Bitcoin’s Ascent

I rarely initiate public discussions myself; far more often, I publish reactions to my own texts and answers to those reactions. But not long ago, I couldn’t resist. In the video Money printer go brrr on the FuryDrops channel, Grigory Bazhenov attempted to present the basics of macroeconomics regarding the money supply, the workings of the money printer, and the money shredder in fairly popular terms. The video suggested that the Federal Reserve pumping trillions into the economy would not lead to inflation, but would merely compensate for the decrease in the multiplier.

In the comments, I inquired how the presence of a factor like Bitcoin—where the user chooses whether to operate within full reserves or turn to centralized intermediaries whose multiplier may be greater than one—would affect this entire model. I also predicted consumer inflation in the USA. The discussion was quite long; it’s better to look at the thread under the video yourself. There, Grigory Bazhenov and Artem Seversky objected both to the applicability of Bitcoin as money and to the possibility of inflation in a shrinking US economy. Artem even wrote a separate post about how money, by its very nature, means unsecured obligations and therefore can only be based on fractional reserves; otherwise, the economy stalls.

What do we see literally two weeks later. Consumer inflation indeed spiked in the USA. Using Trump’s helicopter money, people actively bought Bitcoins; this is evidenced by a beautiful graph showing the share of deposits of exactly 1,200 dollars (the amount paid to all US citizens) arriving at the most popular American crypto exchange, Coinbase, immediately after citizens received gifts from the federal treasury.

Finally, yesterday the Bitcoin price, as I promised on March 16, the day the price dropped to 4,400 dollars, shot up, and if anyone failed to buy in over the past month and a half, they must be feeling sad now. Though, it wasn’t the most suitable time for investments.

Finally, during this time, it has become clear that one should not pin hopes on corporate cryptocurrencies like Libra or Ton: they are too vulnerable to the ill will of regulators. Therefore, Bitcoin still looks like the only alternative money for a bright stateless future, and I feel sorry for clever economists like Grigory Bazhenov, who consciously try to distance themselves from this future: after all, you might find that there is simply no suitable place left for you there.

Mechanics of Freedom, Chapter 48

I have finished the last chapter of the second edition of The Mechanics of Freedom, from 1989. Only the relatively fresh chapters of the third edition, published in 2015, remain. The chapter is strange and looks like a bit of an off-topic addition to this book, because instead of the mechanics of freedom, it tells about a little-known author of detective stories from the beginning of the 20th century – G.K. Chesterton. The ending of the first edition seemed somewhat more logical, in my opinion, and as it stands, this chapter looks like a kind of expanded appendix to the book.

The review describes what a great man Chesterton was, a true old-school liberal who successfully combined this with Catholicism and a certain indifference toward Jews. This is probably interesting to connoisseurs of Chesterton, and I generally like the stories about Father Brown — but, in my view, this chapter is redundant in The Mechanics of Freedom.

Next, I will give you a break from Friedman for a while and switch to Molinism.

Freedom and Security

In the video about coronavirus and the state, I pointed out that the main danger of the epidemic is not in the deaths, nor even in the fact that the state, under the guise of security, is encroaching on freedoms—but in the fact that this encroachment will be welcomed, and after the epidemic ends, many of the introduced restrictions will remain.

And indeed. Mikhail Svetov likes a post stating that in Miami, not a single murder occurred during seven weeks of isolation. Mikhail Pozharsky writes an article about what cannibals the Swedish socialists are for starving their elderly with COVID. And literally almost everyone snorts with disapproval at anyone who admits they are not following the ban on walks or other excursions from home unless for an urgent need.

Yes, if everyone is locked in their homes, there will be fewer killings in the streets. There will be more killings at home. If people are not allowed to go to work, they will not die of pneumonia. They will die of hunger. Any restrictions introduced by the state to save lives have a price, which is expressed not only in money, but in those same lives.

