“The nineteenth-century liberal was a radical, both in the etymological sense of going to the root of the matter, and in the political sense of favoring major changes in social institutions. So too must be his modern heir.”
In this essay, we will be focusing on the work of political economist and social technologist Glen Weyl, co-author of the 2018 book Radical Markets: Uprooting Capitalism and Democracy for a Just Society, whose fame, or the general recognition he enjoys, is difficult to gauge. Even though he is only followed on Twitter by a little over 17.000 accounts, his ideas are thought to have accumulated billions of dollars of capital used to finance various projects discussed in the aforementioned book, as well as those Weyl is currently part of. “[P]robably a hundred start-ups have formed or pivoted around ideas from the book. About half of this activity is within the blockchain space, but much of it stretches well beyond.”
Enjoying immediate critical acclaim and a deluge of reviews heaping praise onto the novel concepts in the field of political economy, Weyl formed a non-profit organization called RadicalxChange, which is essentially a global initiative currently comprised of 67 chapters aiming to advance from off the pages and screens into the collective imaginary and eventually into the institutional sphere. 2020 serves exceedingly well to demonstrate how changes in this domain are more than welcome. In his own words: “The RxC movement is a community of artists, researchers, entrepreneurs and activists working to imagine, design, experiment with, and execute political changes based on radically innovative political economies and social technologies that are truer to the richness of our diversely shared lives.”
Weyl, together with Vitalik Buterin and Zoë Hitzig, is using this movement to promote a new postpolitical identity called liberal radicalism. Among the currently available alternatives waiting like hungry hyenas for neoliberalism to finally die out and aiming to revitalize liberal values after entering into the new multipolar world––metamodernism as well as metaliberalism and postliberalism––this position is certainly the most democratic and decentralized. Radical liberalism as a concept is actually based on the radical liberals of the 19th century, especially Henry George whose works were widely read at the time, but more on that later. For now, suffice it to say that liberal radicalism is an attempt at transforming market dynamics and democratic governance so that they could combine fast, dynamic capitalism with the public character of democracy as well as its insistence on the common good.
What I want to say is that the economic theory in use today is still the one based on marginal revolution of the late-19th century and its insights. That means that it is not fit for sound valuation of public goods, whose importance has been on the increase for a while, or other increasing returns which, despite being exchanged, are inexhaustible since they remain in possession of two or more people even after being exchanged: “Basically, LR [liberal radicalism, op. a.] highlight how bankrupt current economic discourse with its extreme individualist focus is. This is not just how social life is organized; we live in societies where almost everything is produced by some at least partially increasing returns technology and economics takes as the basic starting point a totally individualist perspective that only works for decreasing returns stuff and when confronted with increasing returns has to treat it with market power or other awfully inefficient kludges.” A classic example of an increasing return is the contemporary platform economy in which serviceability, efficiency, and thus the value of social media disproportionately increases (as opposed to decreases) with each new user.
The heart of the matter therefore lies in the fact that private property as it is understood now does not correctly reflect the value created publicly in contemporary economies. Whereas an individual’s marginal contribution to such an economic scheme is negligeable, it is the shared bond among them that produces immeasurable value, which is left unaddressed in this scheme. One is, for this reason, hardly surprised by emerging internet monopolies, nor by the perseverance of dogmatic belief into private property and, by consequence, deterioration of public goods. Or, of course, the rise of dystopian scenarios in which we could be faced with voting not for Kanye West but rather for one of the key members of the increasingly antidemocratic Silicon Valley technocracy club. Let us see what Weyl has to say on the matter: “The basic problem is that capitalism is based on the principle that every contributor should be paid her marginal contribution. Yet the key feature of increasing returns is that everyone together achieves much more than all can achieve individually. This implies that everyone’s marginal contribution, once all others are participating, is far greater than her proportional share of the total produced. In such situations, capitalism simply outputs an error.” Hence, our current economic theory is unable to address the civilization dynamic, that is to say, the increasing returns dynamic par excellence.
Allow me to recapitulate what has been hitherto discussed and set the stage for what is to come, namely a more detailed analysis of a new postpolitical identity. Weyl is set on conceiving a new kind of political philosophy able to successfully address increasing returns without walking into the trap of decreasing ones. Here is a quote from the programmatic text “The Political Philosophy of RadicalxChange”: “A central goal of any effort to build a new political philosophy or fresh paradigm for political economy should be to lay out approaches to markets, governance, and community that capture the benefits of increasing returns without falling into the traps that increasing returns phenomena can generate.” In light of this, Weyl became a night-mode economist, an economist-engineer who conceived through mechanism design theory concepts of mathematical logic that are going to radically alter the economic and political components of liberalism and thus redistribute wealth and relaunch economic growth. These concepts are called QV (quadratic voting), QF (quadratic financing), and COST (common ownership self-assessed tax).
