The American Constitution provides the ‘nuts and bolts of liberty,’ putting constraints on the government and promising equality before the law. But the challenge is that it relies on state officials to enforce the law impartially. What if the blockchain could help us avoid these human-level implementation problems and effectively automate some features of our bureaucracy?
Dr. Nick Cowen is a lecturer in the School of Social and Political Sciences at the University of Lincoln and the author of the paper, ‘Markets for Rules: The Promise and Peril of Blockchain Distributed Governance.’ Today, Nick is back to discuss the potential benefits of blockchain governance structures, including the ability to apply law impartially and reduce censorship. He explores the idea of consent as it applies to the blockchain and explains how the technology prevents the off-diagonals that manifest out of subsidiarity.
Nick weighs in on whether the blockchain will become a competition to be the best or the most permissive and describes how the technology might influence our political systems—and vice versa. Listen in for Nick’s insight around the application of civil versus common law traditions via the blockchain and learn how we can leverage blockchain technology for environmental governance.
Resources
‘Markets for Rules: The Promise and Peril of Blockchain Distributed Governance’ by Nick Cowen
Being Me Being You: Adam Smith and Empathy by Samuel Fleischacker
Full Transcript
Ross Kenyon: Hello and welcome to the Reversing Climate Change podcast. I’m Ross Kenyon. I have Dr. Nick Cowan, lecturer in the School of Social and Political Sciences at the University of Lincoln, back on to do a bonus episode. Nick, I actually, just the other day, someone asked me why we don’t do blockchain episodes nearly as much as we once did. And you had sent me this paper. Your timing is terrific. How many opportunities in your life have come from just sending the right email at the right time?
Dr. Nick Cowen: Oh, well, actually, I suppose my best option or other like my best opportunities have usually emerged by me being the only person who bothered to turn up. Some of my collaborations have started by me turning up to a job interview and realizing, oh, well, there’s kind of two positions going. Oh, and there’s only two candidates. One of them is me. So, yeah, that’s I guess it’s linked. But I think sort of getting in the room is often the battle. And it’s even better if maybe the room is not too full.
Ross Kenyon: Okay, that works for me then. Well, this paper that you wrote is called Markets for Rules, the Promise and Peril of Blockchain Distributed Governance. I am very excited to take a sort of political economic look at blockchains and why they’re exciting from that kind of lens. We’ve danced around this issue a few times, but I think it’s one of the parts of the entire ecosystem that is really quite intellectually thrilling and vibrant. So why don’t you introduce this paper and what it’s about, and then we’re going to just tear into it.
Fantastic.
Dr. Nick Cowen: Essentially, I came at this topic by observing a lot of people talking about blockchains as a replacement for currencies. So there was this idea, I think if you kind of look at the original blueprint by that anonymous Satoshi, He kind of explained that there was this problem of third party reliance on payment systems across the internet. And so I think ultimately he was thinking the biggest third party of all is the states and namely central banks who And so, and they’re kind of licensed and they have this kind of interesting kind of peculiar relationship with the state that kind of bears the Satoshi launched Bitcoin and there were a lot of tokens that copied the idea.
Basically, you set up this regime where no single agent can actually communicate. So, you end up with a network that basically processes everything. Transactions which up to a certain point are kind of irreversible unless you kind of unwind the whole system, which means that each individual transaction is kind of resistant to being manipulated ex post. And I found that very exciting. I could see how useful that could be in Yeah. And then a lot of new ideas kind of came up, especially with the launch of Ethereum, which is a kind of smart ledger as opposed to a kind of public ledger, which is what Bitcoin is.
I’m a criminologist, so I’m often looking at agents that are operating outside the law. And I noticed that one thing that was happening When I was writing this paper was that sex workers were using mainstream internet platforms to advertise their services and also to make transactions. They were using things like PayPal and mainstream third parties. And what they’re doing in most states is legal, or at least they can find ways of providing their services legally. But they’re stigmatized. People don’t like sex workers for various reasons.
And normally, states are often finding excuses to kind of delegitimize them in some way and to try and discourage their activities. And so they’ve been passing various laws and regulations. A big one was the Foster-Sester Act in the US, but we have parallel, less formal mechanisms in the UK that discourage these mainstream third-party agencies from processing what I take to be legitimate beneficial transactions. The advantage of these blockchain arrangements is that actually, if you have a system which works for payments and works between two parties, there’s no way in which a state or a third party can block those transactions.
Effectively, what you can do... Is go from merely kind of exchanging payments, merely being a payment processor, as Bitcoin is, to actually building in some regimes where you can actually sell your services directly online. And once they’re kind of... Once it’s provided, once certain keys have been made, you can have payments or other forms of value can be transferred. I think it’s very exciting in terms of allowing stigmatized transactions to take place. I think it’s great for allowing global commerce to take place without reliance on governmental structures.
