Capitalism’s Perestroika Moment: Bitcoin Rises as Economic Centralization Falls


Among the great sages of the ancient world, there once dwelt a mystic who the ancients heralded as the Мaster of Мasters, the Great-great or the Thrice-greatest Hermes Trismegistus. This man, if man indeed he was, is the author of the Corpus Hermeticum, the discoverer of alchemy, the founder of astrology, and the forebear of occult wisdom. 

The Egyptians deified the Thrice-greatest as the God of wisdom Thoth, while the Greeks recognized the equivalence of Thoth and Hermes through the interpretatio graeca and worshiped them as the same deity.

Hermes’s influence on philosophy, dogma, science, mathematics, and — most importantly — our collective map of meaning, spans across two millennia and more cultures and religions than probably exist today. 

Hermes matters for this story: not because his arcane teachings have anything to do with crypto or decentralized systems and protocols (he was a prophet alright, but he got nothing on Satoshi), but because one of his fundamental principles of reality — the principle of rhythm — serves as pretty good ruler for mapping out the colossal societal phase shift we’re currently facing today.

It’s time to reflect, writes Allen Farrington in rebuttal — and reflect we will. It was unfortunate, perhaps, that it took us being stranded in our homes, besieged by an invisible, undead enemy to finally question how we managed to mess this up so profusely, but at least we’re finally doing it.

Rhythm compensates

The hermetic law of rhythm is the embodiment of the truth that all things rise and fall. That the pendulum swing manifests in everything, and that the measure of the swing to the right is the measure of the swing to the left. This principle, once you’ve witnessed it, cannot be unseen. It applies to all things, at all levels of analysis. It is almost fractal in nature, and much reminiscent of human stupidity.

Relative to whatever-dimensional axis the current cultural pendulum is swinging, one thing is obvious even to the oblivious — the pendulum has reached maximum amplitude.* 

Economically, we were very late into the long-term debt cycle even before the coronavirus hit. Adding fuel to the flames, the central bank of the world’s reserve currency or the FED seems to have mistaken West Ham United’s hymn (I’m Forever Blowing Bubbles) for a viable macroprudential policy manual. 

Moving past that – culturally, we’ve hardly ever been more polarized; the gap between the haves and have-nots is at an all-time high (and getting worse by the day). Bolshevik leader Vladimir Lenin has been quoted as saying that every society is three meals away from chaos. If there’s any truth to that, we’re coming dangerously close to finding out for sure.

Systemically we’re unstable; institutionally we’re corrupted; psychologically we’re bewildered; and royally — we seem fu doomed.

In other words, we’re long overdue for a correction, and we feel it in our gut. The law of compensation is ever in action. It’s deeply ingrained in our individual and collective subconscious. The average individual doesn’t need to understand all the intricacies of Keynesian economics to realize that “money printer go brrrr” can’t possibly be the solution to our predicament. The meme went viral for a reason: everyone knows that that’s not how anything in life works. 

Now we must face the music. We can’t kick the can down the road anymore. It’s 1986 for capitalism, and we’ve got nothing ready-made to replace it.

Centralization as a feature

Acclaimed journalist H. L. Mencken hit the nail on the head when he said that:

“There’s always an easy solution to every problem — neat, plausible, and wrong.” 

And that’s what we’re dealing with here, let’s not pretend otherwise. 

Today’s financial crisis is hardly a univariate issue. The entire multitude of events that led us to this mess is impossible to encapsulate in one text, so we will instead focus merely on one piece of the puzzle, a piece near and dear to the crypto ethos — the centralization of power, and our ongoing struggle to resist it. 

In Morals and Dogma, 33rd degree Master Mason Albert Pike wrote: “as free States advance in power, there is a strong tendency toward centralization, not from deliberate evil intention, but from the course of events and the indolence of human nature.”

