Galtland Index

The Cybereconomy

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The Cybereconomy

The cybereconomy, in Davidson and Rees-Mogg’s The Sovereign Individual, is the borderless realm of online commerce that the authors predicted would grow beyond the effective reach of territorial taxation — a realm in which governments would have “no more dominion than they exercise over the bottom of the sea or the outer planets” — and that would be settled in a new, denationalized digital money they called cybercash.

Escape From Territorial Taxation

The cybereconomy is the economic half of the book’s megapolitical argument. Taxation works because the state can locate, threaten, and seize physical wealth and physical persons inside its borders. The authors argue that when the highest-value work is informational — performed “anywhere” by anyone “with a portable computer and a satellite link” — and when the transactions themselves occur in an encrypted, placeless medium, the state’s central lever stops working. Wealth acquires what they call financial “escape velocity.” Governments that “attempt to charge too much as the price of domicile will merely drive away their best customers,” which is the mechanism behind jurisdictional competition.

Cybercash

The book’s most concrete and most prescient forecast concerns money. Davidson and Rees-Mogg predicted that cybercommerce would “lead inevitably to cybermoney,” a “new digital form of money” with a specific set of properties:

  • It would “consist of encrypted sequences of multihundred-digit prime numbers” — “unique, anonymous, and verifiable.”
  • It would be “all but impossible to counterfeit” for “the fundamental mathematical reason that it is all but impossible to unravel the product of multihundred-digit prime numbers.”
  • It would be denationalized — issued and validated by private markets rather than states, so that holders “will no longer need to tolerate” inflation, since they could “easily shift out of any currency that appears in danger of depreciation.”
  • It would likely be “defined in terms of grams or ounces of gold,” a digital gold standard the authors expected to return control of money “to the owners of wealth … rather than to nation-states.”

Writing in 1997, the authors explicitly framed this as the fulfillment of Hayek’s case for competing currencies in Denationalisation of Money: “encrypted cybercash will bring Hayek’s logic vividly to life.” The description anticipates, more than a decade early, much of the design space later occupied by Bitcoin and the broader debate over hard money — though, importantly, the authors imagined a gold-denominated digital money rather than the algorithmically-scarce, gold-free design Satoshi actually shipped.

Connection and Caveats

The cybereconomy forecast sits squarely alongside the cypherpunk program: it shares with crypto anarchy the premise that strong cryptography opens zones of exchange that states cannot surveil, tax, or censor. Where Tim May reasons from the cryptographer’s primitives outward, Davidson and Rees-Mogg reason from the investor’s and historian’s view of capital mobility inward, and arrive at the same place.

Confidence is medium. The cybercash prediction was substantially vindicated by the later emergence of cryptocurrency, and it is corroborated by independent wiki sources on currency competition and digital cash. But the broader claim — that the cybereconomy would by now have hollowed out the nation-state’s tax base and produced “no cybertaxes and no cybergovernment” — remains a forecast whose record is mixed: states have proven far more able to tax, surveil, and regulate online commerce (and even cryptocurrency) than the book expected.

See Also

  • The Sovereign Individual - source book; Chapter 7 develops the cybereconomy and cybercash
  • Megapolitics - the violence-cost theory that predicts wealth fleeing into this domain
  • Jurisdictional Competition - the fiscal pressure mobile cyberwealth puts on governments
  • Crypto Anarchy - the cypherpunk thesis of cryptographic escape that the cybereconomy parallels
  • Denationalisation of Money - Hayek’s currency-competition argument the authors invoke for cybercash
  • Hard Money - the sound-money tradition the gold-linked digital-money forecast belongs to
  • Cypherpunk - topic map for cryptographic money, privacy, and resistance
  • James Dale Davidson - co-author who forecast the cybereconomy and cybercash
  • William Rees-Mogg - co-author who forecast the cybereconomy and cybercash
  • David Chaum - Cryptographer who invented blind signatures and the untraceable-payments program — the pre-cypherpunk foundation whose ecash and DigiCash ancestored later digital cash.
  • The Offense–Defense Balance of Technology - Every technology tilts power toward attack or defense by changing the cost of predation versus protection — and state formation and dissolution track the shifts. Gunpowder built the state
  • Seasteading and Network States - Two proposals for building new polities that compete with the nation-state: floating ocean settlements (seasteading) and internet communities that crowdfund territory and seek recognition (network

Sources

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