And I think it’s really great from the perspective of reducing censorship in the long term as well. So, yeah, that’s kind of what got me going about it. The other side of it is some of our best institutional technologies. Is the constitution. You know, the US constitution, the less formal constitution that we have in the United Kingdom. Yeah, you guys are lazy. You didn’t even
Ross Kenyon: write yours down. Write yours down. Super lazy. Super lazy.
Dr. Nick Cowen: Yeah, absolutely. Absolutely. Yeah, it’s only recently that we’ve got some laws that appear to be constitution-y because they kind of go if, unless explicitly abridged, they count as law and they count as slightly higher than ordinary legislation. We didn’t normally have that at all. Nevertheless, we had certain norms and conventions which were meant to kind of constrain the government, basically ensure that everyone was subject to the same law. So equality before the law and also the rule of law. So in other words, if you’re expecting the government to do something, if you perform a certain action, it does it.
You have a right to get married by a representative of the state unless there are very specific reasons why you can’t, that kind of thing. And that’s great. It’s a wonderful, you know, this is like the nuts and bolts of liberty. But there’s a challenge. It’s always very reliant on basically state officials being willing to enforce the law impartially. And we need very, very strong norms in order to kind of get that kind of level of control. And of course, in practice, it’s often abridged.
We have this problem of corrupt agents. We have people who struggle to access services for whatever reason. And I feel that the hard-coded nature of kind of So, Although I don’t see it replacing human constitutions as such, you still need people to be willing to go in and enforce some aspects of it. Some features of our bureaucracies, our constitutional frameworks might be automatable. That’s where I am at at the moment. That’s what the paper is about.
Ross Kenyon: That’s great. There’s so much there to talk about. When I think about liberalism in the broadest sense, I think about it as having a weighty appreciation for the idea of consent. And that in order for a political institution to be legitimate, the people underneath it have to have consented in some meaningful, substantive kind of way. And if governance were to happen through some sort of blockchain process... That seemingly would be voluntary in a new sort of way because this problem is actually surprisingly hard. You’re born into a society.
You sort of are acculturated into it with the language and how you’re able to think is shaped by that. And it’s hard to know when you’re 8, 9, 14, which rules are actually good ones and which ones are not. And trying to figure out exactly at what point consent comes into this because in one sense, You’re not meaningfully consenting to civilization. There’s nowhere for you to go. You can move to another state, but it’s not like you could go somewhere and start over for the most part.
But blockchain seemingly offer you the ability to do some of that where there are places digitally, virtually that allow people to opt in differently. And I don’t know, create new rules and experiment. Of course, there are also downsides to this. When you’re talking about financial transactions happening, I’m sure the ones that you’ve named may rub people the wrong way too and say, actually, I don’t know that we as a society or civilization should encourage sex work or drugs or even things that are more objectively pernicious than that.
But then if there’s a permissionless system where someone can transact in a credible fashion to provide and receive those services, that’s also a really big risk too. So those are two big questions, but maybe let’s start with the first and we’ll get to the second one later. The first question is just people being able to opt in to new types of governance via blockchain. And is that actually a way of solving liberalisms? Because liberalism gets really weird and abstract about its relationship to consent, right? So John Rawls gets into this.
Would you, if you didn’t know who you would be, would you consent to this theoretical society? And that’s a way of sort of relying upon consent, but it’s not how one normally experiences consent either. But blockchain is a much more explicit, direct experience of political consent in certain kinds of ways. Is that even a fair understanding of what is happening here?
Dr. Nick Cowen: Yeah, no, I think so. I mean, I think that it may turn out that blockchains have a kind of slightly more complicated relationship with consent, just as we initiated liberal states on the idea that they should be subject to the consent of the governed. We got to be careful that something similar distortionary doesn’t happen with blockchains as well. But I suppose when we’re looking at consent, you’ve kind of got... You’ve got this idea that maybe we could form a society on the basis of unanimous consent.
Maybe if we had some kind of desert island experience where everyone had at least the opportunity to go to their own island if they wanted to, then maybe you could imagine some scenario in which you could actually have that. Some philosophers have sometimes tried to figure that out. Normally, that doesn’t work for a kind of advanced community, because if you have a single holdout, someone who doesn’t consent, and you’re in a community, then you’re basically never going to emerge out of anarchy. No one’s ever going to end up giving any of their power.
So what do you do instead? Well, you have tacit consent, whereby you kind of say, well, if you can leave... Maybe we have to discuss what does that mean effectively. Maybe if there’s a wilderness you can join, you can say, well, okay, you can leave. It’s costly, but you can leave. If there are other societies not too far away, then maybe that ups the reasonableness of tacit consent a bit. I guess the idea is that blockchains might be able to increase that a little bit because it might be able to take components of governance relations, Which have been typically associated with territorial states and instead kind of say, actually, that doesn’t really have to be done territorially anymore.
