The Sovereign Individual by James Dale Davidson and Lord William Rees-Mogg

Short Summary

Published in 1997, this book predicted many changes in technology and society, such as cryptocurrency, digital banking, remote work, rising income inequality, and the metaverse. This book serves as a guide to help you take advantage of the opportunities of the new age while avoiding being destroyed by its impact.

Favorite Quote

For the first time, those who can educate and motivate themselves will be almost entirely free to invent their own work and realize the full benefits of their own productivity.

Book Notes

The Transition of the Year 2000

Throughout human history, there have been three primary stages of economic life:

Hunting-and-gathering societies
Agricultural societies
Industrial societies

Now, we're transitioning into an entirely new stage of human society:

Information societies

In the Information Age, a “job” will be a task to do, not a position you “have.”

The Information Age is shifting the control of power by liberating individuals at the expense of old-world power: the nation-state. Innovations in technology are transforming economic boundaries that once were confined to small portions of the globe to become universal.

The most sweeping revolution in history is both good and bad news.

The good news is that the Information Revolution will be the age of upward mobility. For the first time, those who can educate and motivate themselves will be almost entirely free to invent their work and realize the full benefits of their productivity.

In an environment where the most significant source of wealth will be the ideas you have in your head, anyone who thinks clearly can become rich. The brightest, most successful, and most ambitious will emerge as Sovereign Individuals.

“I know of no more encouraging fact than the unquestionable ability of man to elevate his life by conscious endeavor.”
—Henry David Thoreau

In the future, wealth will not be measured by how many zeroes are in your bank account but by your ability to structure your day in a way that enables you to realize full autonomy and independence. The more clever you are, the easier it will be to achieve financial escape velocity.

The bad news is that the Information Age will leave individuals far more responsible for themselves than they have been accustomed to. The transition will likely cause severe economic depression, reducing the unearned advantage in living standards that previous generations have enjoyed. The gap between the haves and haves-not will widen.

The Information Age will be a time of great danger, great reward, and much-diminished civility in some realms and unprecedented scope in others. Increasingly autonomous individuals and bankrupt, desperate governments will confront one another across a new divide.

Megapolitical Transformations in Historic Perspective

In the new millennium, economic and political life will no longer be organized on a gigantic scale under the nation-state's domination. The civilization that brought you world war, the assembly line, social security, income tax, deodorant, and the toaster oven is dying.

Having foresight on where we're heading starts by learning from the past and understanding human behavior. It also helps to understand megapolitics—how governments rise and fall—and what type of institutions they become.

There are four key pieces to understanding megapolitical changes:

Topography: The control and makeup of the land. It, along with climate, played a significant role in early history.
Climate: Can create major shifts in power, and it was the catalyst for transitioning from foraging to farming.
Microbes: The interaction between humans and microbes has produced important demographic effects and altered the costs and rewards of violence.
Technology: The most important factor today in creating megapolitcal change. The more widely dispersed key technologies are, the more widely dispersed power will tend to be, and the smaller the optimum scale of government.

East of Eden

Before the Agricultural Revolution, human population densities were incredibly sparse. The livelihoods of hunter-gatherers depended upon their functioning in small tribes. They had no organized government, usually no permanent settlements, and no concept of accumulating wealth.

The Agricultural Revolution changed more than the human diet; it also launched a revolution in the organization of economic life and culture and a transformation of the logic of violence. The shift to farming raised the scale at which human communities could form and resulted in the emergence of private property.

As competition over land and control of its output became more intense, societies became stationary, and cities emerged. A division of labor became more apparent, and employment and slavery arose for the first time. In contrast to the hunter-gatherer phase of human existence, farming introduced a quantum leap in organized violence and oppression.

Farming set humanity on an entirely new course. The first farmers truly planted the seeds of civilization. From their toil came cities, armies, arithmetic, astronomy, dungeons, wine and whiskey, the written word, kings, slavery, and war.

The Last Days of Politics

The idea of life without politics seems impossible in our current societies. Yet politics is a modern invention that began just five centuries ago with the early stages of industrialism. Now it's dying. A widespread revulsion against politics and politicians is sweeping the world.

Moral outrage against corrupt leaders is not an isolated historical phenomenon but a common precursor of change. It happens whenever one era gives way to another. Whenever technological change has divorced the old forms from the new moving forces of the economy, moral standards shift, and people begin to treat those in command of the old institutions with growing disdain.

