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CENTRALIZATION, BLOCKCHAIN and DECENTRALIZATION

Politics / BlockChain Aug 29, 2021 - 06:48 PM GMT

By: Raymond_Matison

Politics

Brief history of centralization

One important but mostly uncomplimentary history of man is recorded through his activities in war.  Thousands of years ago large marauding bands of tribesmen descended on small communities or villages pillaging or killing its inhabitants.  As centuries of time passed, small communities coalesced to become larger villages, some of which eventually expanded and grew to become city states or petty kingdoms.          

In 480 B.C. Xerxes invaded Greek city states, but after taking Athens had to retreat. As William McNeil, author of his magnificent book “The Rise of the West” states: “free men organized into city-states need fear no military danger from without”.  This early centralization of men and weapons protected cities from conquest at that time.  The concept of certain centralization and its benefits became acknowledged and gained momentum over future centuries.  In the seventeenth century, after the 30 year war, new legal principles for states and sovereignty were established in 1648.  Under the new Westphalian system, states would exist with agreed-upon borders as each state’s sovereignty was recognized by others.  This became another historical benchmark for increasing centralization.

Over the next several centuries, the so called industrial revolution with its centralization of production and factories provided heretofore unforeseen job and income opportunities for the general populace, further rapidly accelerating growth of cities and population movement from rural to urban areas.   Increased production and worker incomes spurred sales providing useful products to the masses, and profits creating a dramatic centralization of wealth and power for these owners of productive facilities. 


Worker savings continued to grow, but ravenous capitalism created an uneven distribution of its benefits.  See: Capitalism Works, Ravenous Capitalism Doesn’t.
http://www.marketoracle.co.uk/Article64991.html.  As the group of lower earning laborers relative to the captains of industry came to resent their status, class distinctions and worker agitation and strife were soon to follow.  Karl Marx and his Marxist followers wanted a revolution through which the productive capacity of these capitalists would be taken from them and their factories operated by its revolutionary leaders for benefit of the proletariat.   

Corruption certainly started thousands of years ago, but as the “honey pot” of wealth grew within growing states, surely governing officials had increasing incentives to siphon some this “excess wealth” for private purposes.  Because humans have been imperfect, and continue to be so today, any replacement of leadership by another group simply moves the imperfection to a new greedy group.   As a result, the leaders for new political movements such as socialism, Communism have only marginally improved the lives of its followers – from abject poverty to simple sustenance.  Prior revolutions over the last two centuries and world wars have demonstrated that destruction and misery in their wake far exceed benefits to the proletariat.  In other words, revolutions have largely benefited only the revolutionaries themselves who are elevated to positions of near absolute power. 

This short recounting of the history supports a thesis that when man is in deadly danger or under bodily assault, men can follow a single, purposeful unity to collectivize or centralize in order to neutralize an enemy.  As city states, kingdoms, and countries grew larger, a surplus of goods and taxes created the need for an administrative class that distributes these goods for the benefit of the central state.  As always throughout history when man is not in deadly danger, or when the battle for those in power has been resolved, those participating in administration and governance benefit far more than the masses.

Arguments for Centralization

Centralization gains support when the targeted population receives some kind of benefit.  Thus, dirt-poor people being centralized by a communist power structure is not too difficult to achieve, as the bar for improving lives of poor people is not very high, and can be achieved by redistributing some of the wealth captured from more elite members of that society.   However, when the whole populace is forced to fulfil some type of a meaningless job, and there is no more collectivized wealth to distribute to those workers, challenge to centralized rule will grow.  When a centralized economy does not grow, the power of centralization diffuses.  Similarly, when globalization fails to achieve growth and increase livelihood, its viability loses traction. 
      
Any time a common interest group can be created, it provides the opportunity for the centralization of money and power.  This is particularly true if city, state or national government can be recruited to pay for some of its program financing.  Thus diverse groups such as a coalition for free trade, exclusion of slave-produced products, use of solar or wind power, elimination of coal or nuclear power generation, ending carbon fuel usage, global warming issues, specific curricula in primary and secondary schools, loan programs for higher education, regulated or coerced use of specific drugs or vaccines in a virus epidemic, mass border crossings, immigration, etc., etc., etc., creates groups of winners and losers – as determined substantially by small groups of agitators and financial support or influence from government politicians.  And so this is how private citizen issues become political.

It is quite natural for the small business owner to work hard in order to build his business.  If that business grows to a certain size, this owner may seek acquisitions in order to further expand that business.  Continued growth and acquisitions can bring that successful business to where it, over time, becomes an industry leader.  This allows its management to set or influence industry policy, product pricing, and trade legislation. 
Following and analyzing such industries long term, experience shows that such leaders of industry generally stifle further innovation and exhibit anti-competitive behavior to protect themselves and to the detriment of workers and customers.