Quadratic voting and quadratic financing
The point of departure of Weyl’s project can be traced back to its very name: in mathematics, ‘radical’ is synonymous with the square root of something. Together with Eric Posner, Weyl wrote in _Radical Markets _that “The square root is also known as the ‘radical’, hence ‘radical democracy’ – which is a kind of Radical Market, except it is one in which the goods are public rather than private.” Bringing this project to fruition requires a change in the relationship between the private and the public goods. This can be done in accordance with Nobel laureate in economy and father of mechanism design William Vickrey’s maxim: “Each individual must pay an amount equal to the cost that her actions impose on others.” The common good is not based in philanthropy, but rather in reciprocity. This part discusses the mechanisms of optimal allocation and financing of public goods, and the next presents the new ways of how private property can be used to finance public goods.
We are faced with two tasks. The first one is to avoid the well-known pitfalls of public goods, namely the so-called tragedy of the commons and the free-rider problem. The second one is to protect public goods from pauperization and from being stolen for private gain. Let us begin with the solution to the first problem, which was suggested by Weyl and Posner in the aforementioned work: quadratic voting. It is a mechanism based on an optimal balance of an individual’s influence on society and the price they have to pay for it. The central feature of quadratic voting, or scaling, is that when votes are cast, every additional unit needs to be proportionally taxed: “What’s important is not so much the total cost of each number of votes, but that the marginal cost of casting the next vote grows proportionally to the number of votes cast.”
Quadratic voting is presented as a way out of such voting systems as ‘one dollar one vote’ or ‘one person one vote’ since it, as opposed to those two, is designed to keep the balance between valuation and influence linear. In his essay “Quadratic Payments: A Primer”, Buterin voices his opinion on the matter: “Notice that only quadratic voting has this nice property that the amount of influence you purchase is proportional to how much you care; the other two mechanisms either over-privilege concentrated interests or over-privilege diffuse interests.” The one-dollar-one-vote system will always result in the most fervent or the most affluent option winning since the price of a vote will remain the same regardless of how many of them are bought; the one-person-one-vote system will always result in a practically indifferent majority overruling the fervent, passionate minority by outweighing its interests to the point that they are neglected. Quadratic voting, on the other hand, allows an individual to cast multiple votes/tokens, but in such a way that every further vote is disproportionately costlier than the previous one: it follows the quadratic or radical function of n. Thus, 1 vote costs 1 token, 2 votes cost 4 tokens, 20 votes cost 400 tokens, etc.
However, the crucial component of Weyl’s project is not quadratic voting but quadratic financing. He, together with Buterin and Hitzig, conceived in their essay “Liberal Radicalism: A Flexible Design for Philanthropic Matching Funds” which is as of yet their most theoretically sound work, a completely decentralized and non-predetermined mechanism for noting an individual’s preference and financing of public goods. This mechanism, called quadratic financing, is different from quadratic voting in that it is not situated within a predetermined frame but instead establishes its frame of reference anew with each iteration, thus making it dynamic in relation to time. The problem of quadratic voting is that “it does not allow the set of public goods to emerge from a society organically, and effectively assumes a previously-specified organizational structure that has to be taken as an assumption or imposed by an authority”. Conversely, quadratic financing is grounded in the logic of reciprocity, in Kant’s categorical imperative whose mathematical formulation facilitates both the emergence of diversity on the margins and collective action in the very center of social structure.
With quadratic financing, too, novel market mechanisms for public goods financing have to be either discovered or invented. In addition, they have to be made nonlinear: “In a standard linear private market, the funding received by a provider is the sum of the contributions made by the funders. In our ‘Liberal Radical’ mechanism, the funding received by a provider is the square of the sum of the square roots of the contributions made by the funders.” From this, it follows that quadratic financing is a mechanism heavily favoring public goods financing with many, not few, donations or donors as well as decisively supporting subsidizing small, not large, donation sums. One may find the present approach impractical or even strange, but similar mechanisms for financing the public goods are already in place in the USA and several other places: “For example, a variety of public goods are funded through matching programs, whereby an institutional body (a government, corporation, political party, etc.) matches individual contributions either 1:1 or in some other ratio.”
