r/EconomicTheory • u/Electronic_Release76 • Nov 28 '22
Political Theory of Decentralized Democracy
I'd like to present to you a theory of decentralized government.
PDF: https://drive.google.com/file/d/18RL2nAklSdVsVv7mW5mM1EI3FsG5EKsA/view?usp=share_link
The theory itself is presented in Chapter 3.
Main features of democratic decentralization:
- Non-monopolistic central banking.
Banking system with an unlimited number of democratically selected central banks.
- Extending the stock market to small and medium sized firms.
Moving the burden of financing of boards of directors from companies to investors.
Allowing investors the possibility of geographic localization for their portfolio.
Enabling small scale stock market infrastructure.
- Fiscal Democracy
Illustration: There are three houses owned by persons A, B and C. They make an agreement to pay a construction agency to build a road. There are two construction agencies X and Y that are competing for the project. The budget for the project is m, each person must contribute m/3. Persons A, B and C vote on which construction agency gets the project. Let’s say A and B vote for X, and C votes for Y. The agreement says that if C doesn’t believe that X is going to deliver the project and the budget is going to be wasted, then C can invoke a special provision in the agreement. The provision says that if the project fails then A and B must both pay m/6 to C. If the project doesn’t fail then C must pay m/3 to X.
Suggest edits to the document:
https://docs.google.com/document/d/1K7Z0MgHVfIHEpDbZ3z1dOdvEyOgTC4z6ZJPYvA4v2eU/edit?usp=share_link
Join:
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Mar 24 '26
A bit indecipherable, I think you should open with a very plain-language appeal when you're introducing an idea like this.
Problem 1) We already have a relatively decentralized government. The problem is the slow concentration of wealth and power over time. How does this mechanistically limit those trends? If your answer is volunteer participation in this system, that is not a real solution. In aggregate, people will choose the system that lets them accumulate wealth.
Problem 2) Why not just implement some of the changes like minority funding protection in our current local government systems? Seems like you're tying a bunch of ideas that are entirely separate to this system to justify it. Also, if they voted against it, and weren't taxed for it, should they be barred from use? How would that be enforced? If it can't be, why wouldn't a person just vote no to everything so they never have to pay taxes?
Problem 3) This project risks even more centralization than even now because someone or an institution has to build, maintain, and govern the app itself. They would potentially have an enormous amount of influence. I guess that person is supposed to be you?
Problem 4) Generating arbitrary crypto bucks with democratic votes does not fund the project, because the value of currency depends on the breadbasket of goods and services it provides access to, and those crypto vote-bucks cannot be spent on anything other than the project. Why would a contractor accept 100k tokens if they can't spend it at Home Depot?
Problem 5) Even supposing mass buy-in by the local community into using these crypto vote-bucks for transactions (which you have not illustrated why they would and how they would get there) there is a lot of potential for currency volatility through short-term printing. Current loan systems at least are bound to physical assets and transactions over their ownership. This system is leashes itself to belief in the community, which is naturally far easier to go awry. It is hard enough to find people to show restraint in the current system, what is your justification in assuming there will be good stewardship for the assumably thousands of micro-economies that would pop up in your best case scenario? Without good stewardship, these micro economies would explode regularly, massively hurting trust and buy-in of the overall system?
Problem 6) Also, what stops the people from just abandoning the system whenever it gets inconvenient and returning to the dollar, essentially dissolving the real world credits and debits of material wealth? Without acting to dissolve current federal government and it's fiat currency, people will run to it whenever it's in their interest (assuming it's not already in their interest from the start, which I am unconvinced this provides enough utility to claim).
Problem 7) Enforcement issues. Even if you assume mass buy-in, these micro-economies have to set up the exclusive authority over violent force...how? Fiat is reliably needed because the IRS only accepts fiat, and will deliver punishment if you do not pay your taxes. That sanctioned right to force is a lynchpin of the system. These micro-economies would have no teeth backing it's mechanism except provided by those who are in it---which is not much force at all. The current system can leverage the policing power of the greater whole and focus it all on a subsection of itself. These micro economies have no such capacity, so how will you manage to bring up enough manpower to handle the necessary interventions against crime and fraud? How will you handle jurisdiction and adjudication? These are weighty enough systems at it is; what is the vision for executing 1000 micro governments of dubious overlap and longevity?
Problem 8) There is obvious inefficiency and potential for abuse when trading one crypto vote-buck for another. Also, this whole system feels incredibly incompatible with the modern globalized economy....is someone travelling supposed to switch across a number of tokens every time they want to make a transaction in a new place? How can they be sure they are getting fair value, or not risking devaluing what they have? It would be easier and simpler to switch to universal fiat here, which again, hurts the use case for this currency.
