This article was published in the Autumn 1998 issue of Formulations
by the Free Nation Foundation
by Robert Klassen
Written in gratitude to the ideas of Ayn Rand and Andrew J. Galambos.
This article copyright 1998 by Robert Klassen
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Recently I had a very long-winded discussion with my sisterís friend Alicia Travest [editor's note] on the subject of economic government. Alicia is a skeptical person who neither likes me nor trusts me, plus she is a well educated and intelligent person who enjoys asking insightful and difficult questions, so I decided that this whole conversation needed to be written down and saved for posterity. For the sake of brevity, Alicia will be A and I will be B.

A: Okay, mister, what is this? Iíve heard of economics and Iíve heard of politics and Iíve heard of political-economy, but Iíve never heard of economic government.

B: Relax. Iíll tell you about it. I coined the phrase economic government deliberately in order to clearly contrast it with what we have now, which I call political government.

A: Wait a minute, you made this up?

B: Yes, I put the two words side-by-side.

A: Have you got a degree in economics or political-science?

B: I havenít got a degree in anything.

A: Then by what right Ö

B: The same right every person has to learn and to think and to arrive at conclusions.

A: How long have you been studying this?

B: Since I read Civil Disobedience at the age of ten in 1950.

A: Who wrote that?

B: Henry David Thoreau, in 1849. The essay begins: "I heartily accept the motto, ó ĎThat government is best which governs least;' and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe, ó ĎThat government is best which governs not at all;' and when men are prepared for it, that will be the kind of government which they will have."

A: So are you saying that economic government is no government at all?

B: No. Thoreau was using the word govern in the sense of rule by authority. He did not like the idea of being ruled by anybody other than himself and he refused to acknowledge the authority of the state. However, govern also means to exercise influence, which is not the same thing as ruling by threat, command, or demand. It is in this sense that I am using the word government.

A: So by attaching your use of the word to economics, you are implying that economics can somehow exercise influence over what?

B: Human behavior. The purpose of economic government is to provide absolute security and justice to individuals without the use of coercion.

A: What do you mean by coercion?

B: Any interference with property.

A: You mean force, right? So youíre going to influence human behavior without the threat of force? Youíre crazier than I thought. Force is the only way to keep people in line.

B: So when you move to a job that pays twice as much, somebody forced you to do it?

A: No, no, you know what I mean.

B: You act on your self-interest, right? Nobody has to force you to do that, right?

A: So what? What about muggers and rapists and thieves and killers and all those people? What do you do with them?

B: Life will become very unpleasant for them in this system. In fact, I donít believe they will be able to carry out a coercive act and survive. As the news gets around, I do believe this kind of behavior will become rare, indeed. In economic government, coercers will pay for their crimes.

A: I donít like the way you said that and I definitely donít like the grin on your face. Okay, letís get down to business, what is this economic government of yours?

B: It consists of three interrelated human institutions that do not exist at the moment. First, and most important, is an Innovation Clearing-House, second is Banking, and third is Insurance.

A: Who are you trying to kid, here? Banking and insurance have been around forever.

B: Banking and insurance have been around in rudimentary form, but their function has never been extended as it ought to be. In fact, such extensions are most likely illegal under political government.

A: Illegal, you say? Now youíve got me interested. Like what, for instance?

B: How about venture-capital insurance?

A: Like you bet your money on a risky venture and loose your shirt and the insurance company picks up the tab. Right?

B: Right. Then thereís marriage insurance and contract insurance and innovation insuranceÖ

A: There you go with that innovation business again. Whatís wrong with patents and copyrights?

B: Patents are expensive and difficult to get; then, if they are worth anything, even more expensive and difficult to protect. Patents also discourage innovation and competition. Copyrights are cheap and easy to get, all you have to do is write the word on the page, but are also expensive and difficult to protect. And both have time limits.

A: I suppose you have something better?

B: Yes, the Innovation Clearing-House. It begins with a simple Registry where you can list your innovation and have it time and date stamped.

