Crypto Thoughts: Ethereum is The Most Inclusive Economic Institution Ever
In the book “Why Nations Fail”, the authors lay out the argument that the disparity in wealth we see amongst nations can largely be explained by whether or not a nation has “inclusive” vs. “extractive” political and economic institutions. As examples, you would say the U.S. is inclusive on both, Cuba is inclusive on neither, and China has inclusive economic institutions but extractive political ones.
What does “inclusive” mean here? From the book: “to be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract”.
Ethereum and Inclusive Institutions
What’s striking to me is just how much Ethereum crushes this definition. In fact, it’s arguable that Ethereum is the most inclusive economic institution ever built. And according to the authors, such institutions are the engine of innovation and economic progress. The reason is simple: people will only bother investing and innovating in a better future if they know they will be rewarded, and that those rewards won’t be confiscated. It is almost as if inclusive economic institutions are the thing that literally creates the desire to innovate and to build. The plethora of protocols, tokens, and crypto companies — not to mention the wide variety of people from every corner of the world who have become rich — is a testament to Ethereum’s inclusivity.
The reverse reasoning for why extractive institutions rarely produce innovation is also interesting. The elites of any extractive system will consistently block new innovations, because they fear the changes in wealth and power that are wrought by the creative destruction of innovation. When you’re on top, you want stasis, and innovation is scary. The authors give many examples, but one of the most overtly frank quotes comes from a high up assistant to Prince Von Metternich of the Austrian monarchy in 1808 when he was asked why they don’t allow more freedoms for their people: “We do not desire at all that the great masses shall become well off and independent… How could we otherwise rule over them?”
With this framing, Ethereum rises to the level of a truly grand experiment. Not only is it the world’s first digital institution, but it’s also the most inclusive one ever created. The world has never seen an institution where literally everyone is equal, where fortunes can be made, and where private property is so secure. It’s a beacon to all the doers and dreamers of the world. With no barriers to entry, and a global market to attack, it ignites a fire in those who are long on determination, and short on wealth. Long live Ethereum.
If you’re excited about how crypto can create more inclusive economic institutions, join the Goldfinch community. Also, we’re hiring!
