BTC plus BCC showing strong combined gains as market attention shifts to next controversy

The combined price of bitcoin (BTC) and bitcoin cash (BCH) has risen about 75% since the formerly single Bitcoin split into two chains on August 1.  Events thus far appear to support my suggestion that the split could well be a net positive for holders of bitcoin prior to it.

In my August 5 article, “Descendants with modifications: Bitcoin’s new and possibly beneficial evolutionary test,” I argued that a marginal shift away from talk and toward innovative action could in itself prove a net positive. To at least some degree, an actual split would enable claims that one approach or another was superior to be replaced with practical reality checks across the board.

However, I also emphasized that the split was still a poor “test” from a scientific standpoint. Not only do the chains differ in headline qualities—one is activating SegWit and the other has revised its block size limit to 8MB (already two major variables in themselves)—but also in a whole list of other confounders. For example, the two chains differ in associated development teams and testing and review practices, which leads to contrasting levels of market confidence in the different code bases as a whole. This reflects far more than just the headline contrasts. In addition, the two started out with widely differing hashing power levels and coin prices. Nevertheless the split should provide some way to proceed with implementing respective visions of how innovation should progress, and to that extent could well beat a continuation of “unmitigated talk.”

Since that article appeared, the BTC price first rallied dramatically while the BCH price languished. One megabyte block size limit enthusiasts on social media sought to out-compete each other in boasting about how decisively they would “dump their bcash" (using a popular term of insult for bitcoin cash) as soon as they could. When trading in bitcoin cash finally came up to speed on exchanges, such commenters promised, BCH would crash as dumping of the latest new "altcoin/shitcoin" began in earnest. Since then, one by one, various cryptocurrency exchanges and wallets have announced support for BCH, with more to come.

In the event, the BTC chain still has its own dramas to live through. A stark reminder of this came with a blog post by BitPay instructing users in how to move to software that implements phase 2 of the “SegWit2x” or “New York” agreement, which calls for a revision of the BTC chain’s block size limit to 2MB in November, following phase 1, its recent activation of SegWit.

Full-fledged American-style “outrage politics" ensued against BitPay, as opponents of the block-size limit revision portion of the SegWit2x framework accused BitPay of fraud for not clarifying that moving to the BTC1 software it was recommending to its customers would split them off from the portion of the BTC network running Bitcoin Core software. Bitcoin Core software has merged code that disconnects Bitcoin Core nodes from BTC1 nodes. Few to no active Bitcoin Core contributors support the BTC1 project while a significant number of miners and bitcoin companies expressed support for the SegWit2x agreement.

It is unclear how this will be resolved. Intransigence and belligerence reign on social media between the vocal on the two "sides." Another chain split is possible, once again over exactly the same issue, the specific height of the block size limit. This next split, however, might be less clean than the last, which did have critical user protections in place, notably replay protection. A scenario in which BTC1 and Bitcoin Core navigate into an unclean chain split has the potential to leave Bitcoin Cash looking like the more stable option for the time being. With a limit revision already behind it for now, it could end up sitting on the hill overlooking the next BTC chain battle with a detached attitude of: "Bitcoin Cash user unaffected."

After the BitPay post brought this next controversy facing the BTC chain back onto the front burner of the market's attention, the BCH price promptly more than tripled from $300 to briefly peak at over $1,000, while the BTC price began to soften slightly.

The BTC + BCH total price, however, has continued to rise steadily for the time being (see chart). As of this writing, the combination remains more than $2,000 higher than before the chain split.

BTCBCC speciation chart.jpg

Looking ahead, much will depend on the interplay between hashing power, mining difficulty, and price. The dynamics of differences between the mining difficulty adjustments on the two chains could have some dramatic effects as mining power shifts in pursuit of profitability, resulting in follow-on differences in block discovery times.

As I concluded my discussion on August 5, so I will conclude this one: “The complex sequence of outcomes to ensue must now be seen in practice and over time.”

[Update: The original version used BCC for Bitcoin Cash throughout, but this code was already in use by another cryptocurrency. Since that time the Bitcoin Cash community has clearly shifted to BCH, so in this text I have changed to BCH where simple to do so (not in the title and graphics).]