So I guess it could be a way of kind of not producing, you know, kind of absolute consent, but kind of getting more towards the kind of real tacit consent that maybe kind of Locke kind of spoke about in terms of, you know, you know, when you’re an adult, you’re allowed to leave. You can find any society that will take you. And that’s one way of getting liberal consent. The other way of looking at it is to think again about the consent of the governed. And that’s to kind of say, well, what you really need is input from the community into how you are governed.
You’re kind of at that point kind of saying the community exists and you’re part of the community. That’s sort of like a given. And that’s where things like majority rule have normally come in as a kind of mechanism for trying to make sure that the state behaves in a way that is generally tolerated. Yeah. So that’s the kind of challenge that kind of liberal political economy has faced. When we think to like, I don’t know, I think the last time there was a big, big change in the way that we kind of engaged in sort of serious political organisation was probably, you know, the American Revolution, you know, I think a lot of the successful ones since then have tended to kind of use that as a kind of model.
And, you know, if you look at many countries today, if they transition towards democracies, they often introduce a constitution, a formal written constitution. They try and introduce some kind of judiciary. That’s often a bit harder to kind of get, you know, get that independent judiciary working. And they also often call themselves federal. And that’s the kind of other way in which you sort of get little bits of this consent going. So although it’s probably prohibitively difficult for many Americans to leave America, not least because a lot of other countries are a lot poorer, so there’s going to be costs when you have that, at least you can move to a different state.
I suppose in the grand scheme of things, most of the states are run along pretty similar lines. At least they’re competing with each other. They’re competing with each other for population. At least that’s hopefully what they’re doing when they’re not competing for special favours in the federal government. But there’s this idea that... States like to be growing. Traditionally, they’ve benefited from that. And as a result, they’re disciplined by each other. So there’s this notion of competitive federalism. It’s been the best that we’ve had so far when we’ve managed to get it going.
I see these things as potentially, I suppose they could be fast-tracked. They can kind of be energized with the use of blockchain technology.
Ross Kenyon: We got into this a little bit recently on an episode I did with Quill Robinson, who identifies as some flavor of conservative. We were talking about the idea of subsidiarity, that things should be devolved to the lowest level possible, the most local level possible is where we should solve. I like that idea. I’m very attracted to it. But I also feel like it needs something complementary, something like a 14th Amendment that guarantees due process. So if you have various states who are claiming states' rights for local governance and they want to do If you do that in order to enforce Jim Crow laws or segregation, that’s a time where you have a higher power say, actually, this is inappropriate use of subsidiarity.
You are not allowed to do that under this federal system. And I think that’s sort of objectively a good way to be. You could say, well, those people are free to leave if they want to. And sure, if you’re being oppressed, I guess you could try and go somewhere less oppressive. But it also doesn’t seem totally fair that the onus is on the person being harmed to escape in that kind of way. Or you have other examples too. Something like, I know in the UK, the tax justice movement feels very strongly that if you have competition for rules under various states, you will have firms that will leave high tax, high regulation jurisdictions under.
And they will go to jurisdictions without that. And that leads to a loss of the tax base. It means the people who live in those lower regulation jurisdictions are perhaps exploited. They don’t have the same protections under the law as they might in the UK or elsewhere. Or maybe a more somewhat silly example is film subsidies among the various United States where you have places like New Mexico, which I think Breaking Bad might have happened in Tucson were it not that New Mexico subsidized it. And then Georgia is famous for giving lots in subsidies, Louisiana too.
But I think it’s a bad deal for them. So there’s this race for them to offer as much as possible. And I think states end up losing. They get the prestige of having films there. But it’s worse for the citizens who are taxed to pay for giving all these tax breaks and subsidies of various flavors to film companies. So sorry, there’s a whole bunch of examples. Sorry, you should jump in. You’ve blown my mind, Ross. Is that why Ozark is set where it is and why it’s called what it is?
Seriously, I would not even doubt it. I bet you someone was just like, what is a state that will give me money to do this crime serial drama?
Dr. Nick Cowen: Wow. And they think it raises the prestige of the state? I mean, to be fair, I mean, I want to visit the Ozarks now. Is it Arkansas? Is that where it’s based? To be honest, I don’t quite know. All I know is it’s in this sort of marshland of like the – Oh, marshland. Yeah, I don’t know. I was looking up whether there was like a university there or something because it kind of looked kind of interesting. But yeah, now I think you’re getting at a very important point there, Ross, because it’s sort of – yeah, so this is something which states just fall into.
And we do this in Britain as well. Everyone loves film subsidies. And you’re right. Basically, it’s because it benefits the immediate – well, I mean, the public kind of like it. So you can project it as being part of the public good. So it’s sort of launderable in that way. It doesn’t look like it’s crazy. It’s nice for the filmmakers. Filmmakers, obviously they benefit because they get this amazing tax subsidy. And it also sort of gives, you know, the politicians get a chance to kind of like, you know, hang out with movie stars, which I mean, who doesn’t?
