Sovereign Nonsense: A review of The Sovereign Individual by James Dale Davidson and Lord William Rees-Mogg

I do not write many book reviews. I have never written one of a book published more than two decades prior. However, I’ve become aware, thanks to Max Chafkin’s recent and compelling biography of Peter Thiel, of a book that is rarely read, especially in standard intellectual circles, but has been exceptionally influential in the world of technology. Intellectual standards are often quite limited in that world and it thus seems worth bringing a bit to bear on something that has gained such currency with so little real scrutiny. This is particularly true given the pointed nature of that book’s views, as I will highlight below.

The Sovereign Individual takes as a starting point a roughly Thomas Friedman-esque “the internet flattens the world” and a set of predictions about technology that were prevalent in the 1990s. It layers on top of this an Objectivist (viz. the philosophy of Ayn Rand) worldview. From these it derives a series of “predictions” about the collapse of most existing forms of social coordination/cooperation/control (nation states, corporations, unions etc.) into extreme anarcho-capitalism in which adherence to the rules of the game are enforced by various private entities, ranging from robots to mafias. The picture painted resembles Neal Stephenson’s Snowcrash.

The book has a strong following among technologists, especially venture capitalists (Peter Thiel leading among them, but also Balaji Srinivasan and to a lesser extent Marc Andreessen and Erik Torenberg), who praise it as prescient, in particular highlighting the way it anticipated the decline of good jobs in wealthy countries, the rise of digital currencies and backlash from reactionary ethnonationalists. It is formulated as a predictive not a normative work; it argues that the world it imagines is technologically inevitable and beyond anyone’s ability to stop from coming into existence. It is important to acknowledge from the outset that this framing is half-hearted. Even the preface to the current edition, by Thiel, seems to concede the book is more manifesto than prophecy and portraying the former as the latter is one of the oldest and most infamous tricks in the rhetorical book (see, for example, Das Kapital and Mein Kampf, among many others).

Nonetheless, the book sets up its thesis in such a way that making normative and analytical arguments against its vision is unlikely to be persuasive to those who are inclined to admire it. I will return to these points at the end, as they should not be conceded. But to grant as much as I can, I will focus my attention first on three elements of the book that are central to the claims made for it by its champions: novelty, veracity and sincerity.

Novelty

Champions of the book argue it was visionary for its time, which should at minimum require its arguments not having been in wide circulation at that time. I personally find that claim very strange given both my personal history and easily discoverable documentary evidence:

1. Almost all the technological vision presented in the book previously appears in research papers, such as the 1979 “Computers and Government” by JCR Licklider, who was himself arguably the first founder of the internet.

2. In fact, years before the book was published, these long-standing technological predictions were developed into a range of popular formats. The most famous is explicitly called out (pp. 30, 179) in the book, Neal Stephenson’s 1992 book Snowcrash; nearly all the technological ideas in the book that are not directly discussed in Snowcrash show up in other Stephenson books (though a couple, admittedly, are primarily the focus in Cryptonomicon, which came out the same year as Sovereign Individual).

3. Given the backdrop, the most innovative aspect of the book is the ideological spin it puts on these projections. Yet these were also pretty common at the time, as I know from personal experience as an active “paid-up” member of the Silicon Valley Objectivist (Ayn Rand-follower) community. The political, social, methodological and historical ideas in the book (including many of the specific factual errors I highlight below) were in wide circulation in that community for several years prior to its publication. To me, the book’s social science reads as the conventional wisdom of that scene, not as anything fresh. I know it is hard to verify this claim, but I encourage you to ask others from that community (e.g. Frederick Clifford Gibson or Yaron Brook) if you doubt it.

In short, at least in the broad strokes of e.g. predicting global digital currencies or immersive virtual environments for distance working, there is nothing surprising or visionary in the book; it is simply repeating well-established predictions from both analysis and fiction of the time. And as for the hyper-individualistic spin it puts on top of this, this is what the Objectivist community in Silicon Valley was banging on about at the time and, it should be said, for quite some time before.

Veracity

There are certainly worse things than being old hat, however. Perhaps the book was a pithy and politically spicy summary of thoughtful conventional wisdom about the future of technology at the time that deserves praise for carefully choosing the most persuasive projections.