Descendants with modifications: Bitcoin’s new and possibly beneficial evolutionary test

Source: Charles Darwin. 1845. "Journal of researches into the geology and natural history of the various countries visited by H.M.S. Beagle."

Source: Charles Darwin. 1845. "Journal of researches into the geology and natural history of the various countries visited by H.M.S. Beagle."

The BTC/BCH chain split of 1 August 2017 could add value for holders of the former bitcoin during any period in which the summed value of each coin exceeds the value that the former single coin would have had. Holders of BTC before the split came to hold equal amounts of BTC and BCH after the split, prior to any subsequent individual trading.

Zero “new bitcoins” have been created from a monetary-inflation standpoint. Control of any existing bitcoin unit before the split gave rise to corresponding control of one BTC and one BCH unit after the split. Since this reflected the precise and complete pre-existing constellation of unit control with no alternation for each and all former holders of the single-chain BTC, no redistributive Cantillon effects follow.

This split looks like a better-case scenario, at least “less bad,” than several of the other fork types proposed and discussed over the past months.

At this early phase, bitcoin cash (BCH) trading remains nascent, as exchanges and wallet services work to serve customers in a post-split environment. Potential traders remain limited because many exchanges do not yet offer BCH account crediting or have temporarily disabled relevant withdrawal and deposit options.

Various partisans have already claimed that as soon as normalized trading is achieved the BCH price will either collapse or rally, or some sequence of both. Pre-split futures and post-split exchange data (such as it is) have thus far shown an approximately $250–500 range for BCH. The bitcoin (BTC) price hardly reacted from its recent pre-split range of approximately $2,600–2,800. Either way, relatively wide changes to the BCH price are likely to be the rule until at least some time after normalized trading options come on line and hashrates and difficulty levels settle out to a greater degree.

The summed prices of BTC and BCH have mostly exceeded the former BTC all-time high, hinting at possible net value added from the split. This could be illusory due to the poor trading environment, but this sum could also have been lower instead, particularly if viewed as a network, mining, and trading disruption: the BCH price range could have started lower than it did, the BTC price could have fallen unmistakably, which it did not—or both.

Looking ahead, hash rates and difficulty adjustments are other key points to watch. Although the BCH chain protocol revisions did add certain more flexible mining difficulty adjustment methods, it remains to be seen if this will be sufficient to prevent very long block times over the coming weeks, which, amid price declines, could further reduce mining profitability on the BCH chain for some time. The future allocation of hash power, pace of difficulty adjustment, and price all remain to be seen.

Separate from these temporary and news-oriented issues, in the balance of this article, I will interpret the chain split in more fundamental terms.

Potential net value added from innovation and experience effects

If a net value gain from the split is actually present and does persist, such an outcome would not be entirely mysterious. Innovation proceeds through action far more than talk. SegWit activation (BTC chain) and a substantial block size limit increase (BCH chain), respectively, both promise to partially replace months and years of talk with action and experience, which is, in general, bullish for innovation.

In contrast to action, speculation and modeling are far more subject to partiality, bias, and social and financial pressures in the selection, construction, and interpretation of models. Action can supplement or partly displace hot air. What will happen with SegWit? Watch and learn. What will happen on a live network with a higher protocol block size limit? Watch and learn. This opportunity for the addition of progressive sequences of reality checks on the respective chains might be positive in itself. The “test” this represents is highly imperfect, as discussed below, but is still probably better than unmitigated talk.

The misleading conventional understanding of innovation is that practice follows theory; that “basic science” comes first and then begets technological innovation. The historically far more common process of innovation has very often followed the opposite pattern. Some fundamental innovation attempts occasionally succeed (mostly they fail). After the rare successes, new theory and research come along to try to explain and formalize what entrepreneurs and tinkerers had already done (after the best pontifical efforts of old theory to prove that what had been done could not have been).

Descendants with modifications

The minimum requirement for a process to be called evolutionary is descent with modification. Thus far, Bitcoin has gradually evolved as a single chain with modifications to its software. This split, in contrast, is Bitcoin’s first speciation event. Both BTC and BCH build on and carry forward the Bitcoin chain in a valid unbroken lineage of blocks tracing back to the genesis block.