The nation-state was a useful institution in a world where returns to violence were high and rising. But megapolitical conditions have changed. Returns to violence are falling, and the nation-state, much like the Church at the twilight of the Middle Ages, is an outdated institution that has become a drag on growth and productivity.

Technology is precipitating a revolution in the exercise of power that will destroy the nation-state just as gunpowder and the printing press destroyed the monopoly of the medieval Church.

Like the late-medieval Church, the nation-state at the end of the twentieth century is a deeply indebted institution that can no longer pay for its continued operation. The nation-state is becoming more irrelevant and even counterproductive to the prosperity of those who not long ago might have been its most unwavering supporters.

The end of the fifteenth century was a time of disillusion, confusion, pessimism, and despair. A time much like now.

The Life and Death of the Nation-State

The Information Age will make it increasingly obvious that the nation-state inherited from the industrial era is a predatory institution. Each passing year will seem less a boon to prosperity and more an obstacle.

The stability and even survival of the Western welfare state depended upon its ability to continue extracting a vast fraction of wealth from its most productive citizens in the form of taxes. The wealthiest countries price their taxes at monopoly rates, often hundreds or thousands of times higher than the actual cost of their services.

The democratic nation-state's current reign of dominance has depended upon extraordinary megapolitical conditions where their magnitude of power was more important than their efficiency. Incomes rose enough above subsistence that nation-states could collect large amounts of money through taxes without negotiating with powerful magnates capable of resisting.

But now, the costs of democratic government have surged out of control, with most democracies running chronic deficits. The costs of government services have become significantly higher than they need to be. It has also become near impossible to fire poor government employees or downsize departments that no longer serve vital purposes.

The Megapolitics of the Information Age

The government's principal economic function is to protect life and property. Yet the government often operates like organized crime, extracting resources from people within its sphere of operations.

The Information Age promises to dramatically alter the balance between protection and extortion, making protection of assets in many cases much easier and extortion more difficult. The technology of the Information Age will make it possible to create assets that are outside the reach of large institutions and the government.

Companies and individuals will also no longer be tied to their location in the Information Age. With a large and growing share of financial transactions occurring in cyberspace, individuals will have a choice of jurisdictions in which to live. If your government becomes inoperable or undesirable, you can simply leave.

As our access to information technology grows, we will be able to multiply our abilities by manifesting a potentially limitless number of agents to complete tasks for us, whether humans or programs. One person's potential output will increase exponentially with technology. We are fast approaching the one-person billion-dollar company.

Information technology will also drive governments to compete amongst themselves in the quality and price of their services. Governments will finally be obliged to give customers what they want.

Transcending Locality

Cyberspace transcends locality, and it involves nothing less than the instantaneous sharing of data everywhere and nowhere at once. The emerging information economy is based on the interconnections linking and relinking millions, if not billions, of users.

In the Information Age, technology will erode most current jurisdictional advantages. New types of advantages have emerged, which include:

Convergent communication: the difference between intercontinental chats and a local call will be negligible.
Global internet access: low-orbit satellites will be able to provide internet to the less-developed parts of the globe.
Mobile banking: you will be able to handle all financial transactions almost anywhere with just your phone or PC.
Understanding foreign language: translation technologies will remove any language barriers, which will increase global competition.
Customized media: your media consumption will be custom-tailored to your interests and search history.
Cyberbroking: you will use cryptocurrency to make investments and pay for products and services.

While paper money will undoubtedly remain in circulation as a residual medium of exchange for the poor and computer illiterate, money for high-value transactions will be privatized. Cybermoney will no longer be denominated only in national units like the paper money of the industrial period.

The new digital money of the Information Age will return control over the medium of exchange to the owners of wealth, who wish to preserve it, rather than to nation-states that wish to spirit it away.

In response, governments will try to enact new laws to restrict the power of these new technologies, but they won't work. As more businesses move online, governments will experience a steep loss in tax revenue, which will cripple them and likely lead to a major financial crisis.

The End of Egalitarian Economics

Globalization, along with other characteristics of the information economy, will tend to increase the income earned by the most talented individuals. The top performers in their respective fields will start to earn outsized incomes comparable to the earnings of professional athletics and pop stars.

The Sovereign Individuals of the information economy won't be warlords, but masters of specialized skills, like entrepreneurs and investors.