The predictions for which the book is most famous are quite vague and hard to directly verify. One of them has a clear if superficial ring of truth to it, namely the discussion of digital currencies. Yet even in this most validated prediction, the book largely misses the mark; on other broad predictions it has hardly a leg to stand on.

a. Rise of digital gold

Perhaps the prediction for which the book is most heavily referenced is the rise of “digital gold” (pp. 215-219). Many credit this with having predicted the rise of cryptocurrencies. Of course, there is some surface truth to this…there are now digital currencies and half a dozen pages of this book speak generally on this topic (as did many others as noted above). Scratch slightly deeper than this, however, and it quickly becomes apparent how poorly the book’s predictions fit actual events.

First, it’s important to understand what has transpired with digital currencies, which differs from the hype in many respects. Digital currencies are not (yet?) a significant medium of commercial exchange. According to Blockchain.com, all daily blockchain transactions currently have a value that is on the order of magnitude of a billion dollars, fluctuating from roughly $1-15 billion. In contrast, Cespa et al. (2021) estimate that the value of foreign exchange transactions in US dollars alone is on the order of a trillion dollars daily. Of course, the first figure neglects off-chain transactions and the second, probably more significantly, neglects all intra-national trades. But clearly digital currencies at most account for a fraction of a percent of all global commercial transactions. Furthermore, while advocates of cryptocurrency often derisively refer to non-digital currencies as “fiat money”, it is important to recognize if there is a spectrum from precious metals, to which some (especially in the Austrian economics tradition that influenced this book greatly) attribute inherent value for industrial and cosmetic applications, to money based on social consensus and expectations ungrounded in any use value of the medium of exchange, current blockchain-based digital currencies are further out than fiat currency is. They are not tied to any asset of underlying value, only to a scarcity generated by social convention. While some, such as Bitcoin, are quite rigid in their structure and thus not subject to human adaptation to circumstances, there is simply nothing of inherent value in a post on a ledger beyond what collective agreement grants it. This is not a matter of normative judgement but basic fact.

Second, it’s important to contrast this with the actual predictions that the book makes. It does not suggest that there will be excitement around the development of digital currencies based on consensus mechanisms. Instead, it argues that, soon, nearly all transactions will occur on private ledgers tied to underlying physical assets through extreme cryptographic security: in particular they predict “digital gold” not in a figurative sense but in a quite literal one. They write, “it will be likely that at least one party to every transaction will find himself dealing in a currency that is not legal tender to him” (emphasis added), and, “(u)nlike the paper-money receipts issued by governments during the gold-standard era, which could easily be duplicated at will, the new digital gold standard…will be almost impossible to counterfeit…” The authors carry on at some length about the ways in which bars of gold can be digitally cataloged, linked and tracked to ensure completely gold-standard fidelity.

The resemblance between these two pictures is minimal. While it is hard to get precise statistics on this, there does not seem to have been an appreciable decline in transactions where both sides recognize a relevant currency as legal tender, much less every transaction going this way. As noted above, we are rapidly moving further from links to tangibly valuable assets, not closer to them. The use of cryptography in the authors’ vision (viz. to tie things ever more securely to underlying physical assets) is completely different and in many ways opposite to the way it is operating in Web 3 (viz. to maximally detach scarcity from physical assets). Only the most superficial reading that picks up on the words “cryptography” and “digital money” could mistake the two.

b. Fragmentation of nation states

A primary prediction of the book is the fragmentation and decline of nation states. A subsection entitled “Death Watch for Nation-States” (pp. 240-1) is followed by a section “After the Nation-State”, which is arguably the most central part of the book’s argument. That section predicts the imminent break-up of several major rich world countries (Belgium, Canada and Italy). For example, they write, “it seems only a matter of time until a secession referendum dissolves Canada[…]When Canada breaks apart, this will lead to a marked increase in secessionist activity in the Pacific Northwest of the United States.” Both as specific predictions about specific countries and as a broader trend, this set of projections could hardly be more off.

Secessionism has been a consistent theme in both Belgium and Canada for decades but has seen almost no practical success and many practical defeats over the period. The Northern League, which the authors foresee leading Italy’s north out of the country, has instead become a national political force and has dropped its northern emphasis. More broadly, secessionism has been almost entirely unsuccessful in the rich world and, except for Brexit to which one of the author’s sons was a leading contributor (more on this below), almost all of the rich world’s secessionism of the last hundred years occurred prior to the book’s publication.