The best chain in Bitcoin is defined as a chain of valid blocks with the greatest accumulated proof-of-work difficulty. In this model, the validity test comes first, followed by the total difficulty assessment. The software variants behind each chain have recently implemented certain substantial rule changes that are not now recognized as valid on the other chain. The BTC chain, for example, does not recognize the BCH chain’s modified block size limit, and the BCH chain omits SegWit, which recently activated on the BTC chain. Bitcoin block history diverged after block #478558, which is the last “common ancestor” that the two chains share.

The term “altcoins” has been used to denote cryptocurrencies that are not Bitcoin. Both of these chains, however, are valid Bitcoin chains as defined above. From this standpoint, the commonly expressed opinion that BCH is a new altcoin may be viewed as a use of language for rhetorical and emotional, rather than cognitive and elucidative, functions. Sharing almost all specifications and over eight years of transaction history, each is far more Bitcoin than either is altcoin. Some new term may be required. For example, in a public draft article, Daniel Krawisz, a long-time altcoin critic, has quite recently suggested the term "bitcoin child" to specify any chain that traces its history back all the way to the Bitcoin genesis block, a category that now includes BTC and BCH, but no others.

Proponents of each chain will naturally want to claim the banner of “true” succession, much as most religious sub-sects story themselves alone as the one truest representative of the ancient founder’s original teachings (rarely acknowledging the odd coincidence that all of the other sub-sects likewise tell just such a story about themselves). Regarding coin names, it is sufficient if the tradable units of the two chains are named in such a way that those using them now or in the future do not encounter any practical confusion. Bitcoin (BTC) and Bitcoin Cash (BCH) appear sufficient for this. For continuity, Bitcoin dominance indices might choose to sum the valuation estimates for the two post-split Bitcoin chains, perhaps after trading normalizes and if it appears that both will persist for some time.

Of most practical relevance now is the quality and prospects of the existing chains, as they have actually come to exist, moving from the present into the future. Practical measures of their prospects center on hash rate and unit price trends.

Rather than relying primarily on such ever-shifting market criteria, however, I prefer to begin by examining what defines the respective chains themselves. If we are talking about mining, mining what? If we are talking about price, the price of what? Identification properly precedes evaluation. In this case, a comparative identification is natural given the context of descent with modification, in which common features far outnumber differentiators.

Which chain is the “truer” successor is, in principle, not especially important in direct analytical terms. It might be useful as sociological research into the study of the development and spread of beliefs, or somewhat more useful than that as a source of hints for investors as to likely relative popularity based on belief frequencies in relevant user populations (meme frequency).

Nevertheless, BCH’s critics have taken to consistently labeling it an altcoin (which it is not), and moreover asserting that it is impossibly distant from being any true and proper successor of the one real bitcoin, which they believe the BTC chain unquestionably is. In this context, it should at least be noted in counterpoint that from a strictly content standpoint—rather than a popularity standpoint—BCH is arguably a nearer successor to 2009–2015-6 BTC than a post-SegWit BTC.

First, the BCH chain block size limit functions for the time being as a high upper-end traffic-burst defense, which matches the originally stated role and years-long practical function of this limit. This is more consistent in economic terms with the former BTC throughout the majority of its historical development until relatively recent times. In contrast, it was a significant new development when the particular height of the block size limit began to function for extended periods as an economic output ceiling on the industrywide production of Bitcoin transaction-inclusion services. Regardless of one’s opinion on whether this new economic effect is desirable, it remains that it was a significant departure from most of Bitcoin’s past viewed in functional economic terms.

Second, BCH does not implement SegWit. Again, regardless of one’s particular opinion on the net desirability of SegWit, it will in fact arrive on the BTC chain—but not on the BCH chain—as a significant data-structural departure from the organization of the former Bitcoin’s blocks.

Both BTC (with the new SegWit and some other recent changes) and BCH (with its revised block size limit and some other recent changes) are direct successors of the Bitcoin that came before them and each differs in some substantive way from that former Bitcoin. Against a backdrop of continuous Bitcoin software modification and innovation over the years, this stands out as the first time protocol choice options have elicited sufficient sustained disagreement among participants that a chain split has in fact resulted. For the lower block-size limit camp, the key factor was the limit change being unacceptable to them; for the higher block-size limit camp, it was the failure to revise the limit, and for some SegWit activation as well, being unacceptable to them.

