I'm wrong, but if you tax consumption only, it dramatically depresses consumption, and incentivizes saving instead of spending, which is not great for the economy. However, taxing, say, 20% of income doesn't fundamentally change the desire to work.
You might want to check the Inglehart–Welzel cultural map of the world. It's amazingly interesting and their data are online. It shows the "tribes" and what influences them. It's on: https://www.worldvaluessurvey.org/wvs.jsp
I think one way of taxing the rich is by simply having high taxes on luxury goods. So if you buy a yacht that costs $100M you will give $50M back to the citizen. This is what the value-added tax is doing but unfortunately, most governments cap it.
I am no economist but I think that would incentivize companies to lower their prices to remain below a certain tax threshold, increase efficiency in their production, but at the same time keeping quality high to attract rich consumers.
You don't want to extinguish consumption. One way to get it right is to make the tax progressive. I.e., if you consume 50k/year, your tax is 0. If you consume 50m/yr, your tax is...50m.
Which means again that the richer you are the less you consume, and the more wealth you accumulate... You want to do the opposite, incentivize the rich to spend more
The rich will consume more than anyone should, taxes or no. Better for them to invest (their money doesn't sit around.) I don't care how rich they get, as long as their money is creating jobs and goods/services for the rest of us.
That's right Larry – here's how to make consumption tax progressive (& efficient):
http://davidthorp.net/economics/super-tax
Interesting thoughts, so much to digest! A couple of immediate questions. 1. You don't address the fundamental function of nation states - the legitimate use of force to enforce the law. 2. The need for laws and courts to resolve disagreements and define permissible behavior between members of society. 3. The cultural memes and identities that connect and entangle the citizens of a nation state. Will the French really want to stop being French?
It seems that the Internet , Blockchain, and all the other information technologies are more about changing the mechanics of how a nation state may work, rather than eliminating the need for the nation state. Won't the U.S. government establish their own blockchain based currency and manipulate it's value? To an outsider (me) it looks like crypto currencies have their value manipulated regularly (Telsa will take Bitcoin for cars, so value of Bitcoin goes up, wait no Telsa won't take Bitcoin for cars. so value of Bitcoin goes down). Why would we be be better off with private companies/individuals manipulating a currency versus the government?
Love your articles, very stimulating ideas, please keep them coming.
I thought I had answered to your comment, sorry.
First we need to make a difference between states and nation-states.
There is a need for states in that you need somebody to give you physical services, and some of them require a geographical monopoly. The military is one. Law enforcement is another. Sanitation is another.
But those states don't need to be nation-states.
Then, on top of that, nation-states are bundles of services that:
1. In many cases don't need to exist, it's just a choice
2. In many cases they don't need to be geographically locked. Why is redistribution reasonable to your compatriots but not others?
And how will these non-nation-states operate? How will solidarity work? Based on what? People need some metaphysical principle or myth to glue them together. Those founding myths tried to go beyond that limit of hundred of people they may feel related to.
Those needs exist. Humans will want to satisfy them.
Nation-states are just one of many ways to satisfy them.
Allow me to remark this: it is not the nation side of nation-state, but rather the state side of it that has its power eroded by Internet and Blockchains.
Both
National identities get eroded when everybody is connected to everybody else.
States get eroded when they can't pay for the bundle of promises they made.
Another very interesting article! Thanks for writing it. As nation states weaken, it's not clear what alternatives will replace them. Maybe networks of anywheres who can agree on provisional rules to guide shared interests. But also maybe libertarian anarchy, with rogue players exploiting systemic weaknesses to their benefit and many other's detriment, such as the rash of ransomware attacks on public entities like hospitals and utilities. I don't see how ransomware pirates exploiting the internet and blockchain to take down ICUs and sewage processing systems are an example of any positive post-nation state system. Btc holders may enjoy their freedom from government taxing and tracking, but the extreme fluctuations in valuation suggest that there is inherent instability in crypto-currency as a an alternative medium of exchange. Another concern with a post-nation state world is what will prevent global problems like pandemics, climate change, starvation, and poverty from becoming even worse? Why should the Elon Musks of the world care about these problems when they can hunker down on their island refuges or depart for Mars? I'm not disagreeing that we're seeing the unraveling of old-order nation states, I'm just worried about what will replace them... really worried the more I think about it!
