Preamble
This is going to be an experiment - I will read a book, try to summarize the narrative as concisely as I can as if I’m writing an executive summary for a slide deck, and then give some of my own commentary. Success looks like elucidation.
The first issue is on The Sovereign Individual, written by James Dale Davidson and Lord William Rees-Mogg in 1997. I was introduced to it by friends, and the tech/VC/crypto crowd on Twitter.
TL;DR
I’m going to knowingly commit the crime of gross oversimplification, potentially to the extent of making a caricature of the whole argument, in an attempt at brevity and clarity.
With that said, Davidson and Rees-Mogg’s thesis goes something like the following.
1. Historically the scale at which society organizes itself into sovereign entities has not been a constant.
The raison d'être of sovereignties is to provide protection service to its members against violence from inside and outside of the community - establish law and order, fend off invasions. In exchange sovereignties extract payments from their members in the form of taxes, military service, etc.
2. The dominant predictor of the equilibrium scale of sovereignties in a historical era is the “return on violence” (I think a more accurate term could perhaps have been “return on scale”), essentially how easy it is for a larger entity to bully a smaller entity into submission by organizing force at an increased scale. The return on violence is in turn determined by “megapolitical conditions” - topography, climate, microbes, but especially technology which has overwhelmingly been the most important factor since the modern era.
3. The basic equation is that the higher the return on violence, the larger the equilibrium scale of sovereignties tends to be, because...econ 101.
4. World history can be understood through the lens of this basic equation - again this is a huge caricature that leaves out lots of nuance, and the authors certainly didn’t claim that this equation explains all variance in the history of politics, but the thesis of this book does rest on the assumption that this one-dimensional linear regression, if you wish, has enough goodness-of-fit and generalizability to have predictive power into the future:
5. The most salient part of this genealogy is the observation that, many social structures and ideals that we take for granted in the modern world are unique products of the industrial era megapolitical condition of mass production - the nation state, mass democracy, egalitarian economics, mass income redistribution, welfare states, etc.
6. Now, if these modern axioms of social organization are historical contingencies, then they are subject to change. Indeed that is the prophecy. The authors believed we are on the cusp of another profound paradigm shift of megapolitcal factors, driven by information technology, that soon enough will undermine our modern sensibilities and usher in new forms of sovereignty. The next row in the table above is going to look something like this:
7. What are the technological forces driving this revolution? The authors keyed on two major trends (worth noting again that this book was written in 1997) :
The first is the rise of the Internet economy. Information will become the core product instead of physical objects. Economic activities - the production, transaction and consumption of goods - will be increasingly virtual in nature.
The second is cryptography and encryption. In theory they provide cheap, reliable protection of digital property accessible to everyone.
8. These are fundamentally decentralizing forces. They will radically reduce the return on violence on the part of large organized entities, and tilt the balance towards individuals.
The virtual economy means that it’s now much easier for individuals or small groups to create big, successful businesses and amass economic power. Information is the product, ideas are what becomes wealth, and the best ideas always belong to the few. As an entrepreneur you no longer need to acquire and maintain massive physical capital assets, nor hire a huge labor force, as would be required in 20th century style mass production.
Encryption means that individuals and small groups can now effectively protect their digital properties from larger entities (the state, or labor unions). David can easily fend off Goliath, as long as he keeps his private key private. The authors envisioned the digital realm (“cyberspace”) to be a new kind of wild wild west in which the digital economy will reside. People will be using digital currencies protected by encryption, they can’t be confiscated or even monitored by governments, and can’t be easily taxed. (To the extent that it foreshadowed crypto more than a decade before an implementation existed, this is prescient.)