Pike’s got it right, but indolence is only half of the equation. The other half is our propensity to take things to the extreme. Consider, for example, the two dominant economic ideologies of the 20th century: communism and capitalism. We took both to the extreme, and in both cases we somehow ended up with more centralization on top of everything else.

Communism concentrated economic power with the government, resulting in corruption, cronyism and, eventually, tyranny. Historians may debate and disagree on what exactly went wrong, but it’s certainly no coincidence that the term ‘central’ appears repeatedly in virtually every text on the subject.

Central prisons, Central Penal Department, Central Executive Committee, Central People’s Commissariat, Central Corrective Labor Department, Central Union of Consumer Cooperatives, Central Bureau of Dactyloscopic Registration and, get this — Central Breeding Establishment for Service and Tracking Dogs.

And our version of capitalism isn’t any better in that regard. Okay, okay, that’s a bit overboard — it’s much better but, in many ways, it’s a charade. Markets today are free insofar as they’re not falling off a cliff; however, as soon as they nosedive, we suddenly don’t need them to be free anymore and we beg central banks and central governments to step in and save us from the hodgepodge that they created in the first place. God forbid we man up and face true price discovery — or the reality that we might’ve never had one.

By pretending that we’re letting nature run its course, we’ve ended up with corporations and corporate cartels with ungodly amounts of political and financial power (assuming there’s a difference). And this centralization of money and power in ever-fewer hands is so prevalent that it almost gives the impression of a law of nature. Somewhere along our journey toward centralization, we bought into the idea that that’s just how nature is; that’s how things work.

But it’s not how things work and, funnily enough, especially not in nature. There are certainly hierarchies of power and competence, but much of nature is decentralized. Status-seeking animals either build collusion-resistant consensus protocols/institutions or end up as we did — with unprecedented wealth and power disparities. Centralization is principally a human invention — an emergent property of our insatiable thirst for control and power.

And it’s to no one’s surprise really. People have been aware of the strong gravitational pull of power for millennia. Scientists have studied it in detail and found it present in virtually every dimension of human interplay. 

In 1968, for example, sociologist Robert K. Merton studied how scientists were recognized for their achievements and discovered that — almost as a rule — for similar works, the senior, more eminent scientists took all the credit (the citations, rewards, grants, etc). He called this the Matthew Effect, after the following verse from the Bible: 

“For to him who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away.”

To economists and mathematicians these types of power-law probability distributions are also known as Pareto distributions, named after the economist Vilfredo Pareto, who first made the observation that 80% of land in Italy belonged to ~20% of the population (80/20 principle). 

The point is, whatever we call it—the underlying principle is the same. The rich get richer, the poor get poorer. The relationship between centralization and Pareto wealth distributions and the Matthew Effect is a causal loop — the former feeds and simultaneously breeds the other, and vice versa.

We need to break that loop. The Matthew effect and Pareto distributions are not some immutable natural laws, but merely observations. Very significant observations — no doubt — but still just observations. Centralization, therefore, doesn’t have to be our destiny. Sure, we may not know from experience what a truly decentralized society looks like but, if we’ve learned anything from history since 1917, it’s that we know how centralization plays out.

Tipping the Tower of Babel

Blockchains may have made decentralization seem avant-garde, but the concept is not novel. References to the problem of centralization can be found in works as old as the Bible. In fact, it can be argued that the intriguing story of the Tower of Babel is more a story about decentralization than one about the origin of many languages.

After the great flood, as Noah stepped off the Ark, God commanded him to “be fruitful and multiply and fill the earth.” Fast forward several generations later, Noah’s family had settled in one place and, in trying to “make a name for themselves,” begun raising the building of all buildings — the Tower of Babel. God, of course, was not a fan of this; he had instructed mankind to decentralize and “fill the earth,” while mankind disobeyed him and did precisely the opposite. Determined to teach them a lesson, God scattered them all over the world and confused their language so that they couldn’t understand each other. 