The difference between quadratic financing and other mechanisms for public goods financing is linked to the relation between optimal and arbitrary funds equalizing. In fact, liberal radicalism is an attempt of answering the question: “If you’re matching across many organizations, how much should you match each to maximize the public good?” In this kind of system, anyone can raise funds for financing a publicly beneficial project, anyone can contribute funds for such a project, and after some time, the public goods quadratic financing mechanism subsidizes the funds raised and redistributes them to those projects which have gained sufficient popularity: “Under the standard selfish, independent, private values, quasi-linear utility framework, our mechanism leads to the utilitarian optimal provision of a self-organizing ecosystem of public goods. In addition, our solution has a connection to Kant’s categorical imperative: it is the only mechanism such that individuals are incented to contribute as if all others contributed as they did.”
This means that quadratic financing presupposes, or formalizes, an overlap in interests of different and unrelated individuals. For this reason, it is able to optimally allocate and finance public goods. The goal of quadratic financing is to develop a system in which every individual will act as if every dollar they put into the system will always be matched by every other active individual. Or, as Buterin says, “In any situation where Alice contributes to a project and Bob also contributes to that same project, Alice is making a contribution to something that is valuable not only to herself, but also to Bob. When deciding how much to contribute, Alice was only taking into account the benefit to herself, not Bob, whom she most likely does not even know. The quadratic funding mechanism adds a subsidy to compensate for this effect, determining how much Alice ‘would have’ contributed if she also took into account the benefit her contribution brings to Bob.”
COST (common ownership self-assessed tax)
At this point, you can probably see a fully decentralized, bottom-up financed social order emerging. The one thing we have not discussed as of yet is how subsidies, i.e. entity or mechanism meant to equalize funding according to a predetermined quadratic equation, is going to work. There is a very real opportunity that for the first time in the era of capitalism and modern statehood, public goods could be financed not by meddling capitalists or supposedly benevolent governments but rather immanently, via market forces, via the radical market. This leads us back to our initial premise that it is necessary to formalize not only private but also public goods since they are systematically valued in a wrong way and therefore neglected due to increasing returns in capitalist economy. In the words of Weyl, Buterin, and Hitzig: “By ‘public good’ we refer to any activity with increasing returns in the sense that the socially efficient price to charge for the activity (marginal cost) is significantly below the average cost of creating the good.”
In view of this, there is a need for a mechanism able to soundly conceptualize the relation between the private and the public goods as well as ensure that they are always properly financed––but let’s not forget that the idea of radical liberalism was founded upon Vickrey’s idea of social reciprocity, which is precisely what American economist Henry George, who Vickrey and Weyl admire, successfully demonstrated with his theorem. The relation between the private and the public goods is most easily represented with the example of a well-respected public school causing all of its neighboring lands’ value to rise. The basic premise states that the land value will increase by the same amount as that which was added to it by the public goods. In Weyl’s words: “HGT says that the rents earned by the decreasing returns activities are always sufficient to found any beneficial increasing returns activity worth undertaking. So the school and the land is one example of that, but it’s a much more general principle. Those decreasing returns activities could be the ownership of any asset, any profit stream, and the increasing returns activities could be anything from the social network to the infrastructure of a town.”
In his lecture “Political Economy for Increasing Returns” Weyl uses a directed acyclic graph to demonstrate the relation between the private and the public goods. The directed acyclic graph is a topological arrangement of interconnected dots and arrows showing the fluid relations between them. It is possible to display with the graph the changes and shifts of the private and public goods, the former functioning as sources and the latter as sinks. See Weyl’s excellent presentation of the schema: “You can think of the economy as being a giant directed acyclic graph, where the sources are increasing returns activities, and the syncs are decreasing returns activities. And basically what the HGT says is to found all the subsidies that are necessary at the sources from the sinks. […] You take all the stuff that is accumulating at the sink and you recycle it back to the sources, to reduce the friction in the system and create more total flow, which basically becomes more explosive and creates amazing things.”
Liberal radicalism is based on self-regulating social structure founded on engineered ingenuity functioning through a positive feedback loop. This means that there is a new task at hand: finding another mechanism capable of valid identification and taxation (as opposed to the first mechanism designed for optimal allocation and financing of the public goods) of decreasing returns commercial activities, thus guaranteeing a sustained flow of funds into the collective matching fund. It goes without saying that this must be a specific type of taxation, an amalgamation of George’s concept of land ownership according to which the state would be granting its residents land in the form of lease, and a never-ending true-market-utopia Vickery auction in which ownership continuously changes hands. Combining these two ideas gives us a system of partial common ownership of all goods, which is in fact a specific type of taxation known as COST or ‘common ownership self-assessed tax’. Let’s turn our attention to a quote from Weyl’s book: “An auction where all property […] is held in common and the right to rent and use it is constantly auctioned. The citizen who offers the highest bid (in the form of a rental payment) possesses the object until outbid by another citizen.”
