Edge of the Financial Cliff
“Democracy has nothing to do with freedom. Democracy is a soft variant of communism, and rarely in the history of ideas has it been taken for anything else.” – Hans Hoppe
Commonly in political circles, you will hear people praising the U.S.’s commitment to democracy and freedom. The problem is, the two values are incompatible, and democracy is a horrible system, by which each man is forced to seek government help in exploiting his neighbor. Hans-Hermann Hoppe elaborates on what democracy eventually does to a civilization:
Imagine a world government, democratically elected according to the principle of one-man-one-vote on a worldwide scale. What would the probable outcome of an election be? Most likely, we would get a Chinese-Indian coalition government. And what would this government most likely decide to do in order to satisfy its supporters and be reelected? The government would probably find that the so-called Western world had far too much wealth and the rest of the world, in particular China and India, had far too little, and hence, that a systematic wealth and income redistribution would be called for. Or imagine, for your own country, that the right to vote were expanded to seven-year-olds. While the government would not likely be made up of children, its policies would most definitely reflect the ‘legitimate concerns’ of children to have ‘adequate’ and ‘equal’ access to ‘free’ hamburgers, lemonade, and videos.
. . .
One-man-one-vote combined with ‘free entry’ into government — democracy — implies that every person and his personal property comes within reach of — and is up for grabs by — everyone else. A ‘tragedy of the commons’ is created. It can be expected that majorities of ‘have-nots’ will relentlessly try to enrich themselves at the expense of minorities of ‘haves’. This is not to say that there will be only one class of have-nots and one class of haves, and that the redistribution will be uniformly one from the rich onto the poor. To the contrary. While the redistribution from rich to poor will always play a prominent role everywhere, it would be a sociological blunder to assume that it will be the sole or even the predominant form of redistribution. After all, the ‘permanently’ rich and the ‘permanently’ poor are usually rich or poor for a reason. The rich are characteristically bright and industrious, and the poor typically dull, lazy, or both. It is not very likely that dullards, even if they make up a majority, will systematically outsmart and enrich themselves at the expense of a minority of bright and energetic individuals. Rather, most redistribution will take place within the group of the ‘non-poor’, and frequently it will actually be the better-off who succeed in having themselves subsidized by the worse-off. Just think of the almost universal practice of offering a ‘free’ university education, whereby the working class, whose children rarely attend universities, is made to pay for the education of middle-class children! Moreover, it can be expected that there will be many competing groups and coalitions trying to gain at the expense of others. There will be various changing criteria defining what it is that makes one person a ‘have’ (deserving to be looted) and another a ‘have-not’ (deserving to receive the loot). At the same time, individuals will be members of a multitude of groups of ‘haves’ and/or ‘have-nots’, losing on account of one of their characteristic and gaining on account of another, with some individuals ending up net-losers and others net-winners of redistribution.
The recognition of democracy as a machinery of popular wealth and income redistribution, then, in conjunction with one of the most fundamental principles in all of economics — that one will end up getting more of whatever it is that is being subsidized — provides the key to an understanding of the present age.
All redistribution, regardless of the criterion on which it is based, involves ‘taking’ from the original owners and/or producers (the ‘havers’ of something) and ‘giving’ to non-owners and non-producers (the ‘non-havers’ of something). The incentive to be an original owner or producer of the thing in question is reduced, and the incentive to be a non-owner and non-producer is raised. Accordingly, as a result of subsidizing individuals because they are poor, there will be more poverty. In subsidizing people because they are unemployed, more unemployment will be created. Supporting single mothers out of tax funds will lead to an increase in single motherhood, ‘illegitimacy’, and divorce. In outlawing child labor, income is transferred from families with children to childless persons (as a result of the legal restriction on the supply of labor, wage rates will rise). Accordingly, the birthrate will fall. On the other hand, by subsidizing the education of children, the opposite effect is created. Income is transferred from the childless and those with few children to those with many children. As a result the birthrate will increase. Yet then the value of children will again fall, and birthrates will decline as a result of the so-called Social Security System, for in subsidizing retirees (the old) out of taxes imposed on current income earners (the young), the institution of a family — the intergenerational bond between parents, grandparents, and children — is systematically weakened. The old need no longer rely on the assistance of their children if they have made no provision for their own old age, and the young (with typically less accumulated wealth) must support the old (with typically more accumulated wealth) rather than the other way around, as is typical within families. Parents’ wish for children, and children’s wish for parents will decline, family breakups and dysfunctional families will increase, and provisionary action — saving and capital formation — will fall, while consumption rises.