A: Wonít that make it easier to steal?

B: You can encrypt it.

A: What if itís something I create while Iím working for somebody else?

B: Then youíd better encrypt your name as well.

A: How much does it cost?

B: One cent per entry.

A: Well, thatís cheap enough, but I still donít know why I should do it in the first place.

B: The broader function of the Clearing-House is to create a tree of knowledge to identify each individual innovator who belongs on that tree. Then the Clearing-House will accept royalties from entrepreneurs who have used those innovations to earn a profit and assign those royalties to the innovators.

A: Whoa! Wait just a hot minute here. That tree of knowledge could go back ten thousand years!

B: Further, actually. We have the inventors of the wheel, inventors of stone toolsÖ

A: This is ridiculous! You canít pay people who have been dead for thousands of years.

B: You canít pay the person, but you can create an account for that person and pay into that.

A: What on earth for? Iíd like to know.

B: First, because itís the right thing to do. If you use the knowledge that some other person created to earn a profit for yourself, then you owe that person gratitude. Second, you will build up investments that earn money that can be used for education, research and development, and public welfare. And third, it is a tool of justice.

A: Slow down, slow down. Let me examine these one at a time. Are you telling me that every mechanical engineer is going to have to learn and remember the names of thousands of people who created his profession?

B: No, not at all. If the mechanical engineer is merely contracting his time to do a certain job, then he doesnít owe money to anybody. If he is building his own hydraulic pumps and selling them to an aerospace company at a profit, then he does. He does not need to know or remember his antecedents, the Clearing-House will take care of that.

A: I still donít see whatís in it for him?

B: For one thing, he can advertise the fact that he pays innovation royalties, thus attracting the highest quality co-contractors to his projects. And for another, he himself will eventually earn innovation royalties as others build upon his work, even after he is dead, so participating in the Innovation Clearing-House is in his own best interest.

A: Whoís to say this Clearing-House wonít steal his money or his innovation or both?

B: That is the purpose of innovation insurance.

A: Is this Clearing-House one great enormous institution?

B: Not necessarily, there may be thousands, but they will be interrelated like the search engines and directories on the Internet are now.

A: Okay, I get the picture. Now what did you say they do with the money?

B: Invest it in profitable businesses, invest it in individuals with profitable potential, and invest it in research and development of areas which have no apparent application at the moment.

A: I can see the point of the first two, theyíll earn money on their investment, but what is the point of the third?

B: Looking back, we see a phenomenon like Maxwellís Equations explaining something that was not known to exist, electromagnetic waves. Today the search is on for the gravitational waves that Einstein predicted. Today the search is on to find new medicines in the tropical forests. Somebody has to finance this research, which may or may not pay for itself some day. Individuals or corporations may pay for it, fine, but the Innovation Clearing-House will take a keen interest in pure research.

A: Okay, okay. Back up a little and tell me what this Clearing-House has to do with justice.

B: In addition to recording and rewarding the positive acts of individuals, the Innovation Clearing-House will also record and punish the negative acts of individuals.

A: I canít believe you are saying this. How can you punish dead people?

B: Two ways; one, by publishing their negative act; and two, by creating a negative account in their name. Men like Stalin and Hitler would have pretty substantial negative balances.

A: What on earth for?

B: Because itís the right thing to do and because it will have a real deterrent effect on any would-be Hitlers or Stalins in the future.

A: And youíre going to take that back in history, too?

B: Sure. The murder of Archimedes cries out for justice. We may believe that a delay of two and a third millennia makes the punishment irrelevant, but to the folks living a hundred thousand years from now, it will appear instantaneous.

A: You think big, donít you? Why should I care what they think in a hundred thousand years?

B: Because, if you do anything worthwhile in the time youíve got, they will be there to thank you. If you donít, they wonít.

A: Is that a threat?