Centralization examples
Today, the country’s education policy is set largely by the National Education Association.  Therefore, its policy is greatly centralized.  Rather than having 50 individual states determine their own localized education standards and practices, with opportunities to determine and adopt policies of the most successful states in competition with each other, the single national policy does not allow for program migration from an unsuccessful program to an improved one.  Accordingly, when a poor education policy is adopted, the self-correcting mechanism does not work.  It is no wonder then, that despite spending more money than other nations on education, America’s students rank low in math and science skills in global competition.  There is no way for Americans to maintain global dominance with low education achievement. 
In this specific case we can see that centralization of power is no longer a benefit for its citizens, or future leadership.

We have a centrally planned economy that has skewed results among income groups.  The economy and corporate profits have grown substantially since 1972, but inflation adjusted income for hourly workers has been essentially unchanged over recent decades, and wealth inequality has widened.   How can it be that with notable corporate earnings growth over decades America’s middle class has been drastically reduced, and demoted to a lower income class?

The nation’s economy has not only become totally centralized, but also continually manipulated.  That is to say, officials make decisions which benefit or affect certain groups within the population, or impact the population as a whole.  For example, increasing or decreasing interest rates, or the expansion or contraction of our money supply similarly affects its economy, and also the value of its currency.   The erosion of currency’s value reduces the independence of pensioners dependent on Social Security, and makes them ever more dependent on the state.  Therefore, centralized decisions regarding interest rates or currency issue are not constructive.

Since the founding of the Federal Reserve, so much paper currency has been issued that the original $20 one ounce gold coin now requires approximately $2000 to purchase it.  In other words, 99% of its original purchasing power has been lost due to the centralized Federal Reserve Bank’s policies.  In the period 1913 – 1971, the paper dollar was partially backed by gold.  However, in 1971 the gold backing to the currency was completely removed, starting a period of rapid monetary inflation.  This rapid monetary inflation soon translated to an actual rise in consumer prices, as the CPI rose from 49.3 in 1974 to 90.9 in 1981, an increase of 84%.  It was an inconvenient time in history where the world’s financial markets would not accept U.S. Treasury bonds which then had to be funded in Swiss Francs.  These are events that could repeat in the not too distant future.

Previously, stable money backed by the asset gold created a century of exceptional growth and prosperity in the 19th century.  It was achieved without an individual national income tax; government expenses were completely funded by international tariffs.  In 1913, the Federal Reserve System was founded – together with a central bank owned by private banking interests.  One need not have any knowledge of its functions – as long as one does not overlook the meaning of its function as a “central bank”.   Its name alone describes all that is necessary for citizens to be apprehensive. Central bank, by its very name is a centralizing institution.  While it was created by influential capitalist businessmen, its function in recent decades appears to result in promoting destructive socialist goals.

How to become a millionaire?  Have the FED print more USD!  With a continued decline in the purchasing value of our dollar soon everyone will be a “millionaire”.  Just like in Zimbabwe – but a hamburger can cost a billion dollars!  The mining of gold requires a great deal of work.  Thus when gold was considered money, it was entirely understandable that the immutability of gold, its historical maintenance of value through thousands of years, and “proof of its mining work” made it a real asset which could function also as money.  So how much work is there involved by the FED in the creation of its debt-based fiat currency?   It seems reasonable to presume that the amount of work involved in creating modern currency is the amount of work and its related cost of developing special paper and printing paper dollars.  How will this amount of work change when central banks will be able to issue increasing amounts digital currencies by pushing the proper button on a computer?  Will that really be money?

Governments and Globalization

The beneficiaries of collectivism, socialism, communism, or globalism and the other “isms” are those who lead the movement and have rights to redistribute wealth.  From this perspective we can learn that any person or group that has redistributive power gains personally – but is superfluous, unnecessary, useless and destructive to those who produce societal wealth.  Therefore, collectivism, globalism, dictators and even seemingly benign or democratic governments can be parasitic and a brutal force in redistributing wealth and restricting individual liberty, and ultimately ruining its economy. The examples are legion.  The attempt to keep the dollar as the world reserve currency has transformed the US, over decades into industrial dependency.  Note the shortage of computer chips made in America, or the pharmaceutical component shortage for drugs during the Covid crisis, as production facilities have moved away from America over recent decades reducing jobs, incomes, and futures.