In fact, directly contrary to the book’s claims, secessionism was not all that uncommon precisely during the period the authors claim was most favorable to the centralized nation-state and yet has become almost impossible at precisely the time the authors claim it should be on the rise. The break-up of the Soviet Union led many countries to gain their freedom, as did the break-up of many empires of the 20th century. What secessionism succeeds today does so almost exclusively in societies not typically thought of as on the “Information Age” frontier (e.g. South Sudan and South Ossetia) or in contexts where the secessionism is largely a proxy conflict between precisely the kinds of great nation state powers that the book claims are declining into irrelevance (e.g. Ukraine and Taiwan). In short, it is hard to imagine predictions being so clearly and at so many qualitative and quantitative levels refuted by events.

c. End of collective value distribution

A primary conclusion of the book is the collapse of the ability of collective entities like governments and corporations to engage in what they deride as “redistribution”, but I would prefer to describe as collective value distribution. While because I reject the authors’ framing it is a bit hard to figure out how to get a purchase on the truth of their claims, one approach that I suspect they would feel comfortable with is the evolution of the extent to which taxes and transfers reduce inequality in rich countries. Our World in Data has tracked this since 2005 for 24 countries, all in the rich world. There is no over-time trend in these data that I can discern; the figures are generally flat, though a few countries (e.g. Ireland) have seen significant increases while a few others (e.g. Japan and the United States) have seen a much more modest decline. There is no case that the capacity for “redistribution” has collapsed.

Now, given the vagueness and ambiguity of these claims, one might wish to give the authors some benefit of the doubt. Maybe these predictions will soon come true, even if there is no indication yet, or perhaps there is something more generally in the vicinity of the predictions they will claim has been born out. Thus, it is useful to get more concrete about things that are falsifiable in the book.

a. Peru as harbinger

Given this book is primarily forward-looking, it’s worth returning to the statistics misstated above to see what predictions they were intended to ladder into. Peru is a good place to start. The authors write (p. 148) that “future historians may report…the first post-modern coup…the remarkable padlocking of the congress in Peru in 1993…we see it as perhaps the first step towards delegitimizing a form of governance…A similar fate could await other legislatures…” As it turned out, at least the 25+ years of history following the Peruvian coup have failed to bear out this prediction. While it was not the only closure of a legislature since that time, coups have almost entirely disappeared in Latin America and of those that have taken place (usually cloaked in greater procedural nicety than was Fujimori’s) have been as often from the sort of leftist nationalist bent that the authors disdain as from the ultra-capitalist mode they see as the inevitable future. In particular, while the 1960s and 1970s saw more than a dozen coups in the region, there was arguably not a single successful coup since the Peruvian one; perhaps the closest case to a repeat of Fujimori’s antics has been the recent behavior of Nayib Bukele, a self-certified Bitcoin bro and thus plausibly was directly inspired by the word in this book.

b. The Clintons as drug lords

The authors (pp. 368-72) make an extended argument that, under the leadership of Bill Clinton, the United States has become a “Narco Republic” with both Clinton himself and the CIA running drug trafficking operations at the highest levels of government. They refer to Clinton as “The Mob’s President”. It is not clear whether it is appropriate to classify this as a claim about fact at the time, given that facts were not entirely clear at the time, or a projection about the future, given that the authors repeatedly state that these conclusions will soon be widely accepted. Whatever the case, it is manifestly untrue that views of this sort have become even on the fringes of mainstream. Hillary Clinton ran for and successfully won several offices, including the popular vote for the presidency. While she faced many attacks, they largely focused, even when she was up against opponent like Donald Trump who pulled few punches, on far more minor matters, such as her handling of the Benghazi crisis or her emails. If these claims to which the authors devote 1% of their tome had anywhere near the credibility they attribute to them, one would suppose things would have played out quite differently in her near two decade political career.

c. Collapse of government fiscal capacity

The authors predict (pp. 212-4) the imminent collapse of the taxing power of the state. “The new technology of the Information Age will effectively protect cyberassets at vanishingly small cost.” They predict that the only taxes that will persist are head taxes (per person levies) and consumption taxes will persist. This has proven almost entirely wrong. Government revenue share of national income has hardly moved either in the rich world generally or in the United States in particular. Nor has there been any move towards head taxes or even much towards consumption taxes; a new global agreement has just been made to put a floor on corporate tax rates. Their claims about the tendency of fiat currencies toward hyperinflation and a collapse of government control over money is equally spurious but deserves greater attention rather than just direct dismissal.