B: No, itís more like a guarantee. Every political government in the history of mankind has turned its monopoly on coercion against its citizens in its attempt to enslave them, or to keep them enslaved, which ultimately destroyed not only the political government but also the civilization that supported it. I perceive history as the rise and fall of one Dark Age after another. We live on the threshold of another one, only this time the technology of coercion is so sophisticated and so powerful that only a mutated version of Homo Sapiens will survive, if any version survives. We have the technical ability to destroy all life on this planet and that technology is controlled by the wrong people.

A: Who should control it?

B: The innovators.

A: How can they?

B: They canít, at the moment. When innovation insurance becomes available, that will become a different matter.

A: Economic government can save the human race?

B: Yes.

A: How?

B: By making the exercise of coercion nearly impossible.

A: And your Clearing-House will do this?

B: Not alone, donít forget Insurance and Banking.

A: Okay, letís talk about insurance.

B: Any perceived act of coercion will be reported to the victimís insurance, which will verify the incident, then pay the victim the agreed-upon indemnity. Insurance then notifies the Clearing-House and the Bank, then seeks to recover the indemnity and damages from the perpetrator.

A: Wait a minute. What if the crook has insured himself against the risk beforehand?

B: This makes things simpler. Insurance X goes to Insurance Y, reveals the evidence against the crook and collects the indemnity and damages.

A: Hold it, what happens to the crook?

B: Well, heís going to have a hard time buying new insurance and heís going to have a permanent blot on his historical record.

A: There is something missing here. What if he didnít have insurance in the first place and what if he murdered you?

B: I have insured myself against this risk, of course, so my estate is protected. The murderer canít use the banking system any longer, the banks have frozen his accounts, so he canít buy anything, food, shelter, clothing, heating, cooling, electricity, plumbing, transportation, nothing.

A: What if he stored up a horde of gold?

B: Gold is only worth what the market will pay for it. In a totally electronic banking and finance system, there will be little market for gold. Sellers of goods and services will not even accept it. Itís too heavy, too bulky, and the only use for it is in teeth and jewelry and electronics.

A: So you see the Banking industry going on-line?

B: Certainly. Itís only logical and itís only a matter of time before all currencies and trading will be electronic.

A: Thatís going to leave a lot of people who are not wired out in the cold.

B: Why? People learned to use credit cards easily enough, now they can learn to use debit cards. A stolen debit card wonít work for the thief.

A: So what happened to our murderer?

B: That is up to him. He can negotiate with the insurance and banking people to pay for the indemnity and damages or he can walk out into the wilderness and try to live off the land. Maybe some tribe of like-minded savages will take him in; or maybe they will eat him. In an interstellar space vehicle, that would be a life or death choice.

A: What if he saved up enough money in advance to pay for murdering you?

B: I would have to see to it in advance that murdering me would be a very expensive act. Assuming I neglected that, however, he still has his reputation to deal with. So he goes to the grocery store to buy food, sticks in his debit card, and a little amber light comes on; the grocery clerk, owner, robot, or whatever, says, I wonít sell you my food. His debit card is intact, he has money in the bank, but nobody will deal with him. He is still bound for the savages, or space, no matter what.

A: Thereís got to be a loophole here, somewhere.

B: At first, thereís nothing but loopholes, but as time goes on, they will be closed, one by one. As more and more people freely buy into economic government, coercion will begin to disappear.

A: And that is your objective.

B: Yes. My objective is to put an end to coercion as viable human behavior.

For further discussion of the founders of economic government, see Robert Klassenís essays in Galambos and Rand: New Paradigms. For a demonstration of economic government, see his novel, Atlantis: A Novel about Economic Government. For a complete list of his writing, see <>.

Robert Klassen, 57, lives alone with his books, computer, classical music and classical sculpture in a lovely apartment and gardens on the shore of Clear Lake in Northern California. He works as a cardiopulmonary technician, and has three grown sons working in information technology.

Editor's note: Alicia Travest is a fictional character, created by the author for this purpose

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