Unenumerated

Political lessons

2009-07-04T11:36:00.001-07:00

I often get asked to provide an overview of my political ideas. There are so many elements to my ideas -- the importance of coercion and security and how to reconcile coercion with the substantive common law principle of non-initiation of force, the unique and crucial nature of procedural law, the role of low exit costs in enabling freedom and motivating the creation of good law, good vs. bad legal competition, the use (and intellectual recovery, where necessary) of highly-evolved or promising ideas such as political property rights, choice of law and forum, separation of duties with checks and balances, limits on delegation, "smart" (technologically codified and enforced) laws, and so on -- that it's impossible to write a summary article. Therefore this post is more in the "link farm" style.

There are hundreds of pages of reading material here. Which you should tackle depends on which areas you disagree with or don't understand.

Utopians -- those who think government is or could be an institution based on voluntary agreements or peace, or anarchists who think voluntary or peaceful interactions would dominate in the absence of legal procedure based on coercion -- and those who don't know how such utopianism is readily rebutted by real history, should first read my articles about the central role coercion has, does, and will play in human interaction:

Hampton Sides Sheds Light on Olson and Coase

The Coase Theorem is False -- Contracts Depend on Tort Law

The next set everybody should read, as you can't understand politics without understanding the crucial role of legal procedure, and especially jurisdiction (a way to quickly evaluate any proposed new form of government or legal system: ask the proposer how arrest is distinguished from kidnapping, and search and seizure from trespassing and theft -- if they can't give a good answer, the proposal is based on ignorance and you need not waste any more of your time on it):

Why Legal Procedure Is Central to Politics

Three Kinds of Jurisdiction

Exit and Freedom

Property In Everything

Jurisdiction as Property

Political Property and the Evolution of Liberty

Unbundled Jurisdiction and Exit Costs

Government for Profit

Semayne's Case: Liberty of the House

Next are some lessons from the Roman style of government -- based on agency rather than political property rights. (This kind of government has dominated Western political thought -- if you have not read the previous list of articles it is probably the only way you can imagine that legal systems can work):

Democracy as Regular Rebellion

The Principle of Least Authority

Separation of Powers and Credible Commitment

Executive Power and the Interpretation of Laws

Unpredictable Elections

Those interested in the United States Constitution -- whether you want to emulate it, interpret it, revise it, or trash it -- will find the following of use:

Corporate Origins of the United States

Charters and Judicial Review

Due Process Property Rights

Civil Liberties and the Forever War

Comments on the United States Constitution (i, ii, iii)

For those who want to explore the use of technology to help codify and enforce law:

Wet Code and Dry

Security and the Burden of Lawsuit

Smart Contracts

Secure Property Titles with Owner Authority

A Formal Legal Drafting Language

Devices for Controlling Property

Liar-Resistant Government

For those who want to explore some related ideas on philosophy and history:

The Irreducible Complexity of Society

Objective versus Intersubjective Truth

Hermeneutics

An Introduction to Algorithmic Information Theory

Book Consciousness

Security and the Origins of Agriculture

Patterns of Integrity

Origins of the Joint-Stock Corporation

Finally, some notes on political action:

Ten Ways to Make a Political Difference

Feel free to comment or ask questions about any of these or other of my writings here.

Ice rockets earthside

2009-06-19T00:51:00.000-07:00

It pulls hundreds of times the g's over far less time than what I had in mind, but I do seem to have helped inspire Lenape Fire Turtle and friends. Their ice rocket is even reported to have stayed in one piece until it hit the pavement:

Next Fire Turtle tried to make a pulse jet motor out of ice injected with propane. Alas, the exhaust came out a hole melted in the side instead of the hole intended. If you look closely at the start of the side view portion of the video (the second half), you can already see the flaw in the casting where the ice is thin and the hole will appear:

Having looked ahead to a future when the economics and technologies become propitious, my own proposal was to take a grinder to an ice cylinder floating in space, melt the resulting ice flakes into water, and feed that liquid into a solar thermal rocket engine. The small snow-cone machine would gradually eat up most of the ice on the multi-year voyage from comet (or Ceres, or similar) to market. Alternatively, ammonia might be extracted from the comet and stored as a liquid inside a tank made from water ice, adding complication to the extraction process but greatly increasing the efficiency of the rocket motor and thus the mass of water ice, ammonia, or other comet stuff brought to market. More explanations of these icy and muddy daydreams lie here. When I was a kid in body as well as at heart I just stomped around in mudpuddles.

The ice rocket could in that future eliminate the need to launch from earth not just rocket propellant, but also propellant tanks -- or more precisely substitute a much lighter coat of sealing paint and sun shade for the tanks. A well-shaded vacuum can become extremely cold, preventing the ice from sublimating away. After propellant, tanks are by far the heaviest and bulkiest items that today must be launched out of our planet's deep gravity well, and ice rockets could substitute native materials for both.

Meanwhile, it's all just good clean terrestrial fun.

P.S. I also like the search engine.

The collectible premium

2009-06-08T17:34:00.001-07:00

In the comments section of yet another economics professor's blog, Devin Finbarr makes some excellent observations regarding the collectible nature of most investment assets, starting with this nice classification:

There are only three types of goods in an economy:
1) goods providing direct utility ( a car, tv, chocolate )
2) collectibles ( a baseball card, diamonds, gold )
3) flows ( stocks, bonds )

The demand for every investment asset -- stocks, housing, commodities, etc. -- is a function of some combination of these factors. In housing all three demand factors are at work. Every asset that is not just a fixed monetary cash flow has a collectible premium that reflects, when rational, inflation expectations. (n.b. this is technical nomenclature that can have a slightly different meaning than the normal use of the words -- for example I, and presumably Devin, classify the enjoyment one can get from collecting baseball cards or wearing gold jewelry as part of their "utility" rather than their "collectible" nature, the latter being purely a matter of the asset's perceived or actual function as a store of value or medium of exchange).

It is often very difficult to guess what the factors of demand coming from direct consumption utility are (for example, is the sunny yet cool California coast and the wealthy and smart neighbors it attracts worth paying five times as much or is the coastal California price premium, as Devin suggests, primarily a collectible premium?). Sometimes it's also difficult to estimate cash flow. Thus it's often hard to estimate the collectible premium. Also, since the collectible (or inflation expectations) premium is little recognized, a wide variety of bogus explanations are often used to explain price movements that are actually due to changing inflation expectations: the most popular being dubious theories of changes in supply (e.g. "peak oil") or consumption demand, since demand for assets as inflation hedges is very under-recognized. Also common are theories that impute price changes due to changes in inflation expectations to purely irrational psychology, "technical", or "trend" factors based on the history of the price itself. (The history of housing prices from 1940 to 2005 made houses look like a lucrative and low-risk investment, for example).

Devin describes inflation expectations as causing a hunt for stores of value in which packs of investors irrationally change their focus from one market to another, causes bubbles and bursts. Since the collectible premium is often so hard to estimate, and is so little recognized, and so many investors do despite those warnings you hear invest based solely on past price history, I don't substantially disagree with this:

A stock market is in disequilibrium when people start trading stocks as collectibles rather than as flows. In other words, instead of buying a stock based on the hope of generating a return via dividends, they start buying a stock in order to sell it to someone else ( price appreciation)....

When the government dilutes the money supply, people start searching for a replacement collectible to serve as a store of value. People end up buying stocks not based on dividend yields, but in order to trade for later at a higher dollar price. People buy houses not based on direct utility or as an alternative to paying rent, but in order to sell for later at a higher price. These goods start trading as collectibles, and thus are subject to the whims of the herd.

In short, if long-term inflation expectations were zero, the prices of housing, stocks, commodities, etc. could be estimated from demand deriving solely from their cash flow plus consumption demand -- there would be no collectible premium. But since asset prices come with a difficult to estimate and fluctuating inflation expectations premium, this makes it far harder to judge whether an asset is over- or under-priced, leading to greater over- and under-pricing, i.e. seemingly irrational asset booms and busts.

A couple of caveats:

(1) It's important to observe in the context of stocks that their cash flows can come from share buybacks and takeovers as well as dividends, so even with zero inflation expectations people would rationally invest partly for expected price rises in addition to dividends.

(2) There are a number of other sources of high uncertainty in asset markets, e.g. uncertainty over credit conditions, so that bubbles and bursts would not completely go away with zero inflation expectations. However the contribution of changing inflation expectations has, I believe, been the largest factor in most asset price movements since the 1970s.

Bubbles and bursts are based on high degrees of uncertainty about the future far more than on genuine mass irrationality. Of course, things like the Internet bubble seem quite irrational in hindsight, but if you keep in mind what was going on in the late 1990s -- a huge increase in subjective value due to new (to the vast majority of investors) Internet services such as e-mail, Web, search engines, and on-line price quotes -- it was not, without hindsight, terribly irrational to suppose that most of this value would be monetized as profit for the innovating companies. It turned out to be mostly unmonetized -- instead we got most of the foregoing plus shared music, Wikipedia, blogs, and other things of great value for almost free -- so that the Internet bubble collapsed and seems irrational in hindsight.

Bubbles and bursts due to uncertainty over technological innovation will undoubtedly occur again, but the greatest ongoing source of uncertainty in our markets is not regarding technology and monetization of innovation, but rather uncertainties about currencies, credit, globalization, and related political factors, out of which the uncertainty over currencies is usually the greatest.

My takes on last summer's commodity hysteria as it was happening can be found via here.

Devin has put these theories to good use:

since inflation helps build the bubble, even a small amount of deflation can cause rapid price collapses. The fall in price will be much greater than the fall in dividends. Late last summer I was looking at numbers, and noticed that real estate, equities, oil, and gold had all been down for two months straight. The only thing those goods have in common is the currency they are priced in. So I said, “Holy deflation, Batman!” and sold half of the index funds that I owned.

I congratulate Devin and I do like the strategy suggested here, i.e. arbitrage between asset markets with irrationally different collectible premiums. This strategy does, however, assume that one can estimate the price derived from just supply and cash flow plus consumption demand, at least enough to be able to determine that there is a substantial collectible premium.

That said, I'd add (perhaps disagreeing with Devin) that in the large collapse in commodities since last summer, decreased expectations for future industrial consumption (due to rising expectations of a long-term worldwide recession) and probably a change in the rationality of the collectible premium of commodities were also major factors alongside the decrease in inflation expectations. Thus gold did not fall nearly as much as the industrial commodities. (It's also possible that this reflects some sort of security premium in a crisis of gold over other commodities, but despite all the gold coin ads to this effect I'm skeptical about that being a large factor). Of course, a change in consumption expectations will also tend to make stocks go down, due to the more direct cause of decreased profits leading to decreased cash flows from dividends etc. Commodities markets reflected informed expectations about future inflation and consumption more quickly than stocks, giving Devin his signal.

Gold and commodities prices have a good long-term correlation across business cycles. Industrial mineral prices do tend to vary more than gold within a business cycle due to changes in consumption expectation. (Of course these are not really predictable "cycles", but unpredictable effects of things like credit conditions, but "business cycle" is the unfortunate standard term in economics for this variation in overall credit and consumption). Another example of the collectible premium arbitrage strategy is to look at the oil/gold price ratio. Last summer this ratio was far too high (in hindsight, although at the time I was skeptical that this unprecedented ratio would last), reflecting a very high valuation of industrial commodities as collectibles. Recently it has much lower, reflecting much lower valuation as collectibles (probably irrationally too low), as well as lowered consumption expectations (the business cycle). In both cases one would have profited over the course of entire business cycle (and even in these two cases, luckily, over the short run) from betting against even more extreme deviations from the average historical ratio (or historical trend -- it's certainly plausible that oil and some other industrial minerals are being depleted faster than gold, or that there are long-term secular difference in their demand functions, but as the recent oil/gold ratio collapse to 1980 levels suggests, the secular depletion/demand gap between oil and gold is probably quite small, and almost certainly less than 2% per year over the long run).

Exceeding authority under a castle law

2009-06-04T01:41:00.000-07:00

Here's a good video lesson on the difference between legal defense of people within a dwelling and murder in a castle doctrine state. The narration by the announcer here is not clear: the unarmed (it turns out) robber goes down because the pharmacist (the defendant) has shot him in the head. The armed robber flees without firing a shot. The prosecution claims the unarmed robber then lay there unconscious, which is plausible given that the defendant turned his back on him. The prosecutor argues (correctly, if we accept the prosecution's version of the facts) that the first shot to the head was proper self-defense, whereas the later five shots (the video is sped up) were not justifiable self-defense. The defense argues that the injured robber was getting back up and thus, even though not brandishing a weapon (and as it turns out unarmed), could have posed a danger justifying the five shots that killed the injured robber. From seeing on the video the pharmacist turn his back on that robber I'm skeptical of the defense's version of the facts, but that's up to the jury.