Some observers have expressed concern that this first Bitcoin chain split could set a precedent for additional splits in the future. This seems possible, but somewhat doubtful to me. First, it is unclear the extent to which this first split will prosper, and if it does quite poorly, this might discourage future attempts rather than encourage them. Second, months and years of debate, effort, proposals, and campaigns, all primarily centering around the block size limit issue, preceded this first chain split. This suggests this step has by no means come about lightly. Most importantly, I view the block size limit as quite unique and distinctive among Bitcoin protocol issues and think it unlikely that other issues are likely to rise to the level of sustained disagreement that would be required for another similar split. [That said, the 2MB hard fork already planned for November could lead to another split, but that plan predated the current split and some believe this split might even reduce the probability of the other one rather than enhance it.]

A poorly designed experiment, but all we get

The emergence of these two daughter variants of the former Bitcoin, which diverged from a common ancestor block on 1 August 2017, enables a certain evolutionary test in that both represent descent with modification following a speciation event. However, it is by no means a “clean” experiment, able to test the effect of changing a single variable. Alas, real-life evolutionary tests are usually “dirty,” reflecting the net effects of a complex interplay of context and interdependence. Even a single genetic change in an organism that does have some practical effect seldom has a simple, singular effect, but instead results in a certain cascade of effects, interactions, and adjustments.

As an experiment in the scientific sense, then, this chain split is badly confounded due to the many major variables differentiating the two chains. This includes, at least: the block size limit height difference, the presence/absence of SegWit, the respective quality levels and reputations of software development teams and software testing processes, differences in user traffic, and the extent and stability of relative hashing power. Most of these variables can impact both general user confidence (subjective) and bug probabilities (more objective). A good experiment, in contrast, would seek to change one variable at a time. This development does not do this—not even close.

A reasonable case can be made that the BTC/BCH split, such as it is, may be a net positive for holders of the previous “single bitcoin.” Bitcoin’s evolution continues for the time being along paths that have diverged into two chains differing across a set of multiple variables. This may well bring a certain marginal shift toward more practical experience opportunities and away from talk and modeling, which could in itself represent net value added from the event. Relative hashing power, unit prices, development efforts, and software quality levels are all likely to shift over time to various extents and directions not easy to predict (though always easy to “predict” afterwards). The complex sequence of outcomes to ensue must now be seen in practice and over time.

[Update: The original version used BCC for Bitcoin Cash, but this code was already in use by another cryptocurrency. Since that time the Bitcoin Cash community has clearly shifted to BCH.]


Additional Issues with the Balance and Accuracy of the Anti-Musk Narrative

After posting my reassessment of Elon Musk yesterday, I saw that the initial responses were mostly positive and to the effect that my reading seemed to be balanced and fair. A couple of interesting issues and angles have come to my attention in the day that has followed.

One topic concerns whether the Tesla Model S is quite as great as some initial magazine reviews suggested. Another is the narrative that Tesla could not survive without subsidies, given the alleged phenomenon of "sales dropping to zero" as soon as subsidies end. The third is a rather surprising turn—evidence that Elon Musk has been speaking out against electric vehicle subsidies and that he has been promoting their abolition.

Not so great?

A reader pointed out that Consumer Reports, after initially reviewing the Model S with glowing superlatives was then forced to remove the car from its recommended list in late 2015. The reason was that poor reliability reports were coming in. Things were breaking and needing fixing at a relatively high rate.

I have seen superior assessments of the Model S on safety, performance, buyer experience, total buyer maintenance cost, and service relationship. That is quite a list of superlatives for an upstart company selling an entirely new type of car. It is the safest car on the road. It has the fastest acceleration. In doing all this, it is quiet. Actually, it can swim in flood waters like a James Bond boat (the manufacturer does not recommended making a practice of this though). In the area of service, Tesla employees show up at people's homes to fix the car and then leave.

Reliability strikes me as just the sort of area that would depend most on improvement over time through iterations of experience. Here we have a completely new company with a completely new type of car up against century-old companies building incremental advancements of century-old types of cars (at least in comparing the Model S to conventional luxury sedans). My prediction would be that the reliability issues should be steadily improving as specific issues are identified and fixed and the company learns from experience, redesigns parts, adjusts suppliers, etc. A small-scale version of this phenomenon is why I never buy a new number release of an iPhone, but always wait for the "S" version. Most major engineering issues are introduced with the whole number redesigns and have been eliminated by the time the upgrade iteration arrives. One can prioritize being first and taking on a higher risk of issues, or wait until the earliest adopters have already served as the Guinea Pigs. It is a matter of personal preference.

