The Quest for Digital Dollars
From one point of view, the most interesting political event is the foundation of a community. For example, we celebrate the Fourth of July, remembering 1776. Our admiration of our founders is part of our orientation to the past—to what’s real and to human experience, to greatness and misery, and hard-won achievements. To found, however, is to innovate, to concern oneself with human possibilities as yet unrealized, reminding us that the orientation of action is to the future—we hope and fear, we expect good things or bad, pleasure or pain. Putting future and past together is perhaps the most difficult thing for us, such as educating children with a view to their future happiness as adults.
You may say that the conservative is the man who believes there never again will be a Washington or Jefferson, the liberal the man who believes there never was, and that, absent great men, they are agreed that there’s little we can do now.
From infrastructure to visions of the future, less and less works. Perhaps our children’s obsession with images of fake heroism corresponds to our increasingly fictitious citizenship. We still allow children to believe in fictional heroes and find it useful to abuse the term in our politics; but a hero, more strictly speaking, is a founder, a source of political tranquility and the common good we might need again, yet cannot contemplate.
There are many obstacles blocking our view. Among us, foundations are private institutions rather than public; and founders have themselves been privatized as entrepreneurs, able to act more freely than public institutions, but without forcing anybody else to join them or compelling an authoritative legal decision about the wisdom of their activities. We have achieved a remarkably peaceful way of life, but it does have drawbacks. Little among us lasts long. We have become accustomed to things coming and going in our lifetimes—we leave behind things we did or loved or believed in years back, confident that nothing endures; some call this progress.
Only in technology has founding not been reduced to this routine—wealth, ambition, talent, and knowledge still are everywhere on display in that enterprise. We do not look upon the industry as we do with our historical resources of pride—often reduced to museum pieces, hopelessly impractical. It may embarrass many, but it’s also a rare enterprise dominated by men and, unlike our politics, it is not a gerontocracy. Young men become billionaires; millions of children who disobey their parents with bored contempt suddenly become obedient to new devices; America changes—society is upturned, reality rationalized or virtualized. We are witnessing a new birth, we know not yet whether of freedom or tyranny.
This is not entirely news to faithful readers of Law & Liberty: The late Peter Lawler reviewed Peter Thiel’s writing on founders. Now, journalist Jimmy Soni wants to deal with all this in The Founders, his new account of PayPal, the enterprise with the greatest concentration of talent in a generation, at least in America. Nearly every important actor in the startup that changed how payments work around the world talked to him for this account. Elon Musk is the most famous, but Peter Thiel is the most thoughtful; Max Levchin is the programming genius, Luke Nosek the marketing and ideas guy, David Sacks the product designer. Most of them are immigrants or children of immigrants and they are all famous now, wealthy beyond the dreams of avarice. When you read about their adventure at PayPal, you immediately wonder: how has no one told this story before? Furthermore we might ask: why don’t we have intelligent reports on what’s happening in Silicon Valley, since our economy and the minds of our children depend on it? Perhaps keeping technology a secret is the last sacred thing in our public lives.
The most important service Soni does his readers in The Founders is to recount in detail how enthusiastic Americans were about technology, the internet, and the possibility of digital communications just twenty years ago. To begin with, he talks about the 90s, when a young generation of boys interested in computers, libertarianism, video games, math, and physics led this enthusiasm to take institutional form. They were confident in their technologically amplified powers and had a kind of public spirit, a desire to solve people’s problems. They mixed an aristocratic love of excellence with a democratic rejection of the various institutional barriers in business, education, and government standing in the way of a revolution—one which might turn out to be more consequential than that of the 60s, which transformed mores and the university. A generation of founders arose at that time, who made the companies that now organize so much of our lives and have replaced so much of society. An unusual concentration of such young men was part of PayPal.