Note that calling the police immediately afterward, as here, is a very good idea -- not calling the police as soon is one safely can is a very bad idea, suggesting guilt -- but it probably won't be enough in this case to save this guy from some jail time.

Ignatius Piazza, a self-defense trainer, has a good collection of videos on this case. Local TV station KRMG has a version with the prosecutor narrating the surveillance video (a much better but obviously biased narration).

Not mentioned in these videos is that the armed robber who ran away was also and quite properly charged with murder -- what is called a felony murder, because he committed a felony that led to a death, even death caused by a victim of that felony as here.

Technically, all the Oklahoma statute does is shift from the defendant the burden of proving "a reasonable fear of imminent peril of death or great bodily harm" when killing somebody who has forcefully entered a dwelling or vehicle -- instead the prosecutor must prove that the fear was not reasonable. Here, the burden of proof does shift to the prosecutor, but, again assuming the facts are as he claims, he should be able to prove beyond reasonable doubt either that the pharmacist in fact had no such fear, or that any such fear of harm from an unconscious man was unreasonable.

Even assuming the injured robber had regained consciousness, a much better course of action would have been to have the women at the back of the store call the police and to hold the gun to the robber's head until the police arrived.

I strongly second Ignatius' advice that if you own a gun that you may one day have to use for self-defense, that you take a good training course. Military training is not sufficient for this and indeed may have led this pharmacist, a military veteran, astray. Military doctrine is a very different thing than the civilian law of self-defense and the castle doctrine. I do take issue with Ignatius' simplistic description of a supposed "universal" rule for when self-defense is justified. Some jurisdictions allow far more defense of self, others, and persons within dwellings or vehicles than he describes (especially castle doctrine and stand-your-ground states), and some allow less. If you are going to have a gun around for self-defense, you should learn the laws of your own state, province, or country and you should train yourself accordingly. The laws vary widely. If you aren't willing to learn the laws and train accordingly, as this pharmacist apparently failed to do, you shouldn't keep a gun. By using a gun against criminals you are, morally speaking, deputizing yourself as a law enforcer -- a very good thing, since the police usually can't get there in time to protect victims, but a status that comes with a moral responsibility to train yourself in how to legally use a gun. Self-defense and castle laws give you this authority; misusing these rights is what the prosecutor properly (again assuming his version of the facts) calls "exceeding authority" and thus murder. Note that under the recent Heller Second Amendment case, self-defense and defense of others is a primary justification for our right to own a gun in the first place in the U.S.

The castle doctrine under common law, as well as the quite related knock-and-announce rule for law enforcement, comes from Semayne's case: "That the house of everyone is to him as his castle and fortress, as well for his defence against injury and violence, as for his repose...if thieves come to a man's house to rob him, or murder, and the owner or his servants kill any of the thieves in defence of himself and his house it is not felony, and he shall lose nothing." Modern castle statutes, such as Oklahoma's, often also apply this doctrine to businesses and vehicles. The Wikipedia article on the U.S. castle doctrine has a list of states with stand-your-ground laws and castle laws, with links to the statutory texts.

By the way, political scientists who define governments as entities having a "monopoly of force" are idiots. I just thought I'd get in that shot of my own while I'm here.

Sotomayor, Calabresi, and the Chief Justice at our moot court

2009-05-26T21:52:00.000-07:00

Our 2006 moot court competiton at The George Washington University featured Chief Justice John Roberts, law & economics guru Judge Guido Calabresi, and Judge Sonia Sotomayor (now a nominee to serve with Roberts on our highest court), and was replayed today on C-SPAN. I saw this in person when I was at GWU -- it was fun to watch my fellow law students arguing with these seasoned judges about whether subliminal ads can be banned under the First Amendment. H/T to GWU Professor Orin Kerr.

Futarchy: an experiment we'd learn a great deal from, but please don't try it on me

2009-05-22T14:41:00.001-07:00

Mencius Moldbug and Robin Hanson are debating Robin's intriguing idea of "futarchy", which has attracted many fans. The basic idea of futarchy is "when a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law."

Robin and Mencius both make some great points in this debate -- for example, Mencius observes that GDP and similar estimates of "national welfare" are poor criteria for decision-making, analogous to a corporation making decisions to maximize revenue instead of profits. GDP in the United States, for example, rose dramatically during World War II, but its standard of living was probably significantly lower for most people than in the Great Depression due to rationing, death, and other traumas of war.

But both Mencius and Robin have misconstrued or vaguely glossed over two of the biggest problems with zero-sum decision markets, especially when applied to government decisions. First an observation: all prediction markets are decision markets unless the resulting prediction is so useless that nobody ever makes a decision based on it or some government somehow bans all possible kinds of decisions based on those markets. The distinction Robin and Mencius make between the two serves to obfuscate those issues that are problems with real decision markets rather than with theoretical or play prediction markets. Two of the biggest problems are:

1. The problem of "morons' money", deemed by Mencius to be the money of some less-informed fraction of players who are disincentivized to play the zero-sum prediction game, actually means the money of anybody with information worse than the best player's information. Since it's a zero-sum game, and much less entertaining than sports betting, any money that is stupider than the average money has a disincentive to play -- in sharp contrast to normal positive-sum markets. But when the less-informed half of the players leave the market, we have a new half of the market that has a disincentive to play, and so on. There's only one person left for whom it would be rational to play, if there were any market left. Prediction markets can work in an experiment only because students of the professor or fans of the idea feel they have a duty to play, or want to signal to fans that they like the idea, or because there are a few people who, like the much larger population of sports bettors, find it genuinely entertaining and thus worth wasting some time and/or money on. Robin I believe has tacitly recognized this problem in his proposals to goose these markets with subsidies. But how big subsidies are needed? It's a high-risk market, so you need to guarantee a high rate of positive return to the average player to compensate for the risk if you want good information entering the market.

2. Moral hazard: As I stated, prediction markets are also decision markets. We're right now going through major economic problems that stem from neglect of moral hazard. Selling securities, insurance, or betting without the investors/bettors or their agents or regulators exercising due diligence and control creates pathological incentives for people to do things like, as we've seen in the mortgage market, give cheap loans to bad credit risks because there were a bunch of number-crunchers with woefully incomplete models buying or insuring these loans who didn't understanding that most kinds of markets create additional risk by creating moral hazard, that this moral hazard must be well controlled if the market is to work, and that controlling moral hazard is usually far from straightforward.

In these betting markets, which are decision markets, people inside and outside government will make their own decisions based on the market. Coercive decisions will have an especially pathological effect: they turn the zero-sum market into an overall negative-sum game. For example, a market predicting the death of someone can, as Tim May long ago observed, readily be used as an assassination market. That's why, for example, PAM, a since-abandoned effort by the U.S. Department of Defense to try out Robin's ideas for prediction markets, had a market for predicting the death of Yasser Arafat but not of George W. Bush. Since these are markets for government decisions, the decisions it drives will, like assassinations, be primarily coercive in nature, for example to wage war on country X or to tax one group of people in order to subsidize another. If the decisions resulting from such a market were voluntary, you could just go onto a voluntary market to satisfy your needs instead of bothering with deciding that government must make some decision and then betting on its outcome. Furthermore, Mencius, although waxing entirely too rude behind his pseudonymous mask, is probably quite right that these markets will reflect the demand for desired decisions far more than a "supply" of information about how to best make that decision: per (1.), there is little to no incentive to supply such information without huge subsidies to give the markets an overall positive rate of return comparable to other high-risk markets.

For example the market for "if the U.S. gives $20 billion to GM the U.S. GDP will rise by 1.1% or more [instead of the expected consensus by some group of economists of 1.0%]" will be dominated by GM, its unions, its dealers and suppliers, and so forth goosing it to a "probably true" prediction, not by people betting on the extremely uncertain, practically lost in the random noise, outcome of the proposition. If GM thinks it can sway the odds of a decision in its favor by 5% by, increasingly as the time for decision approaches, investing up to nearly $1 billion in the market, it will do so. GM has far more to gain by the gift of other people's money than arbitragers making risky bets with their own money have to gain from arbitraging the market back down to whatever they believe to be the true odds of the GDP rising 1.1%. If GM is banned directly from participating in the market, there are numerous other parties with similar stakes in the outcome and they can't all be banned. GM and its allies also have much to gain by lobbying the government to set up this kind of market for direct subsidies instead of futarchic markets for more generic decisions you might find more useful, such as a "remove the President if the GDP doesn't rise 1.1% or more" market. Futarchy thus becomes little more than an auction for government favors, like the time the Praetorian Guard auctioned off the emperorship to the highest bidder.

It would be interesting to try straightforward government-by-the-highest-bidder. We'd probably discover why historians have equated this kind of process with corruption, but it would be well worth the suffering of some hapless residents in some small county somewhere to try the experiment and learn from it. It would of course be interesting to try out futarchy in a similarly real but small scale, restricting the players as well as the victims of the market to our guinea pig jurisdiction since there are no big GM-subsidy stakes at play.

Of course, some would argue that we are living in this kind of experiment anyway, just under a blizzard of euphemisms instead of a straightforward honest auction. Others would argue that democratic voters bring no more information to governmental decisions than "moron money" would in these markets. I have no ready refutations for these arguments, but they don't prove futarchy is better than either what we have now or other possible alternative reforms.

In summary, fans of prediction markets in general, and futarchy in particular, need to actually specify how to deal with moral hazard, as insurance companies and their regulators have, rather than mysterious hand-waving about the supposed "several ways to deal with it", as well as to acknowledge the need to subsidize these markets and figure out how to fairly distribute these endowments.

What caused the birth of agriculture and the industrial revolution?

2009-05-19T22:17:00.000-07:00

Robin Hanson asks, "what key features make this [human] growth groove possible?" -- two key events being the birth of agriculture and the industrial revolution. Commenter "gwern" is on the money in saying that (a) explaining why the IR happened when and where it did is hard, and (b) the explanation has to include something that China didn't have much sooner, which eliminates most of the usual explanations. I'd add that explaning the birth of agriculture is even harder -- we have vast amounts of historical data on the IR and only archaeological and comparative anthropological evidence about the birth of agriculture.

Indeed, the most important thing in explaing these two events is to be aware of enough facts from different fields, and have sufficient doses of skepticism and common sense, that you can eliminate the many theories that are popular but obviously, if you know enough such things, wrong. For example, be aware that hunter-gatherers were experts on botany and animal behavior. It's not plausible that the simple ideas that seeds can grow into plants that you can eat later, or that you can keep an animal tied or penned up and eat it later, were not discovered and known countless times during the c. 100,000 years between when our brains became modern-sized and agriculture developed. There has to have been some major barrier to benefitting from such obvious ideas to have kept agriculture from developing far sooner. I also don't find genetics plausible as a cause of agriculture, since agriculture ended up spreading to a number of human groups that had become genetically isolated long before the dawn of agriculture. (Genetic evolution caused by agriculture is another story -- Cochran and Harpending have some ideas very much worth thinking about). Also not plausible are climate explanations -- there were many local climates hospitable to agriculture throughout those 100,000 years -- just not necessarily at Mediterranean or higher lattitudes.

That said, going back to the IR there a number of likely-to-firm differences between China and Western Europe (or Great Britain in particular):

(1) Differences in political and legal culture. What differences, specifically, it's hard to say, because there is very little about, for example, Sung or Ming dynasty commercial law that has been translated into English: far too little to compare to English law in the 18th century, for example. We know some very general things, such as that Western Europe was (and still is) a far more legalistic culture than China. Also, we know that Western Europe (contrary to Gregory Clark's claim) radically changed its property law between the 16th and 19th centuries, from a feudal model of of hierarchy of tenures and bundled political property rights to a model based on old Roman law with flattened and purely economic ownership. There ensued movements such as the enclosure movement in England and an accompanying large increase in capital investments in land. But we don't know when or to what extent similar incentives to capital investment might have been present or missing in China.

(2) China never controlled the world's oceans and merchant marine, but the British just prior and during its IR did. If this explains the IR, then to explain our explanation (i.e. why did Britain come to control the world's ocean-going trade) we have to step back and solve the even more puzzling question of how a tiny country of fishing-folk and small-time crusaders, Portugal, and not an advanced superpower like China, was the first country to take over most of the world's oceanic trade routes (later to be beaten back by other Western European countries and eventually Great Britain).

(3) China had the printing press, but in contrast to Western Europe it did not lead to a rapid growth in literacy sustained over several centuries -- perhaps because of bureaucratic central control rather than the free-enterprise printing businesses that sprung up all over Western Europe, perhaps because the much greater number of symbols did not as efficiently lend itself to printing as the Roman alphabet, or a combination of these two factors.