Agreed that many of these things look ugly...
I do think cryptocurrencies will stabilize, and that will be a source for good.
I also think anywheres will coordinate. But it might require things to get worse before they get better.
I actually think global pbms might be easier to tackle, since nation-states have proven bad at it.
Your Elon Musk example is perfect. Because Elon Musk, does care and that's why he created Tesla. So does Bill Gates. And so do many billionaires. Of course, for every Bill Gates there's ten Carlos Slim, but even then, I don't think we can assume they'll just pack and go. After all, once you have it all, what's left to achieve except for saving mankind?
I like your optimism and wish I shared it. I hope you're right about anywheres coordinating, and agree that things may get much worse before they improve. I don't share your view of the eventual altruism of billionaires, however. I live in Seattle, home of the the world's two richest people, and get to watch how these tech giants operate on a local level. Bezos was one of the largest funders of an intense media campaign in opposition to a voter intiative to levy a state income tax on individuals earning > $400K that was spearheaded by Bill Gates' now-deceased father, one of those old time philanthropists who gave to the community without expecting to profit from his donations. WA has the most regressive tax system of any state and lives on sales and property taxes, both of which disproportionately burden those with lower income. Bezos moved Amazon to WA because it doesn't have an income tax and he wasn't about to let voters pull the rug out from under him. That initiative lost. Bill Gates was the primary funder behind initiatives to allow charter schools funded by state education funds to operate in WA. The initiative lost the first time, Gates paid for signatures to put it up a second time and it lost again, and then did it again a third time and funded a media blitz that barely pushed it over the line by 50.1%. Gates and his foundation are invested in for-profit charter school businesses. So I hope that the future of whatever comes after nation states doesn't depend on the kindness of billionaires.
I hear you.
These examples are unique though in that the public interest is in diametric opposition to the personal interest—which, in their view, might also be the public interest since if they make more money they can redistribute it intelligently.
It's a different thing if you talk about global benefits. There, it's not as much a non-zero sum, and Gates, Buffett, and Musk are good examples of positive forces.
But as I mentioned you don't need to counter that. For every Gates there's ten Carlos Slims and Koch Brothers
Thanks for the fascinating piece. Indeed, seems like your last question - what will replace nation states? - is the key. An alternative that's attractive to most will be needed for change to happen.
For all the flaws, most people except the richest few would prefer to have health, education, social security, currency, normative processes, etc. managed by a democratically elected entity. Not to mention police, wars, nuclear weapons... All these new tech companies can do is maximise profit for their shareholders, in the short term, externalising as much as possible. Not sure they can provide all that a society demands.
The reformation had a positive message of liberation that resonated with the masses. Tech companies and blockchain are attractive alternative powers for a few, but for the rest of us, what good do they bring compared to governments and today's currencies?
Really looking forward to your views on this.
Still forming though! It’s a hard one.
I hear you on the reformation, but I can imagine ppl at the time despairing about what would happen to the world without a strong church protecting their souls. And they were right—for centuries at least, while the transition happened.
These needs you outline are human. But nation-states don’t have a monopoly on their provision.
Your reminding of the turbulent transition periods of history got me scared. So if the tech trend is predictable and irreversible, the biggest question may be: how do we decrease the probability of war during the transition(s)? I guess your getting us to think about it is a good fist step.
Yes. This is exactly right.
I started thinking about all of this because I didn't see a bright future, but I'm sure there's one.
The more I think about it, the more I can discern one.
Hopefully we can build that together.
The optimistic scenario would follow something along the lines of the end of the Cold War. The East's leaders still had guns, tanks and nuclear weapons, but had lost the motivation to use them.
If sufficient numbers of the world's citizens felt closer in ideology to each other than to others in their nation state, then the appetite for fighting might not be there.
Perhaps we need a cynical politician to create an external threat which will unify us all. Bring on those aliens...