So it’s great, great, great fun. And so it’s natural to understand why you would fall into doing that if you’re not constrained from doing that. And this is the main problem. It’s something that James Buchanan called moving onto off diagonals. And so basically... There’s a set of common rules which it makes sense for everyone to follow. And so that’s how you get people to opt in. But once you’ve got everyone opting in, producing goods, paying their taxes, supporting the state in various ways, then it’s very, very easy just at the margin, especially if it’s a small thing like taxes for movie stars.
It’s such a small group. You just move slightly off and you just go like, oh, yeah, actually, we can make everyone just slightly worse off. In a way that will be imperceptible. In fact, they might not even think they were worse off because for various reasons they think it’s going to be good for the economy, even though when you do the calculations it doesn’t normally work out that way. Same with sports stadiums and things. So you kind of move off and go, oh, yeah, I can just take this, you know, this little extra bonus and I can keep it for myself or find a way of getting it through to myself by distributing it to my friends.
And that’s precisely what a kind of a fiscal compact or a kind of fiscal constitution is meant to stop. But on the other hand, it’s very, very hard to put that down on paper and enforce it in such a way that you can’t avoid this happening, that you can avoid this happening every time. Because there’s often some kind of public good arrangement. You have to build a hospital. Someone has to build it. Someone’s going to specifically benefit from that outlay that the state has given.
So it’s very hard to... I think that is where blockchain rules can come in. And from a kind of Buchananite, from a constitutional perspective, It looks really attractive because it’s like very simple. It’s very clear. There’s no room for like giving a little bit of extra income to film stars or what have you. The idea is everyone gets the same and it’s based on presumably a progressive tax base. So it all comes in and it all goes out. There’s nothing that a policymaker can do once it’s established.
The problem is, of course, if it’s written on parchment or it’s just passed by a legislator, then before long you can carve out exceptions. You’re going to go like, ah, I don’t think ex-felon should get the universal basic income. It’s not so universal anymore, but who’s going to argue that felons should get the basic income? That’s a sort of very simple way. More money for us. That’s the kind of way of doing it. And so you can kind of make these sort of general rules, which discriminate against groups, but in ways that are kind of considered to be...
And that’s the sort of thing which political entrepreneurs, legislators kind of get into. And that’s why something like universal basic income under the current framework is kind of unstable, because it’s too easy to kind of carve out. If you had it based on a rule set whereby a set of transactions that were taking place across the blockchain ecosystem just got collected, like a very small sum each time got collected into a kind of common pool and then just got distributed to every unit that was participating in the system.
You could kind of specify that has to happen in a kind of egalitarian way. And there would be no way without fundamentally changing the blockchain, i.e. kind of getting people more or less unanimously to agree to the change, you couldn’t kind of change it. So it would kind of be a way of kind of enforcing. It’s funny to me – so I understand the Buchananite constitutional political economy point that you’re making –
Ross Kenyon: I’m going to introduce a new conceptual framework that hopefully isn’t too confusing to append on to this, but the difference between the civil law tradition and the common law tradition, so in the UK and all of the former dominions and colonists. Yeah. Yeah. The very basic understanding of the common law as I have it. I’m sure you’re champing at the bit here to fill in some of these gaps. And when I think of the civil law tradition and the Napoleonic Code, I think of this as a sort of French Enlightenment attempt to, through only one’s rationality, design ex ante a somewhat perfect or nearly perfect System of law that is totally impartial and in fact judges no longer need to interpret the law.
They merely apply it as basically a type of technician of the law. And that’s the sort of ideal. It’s totally impartial. But I think we both prefer the common law tradition which is much more you could say wet. So like it requires human interaction. It’s like wet versus dry systems. The common law is a wet system. It requires human judgment, intervention, intuition. The civil law is dry. It’s almost mechanical. And if I’m being, maybe this is unfair to blockchain, but I think if blockchain is having its programmability, especially with something like Ethereum, is being much closer to the civil law tradition, which is if these conditions are met, then this thing happens.
It’s almost like a bending machine of law. But How many circumstances is it appropriate to have a vending machine of law? Do you not want to have some sort of wet intervention in there like a judge who can shape things and take things outside of what would be taken into account under a more mechanical programmable civil law type of institution?
Dr. Nick Cowen: Oh, wow. Yeah, that’s a really interesting way of looking at it, Ross. Yeah. I mean, I suppose I’d push back a little bit on your conceptualization on this kind of distinction between common law and civil law in the sense that you’re quite right. Judges have had a lot of input into the development of the common law. Or rather, it’s kind of officially recognized. That’s the difference. The Civil Code denies that judges have had much input into it, although in fact they probably have had more than they’re prepared to recognise.