9. Applying the basic equation above, the social implication of the information revolution will be that the equilibrium scale of sovereignties becomes much smaller. 20th century style massive social organizations will soon become, or have already become, enterprises that produce net negative value. They may hang on for a while, like a big business who still has a large revenue but whose profit margin has quietly turned red, or like the late Roman empire which had similarly overextended itself, but they will eventually crack. The authors discussed two specific mechanisms of this devolution:
“Transcending locality”: since the virtual economy can be conducted anywhere, the new masters of this economy - a new global cognitive elite - will choose to do business in jurisdictions that offer the best services at the lowest cost, and that usually means exiting geography-bounded nation states that levy exorbitant taxes. This will cause a major funding gap for nation states to meet their social welfare commitments, which will trigger further unraveling. (To the extent that Big Tech has been “optimizing” its global taxes in the past decades, one could argue that this is again prescient.)
“The end of egalitarian economics”: this claim runs deep - the authors argued that the ideals of egalitarian economics (through income redistribution) and egalitarian politics (through one person one vote democracy) are reactions to the industrial age mode of production. Mass production created the perception of equal productivity - after all, the best worker on the assembly line won’t be that much more effective than the average worker. Mass war meant that (at least at the beginning of the industrial era) the country that can mobilize the largest infantry is the one that wins - consequently mass democracy rose as the dominant political system because, by broadening the membership of political ownership, it radically increased the enrollment in military services. The information revolution will change both. On the economic front, the first order determinant of one’s success will be his cognitive ability, and cognitive abilities follow a much steeper Pareto distribution than that of physical prowess as could be manifested on the assembly line. There will be no more illusion of equal pay for equal work (look at “the 10x engineer”), and there goes the moral ground for mass income redistribution through the welfare state. Similarly on the military front, wars will no longer be won by the largest infantry but the best hackers - so the political incentive shifts from catering to the masses to attracting a small elite with superior abilities.
10. The transition will be painful, and unpopular, like previous paradigm changes had always been. The industrial revolution was deeply resented, so was the printing press. There will be reactions. But no one can stop the torrent of history.
11. So after this is gone, what comes next? The authors believed the next (21st) century will be the century of individuals. Here, finally, is time that the notion “Sovereign Individuals” comes to the fore. I think the authors meant it both as a concrete mode of existence, as well as a new moral ideal. There will be a small subset of the population that are able to achieve full individual sovereignty through wealth; at the same time, each and every individual will have to be more sovereign over his own fate than the norm has been in the 20th century developed world. For those thus inclined, this represents a magnificent, unprecedented opportunity for human flourishing unshackled from previous constraints. For those reluctant, they have no option but to embrace it since the social structures that hypothetically would have taken care of them if they were not willing to take care of themselves will soon be gone, because the Sovereign Individuals will no longer be footing the bills.
12. More concretely, the authors made the following predictions:
(As alluded to above) there will be a new, globally connected cognitive elite that arise as the winners of the information economy.
The most successful of them will be able to negotiate on their own terms with jurisdictions regarding the conditions for bringing their business. These are the Sovereign Individuals. The relationship between governments and individuals (the new elite in particular, all individuals to some extent) will shift from that of sovereigns and subjects, to service providers and customers.
Governments will need to compete to attract such individuals. New and more efficient forms of sovereignty (than nation states) will arise as winners of this marketplace of governance. Singapore-style city states, or a revival of Hanseatic League style merchant confederations were considered promising candidates.
Inequality within developed countries will increase, as the cognitive elite distinguish themselves economically and income redistribution wanes. Inequality between countries will decrease, as cognitive elites from the developing world will be able to realize their potential thanks to the seamless global communication afforded by the internet.
13. Is the Age of Sovereign Individuals good? While reading through the book I had thought that the authors’ stance was a resounding yes, until coming to the sobering last chapter on the morality of the new age. The book ended not on a triumphant tone, but rather a gloomy one. The authors looked torn.