This is the starting point for the idea of radical markets or markets as never-ending auctions. Posner and Weyl are staking the claim that by implementing a specific system of taxation it is possible to dramatically improve allocative efficiency at only a small cost to investment efficiency, with which both George’s conundrum can be solved and markets can be saved from themselves. What they are suggesting is basically a universal Harberger tax. Writer and programmer Simon de la Rouviere wrote an excellent explanation of how this type of tax influences market forces in his blog post “What is Harberger Tax & Where does the Blockchain Fit in?”: “Harberger Tax is an economic policy that aims to strike a balance between pure private ownership and total commons ownership in order to increase general welfare of society. It helps ensure that property is more productively utilised by the society, resulting in an increase of overall economic productivity and general welfare of society. It keeps the power of the market, whilst reducing the inefficiencies in how property is currently allocated.”
Here is a revisit to the way in which this taxation works. First, an individual estimates the value of their property and pays tax accordingly. Weyl and Posner estimate that a taxation rate of 7% is optimal for normal property, but that can be adjusted. Second, the property of this individual can be bought at any time from them for the price that they have set. Since this tax alone would increase state revenue by about 20%, half of the money earned like this would suffice for eliminating all existing taxes on capital, corporations tax, property tax and inheritance tax, which economists agree are all extremely inefficient. Because COST ensures transparency (the price of their property is set by the owner, not the buyer) as well as greatly inhibits monopolizing prices (because of the taxation we just described), it, at least in theory but also most likely in practice, should lead to a much more productive property allocation system.
Where does the combination of quadratic financing and COST lead? Into a bottom-up financed social order of increasing returns ensuring both optimal allocation and financing of the public goods as well as efficient tax collection and recycling. The authors of the aforementioned essay “Liberal Radicalism” wrote that “At the same time, [Harbenger tax] would play an intriguing role in a society governed by LR, as the communities funded by LR would likely be the primary payers of the relevant taxes and thus it would not just serve a funding role, but also a role of allocating assets across communities, allowing them to compete for scarce resources. In this sense, LR paired with Harberger’s tax offers an intriguing vision of a new society with efficient public goods provision funded by efficiency-enhancing taxes.” It should come as no surprise that the combination of both mechanisms, especially quadratic financing, is perfect for the cryptocommunity of engineers who tend to experiment with novel social technologies and with using new governance mechanisms capable of addressing various predicaments of decentralized systems.
Liberal radicalism and its derivative RadicalxChange represent a kind of balance between the (in a nominal sense) completely decentralized cryptoworld and the currently dominant form of politics still going strong despite supposedly dying a thousand deaths. Whereas numerous fans of cryptocurrencies and blockchain technology desire a complete severance from society, Weyl’s project sets sight on gradual decentralization and reallocation of power within existing social framework. An indication of this is Weyl’s admiration of programmer and Taiwan digital minister Audrey Tang as well as Taiwan’s bona fide digital democracy. RxC also offers a solution for the leftist conundrum whether to act from outside or inside existing institutional frameworks since it endorses a continuum of seizing and relinquishing power, both of which become indistinguishable from one another.
Let us conclude by saying that RxC is a wonderful initiative precisely because it takes mechanism design theory from a narrow-minded market logic (such as radio spectrum action) and puts it into transformative projects. Since mechanism design theory is the theory which most clearly exposes all of intrasystemic speculation’s potential, it inevitably touches upon the question of ideology and increasing complexity. We could say that it gives us another opportunity to ‘measure’ ideology by taking society’s inability to follow novel system organization mechanisms as a unit when those are not followed (despite having general transformative effects and increasing liberty levels) due to reasons such as status quo interests, dogmatism and/or ignorance. As an example, consider again the cryptocommunity in which Buterin has recently praised those agents working to expose the mismatch between decentralization of power and increased liquidity levels since it is becoming clearer and clearer that liberty has never been about exiting society but rather about purposeful engineering of mechanisms that enable liberation in the first place.
This essay translated by Matjaž Zgonc.
Maks Valenčič is a graduate student of Media Studies and a member of Editorial for Culture and Humanities at Radio Študent. He tweets @MaksValencic.