(The Romans were not all good -- indeed they gave our culture something quite nasty which I will blog on in the near future).

Other interesting related phenomenon to explain, (and it would be nice per Occam's Razor if it was the same general explanation, but social life is rarely that simple) is why Japan industrialized well in advance of China and Britain was a few decades ahead of the rest of Western Europe during most of the 18th and the first half of the 19th century.

Robin: "If you wanted to attribute the industrial revolution to writing, you'd have to explain why there was a strong threshold effect, so that pre-1800 writing levels had weak growth rate effects, while post-1800 writing levels had strong effects."

Besides threshold effects, there could be delay effects: for example, the the rapid growth of books and literacy after the mid-15th century in Western Europe gave rise to a slow but accelerating series of innovations (most obviously scientific and technological advances, but perhaps also innovations in business or law), which in turn gave rise to the IR.

Political property and the evolution of liberty

2009-05-14T22:58:00.000-07:00

A "liberty" (Latin libertatis or freedom) in the king's courts of medieval Europe usually referred something very different than it refers to now. It referred to the right of someone to deprive some other people of some of their normal rights as law-abiding subjects. In other words, it referred to a political property, a specifically limited right to coerce some set of people, usually for law enforcement or military or other political purposes. This curious meaning, in some ways quite the opposite of our modern meaning, reflects the conundrum that one person may use some freedoms to deprive another person of their freedoms. To prevent this, these "positive" freedoms to coerce can be limited to procedural powers by which are enforced substantive laws that are generally non-coercive, i.e. that generally protect only "negative" rights. English-derived common law (i.e. law in Great Britain, the Commonwealth, the United States, etc.) since at least the sixteenth century has generally accomplished this, and as we shall see it has used the flexibility of vague phrases to evolve a variety of modern negative rights.

Medieval positive liberties that could be owned included the right of a lord to hang thieves caught red-handed in his territory, the right to hold a market and run a law-merchant court, to collect taxes for the king or for oneself, to be a privateer (i.e. a pirate legitimized under the king's laws), to conquer and run a foreign territory, and so on. There were many dozens of kinds of these political properties specified in thousands of property deeds, called charters. Charters often freely bundled real property (i.e. land) with a variety of political properties over territories matching the boundaries of the real property, but on occasion political properties could be unbundled from land, and specific kinds of political property could be combined with each other in a dizzying variety of ways. Political properties could be held by individuals (as in lords of the manor, counties Palatine, the proprietary American Colonies, and many other examples) or corporations (guilds, boroughs, cities like London and York, companies like the East India Company, the corporate American colonies, and so on).

Individually owned politcal properties were generally hereditary. The king exercised his own hereditary political property, called the Realm or the Crown, from which at least in theory all other political property rights had been originally granted. As the original grantor the king retained via his courts jurisdiction over disputes involving those coercive properties, via the extraordnary or prerogative writs. Most political property rights only involved certain narrow subsets of the royal political powers, while some (such as the county Palatine) were very broad, including all royal powers within the boundaries of the county subject only to the intrusion of the king's extraordinary writs.

In the foreign relations context, in the granting of powers of naval warfare, piracy, and colonization, political property was used for offense as much as for defense. In the domestic context, justice was meted out by these privately owned courts more often than injustice, but it should be observed that breaking free of the jurisdiction of the local lord in order to come under the jurisdiction of the king was, more than any other event, referred to as gaining one's "freedom". If you were the subject of a lord as well as, mostly indirectly, of the king, you were "unfree". If you were the subject of only the king and his ministers, you were "free". At least that is how the king's courts and ministers and any newspapermen that didn't want to be imprisoned for libel by the king's courts referred to it.

In their quest to usurp the political properties of the lords, boroughs, cities, and guilds to run their local courts, the king's courts used cases brought under the extraordinary writs to evolve a set of "liberties" with a different meaning: liberties the way most of us think of them, negative liberties that individuals held against these private law enforcers as subjects of the king, and thus justified removal of the cases to the king's courts. The definitions of various political properties increasingly included the procedures within which those rights to coerce had to be exercsed in order to protect the king's subjects from injustice. Thus we see, for example, over the sixteenth to eighteenth centuries the king's courts successively stripping guilds of various of their jurisdictional powers and thereby increasing the liberty of the individual to freely engage in their trade. To try to be consistent, the king's judges also often, though by no means always, respected these negative liberties themselves in order to justify by rules their usurpation of the positive liberties of rival private courts.

Many of the basic constitutional rights of individuals, for example of the rights enshrined in the U.S. Bill of Rights, descend from these efforts. The lex mercatoria evolved in the privately owned market courts of Western Europe. Much of this merchant law was later incorporated into the common law (the law of the king's courts) in Great Britain by merchant juries in the century leading up to the industrial revolution. At the same time, the king's courts gained a large degree of independence from both the king and the rising power of Parliament, forming a separation of powers between the executive, legislative, and judicial branches that was to be used as a model for the United States Constitution.

Lord Coke, Chief Justice of the king's court of Common Pleas under King James I in the early seventeenth century, declared in Dr. Bonham's Case that these common law rights could even limit the power of Parliament, but this argument came to be neglected by later courts. There has been longstanding debate over whether this argument of Coke's was a legally binding "holding" necessary to reach the verdict of the case or an unecessary "dictum" and thus not binding precedent. A similar doctrine was, however, revived in the United States based on interpreting broad statements in our Constitution such as "due process" in terms of rights derived from English common law in order to limit the powers of Congress and the President. The term "due process" comes from a series of charters that followed the Great Charter (Magna Carta). The phrase was considered largely synonymous with "the law of the land" that features in the Magna Carta, and referred to procedural rights, including the rights of political property and procedural limitations on those rights, that were considred the "common law" at that time. However the United States' courts' much later interpretation of the phrase has been far more creative and modern, including the oxymoronic phrase "substantive due process" under which rights to freedom of contract, school choice, birth control, and abortion, among other such negative personal rights, have been unearthed and applied to limit State and Federal legislative and executive powers. (More on the history of due process here). The modern British Parliament, on the other hand, is considered to have arbitrary sovereign powers, which can only be limited in certain cases by interpreting the language of its statutes in narrow ways to conform with the unwritten British constitution, i.e. its procedural common law traditions, but again with many creative modern flourishes.

In their efforts to limit locally coercive liberties by enhancing negative liberties, the king's courts fell short of consistency in some important ways. For example, a liberty of a corporation to enforce its regulations about a given subject matter (e.g. medicine, for a medical guild) in a given territory was often stripped from that corporation in a case involving a dispute between an individual and that corporation (e.g. somebody practicing medicine in the territory without permission of the guild), on the theory that "one should not be a judge in his own case." This is a very sound principle, and in the case of the guilds it led to the rise of free trade, but as the corporate barristers were quick to point out, the king's courts often did not apply this principle to themselves -- cases involving the king, which were many, remained in the king's courts. To some extent this was achieved by the independence of the king's courts, but it did not prevent these courts from gradually usurping the political property of the private courts and other privately held legal institutions and, with the generous help of Parliament and its own will to power, eventually extirpating them.

There is a detailed analysis of many English cases involving privately owned rights to hold courts and enforce laws, including Dr. Bonham's Case, in my paper Jurisdiction as Property.

Paradoxes resolved (mostly)

2009-05-14T00:39:00.000-07:00

A paradox is usually just a good reductio ad absurdum, or what mathematicians call a proof by contradiction. The paradox serves to disprove one of its assumptions (or equivalently, if we "exclude the middle", to prove the opposite of one of its assumptions). Many intellectuals often overly complicate paradoxes, for the sake of entertainment or out of wishful thinking that the dubious assumption has not in fact been disproven. A paradox is only truly mysterious if more than one of the assumptions being used are truly mysterious, and thus we can't tell which assumption caused the contradiction. But usually it's more a case of obsfucation or wishful thinking than of genuine mystery. Many academics have a terrible habit of hiding or confusing their assumptions, and this allows wishful thinking to run rampant.

Newcomb's paradox

Chooser -- let's say that's you --- plays a game wherein you choose whether to open both boxes A and B or just B. For whatever odd reason -- Predictor is an omniscient diety, Predictor is running a very repeatable simulation of the Chooser's mind, time travel, the Predictor has repeatedly run the Chooser through this experiment before, etc. -- the Predictor already knows with very high probability what box(es) the Chooser will select. The first step in the game is that the Predictor makes his prediction. Then a trustworthy third party puts $1,000 into box A, and $1,000,000 into box B if the Predictor has predicted B only, otherwise nothing into box B. After these two steps are completed the Chooser selects which box(es) to open.

Here's the payoff matrix for Chooser:

Predicted choice	Actual choice	Payoff
A and B	A and B	$1,000
A and B	B only	$0
B only	A and B	$1,001,000
B only	B only	$1,000,000

What is Chooser's best strategy? According to game theory, A and B beats B-only by $1,000 whether the Predictor predicts A and B or just B. Therefore Chooser should choose to open both A and B.

But another strategy for Chooser is the following: The Chooser, knowing that the Predictor has very good information about his forthcoming choice and has mechanically acted on it, and thus is almost surely correct, eliminates those choices where the Predictor is wrong and chooses B-only over A and B because of the remaining two choices it has a higher payoff.

By following 2-player game theory, the expected value of Chooser's winnings is only a bit over $1,000, while by taking into account the high accuracy of the Predictor's prediction and maximizing expected value the expected value is a bit over $1,000,000.

The paradox dissappears if you stop assuming a game with two players. The Predictor does not have any stake in the outcome and is not a player. Indeed, we are told that Predictor will make no free choice at all, but will simply mechanically predict what Chooser will do. It's the Chooser's free will in the face of a mechanical but oddly well-informed Predictor. Chooser should not be misled by the payoff matrix into assuming this is a 2-player game, but should instead choose the best of the two choices of significant probability.

Fermi's Paradox

Enrico Fermi asked, if there are extraterrestrial civilizations, why haven't we seen them? No alien artifacts large or small on earth, nor anything visibly unnatural on the many millions of square kilometers of billion-year-old (or more) surface we've observed elsewhere in our solar system, nor any visible megastructures in our galaxy. Under Darwinian evolution life and civilization tends to spread to use as much energy and matter as it can. New volcanic islands and areas where life has been destroyed by volcanoes are quickly colonized by a very observable spread of plants that soon soak up a significant fraction of the incoming sunlight. Human civilizations have similarly in the blink of astronomical time spread all over our planet, leaving a number of highly visible artifacts such as the Great Wall of China, a dazzling display of lights on the night side of our planet, and in our atmosphere increased carbon dioxide and a potpouri of odd chemicals. Photosynthetic life has given our planet a bizarre oxygen atmosphere and turned our continents significantly darker. Even if an alien society somehow turned radically un-Darwinian and thus remained obsessively small and hidden, it would take just one "crazy hermit" to appear once in hundreds of millions of years to take off and replicate his crazy Darwinian verion of that civilization across the galaxy, building visible structures all over the galaxy to efficiently use stellar energy and recycle volatile elements.

The average star in our galaxy is about 10 billion years old; if it takes 5 billion years for life to appear and evolve into a civilization and 200 million years for the their descendants to spread across our galaxy (which only requires travel at a small fraction of the speed of light), the average civilization that has already emerged in our galaxy should have spread across it 2.3 billion years ago.

If they exist, or existed, evidence of this existence should be all over the galaxy, just as with the existence of life and civilization on earth. But we see no evidence that any advanced civilization has ever expanded into our solar system or any where else in our galaxy. Even worse, we see no evidence of artificiality in other galaxies. Artificial entities would severely change what we observe in the cosmos, but instead the millions of galaxies we've observed seem to look quite natural. This can be easily tested by studying data from our current telescopes. Unless we discover a significant proportion of galaxies that are oddly dim in the optical but bright in the infrared (or perhaps, if the alien machines are extremely clever and very miserly, in the microwave), indicating artificially efficient use of stellar energy, and oddly bright in the heavy element spectra and dim in the volatile elements spectra, indicating artifically efficient enclosure of the volatile elements (for efficient volatile recycling), we must conclude that the odds of finding a civilization in any given galaxy, and thus of another civilization in our own galaxy, are remote. Fermi's paradox simply proves its major assumption wrong: there are no little green men in our galaxy. Sorry to pop that good old sense of wonder.

It would be fun to listen in on a civilization from a distant galaxy, if we ever find one and if we ever figure out how to detect such faint signals. Imagine the Wikipedia of a billion-year-old civilization!