Centralization’s limits to benefits

From early history we can learn that centralization provided certain protections against marauding bands and military depredations.  From middle-ages history we can learn that productive capacity advanced rapidly when it was centralized.   City states prospered, as the level of innovation and development grew faster in urban areas than those of rural settings.  Arts, sciences, and cultural developments in urban areas far exceeded that of rural areas.  In short, for centuries centralization in most measurable ways was positive for humanity.

However, our society with the benefit of advancing technology has reached a point where centralization no longer provides decisive advantages.  Globalists concentrate their decision making into the hands of a limited number of powerful unelected businessmen. Globalism requires collectivism and centralization which is being forced on the citizenry.  But globalist loyalty does not belong to a country but rather to simple trans-national business interests which puts all humanity at risk - for the purpose of simply increasing profits and control of borderless globalist companies.

The best measure for acknowledging the limits to benefits of centralization is the recent global virus epidemic.  People living in densely populated cities were at greatest risk, whereas people living in rural areas were hardly affected.  So centralization has now become the source of concentrated risk and exposure.  Indeed, centralization of manufacture, crop growing, shipping, supply chains and distribution, were all at greater risk in city-centralized communities.  For example, centralized shipping like that through the Suez Canal can create (as it did) jams that can stop global delivery of goods.  Centralization of dense supply chains creates points of failure.  Finally, after thousands of years we have reached a point in history where centralization is no longer a benefit, and decentralization is the new and improved alternative.

With the past near-national school virus lockdown, educators were suddenly forced to adopt new computer assisted offsite teaching methods.  It may be too early to assess the level and quality of learning, but what is clear is that teaching and learning can take place without the need of classrooms for students exceeding some minimal age.  Given parent awareness that some school curricula is indoctrinating students with social theories that they disagree with, it now seems more likely that parents will increasingly choose home schooling for their children.  This new virus-isolating teaching will likely decentralize education programs and provide more choice for parents.

The closure of millions of small businesses has dramatically increased unemployment rates, and increased the percentage of working age adults who are no longer seeking work.   Government subsidies have caused people to reject work, and depend increasingly on subsidies.  One consequence of their employment choice is that large city offices are not likely to recover full utilization of their brick and mortar facilities, and some decentralization of big cities will take place over time.  In addition, some city residents will flee from cities to live in lower risk exposure rural areas.

Our centralized and increasingly control seeking government wants to remain the sole issuer of currency, even as the Federal Reserve’s stewardship of this responsibility for over a century has proven to be dismal.  Now with the advent of blockchain technology around the globe, there is at least some possibility that cryptocurrencies will not be, or could not, be stifled in every country.  Therefore, there is some likelihood in decentralization of currency and the means by which payment settlements can be confirmed.

Blockchain’s potential

As a low interest rate environment has failed to revive economic growth, and even astronomic creation of debt and commensurate issue of currency have also failed, additional or new measures are needed to stimulate the global economy.  Fortunately, this failure comes at a time when technology is changing the entire landscape for the means of doing, paying for, and accounting of business transactions worldwide.  It is blockchain technology which is ushering in a revolution in the transmission of payments systems and the nature of the value which can be transmitted. 

The SEC wants to regulate and provide investor protection against the risks in buying, owning, or trading Bitcoin.  That is something that investors should be thankful for.  It is quite reasonable that a monetary system cannot be based on a cryptocurrency whose value and purchasing power can fluctuate substantially on a daily basis.  But the present monetary system should not be allowed either, where the value of purchasing power has declined over a long period of time by 99%.  Why then doesn’t the SEC or some other government agency provide needed protection to investors against this 99% loss in fiat currency caused by the FED?  This real loss is not even recognized as a deduction from one’s taxable income.  The FED created insidious monetary price inflation that over recent decades has crushed the middle class.  This price inflation, by reducing the purchasing power of our dollar, is now quickly ruining the dollar, which in turn will destroy the FED as an institution of global influence and the US as a world-leading country in the process.

However, banks necessarily must participate in the sale adoption or custody of crypto currencies, for in their abstinence from such participation they would drive revenues and profits to crypto exchanges and make traditional banks irrelevant.  So for their own self-interest and preservation the banks must participate in promoting the adoption of blockchain platforms and cryptocurrency acquisition for the general public.  As a result, rapid global adoption by the established old banking system of blockchain technology and cryptocurrencies is taking place – an adoption which will dramatically raise crypto prices.

Blockchain and Decentralization

Most people who are familiar with Bitcoin know that its platform uses a “proof of work” system to confirm transactions, which also creates new Bitcoin as payment to “miners” who confirm these transactions.  For individuals, savings is your personal proof of work; therefore, fiat currency despite its faults is proof of work.  Before 1971, gold asset-backed currency was that proof of work.  Today, gold coins demonstrate past proof of work – that expended energy and value in mining, smelting, and pouring melted gold into molds.  Printing debt-based paper currency continuously requires some work, but not much.  Central Bank digital currencies will require even less work to issue additional amounts as it simply requires an electronic instruction.  If ever less work is required to issue a currency, what is its value?