In subsidizing the malingerers, the neurotics, the careless, the alcoholics, the drug addicts, the Aids-infected, and the physically and mentally ‘challenged’ through insurance regulation and compulsory health insurance, there will be more illness, malingering, neuroticism, carelessness, alcoholism, drug addiction, Aids infection, and physical and mental retardation. By forcing non-criminals, including the victims of crime, to pay for the imprisonment of criminals (rather than making criminals compensate their victims and pay the full cost of their own apprehension and incarceration), crime will increase. By forcing businessmen, through ‘affirmative action’ (‘non-discrimination’) programs, to employ more women, homosexuals, blacks, or other ‘minorities’ than they would like to, there will be more employed minorities, and fewer employers and fewer male, heterosexual, and white employment. By compelling private land owners to subsidize (‘protect’) ‘endangered species’ residing on their land through environmental legislation, there will be more and better-off animals, and fewer and worse-off humans.
Most importantly, by compelling private property owners and/or market income earners (producers) to subsidize ‘politicians’, ‘political parties’, and ‘civil servants’ (politicians and government employees do not pay taxes but are paid out of taxes), there will be less wealth formation, fewer producers and less productivity, and ever more waste, ‘parasites’ and parasitism.
. . .
After less than one hundred years of democracy and redistribution, the predictable results are in. The ‘reserve fund’ that was inherited from the past is apparently exhausted. For several decades (since the late 1960s or the early 1970s), real standards of living have stagnated or even fallen in the West. The ‘public’ debt and the cost of the existing social security and health care system have brought on the prospect of an imminent economic meltdown. At the same time, almost every form of undesirable behavior — unemployment, welfare dependency, negligence, recklessness, uncivility, psychopathy, hedonism and crime — has increased, and social conflict and societal breakdown have risen to dangerous heights. If current trends continue, it is safe to say that the Western welfare state (social democracy) will collapse just as Eastern (Russian-style) socialism collapsed in the late 1980s.
. . .
More importantly, it must be made clear again that the idea of democracy is immoral as well as uneconomical. As for the moral status of majority rule, it must be pointed out that it allows for A and B to band together to rip off C, C and A in turn joining to rip off B, and then B and C conspiring against A, etc. This is not justice but a moral outrage, and rather than treating democracy and democrats with respect, they should be treated with open contempt and ridiculed as moral frauds. On the other hand, as for the economic quality of democracy, it must be stressed relentlessly that it is not democracy but private property, production, and voluntary exchange that are the ultimate sources of human civilization and prosperity. In particular, contrary to widespread myths, it needs to be emphasized that the lack of democracy had essentially nothing to do with the bankruptcy of Russian-style socialism. It was not the selection principle for politicians that constituted socialism’s problem. It was politics and political decision-making as such. Instead of each private producer deciding independently what to do with particular resources, as under a regime of private property and contractualism, with fully or partially socialized factors of production each decision requires someone else’s permission. It is irrelevant to the producer how those giving permission are chosen. What matters to him is that permission must be sought at all. As long as this is the case, the incentive of producers to produce is reduced and impoverishment will result. Private property is as incompatible with democracy, then, as with any other form of political rule. Rather than democracy, justice as well as economic efficiency require a pure and unrestricted private property society — an ‘anarchy of production’ — in which no one rules anybody, and all producers’ relations are voluntary, and thus mutually beneficial.
The above is the theme of a book, Democracy: The God that Failed, by Hoppe. Explaining the why of the above conclusions within economic and philosophical theory, Hoppe continues:
. . . Economic and political theory, especially of the Austrian variety, is a treasure trove of . . . propositions [that are true a priori, that politics often overlooks]. For instance, a larger quantity of a good is preferred to a smaller amount of the same good; production must precede consumption; what is consumed now cannot be consumed again in the future; prices fixed below market-clearing prices will lead to lasting shortages; without private property in production factors there can be no factor prices, and without factor prices cost-accounting is impossible; an increase in the supply of paper money cannot increase total social wealth but can only redistribute existing wealth; monopoly (the absence of free entry) leads to higher prices and lower product quality than competition; no thing or part of a thing can be owned exclusively by more than one party at a time; democracy (majority rule) and private property are incompatible.
Theory is no substitute for history, of course, yet without a firm grasp of theory serious errors in the interpretation of historical data are unavoidable. For instance, the outstanding historian Carroll Quigley claims that the invention of fractional reserve banking has been a major cause of the unprecedented expansion of wealth associated with the Industrial Revolution, and countless historians have associated the economic plight of Soviet-style socialism with the absence of democracy.
From a theoretical viewpoint, such interpretations must be rejected categorically. An increase in the paper money supply cannot lead to greater prosperity but only to wealth redistribution. The explosion of wealth during the Industrial Revolution took place despite fractional reserve banking. Similarly, the economic plight of socialism cannot be due to the absence of democracy. Instead, it is caused by the absence of private property in factors of production. “Received history” is full of such misinterpretations. Theory allows us to rule out certain historical reports as impossible and incompatible with the nature of things. By the same token, it allows us to uphold certain other things as historical possibilities, even if they have not yet been tried.