Kavka's toxin

Perhaps less easily resolved, because one of its assumptions is the vague and subjective idea of "intent", is the paradox of Gregory Kavka's toxin: you get $1 million put in your bank account at 9 AM if at 7 AM you intend to drink an extremely painful but not otherwise harmful toxin at 11 AM. The toxin basically causes you to live in sheer hell for 24 hours. You get to keep the million dollars whether you drink the toxin or not. Can you intend to do something that when the time comes would not be rational to do? Kavka says you can't -- that there is no way to win the $1 million. Turn off your alarm and sleep in.

My analysis is that the only ways to win the $1 million are through credible commitment or self-delusion. Thus the Wikipedia entry cites election-year political promises that would actually be too expensive to implement as an example of Kavka's toxin. Of course the political party only fools others (and perhaps themselves) into believing its intent. Standard election procedures, in which campaign promises are not legally binding, prevent credible commitment, so serious intent only could arise through self-delusion.

Liar-resistant government

2009-05-07T16:13:00.000-07:00

I have extensively explored the technological codification of certain aspects of law -- law that is "smart" as in "smart weapons". These could implement in digital protocol important parts of law that are now processed by the mind via legal language or through physical enforcement. My focus has been on smart contracts, smart property, and other such technological reifications of private law. Here I explore the dangerous territory of extending these ideas to public law, especially to governmental forms and legal procedures. Officials of a wide variety of governments have too often over the course of history covered up or falsified evidence, destroyed or forged public records, and introduced other lies into legal and political processes. We need to protect future legal procedures and other governmental operations from such abuses.

The canonical problem explored by computer scientists in designing these protocols, the Byzantine Generals Problem, is itself an exercise about liars in government.

This article focuses on technologically ensuring the veracity and execution of those steps of legal procedure which are capable of such enhancement (formalizeable or objective aspects which I call "dry", in contrast to the many inherently subjective and non-syntactical "wet" aspects of the law): securing chains of evidence, securing chains of command, securely recording and publicizing the ownership and transfer of property, and so on.

A set of ideas I have for procedural law, or "government" broadly defined, is that many of its dry steps might be based on Byzantine fault tolerance protocols along with cryptographic protocols that form tamper-evident structures such as unforgeable chains of evidence. I describe some of these and related protocols further here, here, and here, but I will describe the basic idea of Byzantine fault tolerance here.

The basic idea of a Byzantine fault tolerant protocol is that it is a highly distributed peer-to-peer protocol robust from a certain fraction or less of its participants lying about information originally observed or created by one or a small subset of them. The fraction varies based on various assumptions of the model, but common figures are 1/3 and 1/2 for information originating from one node assuming that node is truthful. If the fraction required for successful collusive lying is not achieved (and such an attack requires either informed negotiations occurring before this protocol step or negotiating the collusion in a single step, the latter possible to avoid by assuming fraud if messaging is abnormally delayed), the liars are detected and can be excluded from future participation in the network. In a less formal sense, Byzantine fault tolerant protocols are simply distributed, peer-to-peer networks with dense communications (in the least efficient but most secure versions, every node sends every bit of information to ever other node) in order to protect against minorities of colluding liars, and to detect and exclude any liars who have not reached the threshold of collusion and thus can be excluded from the network.

Byzantine fault tolerance protocols are not as strong as cryptographic protocols. They can also suffer from the sock puppet problem (also called in some literature the "Sybil" problem), in which one or a few liars control a much larger and sufficient fraction of network nodes, if the participants are not strongly identified as unique individuals. Thus where it is possible, we should augment these dense peer-to-peer protocols with or use instead stronger cryptographic schemes such as hashing and a variety of cryptographic signatures. If the Byzantine protocol is overcome by collusive liars in a way that cannot be detected before sufficient collusion occurs or prevented by cryptography, some outside manual "meta-protocol" is required to figure out who is lying and repair the network or create a new network containing the truthful state. For some kinds of communications, digital signatures and a chain of evidence based on cryptographic hash chains are a much stronger security against forgery. Byzantine protocols, with their imperfect detection and exclusion of liars, are to be relied on only where the lie is of a nature not amenable to prevention by cryptographic chains of evidence.

Sensors and effectors can be readily hooked up to these high-integrity networks. Cryptography can, for example, provide us an unforgeable chain of evidence from a security camera to our computer displays and an unforgeable return chain of command from our mice to a gun or a jail cell lock. Cryptography can also secure smart contracts with the local officials: a judge declares you bailable, said authorization being transmitted to your jail door. Your girlfriend fills out a web form which pays the bail bondsman with a credit card. The bondsman's computer debits her account and then puts up the digital bond, and the jail door opens. You're out and I don't get to date your kind-hearted girlfriend.

One popular piece of secure government that many people have worked on is secure voting.

Several years ago I sketched an important sub-protocol of liar-resistant government, namely secure property titles (or, more generally, secure public registries). Such titles could, of course, include titles to political as well as real, personal, and intellectual property, and physical security devices such as sensors and weapons could be controlled based on them. In addition to to the cryptographic integrity of the records themselves, the public title registry can follow any rules of transfer in at least a Byzantine failure resistant way. Normal title transfers, signed over by the former owner, would be cryptographically strong.

Besides the obvious real property titles, domain names, and so, on, these registries could securely record and transfer the shares of a corporation. Bit gold, my sketch of an electronic currency that minimally relies on trust in any one person or organization, achieves this minimal vulnerability by using secure property titles. Satoshi Nakamoto has implemented BitCoin which very similarly uses a dense Byzantine fault tolerant peer-to-peer network and and cryptographic hash chains to ensure the integrity of a currency.

Making a number of important legal and political functions liar-resistant is on the horizon, and bits and pieces of this task are already being implemented.

Separation of powers and credible commitment

2009-04-28T16:45:00.000-07:00

Douglass North and Niall Ferguson, among other historians, have observed the dramatic lowering of English government bond rates after the Glorious Revolution in 1688 (alternatively seen as a Dutch invasion aided and abetted by Parliamentary and City of London traitors to the House of Stuart, and a subsequent "political merger" of the former enemy nations, as Ferguson puts it). North and Ferguson have imputed these lower rates to the superiority of modern democracy which they see as having been given birth by that Revolution.

Aside from the very uncommon but verbose Jacobite, and aside from that sad majority of historians who are shallow parrots of yesterday's tabloid headlines and fail to see the importance of anything so abstract as government bond rates, there is general agreement by the remaining historians about the effect of the Revolution on the great lowering of England's bond rates. But, while the identification of the Glorious Revolution as a great improvement in the financial condition of the English government (and subsequent world dominance of the British Empire, spread of free trade, abolition of slavery, etc. -- as well as to modern evils such as historically unprecedented rates of deficit spending, taxation, and inflation) is accurate, the attribution by North and Ferguson of these lower rates to the supposed "democratic" nature of the Revolution is quite wrong.

A more accurate if rather vague view of the situation is given by Nicholas Gruen:

Be that as it may, one of the huge things that powered us into the modern world was the idea of subjecting monarchs to the rule of law - particularly in Holland and the UK (after the Glorious Revolution of 1688). Because debtors for the first time had an expectation of being repaid when the monarch borrowed money off them, bond rates went right down and the government could borrow money. ‘A free nation deep in debt’ I think was the contemporary expression as Britain and Holland’s stars rose.

We can be far more specific about how the Dutch Invasion of 1688 caused England's bond rates to decrease. There are rather three specific events, quite related to the rule of law but not at all related to voting of the masses (which was not a feature of England for more than a century following that Revolution), but far more pertinent to the English government's immediately subsequent ability to finance itself at low rates. The first was the Bank of England. Whatever the advantages or faults of central banking to the general economy, the Bank of England was the financial engine behind the Royal Navy's subsequent boast, factual until the 20th century, that "Britania Rules the Waves", and specifically its ability to enforce free trade and destroy slavery. The two other events are quite related. The second event was a now-obscure lawsuit against King William and Queen Mary resulting in a crucial legal opinion written by one of England's greatest Chief Justices, Lord Holt, in 1701. The third was a now-obscure provision of the 1701 Act of Settlement which reasserted the independence of Holt and the other English justices from both Crown and Parliament. The Bank of England is well known, but these latter two events are at least as important and deserve to be yanked from their obscurity and put into every History 101 lesson.

Justice Iredell gives a good description of The Banker's Case in the later U.S. case Chisholm v. Georgia. Briefly, in the case brought by banker creditors of the Crown in 1701 to collect in what was owed them under debts contracted by the Stuart kings, the House of Lords (the ultimate court of appeal), led by Lord Chief Justice Holt, held that that the Court of the Exchequer had the power to decide and remedy a case of debt brought against the Crown, and that their decision holding the debts valid and remedying them with payment from the Exchequer was proper. In this particular case, William had no power to renege, not only on debts incurred under his reign, but on the debts incurred by his Stuart predecessors Charles II and James II.

This would not have meant too much of the Crown had retained a unilateral ability to fire the justices of the Court of the Exchequer for deciding against the Crown. In the Act of Settlement Parliament determined that the Crown's justices held their posts for life "on good behavior": it would take a vote of the House of Commons, the House of Lords, and the concurrence of the Crown itself to impeach a justice.

The combination of The Banker's Case and judicial tenure for life created what economists call a credible commitment for the government to abide by its contracts. This is a comitment that neither a single person as sovereign operating under Ulpian's principle of Roman law that "the prince's will is law", nor a democratic legisulature acting under Rosseau's principle that "the general will" supposedly reflected in the enactments of this legislature are unreviewable law, can make. Such a sovereign can simply declare it to be the law that they need not abide by their contracts or by the property rights of their subjects. It is the separation of powers -- and especially an judiciary with power of final decision over contracts involving the government treasury that is as independent as possible of those tax collectors, borrowers, and repayers -- not democratic voting that makes the credible commitment of a government to repay its debts and otherwise honor its contracts possible.

Polynesians vs. Adam Smith

2009-04-14T15:24:00.000-07:00

Adam Smith observed how even the most basic of products in 1776, at the dawn of the industrial revolution in Britain, depended, directly and indirectly, on the work of thousands of people:

Observe the accommodation of the most common artificer or day-laborer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day laborer, as coarse and rough as it may appear, is the produce of the joint labor of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many shipbuilders, sailors, sailmakers, ropemakers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labor, too, is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labor is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brickmaker, the bricklayer, the workmen who attend the furnace, the millwright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears nest his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen grate at which be prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniences; if we examine, I say, all these things, and consider what a variety of labor is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided [emphasis added], even according to what we may falsely imagine the easy and simple manner in which he is commonly accommodated.

Leonard Read used the pencil as an even more startling example of how a simple 20th century product depended on a vast global network of economic relations. The number of people required, directly and indirectly, to manufacture a high-technology device, such as a cellphone or laptop computer, is probably in the millions. Friedrich Hayek explained the fine-grained division of labor that makes modern technology and wealth possible as a division of knowledge in "The Use of Knowledge in Society":

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know.

Yet there existed a culture, the pre-European Polynesians, which established self-sufficient economies sometimes not totalling more than a few hundred people on dozens of small islands int the Pacific. Due to the small number of people that made up a self-sufficient economy, they did it using technology and institutions radically different from the agricultural civilizations of the Eurasian continent where they had come from. The Polynesians did not work metal: metalworking (for example the mining, smelting, smithing, etc. required to extract and work iron) requires too much of a division of labor. They used only the materials readily available on a South Seas island: their houses, ovens, boats, weapons, etc. were all made out of plants, stones, and animal parts. Since they lived at a Malthusian equilibrium (which almost every culture lived under until northwest Europe in the 17th century started a long climb out of it), their standard of living was on average the same as the world average -- dirt poor by our standards. This was enough, however, to produce catamarans that could navigate the South Pacific long before Magellan and Cook.

Small island economies greatly increased the premium and resulting emphasis on trade between islands in Polynesia and Melanesia (the Melanesians were an earlier group of island settlers). When inter-island trade was feasible, large proportions of resources and attention went into it. The kula ring was a splendid example of a sophisticated trade institution that developed among some of the Melanesians.

What's more, the Polynesians could do something that we moderns cannot -- replicate their entire economy from one island to another by packing up their families, along with a variety of plants and a handful of animals, onto a handful of catamarans. Could we similarly replicate our entire modern global economy, or a set of tools that could produce an equivalent result, to, say, another planet on a handful of rockets? That was the ambition of K. Eric Drexler's nanotechnology: pack a rocket full of "assemblers": self-replicating robots that can make almost anything. In the mid-20th century, mathematician and computer scientist John Von Neumann sketched a theoretical model of a self-replicating machine -- a self-replicating pattern in the 2-dimensional world of "cellular automata" (where, among other simplifications, copy operations come for free). I have long been skeptical of the idea that physical self-replication can be done with a simple design:

While going from macroscopic industrial parts proposed by von Neumann, or the nucleic acids, amino acids and myriad of tertiary biochemicals in bacteria, to atomic-scale diamondoid parts reduces the search space, and thus complexity, but this also reduces the degrees of design freedom. It could be that the search space of diamondoid replicators is so small that there is no possible configuration of, say, 10 million carbon atoms can copy itself in practice, when we get down to the details of atomic placement in each operation. A particularly difficult task in atomic placement for one small segement of a Stewart platform (eg assembling the ratchet complex) may necessitate a blowup in the complexity of the platform itself or in the machinery that brings molecules to and places them for the platform. To be truly self-replicating we need to close all the loops in the graph of operations. Attempts to close the last 1% ("vitamins") might introduce even more open loops than we close. The minimum complexity might easily exceed the degrees of freedom in the search space, in which case a solution does not exist.

