Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Networks are not planned by a single authority; they are the main source of innovation but are relatively fragile. Hierarchies exist primarily because of economies of scale and scope, beginning with the imperative of self-defense. To that end, but for other reasons too, hierarchies seek to exploit the positive externalities of networks. States need networks, for no political hierarchy, no matter how powerful, can plan all the clever things that networks spontaneously generate. But if the hierarchy comes to control the networks so much as to compromise their benign self-organizing capacities, then innovation is bound to wane.

I’m not always a huge fan of Niall Furguson, but his latest article in The American Interest, simply titled Networks and Hierarchies is worth reading. Readers of Liberty Blitzkrieg will be well aware that I believe the most significant battle of our era is between the forces of Decentralization vs. Centralization. Mr. Furguson takes that battle and looks at it from a historical perspective, describing it as Networks vs. Hierarchies, and posits that indeed much of our collective history has been characterized by the struggle between these two forces. In fact, he starts out the article with the following question:

Where Mr. Furguson and I agree is in the realization that modern technology has provided networks with the most powerful tool yet in their endless struggle against centralization and hierarchy. Where we disagree is the conclusion. Furguson takes a very unbiased view and essentially comes to the conclusion that he doesn’t know which of these forces will ultimately come out on top. He highlights the fact that many of our modern technological networks are owned by a very small group of people (Google, Facebook, Twitter, etc) and that the CEOs of these companies have proven themselves very willing to be complicit with NSA spying (the manifestation of pyramidical hierarchy).

While I acknowledge this truth and appreciate the threat, the fact Edward Snowden has revealed this to us has sparked a movement by some of the smartest technology minds on the planet to develop encrypted and secure systems. While we may not see all of the fruits of their labors for many years, see them we will, and I think they will help us transform human civilization in a monumental and extremely positive way.

What follows are some of my favorite excerpts from Niall’s piece. He starts off by comparing the U.S. and China:

Yet both states are republics, with roughly comparable vertical structures of administration and not wholly dissimilar concentrations of power in the hands of the central government. Economically, the two systems are certainly converging, with China looking ever more to market signals and incentives, while the United States keeps increasing the statutory and regulatory power of government over producers and consumers. And, to an extent that disturbs civil libertarians on both Left and Right, the U.S. government exerts control and practices surveillance over its citizens in ways that are functionally closer to contemporary China than to the America of the Founding Fathers.

He goes on to discuss the threats new technologies pose to centralized hierarchies:

It was not immediately obvious how big a challenge all this posed to the established state. There was a great deal of cheerful talk about the ways in which the information technology revolution would promote “smart” or “joined-up” government, enhancing the state’s ability to interact with citizens. However, the efforts of Anonymous, Wikileaks and Edward Snowden to disrupt the system of official secrecy, directed mainly against the U.S. government, have changed everything. In particular, Snowden’s revelations have exposed the extent to which Washington was seeking to establish a parasitical relationship with the key firms that operate the various electronic networks, acquiring not only metadata but sometimes also the actual content of vast numbers of phone calls and messages. Techniques of big-data mining, developed initially for commercial purposes, have been adapted to the needs of the National Security Agency.

He rightly recognizes how important Bitcoin is in this monumental struggle:

The most recent, and perhaps most important, network challenge to hierarchy comes with the advent of virtual currencies and payment systems like Bitcoin. Since ancient times, states have reaped considerable benefits from monopolizing or at least regulating the money created within their borders. It remains to be seen how big a challenge Bitcoin poses to the system of national fiat currencies that has evolved since the 1970s and, in particular, how big a challenge it poses to the “exorbitant privilege” enjoyed by the United States as the issuer of the world’s dominant reserve (and transaction) currency. But it would be unwise to assume, as some do, that it poses no challenge at all.

Networks are the spontaneously self-organizing, horizontal structures we form, beginning with knowledge and the various “memes” and representations we use to communicate it. These include the patterns of migration and miscegenation that have distributed our species and its DNA across the world’s surface; the markets through which we exchange goods and services; the clubs we form, as well as the myriad cults, movements, and crazes we periodically produce with minimal premeditation and leadership. And the fourth is hierarchies, vertical organizations characterized by centralized and top-down command, control, and communication. These begin with family-based clans and tribes, out of which or against which more complex hierarchical institutions evolved. They include, too, tightly regulated urban polities reliant on commerce or bigger, mostly monarchical, states based on agriculture; the centrally run cults often referred to as churches; the armies and bureaucracies within states; the autonomous corporations that, from the early modern period, sought to exploit economies of scope and scale by internalizing certain market transactions; academic corporations like universities; political parties; and the supersized transnational states that used to be called empires.