In the 19th-century, inspired by the Biblical teachings, politician and Catholic theologian Wilhelm Emmanuel von Ketteler postulated a very influential principle of social organization called the principle of subsidiarity. It holds that all social and political matters ought to be dealt with at the most immediate, or least centralized level, consistent with their resolution. This principle is the essence of — if not synonymous with — decentralization. 

In Democracy in America, Alexis de Tocqueville wrote:

“Decentralization has, not only an administrative value, but also a civic dimension, since it increases the opportunities for citizens to take interest in public affairs; it makes them get accustomed to using freedom.”

In practice, centralization dulls all instincts of accountability and independence, and pushes boredom and indolence to their utmost limits. It robs individuals of the vital necessity to feel responsible for their actions. It turns individuals into commodities — the means to an end of efficiency for technological and economic “progress”, at the expense of civil accountability. 

Decentralization, on the other hand, is a deliberate societal deconstruction of institutions to meet the needs of the people, rather than the needs of the institutions’ controllers. In a more decentralized environment, we control the commodities that empower our existence.

In crypto, this is elegantly revealed through the “not your keys, not your coins” principle. Holding the keys to your own cryptocurrency wallet is the quintessence of subsidiarity. It captures everything that decentralization stands for in one pure act of defiance. 

If there’s anything to learn from our sub-par implementation of the twin economic ideologies of the 20th century, it’s that we must learn how to design more decentralized, collusion-resistant and antifragile national and societal institutions — and do so peacefully. In order to fight the iron law of oligarchy, we have to build institutions resistant to it.And that’s where crypto steps in. From a design perspective, Bitcoin is everything we could wish for from a money-issuing institution.

Bitcoin defies the iron law of oligarchy because it has low barriers to entry and requires significant skin in the game. If a single entity gained control over 51% of the network (dictatorship of the majority), the incentive structures in place would — by design — propel the entity to further the actual goals of the institution rather than sabotage them (collusion-resistance). 

As a democratic monetary institution, Bitcoin cherishes the same values that we now wish our society embraced more than anything — security, stability, and predictability over quick profit and “efficiency”; transparency over secrecy; personal responsibility before indolence and complacency; financial prudence (stacking sats) over financial irresponsibility and finally, subsidiarity and accountability over-reliance on central authority.

The Bitcoin protocol is almost a blueprint for building collusion-resistant and antifragile institutions. Doing it with money wasn’t easy, and we still have a long road ahead, but now it’s also time to start applying the same principles on the rest of our national and social institutions.

What we seek is a golden mean

Decentralization is not a ready-made replacement, and it can solve only some of our problems. We need also be aware that decentralization begets pathologies the same way that all other social organizing principles do, when taken to the extreme. It is, therefore, by no means a cure to our inherent propensity for taking things to the extreme. It is merely a check on the gravitational pull of power, and hopefully, what’s needed to obstruct the causal loop produced by it.

What we seek, therefore, is a golden mean — the optimal size for the building blocks in the hierarchy. Going through capitalism’s perestroika, this will be our main point of contention. 

Postmodernists will frame this battle as one between the plebs and the elites — between the oppressors and the oppressed — but what we’ll really be seeing is a battle between centrists and decentrists. Between people who, as Röpke observed, are attracted to ideas for dealing with human beings in the aggregate vs. those who are preoccupied with the fate of individuals, with their needs and their concerns. 

Between freedom, autonomy, and responsibility and against dependence for the sake of convenience; between sound economics and antifragility and against debt-fueled mindless expansion.

Capitalism and communism have more in common that their -isms. Both have led us to this moment in time, a moment in which centralized economic power, and cronyism and corruptio,n together deprive the majority of their self-sovereignty. 

In 1986, communism fell in Russia.

In 2020, capitalism is falling in America.

*Editor’s note: this piece was composed before the death of George Floyd beneath the knee of Minneapolis police officers, and the ensuing civil unrest currently consuming the United States of America.

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