You are spot on.
Another factor to consider: a huge reason for invasions is taking over natural resources—and, in the past, people.
As nation-states emerged, people weren't a viable resource to take over (they were more likely to resist than cooperate, and slavery is out of fashion, both morally and economically (because it dramatically reduces productivity).
And as more and more of the economy is digital, there is less and less upside in invading. You can take Iraq's oil, but if you invade Ireland, do you think you will keep their international corporate tax income?
Even so we can have an AI technological singularity before the transition completes.
Bravo! I've been waiting for this one.
You made some points I hadn't anticipated - like the aging population without retirement age increase. Good stuff.
Do you think that the nation states, like the US, will fracture before default? Will a state like California read the tea leaves and split off - potentially fracture further into multiple countries itself?
I'm inclined to believe that city-states and groupings of small countries are what come next. We end up with ~ 500 or 1000 countries and maybe the UN rises in importance for mediation.
Glad to hear! I'll cover these topics in a next installment!
Here ppl are not paying enough attention to the details of how this will happen. It's very hard for new polities to emerge. They will though. But timelines are impossible to say. Look at Honduras: a decade and a couple of projects might start getting off the ground.
My guess is all of this will take a long time, and "the end of nation-states" doesn't mean all of them will disappear. I think it will be a bit like the Catholic Church in Medieval Europe: it was THE power and the ONLY church. Now they're still here, but they have substantially less power, they charge substantially less, most of what they do is through endowments, they don't have as much scope, there's many more churches...
So in the future our current nation-states will continue, but they will be very much weakened compared to what they are today.
Love it! Can't wait to read more :)
Love your articles! But in this case I think there is a misunderstanding of the nature of money and its role in the nation state. Cryptocurrencies are NOT money because they aren't backed by anything.
By contrast FIAT money is a debt--ALL MONEY IS THE DEBT OF THE ISSUER.
SEE: Debt: The First 5,000 Years (David Graeber, 2012)
FIAT money is backed by taxes--taxes drive the currency. i.e. we seek to earn the nation's otherwise worthless FIAT money so that we can pay our tax obligations. (Chartalism: State theory of money)
FIAT money is just the federal government's IOU (debt). So the federal government has debt, but it doesn't 'borrow'--you can't borrow your own debt. And you can't run out of your own IOUs.
"[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit." Alan Greenspan, Chair of US Fed (1996)
But what does the government 'owe'? It owes a tax credit--that's it. So the government 'debt' is simply the amount of money that has been created that has yet to be collected back in taxes. i.e. The federal government spends new FIAT money into existence; taxes simply reverse the process, thereby DESTROYING the money that the government previously created.
As the pandemic has shown us, the government is RESOURCE limited; NOT fiscally limited. It can't run out of its own money, but it can run out of things to buy (e.g. N95 masks, PPE, vaccines, etc.) So with respect to entitlements for seniors, the question is NOT how much money it will cost, but whether or not we can train enough doctors, nurses, caregivers, and build enough retirement homes, etc. to take care of our seniors.
"...there is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you setup a system which assures that the real assets are created which those benefits are employed to purchase?" Alan Greenspan, Chair of US Fed (Mar 2, 2005)
The main problem with cryptocurrencies and gold standards is that the amount of is FIXED. But a growing economy requires a growing money supply. And growth is exponential, which is why debt growth looks so scary--it must also grow exponentially with the economy.
SEE: Princes of the Yen (Richard Werner)--a book and documentary on the rise and fall of Japan from the end of WWII to present day. Werner coined the term 'Quantitative Easing' when he was chief economist at Jardine Fleming in Tokyo during the 1990s.
Unlike the US, the Eurozone countries do not have the ability to 'print' a single Euro--this ability lies solely with the European Central Bank which lies outside the control of any government. This is why Greece, Italy, Portugal, and Spain went bankrupt. Likewise, Weimar Germany, Venezuela, Argentina, and Zimbabwe borrow in FOREIGN currency, which they have no ability to 'print', so they are also fiscally limited. TAKE HOME MESSAGE: Don't have obligations in someone else's currency!!!