I sincerely hope that the Swedes hold their ground and ultimately do not trade freedom for security. And I also sincerely hope that when all this is over and we count the excess mortality among the Swedes and their neighbors, it turns out that by choosing freedom, the Swedes won not only money, but also lives, and the praised security provided by the state actually meant not only the destruction of the economy but even more deaths. If this turns out to be the lesson for humanity, I will be happy. But even if it turns out that freedom means an increased risk of death, it is still no reason to abandon it. Otherwise, what is the point of it all?

Don’t we live under anarcho-capitalism?

Every state is a community with its own voluntary hierarchy and structure, in which all basic libertarian principles are recognized and could even be formalized as contracts, but they are simply ignored by the majority; if some maniac with his own private army terrorizes people, the lack of resistance is the responsibility of the latter, for their hands are completely untied.

Belkovich

Ancap can be viewed as an ideal construction in which all goods and services are supplied only on a free competitive market. Such a construction serves as an analytical tool, but is unimplementable in real life. At the very least, because kinship ties, friendship, love, dislike, and the like have no direct relation to the market; and to claim otherwise, describing how, for example, the marriage market should be organized or the mechanism of selling oneself into slavery—this may, of course, be a way of exploring the limits of the model’s applicability, but it looks more like a way of pushing principles to the point of absurdity, only to then say: I don’t like where this logic has led me—so I choose to change nothing in life.

Conversely, one could postulate that since we consider ancap to be the natural and most suitable state for society, then we must say that we live under ancap and can reason about it in ancap terms. Namely, that a person’s relationship with the state is a contract, a sort of poorly drafted open offer where people checked the “I agree” box without even reading the text, and that the state is a corporation and its territory is the private property of the corporation. Such a vision can help one look at the world differently, but it can also function as a path of self-deception. That is, ancap is already all around us, why fuss, we have already arrived. We relax and, once again, do nothing.

The same reality can indeed be described in different ways, depending on how a person intends to interact with it. One can think in terms of “in office 202 sits the department head, he must sign the permit if the application is submitted in the correct form and the state fee is paid.” One can think in terms of “Petrovich will sign for ten thousand, but one could invite him fishing, which is even more useful in the long run.” Finally, one can think in terms of “enter, clear out the secretary, then the boss, exit through the window.” One can think “Vasya is so sweet,” or one can think “perhaps I’ll string him along for one more dinner, and then I need to bail.”

The difference between descriptions of the declared, the actual, and the ideal is also quite obvious. It is one thing to describe how the state looks according to official documents: the Constitution, separation of powers, legislative mechanisms, and so on. It is another thing how it looks in reality: the mutual influence of political actors, corrupt ties, the monitoring and formation of public sentiment, and all that. And it is a completely third thing to describe how one would like society to be. There, the state may be present in a completely different form, or be absent entirely. Private property may be revered as the highest form of manifestation of human freedom, or condemned as the highest form of exploitation. Power may be viewed as violence, or as fatherly care.

Anarcho-capitalism today, in most cases, is only suitable for describing the ideal order of things. The actual can be described in political science terms—and then one can try to devise separate descriptions for the transition from the actual to the ideal. Alternatively, one can describe the actual as a corrupted ancap, and then it becomes seemingly obvious what to do: simply eliminate all differences between the current state of affairs and the ideal model. The trouble is that while such an approach answers the question of what to do magnificently, it says nothing about how to do it. That is precisely where its main problem lies.

Conflict between protective organizations is a false argument against ancap

Bitarkh’s Column

Original publication on VKontakte

Critics of ancap constantly cite the well-known argument from Robert Nozick’s 1974 book Anarchy, State, and Utopia regarding the impossibility of ancap. Its essence is that different protection agencies may reach contradictory decisions regarding a particular case, enter into an armed conflict when attempting to execute them, and ultimately, one strongest agency will remain, becoming an ordinary mini-state with a territorial monopoly. In his work on the conditions for the stability of anarchy, Jack Hirschleifer demonstrated the conditions under which this occurs, leading to a war for hegemony instead of a state of anarchy.