In other words, when you kind of look at the details, inevitably there’s actually a mix and there’s been quite a lot of codification over the years. In fact, I believe it was... I can’t remember which King Henry, but I think there was one of the early King Henrys. Where does the common law come from? Why is it called the common law? Well, actually, it was kind of a consolidation of a bunch of laws that were existing in different respects throughout England, as it was at the time.
And basically it was getting a little messy and, you know, the Napoleon of the 1300s or whenever this Henry was around, he decided that it was time to do a little bit of consolidation. And to be fair, it was based on, you know, existing, you know, the sort of stuff. We often think of the common law as having a kind of evolutionary feature to it. And I think that kind of makes sense when you kind of understand that we’re not talking about any one blockchain or one blockchain to rule them all.
Rather, these are designed – even when a judge is making a decision, they have to make it on the basis of some design, even if it’s just to fit the case at hand with some sort of generality. What we’re going to have is a great deal of blockchain’s Some that come in and offer a complete alternative way of doing something and then get integrated in. And also an awful lot of deliberation, discussion and contestation in existing blockchains. So I think integrating governance structures... I imagine them to be extremely super majoritarian because we don’t want majority rule to come back into it.
But there will be opportunities to bring in that kind of wetness, as you describe it, into the system. And in fact, there’s a very interesting development. It’s a decentralized autonomous organization, a DAO, Aragon. They’ve recently introduced a court and you can sign up as a juror. If you have a chance, Ross, I know you’re very busy these days, but I certainly want to sort of give up. You can sign up as a juror and you get to hear cases. They’re mostly about cases to do with how to run blockchains at the moment.
But there’s going to be some very interesting substantive cases that are going to come up. For example, how to handle copyright and ownership on the blockchain. That sort of stuff cannot be automated. So you’re going to have to have human eyes being compensated effectively. So this is how it’s going to work. They’re going to pay people to act as neutral arbiters. Bringing in that kind of third party-ishness again, but, you know, kind of anonymous, abstracted third parties who will then render a judgment, which will then be binding on the blockchain because the parties that are in dispute have agreed to be bound by that decision.
And so, you know, I think we can kind of see many of these as the opportunity to kind of nest ourselves. The only difference is it’s going to be designed in such a way that it’s kind of ideally neutral by design, by the choice situation, and also that it’s going to be... Why do you think that if we do have a market for rules, people will compete to be the best rather than the most permissive in a bad way? Well, I can say that I don’t know that.
I’m kind of optimistic in the sense that I think that most people are interested. I think we do, you know, I’m going to sound like a real old fashioned liberal here or rather, you know, kind of a proper kind of... I do think people have natural sympathies for each other. I do think most people develop a strong moral sense unless you’re a kind of psychopath or some kind of sociopath. That’s a kind of minority set of people. We’ll filter towards rules which they understand to be respectful of people’s rights.
That’s a hope, but I can’t be sure. And of course, part of the problem that we’re dealing with in the blockchain system is... There are whales, there are enormously powerful people who start off by launching these blockchains or get in very early, and therefore they have a much weightier say in how these things go. They seem to be a bunch of extremely socially engaged, one might say altruistic, certainly open-minded nerds that are running the system at the moment. You can never be sure if someone else might be able to get in and exploit the technology.
So one reason why I’m looking at this with my own theories is that I don’t think this process is entirely deterministic. I think that we’re going to reach some critical junctures, as the historical institutionalists say, where we’re going to take a route and decide how we’re going to use a piece of technology, how we’re going to use this technology. It’s very important that the people who have the power to wield it understand its power and try to build in these liberal constraints. What I will say is that I think that a function of this technology is that it kind of It’s got this kind of liberal bias in the sense that if two parties want to transact, this thing kind of facilitates it.
So then the question is, in a world where people can engage in any two party transactions or bilateral transactions that they want to, how many externalities are there going to be as a result? So is the typical thing... Is that the sort of thing that most people want to spend the vast majority of their resources doing? I hope so. Is it, in fact, once you’ve got these two-party transactions and they can take place in this kind of sequestered place and they can be binding in this kind of very bizarrely strong way, are people going to be taking out contract killings as a matter of course?
Is that? If that’s actually what people want to do, then unfortunately, blockchains will also have a way of facilitating that. I suppose we’re going to find out. Maybe in a much more visceral way, exactly what human nature is like at this point. So a conservative who might tend to be a bit more dispositionally pessimistic about people’s natural propensities, I believe in a natural propensity to chit-chat, to truck and barter, to feel mutual sympathy for each other. That’s my bias or my inclination. If you’re a conservative, if you’re more like Hobbes, If Hobbes is kind of a liberal, I don’t know, who’s a kind of, you probably think of a nice old school conservative who thinks unless everyone has the fear of God in them, they’re going to start killing each other.