Networks are not planned by a single authority; they are the main source of innovation but are relatively fragile. Hierarchies exist primarily because of economies of scale and scope, beginning with the imperative of self-defense. To that end, but for other reasons too, hierarchies seek to exploit the positive externalities of networks. States need networks, for no political hierarchy, no matter how powerful, can plan all the clever things that networks spontaneously generate. But if the hierarchy comes to control the networks so much as to compromise their benign self-organizing capacities, then innovation is bound to wane.

European history in the 17th, 18th, and 19th centuries was characterized by a succession of network-driven waves of innovation: the Scientific Revolution, the Enlightenment, and the Industrial Revolution. In each case, the sharing of novel ideas within networks of scholars and tinkerers produced powerful and mainly positive externalities, culminating in the decisive improvements in economic efficiency and then life expectancy experienced in the British Isles, Western Europe, and North America from the late 18th century. The network effects of trade and migration were especially powerful, as European merchants and settlers exploited falling transportation costs to export their ideas, as well as their techniques and goods, to the rest of the world. Thanks to those ideas, this was also an era of political revolutions. Ideas about liberty, equality, and fraternity crossed the Atlantic as rapidly as pirated technology from the cotton mills of Lancashire. Kings were toppled, aristocracies abolished, and churches dissolved or made to compete without the support of a state.

Yet the 19th century saw the triumph of hierarchies over the new networks. This was partly because hierarchical corporations—which began, let us remember, as state-sponsored monopolies like the East India Company—were as important in the spread of industrial capitalism as horizontally structured markets. Firms could reduce the transaction costs of the market as well as exploit economies of scale and scope. The railways, steamships, and telegraph cables that made possible the first age of globalization had owners.

Not only did the period after 1918 witness the rise of the most centrally controlled states of all time (Stalin’s Soviet Union, Hitler’s Third Reich and Mao’s People’s Republic); it was also an era in which hierarchies flourished in the economic, social and cultural spheres. Central planners ruled, whether they worked for governments, armies or large corporations. In Aldous Huxley’s Brave New World (1932), the Fordist World State controls everything from eugenics to narcotics and euthanasia; the fate of the non-conformist Bernard Marx is banishment. In Orwell’s Nineteen Eighty-Four(1949) there is not the slightest chance that Winston Smith will be able to challenge Big Brother’s rule over Airstrip One; his fate is to be tortured and brainwashed. A remarkable number of the literary heroes of the high Cold War era were crushed by one system or the other: from Heller’s John Yossarian to le Carré’s Alec Leamas to Solzhenytsin’s Ivan Denisovich.

Kraus was right: The information technology of mid-century overwhelmingly favored the hierarchies. Though the telegraph and telephone created vast new networks, they were relatively easy to cut, tap, or control. Newsprint, radio, cinema, and television were not true network technologies because they generally involved one-way communication from the content provider to the reader or viewer. During the Cold War the superpowers were mostly able to control information flows by manufacturing or sponsoring propaganda and classifying or censoring anything deemed harmful. Sensation surrounded every spy scandal and defection; yet in most cases all that happened was that classified information was passed from one national security state to the other. Only highly trained personnel in governmental, academic, or corporate research centers used computers, and those were anything but personal computers.

Today, by contrast, the hierarchies seem to be in much more trouble. The most obvious challenge to established hierarchies is the flow of information unleashed by the advent of the personal computer, email, and the internet, which have allowed ordinary citizens to organize themselves into much larger and more dispersed networks than has ever been possible before. The PC has empowered the individual the way the book did after the 15th-century breakthrough in printing. Indeed, the trajectories for the production and price of PCs in the United States between 1977 and 2004 are remarkably similar to the trajectories for the production and price of printed books in England from 1490 to 1630. The differences are that our networking revolution is much faster and that it is global.