But this argument applies exclusively to models of a stateless society where the use of violence is still permissible for certain purposes (enforcement of contracts, collection of compensation). For example, this position is partially held by Murray Rothbard and fully by David Friedman (the book The Machinery of Freedom). For a fully voluntarist society, the problem of conflict between protection agencies, as well as the determination of a higher court instance (which makes the final decision), is completely absent.

In any model of a voluntarist society, conditions are created where the initiation of violence is impossible or instantly extinguished (there is a uniform balance of violence potential (BVP) “everyone has weapons” and a deterrence doctrine (DD), i.e., the readiness of the majority of society to use counter-violence to stop aggression). Counter-violence can only be applied during a direct attack, but one cannot start a war to “punish a violator” or “collect compensation.” An offender, if they are not initiating violence at that moment, can only be boycotted—that is, no business is conducted with them. By the way, this is standard behavior between all subject players with BVP, such as stationary bandits (SB, “states”) in their relations with each other.

Under ancap, a trial (as is currently the case in relations between SB) can occur only by the mutual consent of both parties. The parties also agree in advance on the conditions for appealing the court’s decision if it does not satisfy them. And what if one party does not want to go to court? In a voluntarist society with BVP, no one can force them to go, but the refusal may be viewed as an admission of guilt, leading to a demand for compensation for the plaintiff, and in case of refusal—a decrease in reputation and possible ostracism. If the violator does this constantly, the severity of the ostracism will increase; eventually, they will simply stop being provided with utility services and sold goods in most stores, and they will be forced either to agree to cooperate or to move far away, to where their reputation is not taken so close to heart. Although with a ruined reputation, entry into all more or less decent jurisdictions will be closed to them.

As we can see, there is absolutely no room for the conflict described by Nozick.

Commentary by Ancap-chan

Nozick shows how a system of competing protection agencies can turn into a system of minimal states without violating the gentlemanly principle of compensating damage to clients affected by their activities, as well as to third parties. Bitarkh shows that if we take away from protection agencies this convenient pretext to coerce anyone for their own good, the problem of the state’s renaissance is resolved. Then the question arises, “well, how do we actually coerce if we really want to,” and to this Stefan Molinier answers. Which scenario is less realistic—the emergence of ultra-minimal states based on protection agencies or the emergence of a voluntarist society based on universal armament and readiness to actively counteract violence directed at oneself—we leave for the reader to judge.

Coronavirus and the State

A new video has been released on the Libertarian Band channel — about how an old ailment called the state, which humanity simply cannot seem to cure, has led to serious complications in combination with a new viral infection. Not that we are particularly fresh or original; too many have already spoken on this topic. But it is always useful to record your position, otherwise, people might rub it in your face later: “remember, remember how you were calling to beg for money from the state last year? well, now enjoy your hyperinflation!”

This is a special episode that interrupted our series of educational videos on libertarianism, but we will return to the main sequence closer to May.

Started a personal blog

Several times, I have been suggested to start a Patreon or some other system for providing premium content in exchange for regular donations. The idea of receiving regular donations certainly appeals to me (although it’s unclear what stops a reader from simply donating regularly without using intermediary services) — but for a long time, I couldn’t figure out what kind of premium content I would be willing to offer. Share smarter thoughts with paid subscribers and less smart ones with free ones? Well, that’s not quite it…

Then an idea occurred to me. In my main channel, on the website, and in all the linked social networks, I talk about libertarianism, while I usually remain behind the scenes. So, as premium content, I could provide my own personal perspective on the world around me — basically, various things that don’t fit into the format of a channel about libertarianism.

So, I started a live channel on the Boosty service (chosen for banal economic reasons — it takes less for mediation than its competitors: 7%, plus the payment system commission). I will post personal things there, while still trying to avoid my deanonymization. There is only one subscription level, 200 rubles per month, and so far I don’t see any reason to create more. If you have suggestions on what else could be written there, subscribe and let me know in the comments. As you know, I always highly value the opinion of those who are willing to back it with money, and I try to fulfill such requests.