The seeming simplicity of the the small-island Polynesian economy, lacking a sophisticated division of production and distribution operations and thus lacking a highly complex division of knowledge, is in one sense an illusion. This simplicity was made possible by making intensive use of very high evolved plant life. The complexity of life is extremely high. The self-sufficiency of the pre-European Polynesian economy is only possible if agriculture can be productively accomplished with tools made by the farmer or his friends. There is no simple design of a pan-assembler or self-replicating device -- the simplest ones we know of, life, are of extremely high complexity, and it will be a long time before we create new versions of life, much less artificial self-replicating machinery, in a lab.

Partially self-replicating machines are, of course, quite possible. The actual direct and indirect labor required for these machines, like those required for laptops and cell phones, is in the millions of people, and for many of the same reasons -- these machines are based on sophisticated microchips and plastics, among other parts of complex origin. Even if we radically redesigned every tool and machine we have for our hypothetical self-sufficient extraterrestrial economy -- and such radical redesign would be utterly necessary -- it would still likely require hundreds of thousands of people and gigatonnes of machinery, at least, to have a wealthy yet self-sufficient economy beyond earth.

Take Smith's coat and Read's pencil, elaborate the required network still further for today's complex products, and multiply by many thousands of products -- that is what is required to fill the shelves of your hardware super-store (in the U.S., Home Depot and Lowe's). Do this again for your drugstore, your clothing store, etc. You'd have no such super-stores in our space colony. It would in many ways be quite poor by earth standards.

The Polynesians relied on the ready availability of high-evolved life that could readily be grown in the native environment (no complex artificial creations like Plexiglass domes or grow-lights needed), and yet were dirt-poor by our standards. Modern products generally require elaborate divisions of labor necessarily involving millions of people. Such an economy cannot be planned, as numerous attempts to do so demonstrated in the 20th century. A modern economy requires a decentralized information-transmitting mechanism such as a market to work. In sharp contrast to the Polynesian small-island economy, our global economy cannot be easily replicated. We have to make it work here, or nowhere.

Money and the efficiency of plunder

2009-04-06T18:21:00.001-07:00

(Note to readers -- after several months of posting reruns, I am back to doing original posts until further notice).

Arnold Kling describes his militaristic theory of the origins of money, and kindly also quotes and refers readers to my theory (or set of theories, as I posit that shell proto-money played a crucial role in several different kinds of hunter-gatherer transactions). Here is the gist of Kling's theory:

Imagine that you're a warlord leading a band of soldiers. Your business model is that your soliders prey on farmers, taking plunder and tribute. To help motivate your soldiers, you promise them a share of the booty. When the band of warriors is small, the promises can be verbal and informal. However, in order to organize a large army, you need formal, written contracts. Lacking lawyers and xerox machines, you make little carvings on metal, hand them out to soldiers, and say, "After the battle, turn this in to the clerk and we'll give you a share of captured slaves and grain and stuff."

There may not be as much contrast between our theories as Kling suggests. We both seem to agree that the traditional economists' explanation of money emerging from a barter market that otherwise obeyed the principles of efficient modern markets is not historically sound (although I do believe it is theoretically and empirically sound as a theory of the way things can happen -- money-like intermediate commodities can and have been observed to emerge from barter markets). Where we may differ, and perhaps not by much, is on the role of coercion. I believe that both coercive and voluntary transactions (and transactions that partook of both components) were important, and that the voluntary transactions were not efficient market exchanges:

Voluntary spot trades are not the only kinds of transactions that benefit from lower transaction costs. This is the key to understanding the origin and evolution of money. Family heirlooms could be used as collateral to remove the credit risk from delayed exchanges. [As explained elswhere in the article, these were typically exchanges that involved very high transaction costs. I'd add in clarification now that the closest modern economic model of them would be bilateral monopoly, not spot exchange on an efficient market]. The ability of a victorious tribe to extract tribute from the vanquished was of great benefit to the victor . The victor's ability to collect tribute benefited from some of the same kinds of transaction cost techniques as did trade. So did the plaintiff in assessment of damages for offenses against custom or law [emphasis added], and kin groups arranging a marriage. Kin also benefited from timely and peaceful gifts of wealth by inheritance. The major human life events that modern cultures segregate from the world of trade benefited no less than trade, and sometimes more so, from techniques that lowered transaction costs. None of these techniques was more effective, important, or early than primitive money -- collectibles.
...
Warfare involved, among other things, killing, maiming, torture, kidnapping, rape, and the extortion of tribute in exchange for avoiding such fates. When two neighbor tribes were not at war, one was usually paying tribute to the other. Tribute could also serve to bind alliances, achieving economies of scale in warfare. Mostly, it was a form of exploitation more lucrative to the victor than further violence against the defeated.

Victory in war was sometimes followed by an immediate payment from the losers to the victims. Often this just took the form of looting by the enthusiastic victors, while the losers desperately hid their collectibles. More often, tribute was demanded on a regular basis. In this case, the triple coincidence could and sometimes was avoided by a sophisticated schedule of payments in kind that matched the losing tribe's ability to supply a good or service with the victor's demand for it. However, even with this solution primitive money could provide a better way -- a common medium of value that greatly simplified the terms of payment – very important in an era when terms of the treaty could not be recorded but had to be memorized. In some cases, as with the wampum as used in the Iriquois Confederacy, the collectibles doubled as a primitive mnemonic device that, while not verbatim, could be used as an aid to recall the terms of the treaty. For the winners, collectibles provided a way to collect tribute at closer to the Laffer optimum. For the losers, collectibles buried in caches provided a way to “under-report”, leading the victors to believe the losers were less wealthy and thus demand less than they might. Caches of collectibles also provided insurance against over-zealous tribute collectors. Much of the wealth in primitive societies escaped the notice of the missionaries and anthropologists due to its highly secretive nature. Only archeology can reveal the existence of this hidden wealth.

Hiding and other strategies presented a problem that tribute collectors share with modern tax collectors – how to estimate the amount of wealth they can extract. Value measurement is a thorny problem in many kinds of transactions, but never more so than in the antagonistic collection of tax or tribute. In making these very difficult and nonintuitive trade-offs, and then executing them in a series of queries, audits, and collection actions, tribute collectors efficiently optimized their revenue, even if the results seemed quite wasteful to the tribute payer.

Imagine a tribe collecting tribute from several neighbor tribes it previously defeated in war. It must estimate how much it can extract from each tribe. Bad estimates leave the wealth of some tribes understated, while forcing others to pay tribute based on estimates of wealth they don't actually have. The result: the tribes that are hurt tend to shrink. The tribes that benefit pay less tribute than could be extracted. In both cases, less revenue is generated for the victors than they might be able to get with better rules. This is an application of the Laffer curve to the fortunes of specific tribes. On this curve, applied to income taxes by the brilliant economist Arthur Laffer, as the tax rate increases, the amount of revenue increases, but at an increasingly slower rate than the tax rate, due to increased avoidance, evasion, and most of all disincentive to engage in the taxed activity. At a certain rate due to these reasons tax revenues are optimized. Hiking the tax rate beyond the Laffer optimum results in lower rather than higher revenues for the government.

We do seem to differ in that Kling's account is basically an account of the origins of coinage in the agricultural era, and mine is an account of the origins of shell proto-money in the hunter-gatherer era. As indicated above, I believe both coercion and voluntary transactions (and admixtures of same) played an important role in the hunter-gatherer era, and as a general matter that's also true of the agricultural era.

I have very little disagreement with Kling's account of the importance of coercion in the origin of coinage. Indeed, here's what I had to say about the origins of coinage:

Given what we have seen about the benefits of proto-money to tribute and tax collectors, as well as the critical nature of the value measurement problem in optimally coercing such payments, it is not surprising that tax collectors, specifically the kings of Lydia, were the first major issuers of coinage. The king, deriving his revenue from tax collection, had a strong incentive to measure to value of wealth held and exchanged by his subjects more accurately. That the exchange also benefited from cheaper measurement by traders of the medium of exchange, creating something closer to efficient markets, and allowing individuals to enter into the marketplace on a larger scale for the first time, was for the king a fortuitous side effect.

My account of coinage differs from Kling only in that I'm looking at the measurement problem that occurs when collecting the plunder; he is looking at the measurement problem that occurs when distributing the plunder out to the soldiers. Both are important. Indeed I have also discussed the latter before on this blog (I don't recall the origins of the idea -- I may have read it somewhere -- a bleg to my kind readers, if you know of a reference, please post it in the comments):

Markets will tend to standardize on whatever the dominant transactor, the party that controls the largest plurality of cash flow, standardizes on, and in most historical societies the dominant transactions were tax collection and the payment of those taxes to soldiers.

By "dominant" here I just mean constituting the plurality (the largest player), not the majority of the value of all transactions, whether coercive or voluntary or some admixture of same. Coinage made measuring the value of both plunder and the distribution of plunder more accurate: both were important in increasing the efficiency of plunder and giving rise to coinage. More efficient exchanges, resembling more spot exchanges than bilateral monopoliies, and thus a larger tax base, were a fortuitous consequence for the Lydian kings (and later for the Greeks who eventually conquered the relatively coinless Persians).

The issue of coercion is also deeply implicated in the origins of agriculture itself. After all, hunter-gatherers were expert botanists compared to the modern layman. They were perfectly well aware that one could plant seeds (and shoots, for asexual reproduction) and have them grow, and could have easily learned the basic techniques associated with early agriculture once they had experimented with this knowledge. Yet these expert botanists with brains the same size as ours existed for 100,000 years before the agricultural breakthrough occured. The problem was not one of farming technique, it was one of securing this capital investment from fellow tribe members and foreign tribes. Only once this problem in coercion and transaction costs was solved could agricultural society appear. More here and here.

Law embedded in the world

2009-01-31T17:40:00.000-08:00

Trying to beat the protocol can get you in trouble:

Confidential auditing

2009-01-31T17:36:00.000-08:00

I once described how confidential auditing was possible and beneficial:

The auditing function is a vast and indispensable part of the modern economy. Auditing controls allow, among other things, employers to delegate resources and authority to employees, franchisors to delegate to franchisees, stockholders to delegate to management, advertisers to count eybeballs, marketers to gather more reliable data on customers, and make possible a wide variety of other such relationships. Auditing controls might fairly be called the security protocols of capitalism...[However,] auditing is in deep conflict with efforts towards greater privacy. Auditors have an ethic of recording, investigating, and reporting as much as possible, and often see privacy efforts as attempts to prevent auditing and potentially cover up fraud...[But confidential auditing is possible because] we can achieve auditing logs unforgeable after commitment via secure timestamps. We can then achieve to a great extent unforgeability prior to commitment, with segregation of duties via multiparty integrity constraints. We then audit these commitments via multiparty private computations.

In an article about multiparty secure (i.e. private) computations I described this process as follows:

Performance phase analysis with multiparty secure computer theory would seem to apply only to those contracts which can be performed inside the virtual computer. But the use of post-unforgeable auditing logs, combined with running auditing protocols inside the shared virtual computer, allows a wide variety of performances outside the virtual computer to at least be observed and verified by selected arbitrators, albeit not proactively self-enforced.

The participants in this mutually confidential auditing protocol can verify that the books match the details of transactions stored in a previously committed transaction log, and that the numbers add up correctly. The participants can compute summary statistics on their confidentially shared transaction logs, including cross-checking of the logs against counterparties to a transaction, without revealing those logs. They only learn what can be inferred from the statistics; [they] can't see the details of the transactions

In this I had been inspired by Eric Hughes' idea of encrypted open books. My sketch is more general insofar as it addresses pre-transaction forging (with separation of duties), post-transaction forging (with secure timestamping), and the auditing protocol itself (with multiparty private computation running off the logs themselves rather than Hughes' specialized protocol running off already prepared books).