Evidence quality behind claim of zero sales without subsidies

As for the narratives that no one would buy Tesla cars without subsidies, here's one specific claim from a recent article: "After Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero."

I have not researched or considered any detailed multi-country or up-to-date data on this, but looking only at this one statement, it immediately occurred to me that it is quite common for buyers of higher-end items or capital equipment to be aware of the end or the beginning of major tax or subsidy changes and then time their purchases accordingly. Even much more broadly, sales always rise before a sales-tax increase, then drop off for some time after the change takes effect. There is typically some degree of "sales rush" leading up to such a change followed by a sales drop-off and eventually normalization. The particular time scales depend on the specifics of the product.

This makes me wonder just how much of this "sales dropped to zero" narrative might be an artifact of such normal smart-buyer timing. The only surprising outcome would be if buyers of $100,000 items would delay purchases until after an available discount was set to evaporate. To assess this, the whole data series in each case, including well after the change in subsidy, would have to be analyzed to account for this common factor in sales trend analysis. Or one could omit such analysis, cite figures immediately after the end of the subsidy, and thereby appear to have solid evidence for a subsidy-dependency narrative.

Does the alleged subsidy queen actually want subsidies?

The final issue I found was actually quite surprising. With so many critics painting Musk as a subsidy-seeking corporate welfare queen, I just sort of accepted this as though it must be true. I know he is a deal-maker and seeks out the best opportunities to acquire factory land, for example, and this includes getting the best possible deals from governments. But does he actively seek subsidies? According to the anti-Musk narrative, he must, right?

Just before I found the information below, it had already occurred to me on logical grounds that if some subsidies are of fixed amounts per electric vehicle, which many are, they may well have been LESS important to Tesla than to its competitor electric-vehicle makers (of course, this doesn't address the advantage relative to FF vehicles). A $7,500 subsidy on a $100,000 car (Models S and X) is 7.5% of the purchase price, the equivalent of a couple of options more or less. This same subsidy on a $30,000 car is a 25% discount. True, the latter case would now also apply more to the new Model 3, but this has not been the context for these criticisms in the past.

Just after having this thought, a simple search revealed something I did not expect to see at all:

At a May 2017 earnings call, Musk made the following statements:

In fact, the incentives give us a relative disadvantage. Tesla has succeeded in spite of the incentives not because of them...Tesla's competitive advantage improves as the incentives go away. This continues to be something that is not well understood...
I should perhaps touch again on this whole notion of—it's almost like over the years there's been all these sort of irritating articles like Tesla survives because of government subsidies and tax credits. It drives me crazy. Here's what those fools don't realize. Tesla is not alone in the car industry; all those things would be material if we were the only car company in existence. We are not. There are many car companies. What matters is whether we have a relative advantage in the market.

As Anton Wahlman explained (4 May 2017):

Musk's argument is that the tax subsidies are worth more to Tesla's competitors than to Tesla, and that therefore Tesla would be better off without them, relatively speaking. Musk has made this argument in previous forums before, including on a previous earnings call as I recall, in the context of California's ZEV (zero emissions vehicle) credits, which Tesla is able to sell to other automakers as a purely politically engineered 100% gross margin profit. He made the argument on the 1Q 2017 earnings call again. In that ZEV case, his argument is that Tesla sells these $5,000-a-pop credits to other automakers at a discount, whereas those automakers make and consume some of those $5,000-a-pop credits internally without applying such a discount.

If removing subsidies removes a competitive disadvantage for Tesla, this might easily be written off as simply strategic self-interested promotion once again. However, if we are engaging in a moral assessment of Musk the public figure and claiming that he shamelessly seeks to live off the public purse, his active opposition to electric vehicle subsidies still does not fit all that smoothly into the anti-Musk narrative that I sought to qualify in my recent post. In addition, it cannot have been lost on Musk that the end of EV subsidies would also remove a special price advantage over conventional vehicles, against which Tesla also competes.