With the economy moving online, incentives and market paradigms will reward wealth creation and encourage people to pay for the resources they consume.

Nation-states with a single major metropolis (England, France, Argentina) will remain coherent longer than those with several big cities (the United States, Brazil, Germany) since they have multiple centers of interest.

The new fragmented sovereignties that arise from the breakdown of nation-states will cater to different tastes, enforcing specific regulations within their areas that appeal to the market segments they want customers from. Only cities that reinvest in their upkeep will stay viable in the Information Age.

Inexpensive governments with low costs of doing business will attract new companies in the Information Age. The high-cost governance of North America and Western Europe will drive out companies that need to compete.

Nationalism, Reaction, and the New Luddites

The Information Age is likely to bring discontinuities and sharp breaks in the existing systems, including:

Changes in economic organization.
Organizations that benefit from being geographically isolated.
A wider recognition that the nation-state is obsolete leading to widespread secession movements.
A decline in the status and power of traditional elites and a decline in the respect for the symbols of the nation-state.
An intense and likely violent nationalist reaction among those who lose status, income, and power when ordinary life is disrupted by political devolution and new market arrangements.
Neo-Luddite attacks against Sovereign Individuals looking to leave the nation-state.
The intensity of the neo-Luddite reaction will vary by region, with the reaction being less intense in rapidly growing economies. The reaction will be the strongest among the middle class who face downward mobility.
Old imperatives of Nationalism will lose their appeal.
The nationalist reaction will peak in the early decades of the 2000s, then fade as the efficiency of fragmented sovereignties proves superior to the nation-state.
The nation-state will ultimately collapse in a fiscal crisis.

As it becomes easier to live comfortably and earn a high income anywhere, the pull to choose where to live based on price savings will be more appealing.

The difference between the new "information aristocracy" and the "information poor" is that the information poor will see little benefit from moving. They'll be tied by geography, and the information aristocracy will be extremely mobile, able to earn a living in any jurisdiction they find themselves in.

The internet allows people to transcend any bad luck of being born in a certain country or state, becoming global citizens. There will be a big advantage to being multilingual and cosmopolitan in the Information Age. Those who want to take full advantage of the freedom of mobility will seek residence in multiple places beyond the one they were born in.

Governments won't be able to stop their Sovereign Individuals from leaving, and they'll surely be as clever and enterprising as the migrant workers who sneak in. Unless the US changes its tax laws, ambitious individuals will likely renounce their citizenship in the future in pursuit of a better form of governance.

New memberships and communities will arise that transcend borders, similar to the guilds of old, where you can be part of one no matter where you are. It will afford you certain privileges in the cybereconomy.

People will choose their jurisdictions the same way they today choose their insurance carriers or religions. Jurisdictions that fail to provide an appropriate mix of services will face bankruptcy and liquidation, like an incompetent business.

The Twilight of Democracy

Democracy has prevailed when certain factors support a military power for the masses, including:

Cheap and widely dispersed weaponry.
Weapons that can be used effectively by amateurs.
A military advantage for a large number of participants on foot in battle

Now that information technology is displacing mass production. It's logical to expect the end of mass democracy.

Geographic representative democracy only makes sense in a pre-Information Age world. Now that we can communicate globally instantly, there's no reason to have state-based representatives. The technology of the Information Age will give rise to new forms of governance, just as the Agricultural and Industrial Ages did before it.

Leaders, coaches, executives, etc., are not selected democratically when you look outside of politics. They are hired based on their qualifications. And, they're paid in part based on performance, unlike legislators who make the same amount regardless of how effective they are.

When adding in interest, your additional lifetime earnings would be tens of millions by relocating your assets and citizenship to a more tax-friendly country. The Information Age will be the age of the independent contractor, rewarded based on performance and competence, instead of the "company man."

Morality and Crime in the "Natural Economy" of the Information Age

As the barriers to transmitting information have fallen, more information has been produced, and it's become increasingly valuable to discern the signal from the noise. That skill is becoming increasingly valuable because:

Information overload puts a premium on brevity.
There's an increased value in broad overviews and a lower value in individual facts.
The growing tribalization and marginalization of life will stunt discourse and thinking. Many people will shy away from conclusions that make them uncomfortable, even if obvious.

We will identify more with people who share our interests and work than our fellow citizens. An investment banker in Manhattan has more in common with a trader in Tokyo than the server who prepares his lunch.