My theoretical interpretation is entirely different. It involves the shattering of three historical myths. The first and most fundamental is the myth that the emergence of states out of a prior, non-statist order has caused subsequent economic and civilizational progress. In fact, theory dictates that any progress must have occurred in spite — not because — of the institution of a state.
A state is defined conventionally as an agency that exercises a compulsory territorial monopoly of ultimate decison-making (jurisdiction) and of taxation. By definition then, every state, regardless of its particular constitution, is economically and ethically deficient. Every monopolist is “bad” from the viewpoint of consumers. Monopoly is hereby understood as the absence of free entry into a particular line of production: only one agency, A, may produce X.
Any monopoly is “bad” for consumers because, shielded from potential new entrants into its line of production, the price for its product will be higher and the quality lower than with free entry. And a monopolist with ultimate decison-making powers is particularly bad. While other monopolists produce inferior goods, a monopolist judge, besides producing inferior goods, will produce bads, because he who is the ultimate judge in every case of conflict also has the last word in each conflict involving himself. Consequently, instead of preventing and resolving conflict, a monopolist of ultimate decision-making will cause and provoke conflict in order to settle it to his own advantage.
Not only would no one accept such a monopoly judge provision, but no one would ever agree to a provision that allowed this judge to determine the price to be paid for his “service” unilaterally. Predictably, such a monopolist would use up ever more resources (tax revenue) to produce fewer goods and perpetrate more bads. This is not a prescription for protection but for oppression and exploitation. The result of a state, then, is not peaceful cooperation and social order, but conflict, provocation, aggression, oppression, and impoverishment, i.e., de-civilization. This, above all, is what the history of states illustrates. It is first and foremost the history of countless millions of innocent state victims.
The second myth concerns the historic transition from absolute monarchies to democratic states. Not only do neoconservatives interpret this development as progress; there is near-universal agreement that democracy represents an advance over monarchy and is the cause of economic and moral progress. This interpretation is curious in light of the fact that democracy has been the fountainhead of every form of socialism: of (European) democratic socialism and (American) liberalism and neo-conservatism as well as of international (Soviet) socialism, (Italian) fascism, and national (Nazi) socialism. More importantly, however, theory contradicts this interpretation; whereas both monarchies and democracies are deficient as states, democracy is worse than monarchy.
Theoretically speaking, the transition from monarchy to democracy involves no more or less than a hereditary monopoly “owner” — the prince or king — being replaced by temporary and interchangeable — monopoly “caretakers” — presidents, prime ministers, and members of parliament. Both kings and presidents will produce bads, yet a king, because he “owns” the monopoly and may sell or bequeath it, will care about the repercussions of his actions on capital values. As the owner of the capital stock on “his” territory, the king will be comparatively future-oriented. In order to preserve or enhance the value of his property, he will exploit only moderately and calculatingly. In contrast, a temporary and interchangeable democratic caretaker does not own the country, but as long as he is in office he is permitted to use it to his advantage. He owns its current use but not its capital stock. This does not eliminate exploitation. Instead, it makes exploitation shortsighted (present-oriented) and uncalculated, i.e., carried out without regard for the value of the capital stock.
Nor is it an advantage of democracy that free entry into every state position exists (whereas under monarchy entry is restricted by the king’s discretion). To the contrary, only competition in the production of goods is a good thing. Competition in the production of bads is not good; in fact, it is sheer evil. Kings, coming into their position by virtue of birth, might be harmless dilettantes or decent men (and if they are “madmen,” they will be quickly restrained or if need be, killed, by close relatives concerned with the possessions of the dynasty). In sharp contrast, the selection of government rulers by means of popular elections makes it essentially impossible for a harmless or decent person to ever rise to the top. Presidents and prime ministers come into their position as a result of their efficiency as morally uninhibited demagogues. Hence, democracy virtually assures that only dangerous men will rise to the top of government.
In particular, democracy is seen as promoting an increase in the social rate of time preference (present-orientation) or the “infantilization” of society. It results in continually increased taxes, paper money and paper money inflation, an unending flood of legislation, and a steadily growing “public” debt. By the same token, democracy leads to lower savings, increased legal uncertainty, moral relativism, lawlessness, and crime. Further, democracy is a tool for wealth and income confiscation and redistribution. It involves the legislative “taking” of the property of some — the haves of something — and the “giving” of it to others — the have-nots of things. And since it is presumably something valuable that is being redistributed — of which the haves have too much and the have-nots too little — any such redistribution implies that the incentive to be of value or produce something valuable is systematically reduced. In other words, the proportion of not-so-good people and not-so-good personal traits, habits, and forms of conduct and appearance will increase, and life in society will become increasingly unpleasant.