Then, you know, I think you have a right, if that’s your disposition, you have a right to be worried about blockchain. And I take those views seriously because I don’t want this thing spiraling out of control.
Ross Kenyon: Come on, man. Can’t you just pick a side and give it to me straight here? Now there’s all this nuance involved. I don’t know what to think anymore. Come on, Nick. What are you doing?
Dr. Nick Cowen: As I say, my propensity is to think that most people don’t like to hurt other people. They want to get on with their own lives. They want to love and they want to be loved and they want to be lovely. That’s how most people, if they’ve been treated in a vaguely reasonable way growing up, that’s the way most people can comport themselves. And if that’s correct, then we’ll find a way of using this technology to engage in much more effective commercial transactions and also dispute resolutions, all the stuff of governance.
We’re going to be able to do that and we’re going to be able Right now, that’s the way that governance is. We rely on this kind of core of this group of people that lay a claim to the legitimate use of violence in a given territory. That’s how we get governance done at the moment. And I think that we can either abolish that in the long I think there’s a good chance we can get there and I think... Blockchain on a technological and also on a conceptual level can help us get there.
Ross Kenyon: Multiple angles I want to take. First is, I’m not sure if anyone out there listening realizes that you dropped four or five references to Adam Smith in such a short period of time. All these like coded words, truck and barter. I think he said something about an impartial spectator or something very similar to that. Yeah, no, that’s right. I’m sorry.
Dr. Nick Cowen: I’ve got Adam Smith on my mind at the moment. You know, what can I say? I read a lot of liberal political economy. And yeah, Smith is – yeah. In fact, if you want to understand a little bit about what kind of blockchain can do – You can do a lot worse than read Smith’s – it’s not really a digression. There’s a digression on silver, but I don’t think it’s in there. But he talks about the way that paper currency works. You know how libertarians hate paper money, or at least they hate paper money that’s not backed by gold.
Smith was not a libertarian, and he especially wasn’t a libertarian in that particular way. He understood the value of having the ability to issue credit from reputable authorities and the ability to basically use much fewer resources. In other words, not have to worry about trudging your gold around and worrying about it getting robbed or whatever. You can just have this paper that’s easily concealed, much more easily transferred. And therefore the amount of resources, the amount of real resources, which doesn’t have to be spent on gold, which, you know, like mining gold, which is then just stored somewhere and like has to be guarded.
Instead, relying on a kind of more abstract system, which allows... It’s a great way of understanding from this very initial stage the importance of transaction costs. I think that’s what Smith is talking about when he’s discussing the introduction of paper currency and the banking system. It reduces the transaction costs, which means that basically you get to keep more of your labour. You labor long and hard to produce some specific good, and you get to transfer it into a more effective economy much more quickly. So you get to save.
You basically keep a lot more of that value for yourself to spend on the goods that you couldn’t produce yourself, but other people can produce very efficiently. So it’s something that we often neglect. We kind of have this idea that money is money. It just works. Blockchain works, unless we’re in Zimbabwe or Venezuela. But actually, it’s still got its costs associated with it. There’s an enormous financial system that’s basically acting as an intermediary. Because it’s acting as an intermediary and they’re all hanging out in Wall Street, they get to engage in a bit of conspiracy against the economy to make sure they’re taking bigger chunks out of it than they really have to.
Through decentralized finance, really has the opportunity to, I won’t say wipe out Wall Street, but let’s say basically make sure it is only literally one street that’s doing it, rather than probably the single biggest wall. So, there’s a kind of egalitarian hope in what we’re thinking of now that there’s a kind of system which is extremely efficient in the sense that it is to our benefit, but is also highly redistributionary and it redistributes upwards towards people who have the wherewithal to handle these systems. And blockchain basically is going to turn much of what these highly paid professionals do into Sad to say for them, into dApps.
You can have a financial advisor or a financial intermediary in your pocket that you can use with your phone instead. So I think that’s where a lot of this value is going to come from.
Ross Kenyon: That makes sense. And brief note about Adam Smith, if you’re listening, you probably only know, I don’t know, I almost say you probably only know, but his popular reputation is that of being sort of an Unapologetic, ruthless, invisible hand-loving capitalist. But his legacy is quite contested. And in fact, he’s one of those people that if you take theory of moral sentiments into account, which is his other famous book, the scholars are oftentimes progressives too. Like I saw Sam Fleischacker has a new book about Adam Smith that just came out.
It’s called something like Knowing Me, Knowing You, which of course reminds me of ABBA and then reminds me of Alan Partridge, your countryman.
Dr. Nick Cowen: Yeah. Yeah. Wow. Oh, well, you’re very knowledgeable of, yes, Alan Partridge’s core British comedy there.