Yet one does not even need to consider predictions at all to see the intellectual and journalistic standards of the book. Many of the “facts” it states were verifiably false at time of writing:

a. Success of the Peruvian coup

Celebrating the “self-coup” by Alberto Fujimori in 1994, the authors claim that in 1994, following the coup, “real economic growth in Peru reached 12.9%, the highest on the planet” (p. 151). This is false both literally and substantively. Peru’s growth that year (which has since been slightly revised downward from the 12.9% figure) was ninth highest in the world, behind countries ranging from Lithuania to the Central African Republic. More broadly overall growth in Peru during the 1990s was, while strong, not exceptionally fast either by global standards or by Peruvian standards over history.

b. Illiteracy of the American public

They claim (p. 345) that “A massive U.S. Education Department survey…has shown that as many as 90 million Americans over the age of fifteen are woefully incompetent…incapable of writing a letter…or adding and subtracting.” While they give no citation, one can only imagine they are referring to the National Assessment of Adult Literacy, which found no such thing. That survey found that in 2003 (with little change from 1992, the prior wave which, perhaps, the authors were referring to) only 11 million adults were deemed non-literate in English. Furthermore only 12-25% (depending on year and subject area) were found to be below basic skill levels, which were in turn far above the description the authors give. 12-25% of the adult population in 1999 on the publication of the book would have been somewhere in the range of 20-60 million.

c. Severe indebtedness of rich countries

In arguing that these nations are on the verge of collapse, they refer (p. 240) to debt figures for Belgium, Canada and Italy. These debt figures are wrong. Canada, for example, has never had a debt that exceeded its GDP, contrary to their claims.

There are other predictions and trends that obviously I could not capture here. Clearly there has been some progress towards “globalization” consistent with the book’s predictions, though most of this occurred in the 1990s prior to the book’s publication. But overall, the book is simply wildly inaccurate: inaccurate about facts known at the time, completely off-base about concrete predictions and has entirely the wrong color on broader trends. While my discussion was necessarily partial, I do not mean for it to be cherry-picked and I challenge fans of the book to point to surprising conclusions that were born out.

Sincerity

There are plenty of books out there, even admired by prominent people, full of similar nonsense. To the extent they are openly discussed in the marketplace of ideas, gross inaccuracies of this kind are eventually exposed. One of the most insidious features of this book, however, is that it has encouraged so much Machiavellian deception and misdirection. Few books I have ever read so completely embody the celebration of the sort of global plutocratic elite (of “Sovereign Individuals”) who feel no responsibility to any country (or other community) that populists of the left and especially the right love to hate. You can hardly imagine a clearer target for the tirades of Donald Trump and Boris Johnson than the heroes conjured in this book, which predicts the complete collapse of nations and views all attempts to restore national greatness, widely available good jobs, etc. as reactionary death pangs of an inevitably decaying order.

Yet far from openly discussing this vision publicly and accepting the obloquy it would necessarily bring on them (as do, for example, followers of Ayn Rand), aspiring “Sovereign Individuals” have become the closest of political allies to and business funders of precisely the sort of movements and businesses that the book would see as epitomizing contemptible reaction. Peter Thiel (who has described the book as the most influential on his thinking and wrote the preface to the current edition) has primarily earned his fortune funding Facebook (a centralized, identity-based social network of the type the book disdains) and Palantir (a nation-state surveillance technology company). He recently allied himself closely with Trump, as well as sponsoring candidates like his business partner Blake Masters and author J. D. Vance to run campaigns focused on ethno-nationalist promises of good jobs and financial security for Americans. Jacob Rees-Mogg, son of one of the authors, was a principal architect of Brexit and the rise of the populist right in Britain as leader of the Brexit-maximalist “European Research Group” in the House of Commons.

The contents of the book make it hard to imagine any but the most cynical possible motives for these moves. Imagining Adolf Hitler as reconciled to the Soviet Union was far easier than believing that an adherent of this book believes any of these causes or businesses is genuinely in the interests of the clients or nations they serve. It is hard to escape the obvious explanation that these followers are deliberately sowing reaction and discord to accelerate the collapse of the societies that allowed them to reach their positions of power to be liberated from the remaining constraints those societies impose, a course of action explicitly advocated by thinkers Thiel has funded such as Curtis Yarvin (aka Menscius Moldbug).

Confused or dangerous?