I've been reading that book. Truly fascinating.
BTC is not a replacement for currency, it's a replacement for store of value. Eg, gold.
AFAIK Spain didn't go bankrupt.
Very interesting topic though. Thanks for sharing!
If BTC isn't backed by anything, then what is its store of value based on? Is BTC a store of value? Or a Ponzi scheme?
Spain received a 100 billion Euro rescue package from the European Stability Mechanism.
Your article is fascinating, and the future you speculate about is exactly what Neal Stephenson wrote about in his books Snow Crash and The Diamond Age. The first depicts a world where federal governments still exist but neighborhoods are run by "franchise governments" that compete for citizens like corporations compete for customers and handle law enforcement even up to capital punishment, including local defense but with the federal government still existing to provide defense from rival nation-states. The latter takes place much later when this process has led to humanity being organized into "tribes" that are voluntary groups of geographically scattered colonies of those who want to live according to a particular culture (one example is Victorian). I highly recommend both as a vision of the evolution of nations states into scattered cultural groups, including some major failings of this arrangement.
Neal Stephenson is quickly becoming the most suggested author. Alright, I just bought Snow Crash!
Really interesting piece, and very thoughtful. It got me thinking about three areas nation states provide outside of typically finance (currency/trade/taxation) and what you think would rise to replace these functions:
1. Defense of territory/military. Nation states provide for defense and respond to conflict.
2. Investment/subsidy. Governments play a huge role in subsidizing private companies and innovation through investments in fundamental technologies (either direct or through tax relief), money for research at colleges/institutions and through subsidized production (particularly in agriculture).
3. Creation and enforcement of laws and property rights. Smart contracts through blockchain enable a chain of trust but who will mediate conflicts or enforce the rights of ownership when threatened? Who will create and enforce new laws that protect individual sovereignty?
Really interested in your thoughts!
I was thinking about it yesterday, and I reached similar themes.
For me right now I put violence in one bucket (military is different from police, because it's very different to dissuade a state than an individual in the use of force), redistribution (because it's very nice in theory but if rich ppl don't want to be redistributed away, you have a pbm), and legislation creation. So some mapping to yours. But this question requires a LOT of depth to understand and properly respond!
Being part of the 200 million crypto community I would love to see an option for paying the subscription to Uncharted Territories in crypto. I was forced to use my credit card for doing so, which I regret. I hope you give us the option ASAP.
Thanks Diego! It doesn't depend on me, it's on Substack. But I passed them the feedback.
Tomas,
Great article.
A couple of points:
1. I do not agree when you say that the 200 million users who have bought crypto already have the alternative mindset. It is difficult to estimate how many of them follow the trend because it is fashionable but do not even know what the blockchain is (without mentioning all the institutional investors)
2. You say: 'But why can’t a community emerge where citizens around the world can pledge support to the politicians that do want climate change policies? Why can’t they make that pledge a public, automatic commitment on the blockchain?'
Up to certain extent this is already happening with Extinction Rebellion movement in UK and many other countries (or the international youth movement of Greta Thunberg)... both of which in my opinion follow other past regional/global movements like Arab Sping/15M/Occupy Wall Street.
1. You're right. I should tone that down. Thanks. Maybe a 10th of that? Still country-size, no?
2. I agree. But I think much more can happen! What I love about the idea of smart contracts is that they can make that commitment tangible.
1. It is difficult to mention a percentage. We humans change our mind frequently... I am sure that when bitcoin was above $50,000 the percentage of 'believers' would be higher than when it was on $20,000. I know that Bitcoin is not blockchain but I am not sure that most people holding crypto bother about the difference.
2. Yes. I agree with you. As Spaniards, we know how painful and slow is to deal with bureaucracy. Smart contracts are a great idea and blockchain has huge potential.
However, with all technology I tend to think that the best use often comes from unsuspected places (just look at all the military inventions and how they were adopted in civil society). You know as well as I do the 'hype cycle' and I cannot guess how long will be for blockchain and in which final shape it will transform things (if it finally does).