Interestingly, Wahlman's article went on to explain why other automakers might also be happy to be free of EV subsidies—they come with expensive strings attached.

Elon Musk apparently looks forward to competing in a subsidy-free world (who knew?). But what about the other automakers? Wouldn't lower subsidies for electric cars mean fewer electric cars sold for them?..It sure would. And the other automakers would love it too!
Why? Because under the current regime, they are manipulated by both the U.S. Federal tax code, as well as by California's ZEV mandate, to develop and produce more electric cars than for which there is true natural free-market demand. And that means billions of dollars in investment for products that they eventually have to dump at negative margins.

In writing my reassessment of Elon Musk, I suspected the anti-Musk narrative to be a bit overdrawn, tending too far toward the negative in an imbalanced way that does not do justice to the reality and tends to dismiss valid positives in the sweep of also-valid negatives. The observations and discoveries above now seem to indicate that the evidence and thinking behind the anti-Musk narrative might be even somewhat weaker than I had been suspecting. I think the ultimate point is to strive for a realistic and nuanced assessment: to call the positives positive and the negatives negative and acknowledge that both streams are present in parallel.

A Mixed Hero: A Libertarian Reassessment of Elon Musk


Many libertarians seem to love to hate Elon Musk these days. His crime is to live at the public purse. His companies would be bankrupt without green subsidies and cheap government loans and contracts. He seeks out favorable terms from governments and angles to capture subsidies and cheap loans with no reservation and with vast success at doing so. This situation, along with certain financing practices and relationships among his companies, has led to it becoming fashionable to disdain Musk as a public figure and to characterize him with sweeping put-downs.

I have a more complex assessment of Musk as a figure. I enjoyed listening to his 2015 biography by Ashlee Vance. I tend to look for the positive things in people. One positive quality here is the ability to re-envision products from the ground up in a completely different way. The Tesla is not just the evolution of the car, but a completely new way to think about what a car is. A car is a thing with an engine and a drive train, right? True for a century, but not any more. Musk has done in the fields of cars and rockets, what Steve Jobs did for computers and phones, completely re-envisioned what they could be, how they could be built, and how they could be used.

A second quality is execution under very challenging circumstances. Anyone can have big ideas, but only the few are able to successfully execute on them in the "really existing" world. SpaceX's rocket designs and rocket reuse and the Tesla Model S were almost universally deemed impossible—until the job was actually done. Rocket reuse was just a science-fiction fantasy. SpaceX did it. An electric car "that didn't suck" was also an impossibility—until Tesla built the Model S, which has been assessed by multiple car review magazines as basically the best car in the world, bar none, on both safety and performance. It is not only as good as conventional vehicles, it leaves them all behind, not just on green measures, but on car measures as such.

So from a simple first look, at this level, one could argue that however these things were achieved, they were at least potentially positive achievements (though this assessment will be qualified further below). In addition, Musk cannot be accused of relying on subsidies to the exclusion of also having skin in the game. He has repeatedly staked recklessly large portions of his personal fortune on bridging impossible-looking financial stretches for his enterprises.

I fully support the view that actively advocating for the expenditure of public funds is immoral. The only moral way to advocate for the use of public funds is to argue in favor of their return to the people to whom they rightfully belong, namely those whose wealth was forcibly extracted, mainly the original taxpayers.

On the other hand, if taxpayers in their role as victims of the state accept state handouts that are already flowing—provided they do not actively advocate for the continuation of such handouts—it is perfectly moral for them to take receipt of such funds as a form of limited restitution for other damages they suffer at the state's hands on a constant basis. This includes not only direct taxation but all the myriad seen and unseen harms from the arbitrary "regulation" of many aspects of life and work, all unjust restrictions on the liberties of mutually consensual production, trade, and association.

In this context, Musk's actions in relation to subsidies and government contracts must be viewed as mixed. Green vehicle subsidies, for example, already existed before Tesla. Building a car that would qualify for them does not—in itself—constitute advocating for the subsidy program. Seeing only crappy electric cars receiving subsidies, an entrepreneur could quite reasonably set out to build a better competing car that would also receive these same pre-existing subsidies instead of the crappy golf-cart cars.