Ross Kenyon: Yeah. Oh, God. Steve Coogan. Love that guy. I bet you didn’t expect Adam Smith all the way to Steve Coogan in one fell swoop, but I just did it.
Dr. Nick Cowen: You know, I would love it if Alan Partridge had had the chance to interview Adam Smith. That would have been an amazing meeting of minds. All right. On Norfolk Digital as well.
Ross Kenyon: Norfolk Digital. Yeah, yeah. Yeah. Wait, hold on a second, Nick. I want to follow up. I had to make this dumb joke, but now we’re getting into it. You’ve already danced around this a little bit, and I was wondering if you could maybe give a more concrete answer to it. But to what degree do you think technology determines our political institutions or vice versa? Which was the causality bidirectional? How does this work and how might blockchain change it?
Dr. Nick Cowen: Yeah, I guess it’s certainly not deterministic. You know, it’s sort of bi-directional in that sense. Although I suppose the problem is, is that we’re, you know, what’s it bi-directional with? Political decisions, political institutions, culture, norms, agency. So unfortunately, it’s going to be... Multidirectional and complex. That’s going to be the answer. So, you know, sorry, I’m doing a bit more dancing around. But I’ll say that it’s clear that technology, you know, you kind of have to be willing to kind of lean into it unless, I don’t know, if you’re like a ruler, And you think this thing is going to be a complete catastrophe.
You could try and destroy it altogether. Very, very hard because now people kind of understand it. So no one knows who Satoshi is. So it’s going to be very hard to kind of put it away. And in that sense, I kind of see it as sort of paralleling the printing press, which is an amazing piece of technology, but is kind of conceptual. More than anything else, it uses some fairly common tools to put together ink, the metal machine tools or whatever it is that you use to put it together.
It’s been invented a few times in a few places, but it happened to pick up in Renaissance Europe and take off and basically cause Protestantism. Well, sorry, I don’t want to be talking too deterministically, but let’s say it influenced attitudes towards religion in an important way. And at that point, leaders kind of have a choice because the Ottoman Empire fiercely resisted the printing press. So, you know, I mean, I think they could see where this was coming. You’re going to end up with a lot of people talking, discussing, sharing ideas.
And in a sense, they were right, because Europe was riven with civil wars and wars for ages, while settling how religious liberty was going to work. And part of that was triggered by the invention of the printing press. So it certainly changed. He plays a big role, but there’s choice for the way that existing political elites can cope with these systems. I think that there are right choices out there, or there are better choices, which can mean that the upside is overwhelming. I think it’s really up to policymakers or the existing political elite whether blockchains prompt a smooth transition towards more consensual governance, which everyone says they’re up to.
Most people in developed countries kind of claim to be liberals of a kind. So if you’re a liberal of a kind, you should be very excited about making use of these I think that’s certainly possible. It could be part of that smooth transition. Or alternatively, if it’s rejected because it’s nasty, it’s liked by nerds, some disreputable people are using it to trade in drugs and sex work or what have you, then it’s going to take on a much more anarchist bent. It’s going to be something which is going to lead, I suppose, eventually to a lot more coercion and violence as people try and stop people from using these alternative governance arrangements.
It’s fine. You know, the environment, it’s okay for it. It’s not the perfect, but it’s fine. And farmers used to try and grow it. But the colony of Virginia had the monopoly on tobacco within the British Empire at that time. Farmers would grow it, soldiers would come around and destroy it in various parts of South England. It made sense. The technology was there. We discovered it. We brought it back from the new world. We could have used it. Instead of saying, oh, that’s great.
If you can grow it, sell it. Instead, it was used as an opportunity to engage in essentially random violence between farmers and the royal enforcers of a state monopoly. Part of what happens next is up to the political elite. Is that the pipe weed from the South Farthing? Does that mean anything to you? I’m afraid it doesn’t. Tolkienian nonsense that I just spit at you. Oh, okay. Well, I suppose, yeah, I do recall Wizard Gandalf tucking into a pipe. So yeah, that makes sense.
Yes.
Ross Kenyon: It’s all an elaborate allegory about monopolistic economic institutions during the colonial era, right? Like Georgian colonial policy. That’s what Lord of the Rings is about, right?
Dr. Nick Cowen: The Lord of the Rings. Well, I’m sure, I mean, it’s got a lot of allegories. I mean, it could be the state. It could be nuclear power. I suppose the great, I mean, what you find in works of literature like that is that they kind of bear in, the author himself probably doesn’t quite know. Tolkien probably didn’t quite know exactly what point he was making. So you can kind of impose a great deal. You can always bring a new interpretation to it. But yes, empire and the state, that sounds like Mordor to me.