More than 10 years ago a couple of scientists based in Manchester, where I live, came up with the invention of a new material called graphene. The whole discovery is a fascinating story and make them win the Nobel Prize. I remember that when graphene was presented the possibilities were huge. However, it has still not had a substantial impact on society... it might or might not.
Thank you. Yes, very good perspective to keep in mind. We need to be very conscious when we enter the terrain of speculation...
Your great and deep article here reminded me of a fascinating if little known XXth Century scholar, Norbert Elias, who in his theory of civilization describes in details how historically the nation-state evolved as an advance in civilization after kingdoms. He also shows in his very clear prose writen in the 1940's-1960s why the nation-states have started failing. Elias then points to multi-states entities as the most likely next step in the evolution of human civilization, which the current convulsions of the UN/WTO/etc..., the USofA, the EU, as well as India (maybe) and definitely China as expanding continental entities, might well be part of.
Your piece read like the following part to his work, the one showing how things are indeed collapsing.
I didn’t know him. Thanks for sharing! I looked him up a bit and his theories seem quite interesting. I’d love a good (20 pages?) summary of his ideas. The point that feudalism was a continuum that evolved into nation-state is interesting (even if I don’t know how it mixes with Italian / German history).
A good overview of his masterpiece on civilization can be found by two authors who worked with him and edited his complete writings in English, reference is Andrew Linklater and Stephen Mennell, History and Theory, Vol. 49, No. 3, October 2010, pp. 384-411 (that can be for example at : https://www.jstor.org/stable/40864499 )
Elias as a German scholar went to England for obvious reasons in the 40s has also writen a whole volume on German history, which covers its differences to France and touches on Italy. So Italy and Germany definitely fit in his model which is deep enough to cover different historical timelines and processes, and still capture key drivers.
And although he has a very western-European view, the principles of what makes civilization grow appear to be usable elsewhere, but the historical proofs remain to be established. I recently saw a PhD on how this applied quite nicely to Japan.
Happy good read and welcome to the superb work of Elias :-D
Very interesting abstract! You wouldn't, by any chance, have the article?
Can be accessed directly and free on jstor.org ( https://www.jstor.org/stable/40864499 ) and I also I have it in pdf. I just need an email or a site to send it to.
You can simply respond to any of UT's emails. Thx!
I just did. Have a good read.
We are at that dangerous point of history when the new way of living is still not strong enough to venture out on its own, but not weak enough to be ignored by the existing powers: the nation states (in reality, the nation states at the top of the power heap).
Remember how snowden had to run to russia? I expect a lot of similar unsavory alliances with dictatorships and the like.
So now we get to see what happens when an entity that believes it is a nation state tries to impose its will on another in the age of the internet and modern warfare. Already we can see fissures developing in the Russian nation state narrative and the development of a coalition of forces opposing it in all sorts of ways.
How connected to the rest of the world are the Russian people and does this override their attachment the the idea of Russia as a nation state?
Are we dealing with Bad Vlad or Mad Vlad? What seems evident is that his model of reality is a fair distance away from the generally accepted reality of the rest of humanity. That doesn't matter as long as the two don't actually clash head on, or that the resolution of this conflict of realities takes long enough for him to adjust to it. 🤞
After the printing press, religion wars increased. It took centuries for the nation-states to become more powerful than different churches. So I don't think these things will happen fast.
But yes, you're getting to a core piece: for Russia, right now, this is a fight between the value of the network and the value of the nation.
You got me at “crypto-Jews”, I thought it was a new cryptocurrency. Anyway, Great article!
It’s been a few days and I’m still thinking about this piece. To your ultimate question, I do think we’ll see states create bubbles (civilization states? Empires? Treaty organizations?) big enough to wall off internet and maintain a semblance of control. There isn’t a palatable answer to the demographics.
But there is a lot to worry about at the individual level and how it seems we are destroying intermediate layers of peoples lives. To the point where nothing really matters between the family (if you are lucky enough) and the national level.
I agree about the bubbles.
Demographics can be mitigated through migration, and that is a case that can be made.
Other changes are... more substantial.
Individual level: I think we will get there. But the transition might be ugly...