Of course, Musk certainly does promote such programs. However, only at the point where he benefits from programs the adoption or maintenance of which was actually influenced by his advocacy—does a moral case against his benefiting from them become unmistakable. The minimal conceptual dividing line is that simply benefiting from subsidies is not objectionable per se, advocating for them is objectionable, and advocating for them and then also receiving benefits as a result of such advocacy is the worst case.

In this view, I suspect that his guilt is far more mixed than a simplistic portrayal of "his company benefits from subsidies, and could not exist without them." His enterprises have surely benefited in all three types of ways, ranging from acceptable to less acceptable to not acceptable.

Context is also important. No car company would exist in its current form and at its current scale without unimaginably massive subsidies continuously provided to all automobiles over many decades, distorting not only the entire structure of transportation, but also the very formation and shapes of cities and communities. This vast structural distortion of the entire transportation industry, which systematically twists spatial relationships between residences and businesses, takes a simple form: the production and maintenance of roads provided free of charge to drivers, financed by taxation. A simple heuristic to consider while commuting is that every time one has to pay by waiting, such as in a long line or in thick traffic, the state is squarely to blame.

In prosecuting Musk for his moral position in relation to the receipt of government support, another "extenuating circumstance" of wider context must be considered. What his companies have done with the money and other advantages he receives from state entities is far more valuable a contribution than almost anything else that follows from other uses of such money and advantages.

Most of the state's money goes to "the production of bads," to use Hoppe's terminology, as opposed to the free market's production of goods. We do not want the production of bads to be carried out more efficiently. Indeed, we do not want bads to be produced at all—less of them is better.

Not only is the money the state extracts from the productive population wasted once when initially extracted, the ways that this money is subsequently used are generally quite wasteful a second time, compounding the damage to society. In the US case, most government money goes to the following types of uses: financing global military interventionism and promoting armed conflict and death all around the world, financing vast bureaucracies that meddle in all aspects of society, undermining healthy natural incentives, promoting fragility, harming employment, limiting innovation, and spreading social and cultural degeneration, high time preference, frailty, and dependency across the population.

Against this backdrop, Tesla has extracted something from the stream of public money and used it as part of a project which has produced arguably the best car the world has ever seen.

Why libertarians should want to focus vitriol on this, one of the best existing uses of the state's handouts is somewhat mysterious. Why not spend the same time complaining about the 99+% of uses of state subsidies and privileges that lead to worse outcomes than this?

It is far easier to criticize than to achieve. A sad and strong cultural tendency is to find flaws in hero figures and emphasize those flaws over their positive characteristics. But what does such cultural cynicism bring?

My approach is the opposite in two ways: focusing on the positive and focusing on qualities. I look for admirable aspects of a person. I look for actions and qualities to which positive adjectives such as heroic can be applied, rather than attempting to apply a blanket noun such as hero (or not a hero) to necessarily multifaceted persons. I always look for what I can admire and/or borrow, in both people and thought systems. If I were to look for the worst in others and focus on that, it would be simple, but would accomplish nothing, since I would always find and focus on negative aspects of persons, aspects which I did not want to emulate. If instead I look for the best in each person, I always have something available to learn from and emulate. Likewise, if I look for the best in each thought system, and dismiss the rest, I always have one new puzzle piece to add to my own global knowledge synthesis.

I agree that Musk is guilty of actively seeking to gain from state handouts. However, this is partly mitigated in that at least some of these handouts were already being handed out, and could therefore be legitimately captured as partial restitution for other damages that the state continuously inflicts. It is also partly mitigated in that the uses to which these funds are being put are arguably positive developments relative to the worse outcomes that result from almost all other uses of money derived from state coffers.

It should be made clear that extenuating circumstances do not make it morally acceptable to advocate for the receipt of subsidies from the state. Nevertheless, guilt on this count (albeit probably somewhat more mitigated guilt than some critics have implied) should not be interpreted such as to invalidate the man's positive attributes and accomplishments.

As I read Musk's biography a couple years back, I came to view him more as the type of mixed Randian semi-hero who blends a certain heroic genius in some areas with serious flaws elsewhere. His genius is a vision- and engineering-driven entrepreneurship that has proven able to repeatedly achieve "the impossible" in practice in productive sectors of technological achievement (mainly transportation). One of his flaws is being all too gleeful in his pursuit of capturing ill-gotten gains from the state as one of the means he uses in this process.

