Sound Money

The internet has caused profound societal shifts in the past 30 years, but it’s influence isn’t fully realised. In this edition of the Sound Money Monthly I leverage off The Sovereign Individual’s historical analysis of technology. TLDR: A deeper technology-induced social and political regime change is underway, including a neutralisation of ever-growing nation state with an increasingly important role for digital decentralised financial technologies like bitcoin. [10-minute read]

Roman Monetary Debasement, the Church, and the Printing Press

History provides good examples of technology induced regime changes:

1. The agricultural revolution laid the foundation for the Roman Empire, which peaked around the birth of Christ.  The technological discovery of crops during the agricultural revolution allowed societies to settle in bigger groups, it raised the importance of protection and created the first assets which could be hoarded, stored, saved and taxed. Crops fundamentally changed society and human behaviour from hunter gatherer societies which had limited incentive to save, store, tax or steal. The Roman Empire was founded on agri, independent businesses, political participation and immigration, but it degenerated when it centralised into a large state with an expanding welfare system and large monetary inflation. Please read these two articles if you’d like to find out more about Roman monetary inflation and the similarities to today. (LINKS)
2. Other than Roman monetary debasement, the degeneration into the Dark Ages between 500 and 1000 AD was accentuated by population growth, heavy cavalry, famines and decentralised military power. It was a period characterised by less innovation, invention and discovery. In the words of Hobbes, “life is tragic, brutish and short.” Local lords were able to exercise control over peasants due to their monopoly over expensive cavalry. But these lords were able to prevent wider centralisation of power to kings because they were well equipped to independently defend their territories.
3. The Church provided coordination through the Dark Ages into the Middle Ages between 1000 and 1500 AD but it increasingly abused its monopoly over the structure of society. Churches profiteered and expanded their scope, eventually leading to mistrust and discontent. Society was focused on myths and codes of conduct, rather the truth and science, which negatively impacted productivity during this period.
4. The printing press broke the church’s monopoly on the word of God, allowing the first widespread distribution of bibles. The reformation, protestant revolution and enlightenment around 1400-1500 AD reintroduced more productive principles; freer economies, less tax, more savings, better ideas with more logic and increasing focus on science. These principles laid the foundation for the next 500 years of prosperity leading up to today.

Each 500-year period was remarkably different from the previous. Humans tend to cling towards familiarity and extrapolate trends indefinitely. In many senses, “the trend is our friend”, but there’s evidence that we are approaching one of these inflection points in history again.

More than a tool, the internet is changing the structure of society

Information technology and the digital revolution of the past 30 years has already caused a fundamental restructuring in society. Essentially, the internet is just a tool to disseminate information, but its implications are transformational and could be compared to agriculture, the printing press or the steam engine. I love this David Bowie interview from 1999 where he describes the potential impact of the internet. He probably seemed crazy when he gave the interview.

The internet has a positive impact on connection through communications, education through information availability and business through global reach. On the negative side, online access and anonymity allows criminals to advance their business in the same way as legitimate businesses. Low barriers to online entry also fosters disinformation, which is fragmenting society. The revolutionary nature of internet platforms has blown apart old networks in information, shopping and social to create new internet giants in the form of Facebook, Amazon, Google, Alibaba, Apple, Netflix, etc. No doubt that these companies have created value. But they also hold immense power, potentially more than governments and its uncertain how they will wield this power in the future.

How much longer can the Luddites centralise power?

Despite these dramatic shifts in the past 30 years, the nation state has monopolised the use of physical and non-physical violence through its control over military, navy, policy, taxation and inflation. Governments are more akin to the Industrial Revolutions’ Luddites than forward thinking technologists, but yet they’ve expanded consistently since the 1990s.

Technology is altering the relationship between individuals and their government though and should place pressure on the nation-state in the coming years. Digital assets, the ease of travel and low cost of weapons implies that individuals can readily move to competing jurisdictions. People are also connected along global lines to various sports, brands, ideas and themes, making them far less susceptible to nationalistic rhetoric. Would millions of American’s rush onto the battlefield today to defend the country, in the same way they did in the 1940s? Questionable… Government indebtedness and their desire to push the envelope with increasingly outlandish monetary and fiscal policies is destroying their credibility. Will governments fulfil their promises in the next 10 to 20 years? I think not. Eventually I think taxpayers may begin to question the value for money provided by their leaders and consider more competitive jurisdictions.

Can technology rescue us from the Dark Ages?

If the US empire is collapsing in the same way that the Roman Empire collapsed, does that mean we’re headed into the Dark Ages? The comparison is worth considering. The regression of many political leaders towards lies, corruption and appeasement raises the probability of a gloomy future. However, technology is a tool for individuals to choose the social, political and economic structure governing their lives. The means to relocate, to work via the internet and save in digital assets exists. This may give rise to a class of Sovereign Individuals who’ll be able to leverage the opportunities and circumvent the degeneration of the nation-state. It’s a compelling thesis and it’s already in action with numerous digital nomads navigating sandy beaches in developing countries. I fear that this trend creates a more challenging situation for those who are less educated, less wealthy and less equipped to navigate these changes.

The future is uncertain and I don’t pretend that anyone has all the answers, but we’ve got to create a roadmap, assign probabilities and reassess as we go. The extreme levels of key macro variables like debt, interest rates, inequality and economic growth reveal regime change potential. The disruptive nature of the internet and digital organisations confirms the uncertain future and raises the potential of further change.

So, what do we do?

1. I am trying to embrace the value-additive technologies.
2. Hold onto core values because these shouldn’t change no matter the technology.
3. Prepare for further uncertainty. The increasing probability of left-tail economic, social and political outcomes lowers the opportunity cost of investing into unusual outcomes and assets. I sense 2021 is going to get weirder yet as individuals flex their freedoms post lockdown, or perhaps pre-lockdown as frustrations grow. We need to be positioned for this social, economic, political and financial volatility.
4. Investors must focus on assets exposed to volatility like options, hedge funds, active management, gold and bitcoin.
5. Individuals must be aware of the economic and political volatility in store. Remain liquid, avoid getting too physically tied to one location and meditate.

At the end of the day, I think mental stability is the best response to volatility. It doesn’t work every day, but I’m trying to remain calm, be grateful for what I’ve got and keep enjoying each day, because this moment is all that there is. Make the most of it!