Ross Kenyon: I’m sure you learned this when growing up and going to school, but the safest answer is to always just assume it’s Christian allegory. A Christian allegory. Yeah. That’s always the simplest way to go. Okay. Listeners know this has now officially gotten to garbage time. First thing. I ruined it. I put us onto this track. We should probably start concluding here, Nick. Also, if you’re listening, do you like episodes like this that are the environment came up maybe zero times? I’m sure if listening to this, you can understand how this might apply to environmental governance and climate change issues.
But hopefully it’s interesting for its own sake. I have no idea.
Dr. Nick Cowen: Well, I’m kind of curious what’s going to happen with your ERC token next, because presumably that’s the other half of the enterprise for Nori. Is that right?
Ross Kenyon: Yeah, yeah. Nori’s built on Ethereum and using some of their token standards for how we designed ours. But ours aren’t out into the wild at this point of listening, which is what, June 24th?
Dr. Nick Cowen: Well, I think we just have to emphasize, you know, I mean, we talked a while back about commons institutions and the way that commons can work better, perhaps for landowners who want to take advantage of the Nori ecosystem. Basically, the idea behind a blockchain is that you, if designed correctly... You don’t have to trust the company that has launched it. You just have to trust the code that they’ve launched. Because once it’s launched, and it’s being used by a large enough number of people, it will be the network that will decide how the tokens get awarded, how they get distributed.
And so perhaps you’ll end up even using Aragon Court as a way of resolving questions where there’s an issue of like, There’s a lot of opportunities for decentralization in order to provide for these common goods, which have been tough. In the UK, the financial system used to be dominated by mutually owned building societies. In other words, it was lenders lending to each other. Is that what the mutual means in insurance companies to this day? Yeah, that’s right. We called it the Big Bang in the UK when Thatcher came along.
And to be fair, she was tackling, I suppose, a lot of statist enterprise at the time, but got swept up in that kind of reforming zeal to say, oh, you know what really works? Shareholder capitalism. We need more shareholder capitalism. She ended up encouraging and in some cases actively demutualizing a lot of previously successful, very long-lived organizations and effectively privatizing them because on the basis that shareholders are... We’ll be right back. But also including the provision of environmental goods. Often that kind of straightforward private enterprise doesn’t work so well.
What we want is kind of different sorts of membership organisations to kind of do it. We can look to this without using kind of blockchain technology. But blockchains might be a way, for example, of preventing these organisations from being turned into something either fully private or fully public after they’ve been launched. In other words, they can kind of help keep the organisation under the control of the people who’ve initiated it and are participating in it. And when you’ve got environmental goods that require different, specific contributions from various people – And people need to be able to observe what they’re doing in order to release their rewards.
That sort of system could work very well on the blockchain. You’re just angling for another episode, aren’t you? Absolutely. Absolutely. It’s always great fun. Having a willing audience. Because usually I’m dealing with, I suppose, involuntary audiences. People who have to turn up because they have to sign the register. Oh, just to get their degree? Yeah. Yeah, that’s right. Not a great way to conceptualize your students, Nick. I suppose you might say they pre-committed to it. They consented to it at some point, to the regime.
But you, every time we agree to meet, you’re doing it afresh. So I’m more confident that at least you enjoyed the last one.
Ross Kenyon: That’s true. No, I’m happy. It’s fun to talk on this level. And I’ve always gotten a lot out of these ways of thinking. I wish they were more present because these conversations are all super interesting. I think with politics, we end up so far zoomed in on whatever is actually happening that these more abstract questions of why is an independent judiciary important? What kind of federal system makes sense? How do you have the benefits of local institutions that don’t run amok and do terrible things to people without any sort of check?
What happens when a government gets too big? Those questions are actually really fun. And the answers are multivariant and not at all settled. And there are trade-offs any direction you go. And it’s just super vibrant. So I find myself really interested in these discussions whenever they happen. And I’m grateful to have you on because you... Force it into that intellectual space in the best kind of way. Thanks, Ross. Yeah. Well, let’s do it again sometime soon and I’m sure you’ll send me another paper and I’ll say, wow, dang it.
I guess we have to do another in... What should we even call these? Nori’s Political Economy Series?
Dr. Nick Cowen: Yeah, you want to create a shard, as they say on Ethereum, like a separate channel for these? I can recommend some more people to talk to. You really should get Ilya Mutasashvili on your podcast if you haven’t already at some point. He’s got some very interesting ideas on the provision of common goods, actually. So yeah, I’m hoping to write something with him soon. So yeah, there’s a lot of people. If you want to talk political economy, there are people out there.
Ross Kenyon: Yeah, I would be. I want to see how people like this. If you’re listening and you say, hey, this is fascinating and I really liked it, you should drop us a line at podcast.nori.com. If you say snooze, I just want environmental and carbon removal stuff, you can write me there. Okay, great. Well, thanks for being here, Nick. Thanks very much, Ross. Links to Nick’s work is in the show notes. And if you like the show, please rate and review us on iTunes, Apple Podcasts, Stitcher.
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