On the one hand, they appeared staunch believers of classical liberalism, and the virtue of the free market mode of human interaction. I think the moral intuition is this (not laid out explicitly in the book, but rather my interpretation) - human beings have thus far come to know two ways of resolving conflicts between personal interests; the first uses the logic of the market, through free exchange between consenting adults; the second uses the logic of the fist, through coercion, organized by politics. To the extent that the first does not rely on either manifest violence or the threat of violence, it represents less supression of the human creative potential, and is thus less evil than the second. All else being equal, economic solutions to problems are morally superior to political solutions. In this light, to the extent that the information revolution will emancipate individuals from the dominion of politics (read: organized violence) to that of the free market, it will create conditions for releasing the human potential to the fullest degree, and is therefore good.
On the other hand, right in the last ten pages of the book, here is this:
A godless, rootless, and rich elite is unlikely to be happy, or to be loved.
The authors recognized (I think correctly), that in order for the dance of the free market to flow, there needs to be music, and the music is the shared faith among the community in a particular form of ethics - for the lack of a better description (huge topic, I don’t think I want to try to untangle here), that admixture of Judeo-Christian tradition and Scottish enlightenment that has been propelling the incredible human advances in the last three centuries. Without that bedrock, being a Sovereign Individual all on one's own sounds like a bleak, solitary and desperate affair. Is it possible to erode the social institutions of old, without eroding that bedrock of values?
The authors placed their hopes on the revival of moral education, and on the invention of a new religion that reinvigorates classical values in the information age. How that will come about, or how to square that with the thoroughly rationalistic outlook through which lens the economics picture was painted, were left untouched. Which left me in the frame of mind of wanting to open a Dostoevsky after closing this book.
Commentary
If I was irresponsible in the previous section by butchering the narrative to its bare bones, I am going to act even more irresponsibly in this section by giving my takes on some of the matters discussed in the book, while shedding most of the burden of proof for what I believe - perhaps they shall become topics for future posts.
Structurally, the thesis of this book is made up of a few pieces:
A world model y ~ f(x), where x is the return on violence, and y is the equilibrium scale of sovereignties, fitted on the data points of human history.
The prediction that x will decrease in the information age, because information technology is a fundamentally decentralizing force.
As a consequence, y will decrease. The y that we have today is too big to be sustainable, so they will unravel.
The new equilibrium of y will be a society organized around the sovereignty of individuals.
I’ll comment on these in turn.
The world model
I don’t have much to add here, besides the mea culpa that the authors didn’t in fact assume a Hegelian/Marxist style strong historical determinism as I may have made it out to be in the synopsis above. There was a fair bit of nuance in the book about the multiplicity of factors that conspire to make the pattern manifest. I find the account overall plausible. And the attempt at synthetizing a world model is itself admirable. Peter Thiel said it well in the preface he wrote for the new edition of this book:
Medieval men despaired of the will. They thought of humans as wounded and weak. But they respected the intellect. They thought even humans, if we think carefully, have the power to answer the most profound questions of God and the Universe.
Modern men worship the will, but they despair of the intellect. The wisdom of crowds; the swerve of random particles; the influence of unconscious bias: all of these contemporary cliches are ways to talk about intellectual weakness - or ways to talk ourselves into it.
Lord William Rees-Mogg and James Dale Davidson do not promise answers about God and the Universe, nor do they supply any. But their investigation of “megapolitics” - an anatomy of the forces at work in history and a set of predictions for the near future - is unusual, or even countercultural, because it applies human reason to matters that we have been taught to leave to chance or fate.
Information technology as a decentralizing force
With the benefit of 20 years of hindsight, this clearly has a large amount of truth to it, and I’m tempted to think that it’s broadly correct to summarize the net effect of the first half century of the internet’s existence as decentralizing. On the economic front, when Whatsapp was acquired for $16 billion it had a grand total of 55 employees. The tech giants today employ much fewer people than the giants of 20th century manufacturing (Google employee count: 139k; General Motors at its peak: 618k). On the media front, content platforms and social media enabled Joe Rogan to become a more important voice on the national consciousness than CNN, just like the printing press through the pamphlets it printed made Luther more influential than the catholic church.
