Below are some of my key takeaways from reading the book, The Sovereign Individual by James Davidson and Lord William Rees-Mogg. If you are interested in more detailed notes from this book, they are available here.
A brief synopsis of the book is reprinted below from Amazon.
“In The Sovereign Individual, Davidson and Rees-Mogg explore the greatest economic and political transition in centuries—the shift from an industrial to an information-based society. This transition, which they have termed “the fourth stage of human society,” will liberate individuals as never before, irrevocably altering the power of government. This outstanding book will replace false hopes and fictions with new understanding and clarified values.”
Shifting Economic Stages
The author breaks modern history down into four distinct economic stages – foraging, farming, industrialism, and information age. Previously in human history, we had hunting and gathering societies, agricultural societies, and industrial societies. We are now entering a new stage of social organization known as information societies.
The author notes that previous societal transformations followed a pattern where moral standards shift. People begin to treat those in command of the old institutions with growing disdain. As the institutions dissolve, the social ethos dissolves with it, creating an environment for corruption where people in high positions combine public purposes with private criminal activity. The Durant’s make a similar claim in “The Lessons of History,” pointing out that new regimes demand new virtues, and some of the old virtues become vices.
Ultimately, the author notes, factors that determine the costs and rewards of employing violence will compel societies to reconfigure themselves in ways that public opinion won’t understand or welcome. The massed power of the nation-state is destined to be privatized and commercialized. The information age results in declining returns to violence, generating new sovereignties that can efficiently provide protection against violence while consuming the fewest resources.
Who Controls Government?
The book describes a model of government where the government is an economic unit that sells protection. This results in several types of governments.
- In the proprietor model, government is led by someone who essentially owns the country. They want to optimize revenues so they look to reduce the cost of providing protection but also have little incentive to reduce taxes.
- In the employee model, government policies that increase employment and benefits are favored. They aren’t incentivized to reduce costs or taxes and if push comes to shove, they are likely to let their revenues fall, leading to a deficit.
- In the customer model, citizens are incentivized to reduce the operating costs of government as much as possible. Governments are lean and generally unobtrusive, with low operating costs, minimal employment, and low taxes.
Industrialization Creates the Nation State
The shift from agricultural to industrial societies laid the conditions for the success of the modern democratic nation state. The nature of gunpowder weapons and the character of the industrial economy create great advantages of scale in warfare. These rising returns to violence made magnitude of force more important than efficiency as a governing principle. This led to high and rising returns to violence. Industrial and agricultural automation displaced skilled jobs of artisans with equipment that could be operated by unskilled workers. This new industrial equipment raised earnings for unskilled workers, making the income distribution more equal and lowering their cost of living.
The nation state’s success was based upon its superior ability to extract the wealth of its citizens and gain access to resources needed to make war on a large scale. The modern democratic welfare state combined the efficiency of private ownership and incentives for the creation of wealth with a mechanism to facilitate essentially unchecked access to that wealth. Democracy and Communism both facilitated unimpeded control of resources by the state but since democracy was compatible with private ownership and capitalist productivity, it placed even greater resources in the hands of the state than could the state socialist systems
Democracy as a decision rule meant that the wealthy couldn’t restrict the nation-state’s ability to tax or otherwise protect their assets from invasion and rising incomes meant the state could collect sufficient resources without needing to negotiate with the wealthy. Democracy facilitated domination of government by its “employees” thereby assuring that it would be difficult to curtail expenditures, including military expenditures. Democratic governments grow exceedingly inefficient since they tend to be controlled by “employees” who lack an incentive to improve productivity.
Post Nation State Sovereignties
The Information Age will create a new realm of economic activity in cyberspace. Not only will transactions occur over the internet, but they will migrate outside the jurisdiction of nation-states. Assets will be easier to protect and harder to extort.
The primary role of government is to provide protection against violence. Information Technology will decrease the returns to violence, making government services less necessary. Western governments will face sharp drops in revenue from taxation and the virtual elimination of leverage in the monetary system. At the same time, they will retain the unfunded liabilities and inflated expectations for social spending inherited from the industrial era.
This means that provinces and even cities that can effectively uphold property rights and provide for the administration of justice, while consuming few resources, will be viable sovereignties in the Information Age. Individuals will choose to domicile their income earning activities in a jurisdiction that provides the best service at the lowest cost. This will create intense competition to price government services on a non-monopolistic basis. Governments will find that they must compete like corporations for income, charging no more for their services than they are worth to the people who pay for them.
The argument of this book is that the increased capacity of individuals to protect their transactions and their assets from predatory taxation implies a decline in the redistribution of resources, along with less centralized social control, less regulation and regimentation, and ultimately devolution of territory.