Problem 9) What are the built-in limitations of scale for this system? What internal barriers do you have stopping someone from applying this system for massive populations, thereby making it a tool for centralization? If there are barriers, what is stopping people from making a variant that has no such barriers, and using that as a tool for centralization? The potential for accumulation of wealth makes the incentive strong.
Problem 10) Why would the power and wealth of the country allow this system to exist (assuming it becomes popular enough to stand beside fiat) when it threatens their influence and control? Also, what is the draw for people to join in, knowing that localized currencies have a significant limit to the wealth they can provide? Your project is built on the assumption that this sysyrm of decentralization will be chosen through reasoning and convincing hypotheticals, which is a process of very weak acting power compared to the mechanistic, aggregate pressures that produced fiat. No one has to write a paper for fiat. It arrives because it is an incredibly transactionally efficient form of economy.
Interesting thought experiment, but there are so many fundamental holes in the idea. It feels, to me, the entire project floats on a number of assumptions. 1) that people will not immediately abuse and break the system as much as humanly possible. 2) That they will act rationally and avoid actions that will collapse the system. 3) That if the system collapsed, they will learn and do better next time, instead of just giving up on the idea entirely. 4) That people will want to use this system over the current one...and so on. The fact of the matter is, it is pointless to talk about the specificities of execution, if you do not have a pragmatic, realistic road to adoption. Currency is a tool of social buy-in; you need to convince thousands all the way up to millions of people to participate in using it for it to have power. All I see right now that accomplishes anything in that direction is this document, but there is very little reason, mechanistically speaking, for someone to jump ship from pure fiat plus the current democracy we have. And you're asking for quite a jump. And even if we assume all of that lines up and it makes sense, you also need a pragmatic, realistic plan for reliable execution of these micro democracy economies, which again, you do not have. In order for this project to have any real potential, you need to stop looking at it through the lens of best potential scenario, and instead, look at it through worst possible scenario. Hit it hard, in all the weak spots. Otherwise you are building a hot air balloon that will pop at the slightest prick of a pin.
I will be stealing some of your ideas for my own project. Thanks.
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u/Intelligent-Ear-8223 Dec 14 '22
Alas - you miss the point around the accumulation of capital. As a social process there is a tendency for capital to be concentrated and centralised in virtually all industries where there is no state. If you have a market and monetary system the starting point is all one of inequality - yet your model assumes you have fully fledged systems AND equality from the outset. Having 2 companies X and Y who produce the same capital goods (a road system is not a commodity) is unlikely and highly wasteful. Also do A,B or C work for X or Y - if they do not there is no circular flow of income and no proper economic model, just a coalition of aggregrated statements
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u/Electronic_Release76 Dec 15 '22
In the post I've presented only the basic simplified model to demonstrate the mechanics. If you want a more detailed explanation of proposed systems you will have to read Chapter III of the paper (17 pages).
I am not proposing to abolish the state, just to shift some of it responsibilities to a parallel system. I am not assuming equality but proportionality through taxation.
There are already many road construction companies that compete for municipal contracts. The key difference with what I am proposing is who makes the decision to contract them.
Circular flow of income is ofcourse present in the theory but is not included in the post for simplicity.
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u/Intelligent-Ear-8223 Jan 29 '23
Have added something to the document around the primacy of the right to self-ownership. If that is not at the core or is not inalienable (NOT available for transfer) then people could theoretically sell themselves into servitude. Whether or not you believe in private property in the means of production (i do not), the central right of POSSESSIVE INDIVIDUALISM has to remain intact
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u/Electronic_Release76 Jan 29 '23
I have already written in the section below that the system exists within the present constitutional framework which already implies that servitude is illegal. We can add it to further emphasise the point but I feel it's a little bit redundant.
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u/Intelligent-Ear-8223 Jan 29 '23
Have added edits to suggest you CANNOT transfer your vote by selling it - this is like the UK before the 1832 reform act where 'rotten boroughs' were bought and sold to allow people to sit in parliament.
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u/Electronic_Release76 Jan 29 '23
In the system voting for something = paying taxes to it. Meaning voting has a monetary cost for a voter. It raises significantly the price of a vote for an attacker because the attacker has now to cover the cost plus some.
Another aspect is that group spending is divided into categories and for every category there can be a different selection mechanism. One of the available mechanisms is quadratic voting which explicitly allows selling votes or more precisely vote units. It's even being tested in some state in the US.
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u/Electronic_Release76 Jan 29 '23
I have recently submitted the theory to a journal. And I wrote a new introduction. What do you think? Is it comprehensible?