One might react, “So what?” The book may be misguided and confused; it may have misled some people. But ultimately it is a book of predictions and to the extent these are wrong it is mostly its adherents who will pay the price.

Yet it is important to understand that perhaps the single most common pattern for truly dangerous ideas to propagate themselves is in the form of a prophecy rather than a prescription. Karl Marx’s Das Kapital claimed that Communism was a historical inevitability, just as Adolf Hitler pronounced himself a prophet and framed his threats against the Jews of Europe and others as predictions; there are many other less extreme examples, such as predictions of population catastrophe, artificial intelligence singularity or religious eschatology. The rhetoric of inevitability has an almost unique power to wash away moral considerations in the minds of those it penetrates. After all, they are only serving the necessary course of history. In fact, perhaps the best aspect of this edition of the book is the admission in Thiel’s preface that far from the dispassionate projection of the future it presents itself as, the book has a profoundly political agenda. The penultimate paragraph of his preface ends with “If AI is communist, crypto is libertarian.”

And no one should be confused about the undesirable nature of the world that the authors attempt to make a self-fulfilling prophecy. The authors largely concede this, arguing that very few will find the world they describe to be a desirable one they would wish to come about. But for those who have not read the book or not focused on its implications, it is important to highlight just how extreme they are:

1. They imagine the dissolution of essentially all social organization of significant scale and the use of anarcho-capitalist mechanisms to govern essentially every aspect of human social organization. They imagine governments being replaced by a range of private protection organizations, such as gangs and mafias.

2. They imagine a world where 100 million individuals are “sovereigns”, exempted from essentially all external control. While they do not focus on this, their references to various works of fiction make clear they imagine a total breakdown of even the institutions of international law, which would be essentially impossible to enforce with so many sovereigns…imagine millions of individuals running around with access to not just nuclear weapons but whatever horrors the future might unleash in terms of bioweapons. The latest James Bond film No Time to Die is a nice illustration of what ungoverned spaces like this can mean.

3. The role of citizenship, politics and collective decision-making would be entirely replaced by commercial business-client relationships.

These conclusions are so unattractive on the face of them that it hardly seems worth digging far into all that is wrong with them. But for completeness let me briefly highlight some of what I see as most repugnant about it:

1. It is based on a complete misunderstanding of the state and the role of public and other community goods. It views the state purely in terms of protection rather than the provision of public goods that are more and more critical over time but which capitalist market mechanisms do not support. This is particularly galling given that it is dedicated to celebrating the potential of the internet, which arose quite directly from public investment; see Mitchell Waldrop’s The Dream Machine.

2. It has an absurd theory of violence in which any form of collective action (e.g. strikes) is violent, but any form of private action to exclude from property (no matter how ill-gotten) is “defense”. This could easily justify slavery or worse.

3. It has a complete misunderstanding of economic value theory and is stuck in pre-marginal revolution terms where all value can be linearly decomposed into individual contributions.

4. It celebrates military coups and literally witch hunts (pp. 316-7).

5. It treats democracy as the “fraternal twin” of communism (p. 134).

6. It has no perspective on or understanding of the physical infrastructure that makes the internet economy possible.

7. It has an incredibly narrow understanding of potential directions of technological development, which are extremely broad. For example, it nowhere considers the centralizing potential of AI or the potential of internet technologies to empower coordination and democratic collective action.

Conclusions

In short, Sovereign Individual is roughly the Das Kapital of the Ayn Rand worldview. It is a profoundly inaccurate statement of fact and set of projections intended to create a self-fulfilling dystopia. It has had a powerful influence on many of those shaping our digital future, particularly in the crypto space. Those subscribing to it should be persuaded where possible but resisted at every turn where not. Anyone considering allying with them politically or taking funding from them should be thinking of it in similar terms to how they would consider doing the same with an open adherent of a totalitarian ideology. The world that has captured their imaginations is not one we must or should want to live in.

Contrary to the authors’ claims, neither the technologies of the future nor the shape they give our society are pre-ordained. Political ideologies with no clear vision of how technology and society can interact to create a productive future are likely doomed to be superseded by those that do. But there are many possible visions, including those beyond the AI and crypto-maximalist ones Thiel refers to. My favorite is the vision of digital democracy being pursued by Taiwan’s Digital Minister Audrey Tang. You should find one that is compelling to you and help build a world you want to live in, not be sold on the inevitability of dystopia by charlatans and hucksters.