The purest of the Randian superheroes all went on vacation from their professions in an exclusive mountain resort. Engaging with the real world to achieve great things today is often messy and complex. This is not an excuse to soften one's moral principles in action. However, Musk's own moral worldview contains no compunctions about attempting to influence state and regulatory actions, including in favor of his own enterprises. He can therefore be accused of being morally mistaken on this topic. Yet this amounts to the relatively simple claim that he is not a libertarian, which I do not think is in dispute.

I do not buy into the bases of some of Musk's bigger-picture motivations, above all global warming death hype. In addition, I argue in "The Unbearable Lightness of Martian Gravity" that his Mars colonization vision could very well turn out to be a dead-end, not on technical grounds, but on biological ones. That said, I do not criticize in order to take down a hero figure. I acknowledge and appreciate the heroic aspects of the figure, while also acknowledging the flaws and pointing out what I believe to be the errors.

Ron Paul said that if we are reducing the size of the state, the place to start is not with old ladies' state pension checks, but with outlandish militarism and a state-orchestrated monetary system that enables virtually unlimited debt financing for the state and its cronies. Probably one of the last things to cut out in dismantling the interventionist state is old ladies' pension checks, and this after other policies that have undermined responsible private retirement saving, real insurance, and natural multi-generational care practices have been long since eliminated.

Likewise, libertarians complaining about uses to which government money is being put might consider that Tesla subsidies could well be among the best uses to which such money is currently being put. They might therefore redirect their attention and vitriol to the widespread mass production of unmistakable "bads" financed by the state, those that are far worse than some of the more impressive American engineering innovations in recent memory.

Yes and Nein: Borrowing the best from German and American cultures (and not borrowing the worst)


After nine years living in Germany (as an American), I have distilled a difference in cultural instincts into a simple heuristic that balances the pros and cons of opposite tendencies. This is, of course, a large generalization and there are many individual exceptions, but I think it has some merit as a statement of tendencies.

In America, a first instinctive response to new ideas or ways of doing things tends to be: “Yes, that sounds interesting. Let’s try that and see how it works!” [for the West Coast, interject “wow” or “cool”].

On the negative side, this enthusiasm for the new can sometimes be applied to terrible ideas, which then waste time and money or worse. On the positive side, this makes innovation at a fundamental level much easier than elsewhere. America is a global engine of innovations that transform or create entire industries. In modern times, think of Apple (which has made a recurring habit of this), Facebook, Airbnb, and Uber.

In a simple contrast, in Germany, a first instinctive response to new ideas or ways of doing things tends instead to be: “No, that is not how it is done, that is impossible, no one does it that way and therefore it can’t work.”[1]

On the positive side, this tends to weed out terrible ideas and concentrate time and attention on things that solidly do what they are supposed to, like Autobahns, BMWs, long-lasting buildings, and MRI machines. On the negative side, this makes big-concept innovation much more challenging, since “that is not how it is done” is the whole point of a big-concept innovation—just add “yet.” In contrast, incremental technical and quality improvement within a given track proceed well, particularly in mechanical domains. Things are built to work very well and to keep doing so for a very long time.

From German culture, I embrace a healthy respect for things that actually work and a healthy skepticism about things that are not yet known to work (and that might just fail spectacularly—like socialism and wind power, oops). From American culture, I choose to embrace a style of fundamental innovation and re-thinking that has the power to reshuffle the structure of entire industries and ways of life in a legitimately and lastingly positive direction (unlike the low-fat diet, oops).

So: enthusiasm for the new—when warranted.


[1] There are some stark exceptions. One is the historical enthusiasm for the horrific ideologies of socialism (national and otherwise). This might be partly understood as misapplying mechanistic thinking to the decidedly non-mechanistic domain of society and economy. Another is homeopathy, which is immensely popular in Germany, even though it appears to lack any scientific basis. Besides placebo effects, which could be significant, one of my theories is that it does work in an odd sense: it helps protect people from greater exposure to conventional medicine, drugs in particular. By doing this, it sometimes accidentally leaves people healthier than if they had been subjected to certain unnecessary net-negative conventional treatments instead. First, do no harm.