But my description was only a proof-of-concept sketch that one could go all the way from preparing to transact to transaction log to finished audits while maintaining both integrity and privacy, with neither depending on large amounts of trust in the auditors. Recently Shen et. al. came up with a detailed design of such a confidential auditing scheme in the context of gathering statistics from the logs of distributed computations:

...no single TTP [trusted third party] node can have the full knowledge of the logs, and thus no single node can misuse the log information without being detected. On the basis of a relaxed form of secure distributed computing paragidms, one can implement confidential auditing service so that the auditor can retrieve certain aggregated system information e.g., the number of transactions, the total volume, the event traces, etc., without having to access the full log data...To prevent an unsupervised TTP from manipulating the system, we design query processing schemes that require TTP nodes work together, using the multiparty private computation, to perform any useful auditing functions.

Secure timestamping and confidential auditing

2009-01-31T17:31:00.000-08:00

Another interesting protocol is cryptographic timestamping. The purpose is to prove that a particular piece of content (i.e. some array of bits) existed at a particular period of time. The basic idea goes back to the anagram publication technique that Robert Hooke, Galileo, and some other early scientists used to prove that they discovered certain things long before they published them. When Hooke, for example, discovered his law of elasticity, he published the gobbledygook letters "ceiiinosssttuv." Later, when he published his law of elasticity, he published "ut tensio sic vis" (as the extension, so with the force). The earlier published anagram proved that he had discovered this law long before he published it.

The modern protocol uses cryptographic hash functions instead of anagrams. Any set of bits (digital content, a network event, whatever) is passed through the hash function, turning into into a unique random-looking string of bits. Those bits are then published to multiple timestamp servers on the Internet. The timestamp servers create a chain of hashes. Using the chain of published hashes, it is easy to later prove that (1) the hash was published before one event and after another event, thus proving the time of publication, and (2) that the hash uniquely corresponds to a particular content.

Note that the content of the file does not need to be published until proof is needed. Thus, for example, one could digitally timestamp a secret digital inventor's notebook in order to prove later that the invention existed at that time. (Might be quite useful under the American first-to-invent system).

Indeed, using multiparty secure computation or the related protocols called zero-knowledge proofs, one can even make a later proof without publishing the content. For example, if Bob received a secret encrypted e-mail message from Alice, Alice and Bob could prove to the world that Alice sent a message at 18:42:39 and Bob received it at 18:43:05 without revealing the actual contents of the message. In a confidential audit of Alice's books based on securely timestamped transactions between Alice and Bob and Alice and Charles, performed using secure multiparty computation, Alice can prove to the auditor that her books balance based on real transactions with Bob and Charles, without revealing in unencrypted form to the auditor either the transactions or the books. Such is the magical reality of cryptography!

Here are some links to papers and other references on secure timestamping.

Bit gold markets

2008-12-27T16:17:00.000-08:00

The basic idea of bit gold is for "bit gold miners" to set their computers to solving computationally intensive mathematical puzzles, then to publish the solutions to these puzzles in secure public registries, giving them unique title to these provably scarce and securely timestamped bits. These titles to timestamped bits will be more secure and provably scarce than precious metals, collectibles, and any other objects that have ever been used as money. In a description of bit gold, which was mostly an overview of the technology, I wrote about how, because the algorithms and architectures for solving computationally intensive mathematical puzzles to create bit gold will often be dramatically improved, the bits (the puzzle solutions) from one period (anywhere from seconds to weeks, let's say a week) to the next are not fungible. But fungible units can be created from non-fungible ones:

bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value. This is analogous to what many commodity dealers do today [pooling commodities with a wide variety of qualities into a handful of standard grades] to make commodity markets possible.

Bit strings (puzzle problem/solution pairs) are securely timestamped by their time of publication. More recent solutions that have been produced in greater quantities will be discounted by markets. To create fungible units dealers will bundle strings of different value into pools of a standard value (i.e. collect strings into a pool so that the sum of the market values of the strings in the pool add up to the standard value).

It's a bit indirect, but computers can easily handle these logistics. Leaving aside the gold metaphor for a minute, one can think of these bit strings as digital rare postage stamps. Each stamp might trade for a different price, but one can sort stamps into pools so that the prices of stamps in each pool add up to the same total price. Then divide each pool into tranches to create your standard currency denominations.

The rare stamp metaphor is, however, in other ways very misleading. Unlike stamps, but like gold, there are no ongoing changes in subjective valuations between bit strings to worry about, but instead the demand for bit gold is purely for its monetary functions, and thus purely based on how scarce the supply of puzzles solved during a given time period was and is. As a result, pooling and tranching will work far better for bit gold than it does for actual rare postage stamps.

This deserves more elaboration. It seems to be a common objection to bit gold that the mere difference in the price of a bit from one time period to the next produced by technology improvements introduce intractible subjective valuations, making the matter of comparing one week to the next subject to too much uncertainty and transaction costs, as occurs with many collectibles. Just as pooling and tranching rare postage stamps would be a somewhat risky affair as subjective valuations of the underlying stamps change, so too this is supposed for bit gold.

The problem that would occur if we tried to turn most collectibles into a standard currency by pooling and tranching is that, besides a subjective aesthetic component in the demand curve that doesn't come into play with computer bits, their scarcity is uncertain. Art can turn out to be forged, rare stamps thought to be lost or to have never existed might be found, and so on. The supply curve, in other words, can be highly uncertain and in danger of elasticity. Since the supply and demand curves of different pools can change differently over time, the relative values of pools would diverge from their initial values, so that trying to use tranches as standard denominations of a currency would create arbitrage opportunities.

By sharp contrast bit gold will be entirely public: no one gains secure title to any puzzle solutions until they are published. Thus, the exact amount and kind of puzzle solutions during a given period are well known, and perfectly define the supply curve relative to future weeks for all time thereafter.

There will be, in other words, a perfectly objective, measurable, and inelastic supply curve, completely derivable from the relative scarcity of bits (puzzle solutions) on the week (or the day, or the hour, or the minute, if necessary) of their publication. Arbitrage to set the different prices of different weeks (or minutes) can be computerized on this basis. The demand curve, the demand for puzzle solutions for the monetary functions they can perform as a store of value and medium of exchange, will be based on recognition of the superiority of bit gold as a form of money that is more secure and has a far less elastic supply curve than traditional commodities such as precious metals. Since there are no aesthetic differences, the demand curve will be the same function of scarcity for all weeks (or minutes), so it won't affect the simple scheme of automated arbitrage between epochs with different supply curves. The supply and demand curves of different pools will change in the same way over time, and the relative values of pools will not diverge from their initial relative values. Using tranches as standard denominations for a currency does not create arbitrage opportunities.

For most of history collectibles were used for as stores of value and media of exchange; aesthetics played an important role. But before we can separate out the roles of scarcity and aesthetics, we must ask why humans evolved such aesthetic values. The aesthetic instincts, for example the instinct to collect shiny things, evolved just because in the evolutionary environment they approximated an instinct to collect scarce things, and to distinguish hard-to-find from easy-to-find things, i.e. an instinct to recognize and collect objects that can best perform monetary functions, as I describe here, in the "Evolution..." section early in the paper, and the "Attributes of Collectibles" section late in the paper.

As a proximate matter, the contribution to the demand curve from demand for monetary functions (store of value or medium of exchange or both) and the contribution from aesthetic considerations are completely separable. One can demand a commodity for its aesthetic value, or for its value as money, or for both, or for neither. Thus a check for a million dollars might have a design that is utterly philistine, yet the check is still worth a million dollars.

The value of gold today is almost entirely based on its monetary value rather than mere aesthetic value. There are plenty of metals that are as shiny and smooth as gold, but people don't demand them as a store of value or medium of exchange because they are common. There are plenty of rocks that look as good as diamonds, but "diamonds are a girl's best friend" because they are hard to obtain and thus hold their value. Value comes to attach to the unique aesthetic features of gold or diamonds because these features signal scarcity. The value of precious metals or gems as stores of value, media of exchange, or even as cultural icons does not come from these aesthetic features, it is only signalled by them. It is their secure scarcity, not their aesthetic features, that allows them to be more securely used as a store of value and thus gives them a monetary value, and often a corresponding emotional and cultural value, far above the often trivial value they would have if they had the same aesthetics but were common.

There will be a problem defining futures contracts for yet-to-be produced bit gold: how much it might cost to solve a given puzzle a year later, or even a month, will be a very uncertain matter. But the pools that define currencies will be based on spot prices for already produced bit gold, not on futures.

[These comments edit and add to comments of mine under previous blog post(s)]

Bit gold

2008-12-27T16:16:00.000-08:00

A long time ago I hit upon the idea of bit gold. The problem, in a nutshell, is that our money currently depends on trust in a third party for its value. As many inflationary and hyperinflationary episodes during the 20th century demonstrated, this is not an ideal state of affairs. Similarly, private bank note issue, while it had various advantages as well as disadvantages, similarly depended on a trusted third party.

Precious metals and collectibles have an unforgeable scarcity due to the costliness of their creation. This once provided money the value of which was largely independent of any trusted third party. Precious metals have problems, however. It's too costly to assay metals repeatedly for common transactions. Thus a trusted third party (usually associated with a tax collector who accepted the coins as payment) was invoked to stamp a standard amount of the metal into a coin. Transporting large values of metal can be a rather insecure affair, as the British found when transporting gold across a U-boat infested Atlantic to Canada during World War I to support their gold standard. What's worse, you can't pay online with metal.

Thus, it would be very nice if there were a protocol whereby unforgeably costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust. Bit gold.

My proposal for bit gold is based on computing a string of bits from a string of challenge bits, using functions called variously "client puzzle function," "proof of work function," or "secure benchmark function.". The resulting string of bits is the proof of work. Where a one-way function is prohibitively difficult to compute backwards, a secure benchmark function ideally comes with a specific cost, measured in compute cycles, to compute backwards.

Here are the main steps of the bit gold system that I envision:

(1) A public string of bits, the "challenge string," is created (see step 5).

(2) Alice on her computer generates the proof of work string from the challenge bits using a benchmark function.

(3) The proof of work is securely timestamped. This should work in a distributed fashion, with several different timestamp services so that no particular timestamp service need be substantially relied on.

(4) Alice adds the challenge string and the timestamped proof of work string to a distributed property title registryfor bit gold. Here, too, no single server is substantially relied on to properly operate the registry.

(5) The last-created string of bit gold provides the challenge bits for the next-created string.

(6) To verify that Alice is the owner of a particular string of bit gold, Bob checks the unforgeable chain of title in the bit gold title registry.

(7) To assay the value of a string of bit gold, Bob checks and verifies the challenge bits, the proof of work string, and the timestamp.

Note that Alice's control over her bit gold does not depend on her sole possession of the bits, but rather on her lead position in the unforgeable chain of title (chain of digital signatures) in the title registry.

All of this can be automated by software. The main limits to the security of the scheme are how well trust can be distributed in steps (3) and (4), and the problem of machine architecture which will be discussed below.

Hal Finney has implemented a variant of bit gold called RPOW (Reusable Proofs of Work). This relies on publishing the computer code for the "mint," which runs on a remote tamper-evident computer. The purchaser of of bit gold can then use remote attestation, which Finney calls the transparent server technique, to verify that a particular number of cycles were actually performed.

The main problem with all these schemes is that proof of work schemes depend on computer architecture, not just an abstract mathematics based on an abstract "compute cycle." (I wrote about this obscurely several years ago.) Thus, it might be possible to be a very low cost producer (by several orders of magnitude) and swamp the market with bit gold. However, since bit gold is timestamped, the time created as well as the mathematical difficulty of the work can be automatically proven. From this, it can usually be inferred what the cost of producing during that time period was.

Unlike fungible atoms of gold, but as with collector's items, a large supply during a given time period will drive down the value of those particular items. In this respect "bit gold" acts more like collector's items than like gold. However, the match between this ex post market and the auction determining the initial value might create a very substantial profit for the "bit gold miner" who invents and deploys an optimized computer architecture.

Thus, bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value. This is analogous to what many commodity dealers do today to make commodity markets possible. Trust is still distributed because the estimated values of such bundles can be independently verified by many other parties in a largely or entirely automated fashion.

In summary, all money mankind has ever used has been insecure in one way or another. This insecurity has been manifested in a wide variety of ways, from counterfeiting to theft, but the most pernicious of which has probably been inflation. Bit gold may provide us with a money of unprecedented security from these dangers. The potential for initially hidden supply gluts due to hidden innovations in machine architecture is a potential flaw in bit gold, or at least an imperfection which the initial auctions and ex post exchanges of bit gold will have to address.

