The times they are a changing. We are caught in a convergence of forces that are transforming the nation state as we know it. The old model was based on a post-war consensus which our parents and grandparents thought of as normal. After the trauma of the war and years of privation, better living conditions came along and there was a sense of fealty to the state, bolstered by an unbroken rise in affluence until the 21st century. If things always seemed to be getting better, that’s because they were.
The social contract changed, however, when millennials — the indebted university-educated grandchildren of the people we have mentioned — saw, after passing all the exams they’d been asked to pass, that they couldn’t afford the lifestyle they’d grown up in. The idea that they were privileged heirs to the world’s richest civilisation seemed hard to swallow. Fast forward to 2021 and the disenchantment accelerates: the job market for young people has been hacked to death by government regulations, from National Minimum Wage stifling investment in trainees, to Covid incentivising inaction.
In their book The Sovereign Individual, published in 1997, James Dale Davidson and Lord William Rees-Mogg predicted that the information age — in which individuals will be released from financial captivity at the hands of the state by the internet and cryptocurrencies — will be death knell for the model of the state that is based on a 1970s industrial economy.
That model relies on a monopoly of violence to collect revenue, with citizens held captive geographically in terms of where they work, bank and consume. You can be fined or jailed for evading tax. Tax is meant to be payment for services, but the government tends to overcharge and underdeliver, as it does at the moment with the NHS, transport and so on. It’s imperative isn’t to deliver value to its customers, it views them rather as captives it can extort money from. Whatever it says, it is inclined to find ever larger revenues and expand its remit.
Citizens have traditionally had one reliable way to subvert the will of the state: cash. You can earn, save and spend cash anonymously. So governments began phasing out cash. Now they are going exponentially further by taking the innovative blockchain technology and creating Central Bank Digital Currencies (CBDCs). These offer unprecedented control over the economy because the money can be programmed in weird and wonderful ways to exert control the way citizens behave. Take a look at China. The escalation of surveillance and coercion is breathtaking.
But here’s the thing; CBDCs are really just the death rattle of a system of legacy banking, centralised finance and geographically based taxation that is on borrowed time. If 2020 showed us anything, it’s that millions of people can earn money remotely via their laptops, and they can learn to trade cryptocurrencies. They don’t need permission from any government authority to buy, trade, store and earn APR of 5% to 20% on crypto. Millions of people, in a little more than a heartbeat, realised it’s wiser in the long run to store wealth in Bitcoin than pounds. Especially after 37% of all pounds in existence were minted in 2020.
The nation state has no other moves apart from the same ones it always uses: more quantitative easing, higher taxes, more coercive behaviour. It’s a bit like the authoritarian parent-naughty child dynamic. Having lost his child’s obedience and respect, the parent doubles down in a disciplinarian way, and the child reacts with even more insouciance. “You can’t make me do anything.” “Oh can’t I?” But then father sees there are gaps in his monopoly of violence. The rules have changed. So he frantically tries to fill them with CBDCs. These will be, no doubt, devastating for those who don’t get out of fiat systems into crypto in time. Neither land, real estate nor gold offer the same shelter from the predations of the increasingly desperate Treasury.
And that’s just in the UK, a liberal democracy. Think of the 4.2bn people in 93 countries who live under authoritarian regimes. State corruption, currency debasement and financial surveillance will have a free pass, and there will be no cash to buy your freedom. Buy yours while you still can.