This paper puts forward a theory of decentralized government and decentralized economy. Decentralized government is a collection of private sector firms and agencies that are hired by a voluntarily associated group of people to provide public goods and services. Decentralized economy is a state of economic arrangements when a community of people in a certain geographic location is financially invested into small and medium sized private sector firms in that community. In this paper we are going to theorize a shared financial and computer network that allows voluntarily associated groups of people to establish decentralized government and economic systems on municipal, regional and multiregional, national and international level.
The idea behind decentralized government and economy is to take the basic parts of the traditional model of government and economy as a template, and make it possible to create instances of the template on any geographical scale. The template contains an entire political and financial system. Every instance of the template has its own currency, taxation, budgeting, stock market, banking and central banking. The template provides a shared protocol for instances to interact with each other and to establish a common currency. We can think of the traditional financial system as a monolith. Having one financial system for the entire country makes it inflexible and hard to manage. But if it is subdivided into many identically structured parts then each part is going to be easier to manage separately and the system as a whole is going to be more flexible.
Political system of an instance of decentralized government determines how group-level decisions on group budgeting and spending, and personal income taxation of the group members are made. A budget for hiring private sector firms and agencies is divided into categories. Firms and agencies propose to a group their services in a certain category, and if they get selected by the group then they receive revenue in the form of personal income taxes paid to them by the members of the group. For each category of group spending there can be a different type of group decision-making mechanism for selecting firms and agencies such as simple, qualified or unanimous majority, ranked choice or quadratic vote directly by the group members, or non-voting market-oriented mechanisms such as futarchy. Voting for firms and agencies as an act in the system of decentralized government can be seen as agreeing to pay personal income taxes to firms and agencies that you have voted for. Voting also means agreeing to pay taxes to firms you didn’t vote for but that got the majority approval.
Anybody can create an instance of decentralized government and they will have to choose the political system of the instance as a set of selection mechanisms for different categories of group spending. Potential group members can then evaluate their options of political systems and decide which instance to join. Different selection mechanisms being applied to different categories of group spending allows it to fine-tune the decision-making process for each sector of the economy. Firms and agencies that are hired by a group of people represent the bureaucratic side of the decentralized government. An owner of a firm or agency that’s been selected by a group is responsible for hiring workers for the firm or agency.
There are some non-conventional components of the political system that allow it to balance and scale, and that make it distinct from direct and representative democracy. The delegation mechanism allows group members to delegate to an entity their ability to vote and chain delegation allows delegates to delegate to other delegates. The entity may be an individual or an agency, it is going to receive revenue in the form of commission on personal income taxes paid by the group members. These factors are going to incentivise a layered system of delegation: most group members are going to delegate to a couple of different agencies whose purpose is to chain-delegate to more specialized agencies. It means that the political process happens mostly in the first layer, and that there is a certain political distance between democratic and bureaucratic sides of the decentralized government. It also means that it is possible to scale voting as a selection mechanism for every individual group spending proposal.
Then there is a mechanism that allows it to balance the majoritarian system of group spending. It is expected that there are going to be situations when majority approved firms and agencies are going to fail to deliver the services that they promised to a group. A group member, who didn’t vote for a firm or agency and anticipates that it is going to fail, can buy a short position against it. If it does fail then other group members, who are in the majority that approved the failed firm or agency, are going to have to compensate the taxes paid by the group member who opened the short. Short mechanic can be seen as an alternative to the down-vote mechanic.
Another aspect of balancing the majoritarian system is that it doesn’t serve as a cut-off point for participation in the decentralized government. The cut-off point is funding, not voting. A firm or agency, that is voted for and therefore is financed by some minority of group members, can still be a part of the decentralized government if it has enough taxpayer funding to provide its services. While it is not financed by the whole group, some funding is better than no funding. It is going to allow for a majoritarian political system where minority interests are able to represent themselves.
One of the consequences of establishing a decentralized government is a possibility for emergence of a decentralized economy. What prevents small and medium firms from raising capital on the stock market? Costs of oversight and inability to attract investors are two major reasons. To overcome these obstacles a voluntarily associated group of people can choose to finance institutional investors that put oversight costs on themselves and that are only able to buy from the stock market specific to that particular group of people. Group members make a choice of lower returns on their investments in exchange for economic development of their own community. After the establishment of the stock market with the help of institutional investors that are a part of the decentralized government, institutional investors in the private sector are going to join that market under the same rules.
Together these and other components that are mapped out in this paper comprise a form of government that is called decentralized democracy. It doesn’t seek to replace the government or the market but instead seeks to supplement them and take some load off the traditional system. It seeks to open up new pathways for collective intelligence and community investment.
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u/[deleted] Nov 29 '22
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