At the same time, there do seem to be somewhat newer, countervailing trends.
First, the internet opened up the opportunity for amassing enormous amounts of power by being successful platforms. In a world where the margin cost of production is zero (it’s practically free for Google Search to serve an additional 1M users), and the cost of transaction is zero (you just type an url into your browser), the most advantageous position in the value chain becomes that of the platform which can connect millions of fragmented supply to billions of fragmented demand. The best articulation of this phenomenon that I have read is Ben Thompson’s Aggregation Theory. Google, Facebook, Amazon all followed (or rather, invented) this playbook. The network effect and the data advantage (which allows the matching algorithms of the platforms to be trained on trillions of supply-demand edges that small players have no way of accessing) are clearly centralizing forces, as opposed to decentralizing.
Second, the old centers of power (for the sake of simplicity - Washington and mainstream media) and the new centers of power (Big Tech) seem to be developing, increasingly, an alliance? An uncomfortable alliance for both sides, for sure, but an alliance nonetheless. Case in point: the censorship of speech that contradicts whatever happens to be the official orthodoxy du jour on Youtube, Facebook and Twitter. In the information age, is Big Tech going to play the role of agents of devolution of the old power centers, or that of the Church after the collapse of the Roman Empire - maintaining some semblance of order in the old system as the facade while gradually replacing it as the new supreme authority - or perhaps both?
Third, China serves as an existence proof that the internet could be controlled centrally, by 20th century style political power. To the extent that the internet could be decentralizing, there is nothing a priori or necessary about it.
On the reinforcement side for the force of decentralization, there is clearly crypto. I will leave this to potentially another post.
Whether the pendulum will swing to net centralization or net decentralization in the second half century of the internet’s existence - it appears to me that the jury is still out.
Old system unraveling
I think this has been happening in front of our eyes. It is hard to read this book without drawing parallels to Martin Gurri’s The Revolt of The Public, which I’m planning to write a review of in some future post.
The authors even foreshadowed the moral panic over wokeness to some degree - a repeat of 90s political correctness - as an unholy alliance between an establishment that desperately searches for new justifications of its legitimacy, a group that feels entitled to high social status but turning out to be losers in the new information economy jockeying for status, and a subset of the new elite that hope to buy peace until their next promotion; all tolerated by a much larger group of good natured people who are sympathetic to the fervor because of their nostalgia for 20th century style egalitarian politics and mass social movements. It’s remarkable in its penetrating insight.
The age of individuals
This is the bit that is the most troubling for me personally, contemplating what comes beyond the cliff. I can’t debate with the logic of this book that an age of individuals is likely to come. The reasoning strikes me as overall sound. I am not yet sold that this new age, as described, is one that I look forward to living in.
A couple of things.
First, I question how sovereign individuals are ultimately capable of being, qua individuals. I don’t believe us human beings, each on our own, have nearly enough cognitive capacity to solve the computational problem of determining what are valuable goals to pursue. We are amazing optimizers, given a value system endowed to us by society and history that tell us what ends are worth pursuing. We modern men are the masters of means. We do instrumental rationality. The ends? Those remain as illusive a mystery to us as they were for our pre-modern ancestors.
If you squint, the human existential landscape bears some resemblance to the reinforcement learning formulation of the problem. The indisputable rewards signals are sparse and spiky. The state space is infinite. The state transition function is stochastic. What society enables - and (classical) liberalism and the free market have brought to an unprecendent level of efficiency - is a massively distributed stochastic gradient descent process - each of us, as individual workers in the giant data center of mankind, ingests a small subset of training examples (our experiences), do the computation on our part, and backprop the gradient to the main net. In aggregate, it works out to be a fairly optimal policy.