The Mechanics of Freedom. Chapter 46

In the forty-sixth chapter, The Machinery of Freedom, David Friedman analyzes the idea of private money, free banking, and all that sort of thing, which in the eighties of the last century seemed much more distant and less feasible than it does now.

The main part of the chapter, The Money Market, is an exposition of the concept of private money itself. I haven’t read Hayek’s work of the same name yet, but it seems that Friedman based much of his work on it. The author analyzes why state maintenance of the monetary system will always perform poorly, and why there are no problems with private entities handling it.

The first additional subsection, Which Commodity Exactly?, concerns the question of which specific commodity the monetary system should be based on in the Wonderful America of the Future. Friedman suggests using a basket of exchange-traded commodities, the price of which would correlate as closely as possible with the level of consumer prices. In short, the boomer invented the stablecoin. Modern mechanisms allow for the easy issuance of tokens pegged to any commodity basket, but practice shows that tokens pegged one-to-one to the banal fiat dollar are the most popular.

The second additional subsection, Preference Is Not a Prediction, contains the author’s complaints that the system he invented is beautiful but unattainable, and that private money would more likely be pegged to gold—the inelastic supply of which, for some reason, Friedman views as a tragedy—but certainly not to a consumer price index.

Oil, economy, limbo

No sooner had armchair political scientists managed to properly dive into virology than they already had to master the intricacies of the oil industry. I decided not to fall behind and watched an MBX Media story yesterday about what exactly happened and what to expect now.

First, Mikhail Krutikhin spoke about how May WTI futures hit rock bottom and started digging deeper. This joke has already been retold many times, and in Krutikhin’s specific case, it was so-so, because from his words, it seemed as if it wasn’t a triviality not worth noticing. However, I see no reason why the same story couldn’t repeat itself toward the end of May, because to prevent it, either oil demand needs to rise or supply needs to fall; otherwise, it will be even worse than now, because there will be even less free storage capacity in a month.

Next, Grigory Bazhenov spoke and repeated what he had already explained on his channel in a separate video—how taxes are structured in the Russian oil and refining industry. In short: oil prices could drop to zero, but gasoline prices won’t budge—the budget will take all the winnings. Thus, Russian refining faces downtime, and the weakest players in the industry—the private companies without integration with oil-producing companies—face bankruptcy. Gas stations will somehow survive, but in conditions of reduced throughput, they will lead a rather miserable existence.

Finally, Mikhail Khodorkovsky took the floor and spoke about the situation in oil production. According to the agreements signed by Russia, it must reduce production by a quarter. If production is reduced carefully, trying not to ruin the wells in the process, a maximum reduction of ten percent can be achieved. Moreover, free storage capacity is running out and exports have collapsed, so production will have to be scaled back sharply, which means irreversibly. A shut-in well will become unusable after a couple of months, and to restore production, it will need to be drilled again. But in old, heavily watered-out fields, such drilling will simply not pay off at reasonable prices. So Russia faces a choice: either pump oil regardless of the agreements and then pay those who kindly agree to take it, or irreversibly lose up to a third of production. At the same time, it is quite likely that the decision will be made not by the market, but purely administratively, and some will be allowed to work while others are put to the knife.

In connection with this, I want to make a prediction. Quite quickly, an obvious consideration will arise before the Russian leadership. If it wants its oil industry not to die, Russian oil must be bought. There is no hope for exports, which means the Russian economy must consume the oil. But it cannot do this while sitting in quarantine. Therefore, to hell with the quarantine. Of course, some other official reason will be given. For example, “at the request of the workers of North Ossetia.” Or “after studying the successful Swedish and Belarusian experience.”