Origins of the joint-stock corporation

2008-10-11T12:19:00.000-07:00

The modern joint-stock corporation has many sources in medieval Europe. First among these was corporate law itself. Although the era is commonly referred to as "feudalism," for the hierarchy of individually owned "fiefs" of land and control of serfs as fixtures of that land, large amounts of wealth in Europe were actually controlled by corporate entities. Chief among these were church lands, the corporate entities being dioceses, religious orders and the Roman Church itself. These entities controlled a substantial fraction of the land in Western Europe. Furthermore cities (with varying degrees of political independence), merchant guilds, craft guilds, and many charitable entities (such as hospitals) were legal "corporations," i.e. artificial and perpetual legal persons under law. Some basic issues in corporate law (for example, when are officers individually liable for acts of the corporation, and when the corporation is liable for acts of its agents) had already been solved in canon law and urban law long before the joint-stock corporation.

Another source of the joint-stock corporation was the tradition of dividing ownership over tangible things into "shares." For example, it was common in Italian maritime states fund the construction and operation of ships by dividing them into a certain number of shares (24 and 64 were common divisions). Share owners were responsible for funding voyages (not including cargo, which was typically paid for by trading partnerships called commenda) as well as the initial construction capital, and divided up the profits (fees paid by the merchants less costs). This tradition faded away in Venice when that republic's government took over ship ownership, but thrived across the Italian penninsula in Genoa. Ship shares became embedded into maritime law all over Europe and even survived the British Empire (today in Canada when you register a boat the government still registers 64 shares in it for its owner). The only organization controlled by the shareholders, however, was the captain and crew of the ship.

The medieval organizations that most resembled later joint-stock corporations were the Genovese maone. These bore some strong resemblances to the publicani tax farming corporations of the Roman Republican era, although it is not clear how they could have survived the intervening Late Empire and Dark Ages other than as very obscure (and perhaps now lost) written descriptions. In form and function maone also bore strong resemblances to some early joint-stock companies such as the Bank of Amsterdam, Bank of England, and the Dutch and English East India Companies.

The Italian cities often sold off their tax receivables to wealthy merchants at a discount as a way to borrow funds. (Discounting was one of the many ways late medieval financiers avoided the rather lax and narrow usury restrictions). The debts were divided into equal shares called loca or partes. Legally, these shares were personal property (chattels) and could be freely traded.

Technically, no organization was created when the city sold its tax receivables to merchants. However, to effectively collect the taxes, the holders of loca formed an organization called a maona or societas comperarum. This organization would then subcontract to tax farmers to collect the taxes. By the fourteenth century, Genovese maone also engaged in military conquest and colonization. These were, quite literally, corporate raiders.

Normally, maone were temporary, but some of them ended up lasting for a long time. In 1346 the Maona di Chio e di Focea (a company for managing the taxes of Chios and Focea) was formed. This organization's members obtained from Genoa the exclusive right to collect taxes from Chios (an Aegean island) and Phocaea (a port on the Anatolian coast). But first the company would have to conquer them! Although technically a temporary organization, it lasted until 1566.

Rather than going to buy receivables from Genoa, subscriptions to the di Chio e di Focea's loca shares (still legally debt, but to be paid out in dividends as taxes and trading revenues were collected) went to fund 29 galleys to conquer Chios and Phocaea. The Genovese Republic, for a fee, granted the organization exclusive rights to collect taxes from the conquered territories as well as special trading privileges. The conquests, taxes, and trading were at least partially successful, and by the 16th century more than 600 persons owned loca of the maona. This function and some of this structure would later be emulated by the Dutch and English India Companies, but with a basic legal difference -- "shares" in these later joint-stock companies would constitute ownership (like ship shares) not debt as with the maona.

The most famous Genovese maona was the Officium procuratorum San Giorgio, later the Banco di San Giorgio. Founded in 1407, this bank (and a later Genovese bank along the same lines, the Bank of Genoa) would be the inspiration for later central banks such as the Bank of Amsterdam and the Bank of England. Banco di San Giorgio came to administer most of the Genovese Republic's debts. Dividends were paid out of tax collections (less directly than with earlier maona, but still more directly than the later Bank of England). The maona business was becoming more monopolistic, as it had become in Venice and would become with later central banks.

At the same time, however, the ship share system spread to northern Europe and branched out beyond ships. In Italy and Germany by the 16th century a wide variety of mines were divied up into ownership shares. During the Reformation, a pious follower of Martin Luther gave him some kuxen, shares in a mine in Saxony. Luther complained that he did not know what to do with them. (Indeed, since as with ship shares the mine managers could call on investors to pay up more capital, ownership was not for the financially naive).

Martin Luther

Ship shares and mine shares like these were issued in small numbers (usually between 24 and 640) and thus were not typically traded on exchanges. The number of employees was also small, usually no more than a few dozen. Kuxen were reportedly sometimes traded at the Leipzig fairs. Indeed, illiquidity was the rule in the first century of English joint-stock companies. It was not until the Vereenigde Oostindische Compagnie (the Dutch East India Company, founded out of a merger of smaller colonial companies in 1602) that volume existed to trade company shares on exhanges (which up to that time traded state and municipal bonds and commodities).

Interestingly, the first joint-stock companies chartered by the English Crown (starting in 1553) were companies involved in trading (the Muscovy and Levant companies), mining (the Royal Mines and the Mineral and Battery), and trading combined with conquest (the India Companies, the Virginia and Plymouth companies, etc.) The two mining companies borrowed not only shares but managers and engineers (presumably along with their techniques) from Germany. The Genovese for their part would have felt at home with the trading and conquest companies.

References include:

Harold Berman, Law and Revolution.

Guido Ferrarini, "Origins of Limited Liability Companies and Company Law Modernisation in Italy: A Historical Outline", Centro di Diritto e Finanza WP 5-2002.

Meir Kohn, "The Capital Market Before 1600", working paper 99-06, February 1999.

Emergency economics

2008-10-11T12:13:00.000-07:00

For those of you who didn't catch me on econ-law a few months ago [2005] during the hurricanes, here is an expanded version of what I posted there:

Here are some alternative ways of rationing in an emergency. At least some of these have been written about by Yoram Barzel. We have witnessed all of them during hurricane Katrina [and also this summer (2008) during Ivan]:

(1) market prices ("price gouging")
(2) waiting in line
(3) centrally planned rationing
(4) don't ration: just let the resource run out

It's not clear that, even with perfect knowledge, with or without an emrgency, centrally planned rationing could operate without using one of the other methods of rationing. In any case, our very poor knowledge about each others' needs is sufficient to ensure that, short of a perfect price system, we can't get what we want without waiting in line, and sometimes we just can't get what we want (or even, the Rolling Stones notwithstanding, what we need). The worse the price system -- in other words, the higher the transaction costs -- the more we wait in line or do without, as East Germany once demonstrated (cf. West Germany) and as North Korea continues to demonstrate. Luckily for those of us in largely market price based economies, we need only wait in line when trying to do business with the government, call a toll-free service line, go to a hot movie on opening night, or during an emergency -- i.e. in the remaining situations where prices don't operate very well or at all, due to transaction costs imposed by law or otherwise.

Mises and Hayek long ago demonstrated the weakness of centrally planned economies such as the old Soviet Union (or today's North Korea) -- the lack of knowledge the government has about peoples' needs and desires. Similarly, lack of the requisite detailed rknowledge of the needs of others, especially at specific times of crisis when they need our help most, is a huge problem even if we were perfectly charitable. Not even the local governments exhibited much knowledge of the needs of their neighbors, especially in New Orleans. Much less did the state or Feds (FEMA being only the most glaring example) exhibit even a tiny fraction of the knowledge that would be required for an optimal outcome. This is not the fault of the people in the government agencies to not act as knowlegeably as they are capable of acting, but rather the fault is in their implied promises and our expectations. For example, TV commentators, watching pictures of some Coast Guard helicopters, seem to have come to expect that government agencies will swoop down from the sky and rescue everybody and take on other attributes of God. Such as, for example, being able to knowledgeably evacuate people and distribute other scarce goods and services in a disaster.

Per Mises and Hayek, even if the Soviet Union had been run by an perfectly beneficient dictator, people would have, short of a matching omniscience of said dictator (and of enough of his underlings to receive and act on the knowledge) still have waited in bread lines. When price controls hit gasoline in the United States in the 1970s, people similarly waited in gas lines.

In emergencies rationing becomes extreme: people wait in long lines, pay "extortionate" prices, or, even worse, do without. We are thrown into economically unfamiliar territory and transaction costs balloon. Goods will always be rationed in one or more of the above four ways, and in an emergency the rationing can be quite severe. Our charitable spirit can temporarily overcome self-interest, but it can't overcome the knowledge problem or the scarcity of goods.

Given that waiting in line, or doing without, are very painful (even sometimes deadly) alternatives, and that allowing the charge of very high prices can largely prevent use of these extreme and wasteful forms of rationing, why do we have price gouging laws?

Can price gouging laws be explained as follows? In a zero transaction cost world, consumers would successfully negotiate with retailers for an insurance policy that caps prices in case of emergency. This may be, for example, because retailers are better able to bear the risk of emergency supply shortages than consumers are, or because consumers don't want to bear the risk of having to have an unusually large amount of money at hand during an emergency. (Katrina may be a good example of this -- it reportedly struck just before many paychecks were due, leaving many people who live from paycheck to paycheck without funds). However, the transaction costs for negotiating with consumers for such contracts are too high. Therefore, the default retail sales contract should include such insurance. Price gouging laws are a convenient way to do this. More generally, if it weren't such a bother almost all of us would like to purchase insurance against volatile prices in order to make our budgets more predictable.

Whether and when wholesale contracts include such price caps provisions would provide interesting evidence in favor of or against this hypothesis, and under what conditions it would have been rational to for consumers and retailers to have made such a contract.

As we have seen, there is a strong economic argument against price gouging laws. Consistent application of market pricing during an emergency would minimize the other inefficient, and occasionally deadly, rationing methods above, especially (4)actually running out of emergency supplies. Consumers could be confident that supplies will not run out, so stocking up on excess supplies based on fear of imminently running out of the supply (such as we've seen consumers do in some areas recently with gasoline) would be minimized. Given modern technology, perhaps we should work on improving the availability of credit and liquidity in emergencies via always-up wireless devices and immediately payable liquidity insurance policies instead of price gouging laws.

Furthermore, the promise of very high prices might motivate retailers to fly in special deliveries of emergency supplies at otherwise prohibitive transportation rates. On can even imagine for-profit organizations doing many of the tasks that the National Guard, Red Cross, and similar organizations are doing now. Of course, the moral indignation would be enormous. People, at least in political discussion, tend to be extremely averse to "windfall profits" and seem to have a strong psychological preference for an implicit insurance policy that puts a price cap during emergencies on retail contracts.

Patent goo: self-replicating Paxil

2008-09-22T17:41:00.000-07:00

In his novel Cat’s Cradle, science fiction writer Kurt Vonnegut postulated “Ice-9.” Ice-9 was a form of water that was frozen at room temperature and catalyzed any normal water it came in contact with into more crystals of Ice-9. Once released into the environment, it froze all water, including us. Eric Drexler in the 1980s raised the specter of nano-robots that made copies of themselves and ate everything in their path: "gray goo." A wide variety of similar hypothetical disasters have since been given referred to as some sort of "goo."

Self-replicating chemicals are not merely hypothetical: since Cat's Cradle, scientists have discovered some real-world example of crystals that seed the environment, converting other forms (polymorphs) of the crystal into their own. The population of the original polymorph diminishes as it is converted into the new form: it is a “disappearing polymorph.” In 1996 Abbott Labs began manufacturing the new anti-AIDS drug ritonavir. In 1998 a more stable polymorph appeared in the American manufacturing plant. It converted the old form of the drug into a new polymorph, Form 2, that did not fight AIDS nearly as well. Abbott’s plant was contaminated, and it could no longer manufacture effective rintonavir. Abbott continued to successfully manufacture the drug in its Italian plant. Then American scientists visited, and that plant too was contaminated was contaminated and could henceforth only produce the ineffective Form 2. Apparently the scientists had carried some Form 2 crystals into the plant on their clothing.

Another instance of the “disappearing polymorph” may be the anti-depressant, Paxil (U.S. brand name for the chemical paroxetine hydrochloride). No, self-replicating Paxil doesn’t naturally spread into our brains and make people happy for free. It's not "happy goo." On the contrary, self-replicating Paxil converted, according to one of the parties in the ensuing lawsuit, an old, and now off-patent, form of Paxil into a new, patented form of Paxil. Once the new form, the hemihydrate form of Paxil, was created, its crystals started floating about, converting small fractions of the old form, anhydrous Paxil, into hemihydrate. Both forms of the drug work equally well as an anti-depressant, but it became impossible to manufacture the off-patent anhydrate without some of it being converted into the patented form. Call it "patent goo."