For an individual worker to compute the global value function analytically using its own resources, without a society that it can outsource its computations to? The person that can do that is Nietzsche’s Ubermensch, and as far as I know mankind has not yet witnessed one. Thought experiment - suppose the Age of Sovereign Individuals descends tomorrow, and they all migrate to Singapore - what happens next? I dread that very soon, doubts will creep in as to what everything is for. In the authors’ words, “godless and rootless”, the Sovergein Individuals will soon lose their will to optimize for their rational self-interests. The homo economicus refuses to come to work. Despair ensues. Until either some of them decide to burn it all down out of nihilistic fury, or they pick out a scapegoat that they can all use violence against to rearouse some sense of communal meaning.
Second, this book construes “sovereign individuals” as attributes of individuals in a snapshot in time. At time t, some individuals, possessing superior cognitive abilities, having created wealth, can declare their independence from communities of old and strike out to a new world that they purchase. But we are not creatures that exist in a snapshot in time. We are creatures that develop through time. How did these individuals become Sovereign Individuals? How did they come to possess their superior cognitive abilities - are they born with it, or did they develop it over time, and if the latter what kind of environment is needed for such development? And what will happen to their children, will they all inherit Sovereign Individuals status?
The picture of the future painted in this book seems to be that of a bifurcated world, divided between the cognitively superior and the cognitive plebs. I see a practical problem with this. The secret sauce of (classical) liberalism’s success is that it enables “experiments of living” at the largest scale - throw the dice as many times as you can so that you increase the number of occurances of outlier achievements that propel humanity forward, have a robust system for picking winners, and have a healthy ethic that encourages emulation of the winners as opposed to envy. The prerequisite is that you throw the dice many times and give random variation a fair chance to work its magic. For that you need the widest participation. And for that you need a sense of communal camaraderie. The plebs need to be willing to play the game, if only for their children. Will the Society of Sovereign Individuals be closed to the children of plebs? If so, the aristocratic children will surely get outcompeted, since most of the most gifted people in the next generation will be the children of today’s plebs (unless you deny the chances of the children of plebs to even become future cognitive elites - which would be a phenomenal waste of human potential, which would undermine the moral basis of the Society of Sovereign Individuals).
To the extent that the Society of Sovereign Individuals wants to remain a meritocracy, it can’t be closed. But if it will be open and a shared sense of community will remain with the rest of the world, how is that really different from the version of today’s society that we aspire to be? The new elites taking on renewed responsibility, that bit needs to exist regardless. Perhaps instead of trying to salvage communities of old by reinstating the old bonds, it is more promising to invent communities of the new information age. That I can get behind.
And that “new religion that reinvigorates classical values”? Man. There is no more worthwhile work in the world today than to bring that about.
I read this book and felt like the authors were missing a few pieces. Once i put those pieces in place, i think the picture of the future looks a bit better.
At a few points the authors kept saying things like 'why make $X/year when you can make 3$X living somewhere else." In my case, I relocated from California to be closer to my family in Ohio, and I have no intention of ever leaving. My guess is that there are many such people like me; a college friend had a similar journey. He spent his early career in Washington DC, and then after a trip back home to Ohio, he said 'what am i doing here' and decided to relocate his family.
The world 'loyalty' stirs a powerful feeling in my heart, and I have a desire to help make the city i grew up in healthy and do well, because that just feels like it'd be an awesome thing to do. I've got no idea who you are, having just met you, but I have the impression you're working professional who just tinkers with ideas in his free time because it feels import to him to do so. I suspect people like us have never really been capable of exerting large scale influence in the past because specialization + the cost of communication made it so that much of the world was run by a kind of priestly class, which has always had its own incentives.
The kind of person who leaves their place of birth for a career has, for the last few decades or so, been exclusively the kind of people leading the world. So there's been something like a "high intelligence, high drive, but low loyalty" selection filter for global elites. I think the collapse of global order will lead to lots more effective forms of localized order. I know people of people who stayed home and never went out of state for college, not out of stupidity, but because they didn't want to leave their family and friends behind. I think the rootlessness the authors worry about is more an artifact of the economic and political selection mechanisms of the last 50 years than something true of all intelligent adults.