New companies like PayPal were dedicated to liberating people from the abuse of existing businesses and the limits imposed by governments and history. PayPal became a $100 billion corporation by offering secure, instant money transfers and a digital account for storing money. The service liberated users from the high fees charged by banks or credit cards, and took aim at the limits imposed by political borders or governmental powers. Both Thiel and Musk have repeatedly declared that they initially wanted to replace the dollar and they have both since declared in favor of bitcoin for the same reason. They want people to control their own money and to encourage the habits of such app-based control that would make people unwilling to allow the government to secretly manipulate the currency. Paypal achieved at least this much: it liberated people from these habits with the technologies available at the beginning of the 21st century.
PayPal was a combination of two previous companies, headed by Elon Musk and Peter Thiel respectively. Musk had great ambitions. He wanted to revolutionize every aspect of the financial system by making it digital. His idea of the business involved much more than money transfers—financial consulting, investment banking, and everything else banks do, but improved by the use of technology and the elimination of the prejudices that add up in long-standing institutions or very regulated markets. Thiel had a much simpler product in mind: technology to transfer money, person to person, through a PalmPilot’s infrared ports. The two eventually converged on one practical solution to the money transfer problem, connecting personal identity to email. This further led them to competition for users, which eventually led them to merge rather than bankrupt each other by increasing the cost of acquiring new users. The result of their various trials and errors was PayPal, the first successful internet-based payment system, adopted widely by eBay users at first and then by other buyers and sellers online.
In one sense, PayPal was the logical extension of the dollar, which dominated the world economy after 1945. It took currency into the digital realm and helped prepare the app-based economy that allows for far more, faster purchases, covering more of the world and allowing for more personal uses of money. In another, it was competing with the paper dollar at a time when America was becoming a smaller part of the global economy every year and the government saw printing money as a solution to various political problems. Since digital dollars are not even printed, they do not belong to the government in the same sense as paper, at least from the point of view of the psychology of the user. Further, the more people use apps, the more they understand the fluctuations in the value of their money and the less patience they have for government control of the currency. In one sense, PayPal, which went public in 2002 to resounding success and was sold to eBay later that year for $1.5 billion, is a remarkably successful corporation. In another, it has not created a digital currency immune to political manipulation.
Soni’s account largely can be understood as reporting on the conflict between that great ambition, suggesting an even greater vision behind it and the institutional arrangements that got in the way. Sometimes, he mentions purely predatory behavior. PayPal suffered from all the typical legal warfare, like threatening to sue a company that has started its IPO, in order to extort a settlement at a moment when it is vulnerable, both to bad press and to SEC regulatory requirements to refile paperwork every time legal action is taken against it. Other problems include the prejudices of one institution or another, or the madness of financial crises like the dot-com bubble. But perhaps the greatest problem was persuading people to use PayPal, to embrace the innovation that we nowadays take for granted.
We can see the prudence of focusing on one single thing, safe money transfers. By itself, this included quite enough problems threatening to lead to bankruptcy. They had to overcome two other major problems. First, fraud was rampant until better technology was developed to prevent digital crime. Later this technology became very useful to government anti-terrorism efforts. Second, eBay tried to drive PayPal out of business for years instead of simply buying the startup, which was handling a large minority of eBay payments, providing efficiency and trust.
The Founders, in this sense, is the story of why we have the digital money transfer companies we have—vulnerable to inflation just like in any previous era—and not something more revolutionary. It takes remarkable talent and a willingness to work like a slave to achieve something like the innovation of secure money transfers connected to email. This was an even more remarkable achievement because they did it with very few institutional allies and many great obstacles in business and government. The attempt to rationalize our lives through technology, however, has not yet succeeded.
Aside from that lesson of caution, the other major lesson of the story is how to recruit for talent and single-minded dedication, as well as how to motivate employees. There is something very democratic in making innovations available to everyone, often at no cost to them. Maybe even something generous. This idealism points to the beliefs that animated the startup and allowed the founders to run the business with the enthusiastic assent of the employees, when they were all very young and unproven. But there is also something remarkably aristocratic, which shows itself by concern with precision in action and expert knowledge, which sets apart the few remarkable men. If we want freedom and democracy to survive and thrive, we had better learn how to find such men and help them achieve their plans.