Apotex, a generic drug manufacturer, was all set up to manufacture the off-patent anhydrous generic Paxil when it discovered small fractions of it were being converted into the hemihydrate. They couldn’t remove the contamination. Smithkline, owner of the patent on the hemihydrate, sued them for patent infringement. Apotex argued that the hemihydrate form occurred naturally, so that Smithkline’s patent was invalid. Smithkline argued that it was a disappearing polymorph, that the hemihydrate form had not existed before they had created it in their labs, and that it was up to Apotex to remove the hemihydrate from its product or pay it a royalty. Apotex was unable to remove the hemihydrate and unwilling to pay a royalty.

Judge Richard Posner heard this case in the trial court and wrote an opinion that contains a good explanation of the self-replicating Paxil controversy. The Federal Circuit heard the appeal and decided that Smithkline’s patent on the hemihydrate was invalid as “inherently anticipated” because anhydrate naturally converts into hemihydrate. Normally, anticipation would require an actual reference describing the claimed chemical structure (in patent lingo that the hemihydrate was "taught in the prior art"). But Judge Rader held that inherent anticipation occurs when, more likely than not, an operation that is taught in the prior art would result in the claimed chemical. The anhydrate which was taught in the prior art would more than likely result in natural creation of some hemihydrate. Judge Gajarsa in concurrence argued that the drug was discovered not invented, making it unpatentable subject matter. Gajarsa’s opinion may have inspired the United States Supreme Court to raise the subject matter issue on its own (i.e., it had not been argued by the parties to the case) in Metabolite. The Supreme Court is considering whether to take the appeal on the self-replicating Paxil case as well.

The kula ring

2008-09-22T17:39:00.000-07:00

Just off the cost of New Guinea, Melanesians evolved (over thousands, and perhaps even tens of thousands, of years) a unique commercial institution known as the "kula ring" for the collectibles that circulated within it.

The unforgeably scarce kula collectibles doubled as "high power" money and mnemonic for stories and gossip. Many of the goods traded, mostly agricultural products, were available in different seasons, and so could not be traded in kind. Kula collectibles solved this double-coincidence problem as an unforgeabaly costly, wearable (for security), and circulated (literally!) money. Necklaces circulated clockwise, and armshells counter-clockwise, in a very regular pattern. By solving the double-coincidence problem an armshell or necklace would prove more valuable than its cost after only a few trades, but could circulate for decades. Gossip and stories that about prior owners of the collectibles further provided information about upstream credit and liquidity. In other Neolithic cultures collectibles, usually shells, circulated in a less regular pattern but had similar purposes and attributes.

A letter from the industrial revolution

2008-09-07T16:49:00.000-07:00

Images: Copper halfpenny minted by the Darbies' Coalbrookdale Company and celebrating the Iron Bridge.

Here's an interesting letter from the dawn of the industrial revolution. It was written in 1775 by Abiah Darby, mother of Abraham Darby (III) and wife of Abraham Darby (II), the son of Abraham Darby (I), who invented the process of smelting iron with coke made from coal. The Darby family were Quakers and produced several early industrialists and engineers. This small letter makes or implies several points that may have been crucial to the growth of industry that makes modern wealth possible:

* The importance of property rights and market prices in maintaining a sustainable balance between the supply and demand of wood. ("woods for charcoal became very Scarce and landed Gentlemen rose the prices of cord wood exceeding high"). Although wood became expensive, there remained a sufficient supply of wood for the buildings, mine works, wagons, rails, etc.

* The ability of people living with sufficient technology and secure property rights to bypass and surpass ecological limitations (in this case substituting coal for wood, and later due to this cheap iron-making process, iron and steel for wood).

* Decentralized money issue. Abiah points out that the remote area of Coalbrookdale, where coal and iron were available, still often operated as a barter economy. Thus apparently Abraham had to either coin tokens or open a bank to issue notes (common during this era) so that the Darbies could pay their workers.

* Darby II's invention of the iron-tracked railroad (improving the productivity of the horses by over six times and precursor to the later steam-powered railroad).

* The ability to securely establish large machine works and lay 20 miles of track out in the boondocks and not have them be torn up by trespassers and used for other purposes or confiscated or taxed into oblivion by local lords. In most of the rest of the world that could not be taken for granted.

* The use of atmospheric pressure (Papin/Savery/Newcomen) steam engines to drain the mines and supply water to the waterwheel pond. (The atmospheric engine apparently wasn't up to the job of directly powering the bellows for the blast furnaces; that came later with the Watt steam pressure engine). Steam engines allowed water to be pumped out of mines at a far greater rate, and thus allowed coal and iron mines to be dug far deeper, creating a large and inexpensive new supply of coal and iron.

The link is a Word document, which I don't recommend opening for security reasons, but I've copied the contents below:

http://www.umassd.edu/ir/Resources/MetalandMining/m2.doc

Mrs. Abiah Darby on developments in the Darby ironworks at Coalbrookdale, 1708-1763

Esteemed Friend,

Thy very acceptable favour of the 9th ulto. claim'd my earliest acknowledgments, which I should immediately have made, had not thy kind condescension in taking notice of my late honour'd Husband, and requesting to be inform'd of any circumstance which may be interesting relating him, caused my delay-to recollect what might occur concerning his transactions or improvements in the Manufactory of Iron, so beneficial to this nation. But before I proceed further, I cannot help lamenting with thee in thy just observation, " that it has been universally observed, that the Destroyers of mankind are recorded and remembered, while the Benefactors are unnoticed and forgotten". This seems owing to the depravity of the mind, which centres in reaping the present advantages, and suffering obscurity to vail the original causes of such benefits; and even the very names of those to whom we are indebted for the important discoveries, to sink into oblivion. Whereas if they were handed down to posterity, gratitude would naturally arise in the commemoration of their ingenuity, and the great advantages injoyed from their indefatigable labours-I now make free to communicate what I have heard my Husband say, and what arises from my own knowledge; also what I am inform'd from a person now living, whose father came here as a workman at the first beginning of these Pit Coal Works.

Then to begin at the original. It was my Husband's Father, whose name he bore (Abraham Darby and who was the first that set on foot the Brass Works at or near Bristol) that attempted to mould and cast Iron pots, &c., in sand instead of Loam (as they were wont to do, which made it a tedious and more expensive process) in which he succeeded. This first attempt was tryed at an Air Furnace in Bristol. About the year 1709 he came into Shropshire to Coalbrookdale, and with other partners took a lease of the works, which only consisted of an old Blast Furnace and some Forges. He here cast Iron Goods in sand out of the Blast Furnace that blow'd with wood charcoal; for it was not yet thought of to blow with Pit Coal. Sometime after he suggested the thought, that it might be practable to smelt the Iron from the ore in the blast Furnace with Pit Coal: Upon this he first try'd with raw coal as it came out of the Mines, but it did not answer. He not discouraged, had the coal coak'd into Cynder, as is done for drying Malt, and it then succeeded to his satisfaction. But he found that only one sort of pit Coal would suit best for the purpose of making good Iron. -These were beneficial discoveries, for the moulding and casting in sand instead of Loam was of great service, both in respect to expence and expedition. And if we may compare little things with great-as the invention of printing was to writing, so was the moulding and casting in Sand to that of Loam. He then erected another Blast Furnace, and enlarged the Works. This discovery soon got abroad and became of great utility.

This Place and its environs was very barren, little money stiring amongst the Inhabitants. So that I have heard they were Obliged to exchange their small produce one to another instead of money, until he came and got the Works to bear, and made Money Circulate amongst the different parties who were employed by him. Yet notwithstanding the Service he was of to the Country, he had opposers and ill-wishers, and a remarkable circumstance of awful Memory occurs; of a person who endeavour'd to hinder the horses which carried the Iron Stone and Coal to the Furnaces, from coming through a road that he pretended had a right to Oppose: and one time when he saw the horses going alone, he in his Passion, wished he might Never Speak More if they should Ever come that way again. And instantly his Speech was stopped, and altho' he lived Several years after yet he Never Spoke More!

My Husband's Father died early in life; a religious good man, and an Eminent Minister amongst the people call'd Quakers.

My Husband Abraham Darby was but Six years old when his Father died-but he inherited his genius-enlarg'd upon his plan, and made many improvements. One of Consequence to the prosperity of these Works was as they [were] very short of water that in the Summer or dry Seasons they were obliged to blow very slow, and generally blow out the furnaces once a year, which was attended with great loss. But my Husband proposed the Erecting a Fire Engine to draw up the Water from the lower Works and convey it back into the upper po6ls, that by continual rotation of the Water the furnaces might be plentifully supplied; which answered Exceeding Well to these Works, and others have followed the Example.

But all this time the making of Barr Iron at Forges from Pit Coal pigs was not thought of. About 26 years ago my Husband conceived this happy thought-tbat it might be possible to make bar from pit coal pigs. Upon this he Sent some of our pigs to be tryed at the Forges, and that no prejudice might arise against them he did not discover from whence they came, or of what quality they were. And a good account being given of their working, he errected Blast Furnaces for Pig Iron for Forges. Edward Knight Esqr a capitol Iron Master urged my Husband to get a patent, that he might reap the benefit for years of this happy discovery: but he said he would not deprive the public of Such an Acquisition which he was Satisfyed it would be; and so it has proved, for it soon spread, and Many Furnaces both in this Neighbourhood and Several other places have been errected for this purpose.

Had not these discoveries been made the Iron trade of our own produce would have dwindled away, for woods for charcoal became very Scarce and landed Gentlemen rose the prices of cord wood exceeding high-indeed it would not have been to be got. But from pit coal being introduced in its stead the demand for wood charcoal is much lessen'd, and in a few years I apprehend will set the use of that article aside.

Many other improvements he was the author of. One of Service to these Works here they used to carry all their mine and coal upon horses' backs but he got roads made and laid with Sleepers and rails as they have them in the North of England for carring them to the Rivers, and brings them to the Furnaces in Waggons. And one waggon with three horses will bring as much as twenty horses used to bring on horses' backs. But this laying the roads with wood begot a Scarcity and rose the price of it. So that of late years the laying of the rails of cast Iron was substituted; which altho' expensive, answers well for Ware and Duration. We have in the different Works near twenty miles of this road which cost upwards of Eight hundred pounds a mile. That of Iron Wheels and axletrees for these waggons was I believe my Husband's Invention.

He kept himself confined to the Iron Trade and the Necessary Appendages annex'd thereto. He was just in Ms dealings-of universal benevolence and charity, living Strictly to the Rectitude of the Divine and Moral Law, held forth by his great Lord and Saviour, had an extraordinary command over his own spirit, which thro' the Assistance of Divine Grace enabled to bear up with fortitude above all opposition: for it may seem very strange, so valuable a man should have Antagonists, yet he had. Those called Gentlemen with an Envious Spirit could not bear to see him prosper; and others covetious; strove to make every advantage by raising their Rents of their collieries and lands in which he wanted to make roads; and endeavour'd to stop the works. But he surmounted all: and died in Peace beloved and Lamented by many.

The principle of least authority

2008-09-07T16:47:00.000-07:00

I've written an article on my application of the principle of least authority to the interpretation of legal language. I argue that the United States Constitution, according to its original meaning, instructs judges to construe federal statutes, regulations, executive orders, and other official acts, as well as the Constitution itself, to confer the least authority consistent with their language.

This article is based on a longer paper on the origins of the non-delegation doctrine I wrote for law school. That paper highlights a little-known debate on the non-delegation doctrine applied to the question of whether Congress could delegate the power to define postal roads. James Madison, among others, argued that this was an unconstitutional delegation of legislative power to the executive.

Antiques, time, gold, and bit gold

2008-08-28T16:32:00.000-07:00

What do antiques, time, and gold have in common? They are costly, due either to their original cost or the improbability of their history, and it is difficult to spoof this costliness. For example, it is usually difficult to spend an extra hour at the office without sacrificing about an hour of your personal life.

Unforgeable costliness is a pattern that recurs in many human institutions and is fundamental to civilization. Modern employment is based on the time-rate wage. Our monetary system is based on money being made unforgeably costly either through collectibles, commodity standards, or (in modern fiat currencies) accounting.

The unforgeable costliness pattern includes the following basic steps:

(1) find or create a class of objects that is highly improbable, takes much effort to make, or both, and such that the measure of their costliness can be verified by other parties.

(2) use the objects to enable a protocol or institution to cross trust boundaries

There are some problems involved with implementing unforgeable costliness on a computer. If such problems can be overcome, we can achieve bit gold. This would be the first online currency based on highly distributed trust and unforgeable costliness rather than trust in a single entity and traditional accounting controls. Hal Finney has implemented a variant of bit gold based on a tamper-evident computer plug-in card, for which remote users can verify what code is running on the card.