Last but not least, democracy is described as resulting in a radical change in the conduct of war. Because they can externalize the costs of their own aggression onto others (via taxes), both kings and presidents will be more than ‘normally’ aggressive and warlike. However, a king’s motive for war is typically an ownership-inheritance dispute. The objective of his war is tangible and territorial: to gain control over some piece of real estate and its inhabitants. And to reach this objective it is in his interest to distinguish between combatants (his enemies and targets of attack) and non-combatants and their property (to be left out of the war and undamaged). Democracy has transformed the limited wars of kings into total wars. The motive for war has become ideological — democracy, liberty, civilization, humanity. The objectives are intangible and elusive: the ideological “conversion” of the losers preceded by their “unconditional” surrender (which, because one can never be certain about the sincerity of conversion, may require such means as the mass murder of civilians). And the distinction between combatants and non-combatants becomes fuzzy and ultimately disappears under democracy, and mass war involvement — the draft and popular war rallies — as well as “collateral damage” become part of war strategy.
Myth Three
Finally, the third myth shattered is the belief that there is no alternative to Western welfare-democracies a la US. Again, theory demonstrates otherwise. First, this belief is false because the modern welfare-state is not a “stable” economic system. It is bound to collapse under its own parasitic weight, much like Russian-style socialism imploded a decade ago. More importantly, however, an economically stable alternative to democracy exists. The term I propose for this alternative is “natural order.”
In a natural order every scarce resource, including all land, is owned privately, every enterprise is funded by voluntarily paying customers or private donors, and entry into every line of production, including that of property protection, conflict arbitration, and peacemaking, is free. A large part of my book concerns the explanation of the workings — the logic — of a natural order and the requirements for the transformation from democracy to a natural order.
Whereas states disarm their citizens so as to be able to rob them more surely (thereby rendering them more vulnerable also to criminal and terrorist attack), a natural order is characterized by an armed citizenry. This feature is furthered by insurance companies, which play a prominent role as providers of security and protection in a natural order. Insurers will encourage gun ownership by offering lower premiums to armed (and weapons-trained) clients. By their nature insurers are defensive agencies. Only “accidental” — not: self-inflicted, caused or provoked — damage is “insurable.” Aggressors and provocateurs will be denied insurance coverage and are thus weak. And because insurers must indemnify their clients in case of victimization, they must be concerned constantly about the prevention of criminal aggression, the recovery of misappropriated property, and the apprehension of those liable for the damage in question.
Furthermore, the relationship between insurer and client is contractual. The rules of the game are mutually accepted and fixed. An insurer cannot “legislate,” or unilaterally change the terms of the contract. In particular, if an insurer wants to attract a voluntarily paying clientele, it must provide for the foreseeable contingency of conflict in its contracts, not only between its own clients but especially with clients of other insurers. The only provision satisfactorily covering the latter contingency is for an insurer to bind itself contractually to independent third-party arbitration. However, not just any arbitration will do. The conflicting insurers must agree on the arbitrator or arbitration agency, and in order to be agreeable to insurers, an arbitrator must produce a product (of legal procedure and substantive judgment) that embodies the widest possible moral consensus among insurers and clients alike. Thus, contrary to statist conditions, a natural order is characterized by stable and predictable law and increased legal harmony.
Moreover, insurance companies promote the development of another “security feature.” States have not just disarmed their citizens by taking away their weapons, democratic states in particular have also done so in stripping their citizens of the right to exclusion and by promoting instead — through various non-discrimination, affirmative action, and multiculturalist policies — forced integration. In a natural order, the right to exclusion inherent in the very idea of private property is restored to private property owners.
Accordingly, to lower the production cost of security and improve its quality, a natural order is characterized by increased discrimination, segregation, spatial separation, uniculturalism (cultural homogeneity), exclusivity, and exclusion. In addition, whereas states have undermined intermediating social institutions (family households, churches, covenants, communities, and clubs) and the associated ranks and layers of authority so as to increase their own power vis-a-vis equal and isolated individuals, a natural order is distinctly un-egalitarian: “elitist,” “hierarchical,” “proprietarian,” “patriarchical,” and “authoritorian,” and its stability depends essentially on the existence of a self-conscious natural — voluntarily acknowledged — aristocracy.
One of the more interesting theories within Hoppe’s work that has resounding implications is the idea that the abolition of hierarchic arrangements in the West has led to the sustained a-morality, apatheism, and systematic decline that we see in entertainment, financial institutions, government quality, and the family unit. In a sense, most of these phenomena can be seen to have at least been affected, if not completely morphed, by democracy. It is time we realize the fact, and banish the principle from our vocabularies.