Chapter 5--Binary Intervention: Government Expenditures
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Chapter 5—Binary
Intervention: Government Expenditures
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3.
Resource-Using Activities: Socialism
Socialism—or collectivism—occurs when the State
owns all the means of production. It is the compulsory abolition and
prohibition of private enterprise, and the monopolization of the entire
productive sphere by the State. Socialism, therefore, extends the
principle of compulsory governmental monopoly from a few isolated
enterprises to the whole economic system. It is the violent abolition
of the market.
If an economy is to exist at all, there must be production in order to
satisfy the desires of the consuming individuals. How is this
production to be organized? Who is to decide on the allocation of
factors to all the various uses, or on the income each factor will
receive in each use? There are two and only two ways that an economy
can be organized. One is by freedom and voluntary choice—the
way of the market. The other is by force and dictation—the
way of the State. To those ignorant of economics, it may seem that only
the latter constitutes real organization and planning, whereas the way
of the market is only confusion and chaos. The organization of the free
market, however, is actually an amazing and flexible means of
satisfying the wants of all individuals, and one far more efficient
than State operation or intervention.
Up to this point, however, we have discussed only isolated government
enterprises and various forms of government intervention in the market.
We must now examine socialism—the system of pure government
dictation—the polar opposite of the purely free market.
We have defined ownership as the exclusive control of a resource. It is
clear, therefore, that a “planned economy” which
leaves nominal ownership in the hands of the previous private owners,
but which places the actual control and direction of resources in the
hands of the State, is as much socialism as is the
formal nationalization of property. The Nazi and Fascist regimes were
as socialist as the Communist system that nationalizes all productive
property.
Many people refuse to identify Nazism or Fascism as
“socialism” because they confine the latter term to
Marxist or neo-Marxist proletarianism or to various
“social-democratic” proposals. But economics is not
concerned with the color of the uniform or with the good or bad manners
of the rulers. Nor does it care which groups or classes are running the
State in various political regimes. Neither does it matter, for
economics, whether the socialist regime chooses its rulers by elections
or by coups d’etat. Economics is
concerned only with the powers of ownership or control that the State
exercises. All forms of State planning of the whole economy are types
of socialism, notwithstanding the philosophical or esthetic viewpoints
of the various socialist camps and regardless whether they are referred
to as “rightists” or
“leftists.” Socialism may be monarchical; it may be
proletarian; it may equalize fortunes; it may increase inequality. Its
essence is always the same: total coercive State dictation over the
economy.
The distance between the poles of the purely free market, on the one
hand, and total collectivism on the other, is a continuum involving
different “mixes” of the freedom principle and the
coercive, hegemonic principle. Any increase of governmental ownership
or control, therefore, is “socialistic,” or
“collectivistic,” because it is a coercive
intervention bringing the economy one step closer to complete socialism.
The extent of collectivism in the twentieth century is at once under-
and overestimated. On the one hand, its development in such countries
as the United States is greatly underestimated.
Most observers neglect, for example, the importance of the expansion of
government lending. The lender
is also an entrepreneur and part owner, regardless of his legal status.
Government loans to private enterprise, therefore, or guarantees of
private loans, create many centers of government ownership.
Furthermore, the total quantity of savings in the economy is not
increased by government guarantees and loans, but its specific form is
changed. The free market tends to allocate social savings to their most
profitable and productive channels. Government loans and guarantees, by
contrast, divert savings from more to less
productive channels. They also prevent the success of the most
efficient entrepreneurs and the weeding out of the inefficient (who
would then become simply labor factors rather than entrepreneurs). In
both these ways, therefore, government lending lowers the general
standard of living—to say nothing of the loss of utility
inflicted on the taxpayers, who must make these pledges good, or who
supply the money to be loaned.
On the other hand, the extent of socialism in such countries as Soviet
Russia is overrated. Those people who point to
Russia as an example of “successful” planning by
the government ignore the fact (aside from the planning difficulties
constantly encountered) that Soviet Russia and other socialist
countries cannot have full socialism because only domestic
trade is socialized. The rest of the world still has a market of sorts.
A socialist State, therefore, can still buy and sell on the world
market and at least vaguely approximate the rational pricing of
producers’ goods by referring to the prices of factors set on
the world market. Although the errors of even this partial socialist
planning are impoverishing, they are insignificant compared to what
would happen under the total calculational chaos of a world
socialist State. One Big Cartel could not calculate and therefore could
not be established on the free market. How much more does this apply to
socialism, where the State imposes its overall monopoly by force, and
where the inefficiencies of a single State’s actions are
multiplied a thousandfold.
One point should not be overlooked in the analysis of specific
socialist regimes: the possibility of a “black”
market, with resources passing illicitly into private hands.
Of course, the opportunity
for black markets in large-sized goods is rather limited; there is more
scope for such trade where commodities (like candy, cigarettes, drugs,
and stockings) are easy to conceal. On the other hand, falsification of
records by managers and the pervasive opportunity for bribery may be
used to establish some form of limited market. There is reason to
believe, for example, that extensive graft (blat)
and black markets, i.e., the subversion of socialist planning, have
been essential to the level of production which the Soviet system has
been able to attain.
In recent years, the total failure of socialist planning to calculate
for an industrial economy has been implicitly acknowledged by the
Communist countries, which have been rapidly moving, especially in
Eastern Europe, away from socialism and toward an ever freer market
economy. This progress has been particularly remarkable in Yugoslavia,
which is now marked by private as well as producers’
co-operative ownership and by the absence of central planning, even of
investments.
4.