The challenge these new networks pose to established hierarchies is threefold. First, they vastly increase the volume of information to which citizens can have access, as well as the speed with

which they can have access to it. Second, they empower individual citizens to publicize things that might otherwise remain secret or known only to a few. Edward Snowden and Daniel Ellsberg did the same thing by making public classified documents, but Snowden has already revealed much more than Ellsberg and to vastly more people, while Julian Assange, the founder of WikiLeaks, has far out-scooped Carl Bernstein and Bob Woodward (even if he has not yet helped to bring down an American President). Third, and perhaps most importantly, the networks expose by their very performance the inefficiency of hierarchical government.

The shortcomings of the website Healthcare.gov in many ways epitomized the fundamental problem: In the age of Amazon, consumers expect basic functionality from websites.Daily Show host Jon Stewart spoke for hundreds of thousands of frustrated users when he taunted former Health and Human Services head Kathleen Sebelius: “I’m going to try and download every movie ever made, and you’re going to try to sign up for Obamacare, and we’ll see which happens first.”

Yet the trials and tribulations of “Obamacare” are merely a microcosm for a much more profound problem. The modern state, at least in its democratic variant, has evolved a familiar solution to the problem of increasing the provision of public goods without making proportionate increases to taxation, and that is to finance current government consumption through borrowing, while at the same time encouraging citizens to increase their own leverage by various fiscal incentives, such as the deductibility of mortgage interest payments. The vast increase of private debt that preceded the financial crisis of 2008 was succeeded by a comparably vast increase in public debt. At the same time, central banks took increasingly unorthodox steps to shore up tottering banks and plunging asset markets by purchases of securities in exchange for excess reserves. With short-term interest rates at zero, “quantitative easing” was designed to keep long-term interest rates low too. The financial world watches with bated breath to see how QE can be “tapered” and when short-term rates will be raised. Most economists nevertheless take for granted the U.S. government’s ability to print its own currency without limit. Many assume that this offers some relatively easy way out of trouble if rising interest rates threaten to make debt service intolerably burdensome. But this assumption may be wrong.

Since ancient times, states have exploited their ability to issue currency, whether coins stamped with the king’s likeness or electronic dollars on a screen. But if the new networks are in the process of creating an alternative form of money, such as Bitcoin purports to be, then perhaps the time-honored state privilege to debase the currency is at risk. Bitcoin offers many advantages over a fiat currency like the U.S. dollar. As a means of payment—especially for online transactions—it is faster, cheaper, and more secure than a credit card. As a store of value it has many of the key attributes of gold, notably finite supply. As a unit of account it is having teething troubles, but that is because it has become an attractive speculative object. It is too early to predict that Bitcoin will succeed as a parallel currency, but it is also too early to predict that it will fail. In any case, governments can fail, too.

Where governments fail most egregiously, new networks may well increase the probability of successful revolution. The revolutionary events that swept the Middle East and North Africa beginning in Tunisia in December 2010—the so-called Arab Spring—were certainly facilitated by various kinds of information technology, even if for most Arabs it was probably the television channel Al Jazeera more than Facebook or Twitter that spread the news of the revolution. Most recently, the revolutionaries in Kiev who overthrew Ukrainian President Viktor Yanukovych made effective use of social networks to organize their protests in the Maidan and to disseminate their critique of Yanukovych and his cronies.

The owners of the networks are also well aware that plotting jihad is not the principal use to which their technology is put, any more than plotting revolution is. They owe their security much more to network surfers’ apathy than to the NSA. Most people do not go online to participate in flash mobs. Most women seem to prefer shopping and gossiping; most men prefer sports and pornography. All those neural quirks produced by evolution make us complete suckers for the cascading stimuli of tweets, Instagrams, and Facebook pokes from members of our electronic kinship group. The networks cater to our solipsism (selfies), our short attention spans (140 characters), and our seemingly insatiable appetite for “news” about “celebrities.” In the networked world, the danger is not popular insurrection but indifference; the political challenge is not to withstand popular anger but to transmit any kind of signal through the noise. What can focus us, albeit briefly, on the tiresome business of how we are governed or, at least, by whom? When we speak of “populism” today, we mean simply a politics that is audible as well as intelligible to the man in the street. Not that the man in the street is actually in the street. Far more likely, he is the man slumped on his sofa, his attention skipping fitfully from television to laptop to tablet to smartphone and back to television. And what gets his attention? The end of history? The clash of civilizations? The answer turns out to be the narcissism of small differences.