Tuesday, August 25, 2009

Ignoring the State for Fun and Profit

Consider a normal, monetary transaction where you take a pair of pants to a dry-cleaner. In that transaction, you assume that the dry-cleaner will accept your government money in return for cleaning your pants. You also assume that the dry-cleaner will return your pants in serviceable condition, cleaner than when you dropped them off. Lastly, you assume that, if the dry-cleaning is not to your satisfaction, you will have a legal recourse in a government court, the mere threat of which should be sufficient to coerce the dry-cleaner into satisfying your demand for recompense.

In a Stateless transaction, you would not make those assumptions.

Rather than assuming recourse in government court, you would make specific allowance for examining the quality of work prior to acceptance and payment. Or, you may make allowance for third-party arbitration in the case of dispute. Rather than assuming any dry-cleaner will return your pants clean and serviceable, you would seek referrals and treasure the relationship once you found a good, quality dry-cleaner. Last, rather than using government money, you may negotiate the transaction in some other currency or barter, however, even a transaction that used government money could be Stateless as long as you both specifically agree to the use.

Functionally, the two transactions differ very little. However, the first transaction regards the State as an unseen third party with some interest in the transaction while the second totally disregards the State, making it an explicit two-party transaction.

With a little reflection, I'm sure you can identify transactions and relationships in your life that are conducted exactly like the hypothetical. In fact, you specifically delineate those relationships in normal speech; they are the relationships you refer to using a possessive pronoun.

When you use the words "my brother-in-law", "my friend", or "my mechanic" you are not intimating that you own that person, you are saying that you possess proprietary information about that person – that you have a defined relationship with that person. In the cases of "my mechanic", "my doctor", or "my dry-cleaner", you are describing an ongoing economic relationship that you cherish sufficiently to openly advertise that you have that relationship.

You already conduct those relationships without regard to the State – it's a short but profitable trip from there to conduct those transactions with specific disregard to the State.

One may be tempted to recognize, in the second transaction, a transaction cost greater than in the first: negotiating terms and recourse. However, just as the State is the unseen party to the first transaction, the cost it imposes on the transaction is also unseen.

That is not to say that the Stateless transaction cost will necessarily be less than the unseen cost imposed by the State. Rather, as a one-off transaction, it is likely the Stateless transaction cost will be much higher. However, once a relationship is established with a Stateless trading partner, the transaction cost is significantly reduced on all subsequent transactions.

Just as it would be inefficient to renegotiate the contract you have with your dry-cleaner every time you drop off a pair of pants, it is inefficient to pay the State-imposed cost on every transaction as if you were complete strangers. Rather, by specifically disregarding the state in everyday transactions, you lower the transaction costs, and the difference stays in your pocket where it belongs.

If you expand and extend your Stateless trading network, before long the cost savings will multiply. The savings will be invested by individuals in the trading network, expanding the types and quality of services offered by network partners, and lowering the costs of those services.

Of course, the State is involved in so many things it has no business in and in so many different ways, specific disregard doesn't eliminate the cost and presence of the State entirely, but it does significantly reduce its cost and influence on you, one pair of pants at a time.

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