All of the world’s currency is currently debt-based.  That is, new paper fiat currency is created when a government issues debt securities, which are sold to investors including the central bank itself.  Such currencies are inflationary, which decrease the value in purchasing power of all outstanding currency – thereby reducing value of people’s (savings) “proof of work”.  Bitcoin and other cryptocurrencies by comparison are not based on the issue of debt.  Their existence and value today is based on a globally distributed computer platform, and the broad utility (use case) of that digital platform.  Tomorrow, when assets including stocks and bonds are tokenized on the blockchain, their digital values will be based on assets not debt.  This currency is/will be deflationary – that is, it gains purchasing value.  And the more debt based currency is created, the more those seeking protection against currency devaluation will gravitate to crypto assets, as expansion of debt-based currency will increase cryptocurrency prices.

Faulty debt-based currency systems

An argument made by proponents of Modern Monetary theory is that a government that issues debt in its own currency that it prints cannot default on that debt because it can always print the paper currency to pay off that debt.  While that argument is strictly true, it is immoral.  Yes, it is an old-fashioned concept which many today want to dismiss. But lenders and investors who loan their capital want to be paid back in full, and with some profit.  A loan repaid with inflated dollars, which have deflated in value is not honest repayment.  With the repayment of a loan with immoral value-losing money, its lenders are being defrauded.

Shiploads of goods are being purchased from China and elsewhere for which we pay with dollars, or Treasury securities.  When those lenders become dissatisfied with our loss of purchasing-power dollars, some will chose to no longer make such loans.  That means that the free goods that we get by printing currency will no longer be available.  Lenders will not accept being defrauded, and the currency absent demand will seek its intrinsic value.  In such an environment the fact that America does not default on its debt will not matter.  Modern Monetary Theory won’t matter.  The Federal Reserve, Globalism, the World Economic Forum with its “Global Reset”, and even the International Monetary Fund with its ability to issue SDR’s ultimately won’t matter.  What will matter is moral asset-based rather than debt-based money. 

In the future, as blockchain platforms evolve and cryptocurrency adoption increases around the globe, and central banks issue their digital currencies a new long-term competition is likely to take place.  Governments will not give up their falsely assumed right to be the singular issuer of currency, or what constitutes satisfactory payment between two individuals.  However, large corporate interests highlighted by Facebook’s attempts to issue a currency will compete with governments.  In addition, blockchain-based platforms have tokens which have value from their utility can also function as a currency.  Over coming decades, therefore, there will be fierce contest between different forms of currency.  Governments will try to force their valueless debt-based fiat digital currencies on the world, while people will seek freedom to use asset-backed cryptocurrencies.  It is a battle between centralization represented by “The Global Reset” of centralized governments and decentralization presenting individual freedom. 

Our potential future

In a nation where debt levels are low, the issue of additional currency can temporarily stimulate an economy.  However, after decades of such persistent stimulation the debt level has become so high that when it is seen as unsustainable to even the most common citizen, additional currency-issue stimulus by the central bank can no longer create growth.  Such lack of growth means that there is no more benefit from centralization, and decentralization starts to take hold. 

This all translates to a slow ebbing of America’s hegemony.   Britain lost its world hegemony nearly a century ago, and for more than a century it influenced America to embrace and enforce England’s geopolitics.  Now it means that England’s and America’s domination of the world together is slowly coming to an end.  With Europe’s retardation in growth and development by two devastating world wars, being kept as pawns in an imaginary global chess game of geopolitics by the two hegemons, the Western domination of the world can now be seen as shifting from a centralized- unipolar to a more decentralized power-sharing structure.  We have the developers of blockchain and cryptocurrencies to thank for a potentially brighter future.  Satoshi Nakamoto of Bitcoin, and Vitalik Buteric of Ethereum should have statues erected for building these structures of decentralized freedom.   While that cautiously optimistic future awaits, we will first have to overcome the collective forces of centralization and survive the Greater Depression of 2020.  See: Gold’s Role in the Greater Depression of 2020

Raymond Matison

Mr. Matison was an Institutional Investor magazine top ten financial analyst of the insurance industry, founded Kidder Peabody’s investment banking activities in the insurance industry, and was a Director, Investment Banking in Merrill Lynch Capital Markets.   He can be e-mailed at rmatison@msn.com

Copyright © 2021 Raymond Matison - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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