Why are people put in quarantine in other states? To save human lives. Forgive me, I can believe many things, but not that human lives are important to Putin. So he will hesitate for a bit and then wind up all this self-isolation. Well, maybe except for Moscow—they’ve become too spoiled, let them shrink a little. So prepare for the fact that the heroic sitting at home was completely in vain: we will all get sick until we achieve herd immunity. Some will not survive. With our economy and medicine, the Swedish path was an alternative-less option from the start. What is this “flattening the curve” of yours? It’s like the game of limbo, where you have to pass under the bar. The lower the bar, the harder the task. The height of the bar is determined by the level of medicine. With Russian medicine, don’t even try—there’s no point in embarrassing yourself.

What to do? I have already dedicated a separate post to crisis strategies, and I adhere to the previous recommendations: going into the shadows, building horizontal connections, mastering cryptocurrency payments, and reducing all interaction with the state to demanding direct payments, tax reductions, the cancellation of regulations, the reduction of security forces, and so on.

Can you throw together some arguments against the position of supporters (mostly fanboys of Ezhi Sarmat) of effective autocracy (Singapore), as well as supporters of a “scientific” approach to politics (Lombroso, etc.)?

Daniil (question accompanied by a donation of 149.25 rubles)

What is so good about an effective autocracy? An autocrat can very quickly place people who will strictly follow his instructions in all managerial positions, and then very quickly carry out the necessary reforms. Where a team of reformers using democratic methods manages to cope poorly during the first year and then gets bogged down in endless delays, an autocrat’s team simply goes and does everything in a matter of months.

The second argument in favor of autocracy is that a democratic government leaves after a few years, the opposition takes its place, and begins to pleasurably destroy what was newly built. An autocrat sits on the throne longer, and during this time, the reality he has built has time to take root.

So what kind of madman would actually speak out against an effective autocracy?

The biggest difficulty is that far from every autocracy is effective. I can point as an example to a chapter from The Machinery of Freedom about libertarian foreign policy.

The problem with an interventionist foreign policy is that doing it poorly is much worse than not doing it at all. But that which is worthwhile only if done well is done by the very same people who run the state postal service, and with roughly the same chances of success.
David Friedman, The Machinery of Freedom

Is it possible to estimate in advance whether a candidate for autocrat will be good, and whether his reign will be marked by minarchist reforms? Alas, all of history is full of examples showing that this is difficult to do. Lee Kuan Yew came to power under left-wing slogans and then began to suppress the communists. Deng Xiaoping was one of the leaders of the CPC even under Mao, and generally, nothing foreshadowed the sharp turnaround he would eventually make. Liberal reforms in New Zealand, one of the freest economies in the modern world, were also carried out by a government elected under left-wing slogans. Thus, if a future decisive reformer wishes to come to power democratically, he will most likely broadcast a left-wing agenda until the election, and his real plans will surface only afterward. Those who initially position themselves as right-wing are left only with coming to power through a military coup, which means they will have difficulties implementing reforms at the grassroots level — illegitimate orders are often sabotaged by those executing them.

So what, are autocracies not needed, and should we humble our pride and limp along in the mainstream current of democracy with universal suffrage? No, this is a disgusting form of social organization, which is only capable of delaying important decisions and squandering huge budgets, but is incapable of carrying out sustainable reforms to reduce the state.

The main problem with autocracy is the monopoly on power, and the solution lies, naturally, in launching competitive mechanisms. Under panarchy, where citizenship is determined by signing a contract, autocracy reveals all its strengths: it is a compact, fast management mechanism that does not procrastinate, but acts. But panarchy allows for the mitigation of autocracy’s weaknesses because a very powerful feedback loop operates within it: citizens support only effective autocrats with their wallets.

Exactly the same arguments can be made regarding a scientific approach to politics. Scientific theories must evolve, while implementing them in practice on an exclusive basis freezes the theory. A different matter is the competition of approaches. Evolutionary development mechanisms work there, and instead of simply trusting a great teacher, be he Mises three times over, we get the opportunity to test theories in action and improve them.