The Myth of “Public” Ownership
We all hear a great deal about “public” ownership.
Whenever the government owns property, in fact, or operates an
enterprise, it is referred to as “publicly owned.”
When natural resources are sold or given to private enterprise, we
learn that the “public domain” has been
“given away” to narrow private interests. The
inference is that when the government owns anything,
“we”—all members of the
public—own equal shares of that property. Contrast to this
broad sweep the narrow, petty interests of mere
“private” ownership.
We have seen that, since a socialist economic system could not
calculate economically, a die-hard socialist must be prepared to
witness the disappearance of a large part of the earth’s
population, with only primitive subsistence remaining for the
survivors. Still, a man who identifies government
with public ownership might be content to spread
the area of government ownership despite the loss of efficiency or
social utility it entails.
The identity itself, however, is completely fallacious. Ownership
is the ultimate control and direction of a resource. The owner of a
property is its ultimate director, regardless of legal fictions to the
contrary. In the purely free society, resources so abundant as to serve
as general conditions of human welfare would remain unowned. Scarce
resources, on the other hand, would be owned on the following
principles: self-ownership of each person by himself; self-ownership of
a person’s created or transformed property; first ownership
of previously unowned land by its first user or transformer. Government
ownership means simply that the ruling officialdom owns
the property. The top officials are the ones who direct the use of the
property, and they therefore do the owning. The
“public” owns no part of the property. Any citizen
who doubts this may try to appropriate for his own individual
use his aliquot part of “public” property and then
try to argue his case in court. It may be objected that individual
stockholders of corporations cannot do this either, e.g., by the rules
of the company, a General Motors stockholder is not allowed to seize a
car in lieu of cash dividends or in exchange for his stock. Yet
stockholders do own their company, and this example
precisely proves our point. For the stockholder can contract out of his
company; he can sell his shares of General
Motors’ stock to someone else. The subject of a government cannot
contract out of that government; he cannot sell his
“shares” in the post office because he has no such
shares. As F.A. Harper has succinctly stated: “The corollary
of the right of ownership is the right of disownership. So if I cannot
sell a thing, it is evident that I do not really own it.”
Whatever the form of government, the rulers are the true owners of the
property. However, in a democracy or, in the long run under any form of
government, the rulers are transitory. They can always lose an election
or be overthrown by a coup d’etat. Hence,
no government official regards himself as more than a transitory owner.
As a result, while a private owner, secure in his property and owning
its capital value, plans the use of his resource over a long period of
time, the government official must milk the property as quickly as he
can, since he has no security of ownership. Further, even the
entrenched civil servant must do the same, for no government official
can sell the capitalized value of his property, as private owners can.
In short, government officials own the use of
resources, but not their capital value (except in the case of the
“private property” of a hereditary monarch). When
only the current use can be owned, but not the resource itself, there
will quickly ensue uneconomic exhaustion of the resources, since it
will be to no one’s benefit to conserve it over a period of
time and to every owner’s advantage to use it up as quickly
as possible. In the same way, government officials will consume their
property as rapidly as possible.
It is curious that almost all writers parrot the notion that private
owners, possessing time preference, must take the “short
view,” while only government officials can take the
“long view” and allocate property to advance the
“general welfare.” The truth is exactly the
reverse. The private individual, secure in his property and in his
capital resource, can take the long view, for he wants to maintain the
capital value of his resource. It is the government official who must
take and run, who must plunder the property while he is still in
command.
5.
Democracy
Democracy is a process of choosing government rulers or policies and is
therefore distinct from what we have been considering: the nature and
consequences of various policies that a government may choose. A
democracy can choose relatively laissez-faire or relatively
interventionist programs, and the same is true for a dictator. And yet
the problem of forming a government cannot be absolutely separated from
the policy that government pursues, and so we shall discuss some of
these connections here.
Democracy is a system of majority rule in which each citizen has one
vote either in deciding the policies of the government or in electing
the rulers, who will in turn decide policy. It is a system replete with
inner contradictions.
In the first place, suppose that the majority overwhelmingly wishes to
establish a popular dictator or the rule of a single party. The people
wish to surrender all decision-making into his or its hands. Does the
system of democracy permit itself to be voted democratically out of
existence? Whichever way the democrat answers, he is caught in an
inescapable contradiction. If the majority can vote
into power a dictator who will end further elections, then democracy is
really ending its own existence. From then on, there is no longer
democracy, although there is continuing majority consent to the
dictatorial party or ruler. Democracy, in that case, becomes a transition
to a nondemocratic form of government. On the other hand, if, as it is
now fashionable to maintain, the majority of voters in a democracy are
prohibited from doing one thing—ending the democratic
elective process itself—then this is no longer democracy,
because the majority of voters can no longer rule. The election process
may be preserved, but how can it express that majority rule essential
to democracy if the majority cannot end this process should it so
desire? In short, democracy requires two conditions for its existence:
majority rule over governors or policies, and periodic, equal voting.
So if the majority wishes to end the voting process, democracy cannot
be preserved regardless of which horn of the dilemma is chosen. The
idea that the “majority must preserve the freedom of the
minority to become the majority” is then seen, not as a
preservation of democracy, but as simply an arbitrary value judgment on
the part of the political scientist (or at least it remains arbitrary
until justified by some cogent ethical theory).
This dilemma occurs not only if the majority wishes to select a
dictator, but also if it desires to establish the
purely free society that we have outlined above. For that society has
no overall monopoly-government organization, and the only place where
equal voting would obtain would be in co-operatives, which have always
been inefficient forms of organization. The only important form of
voting, in that society, would be that of shareholders in joint stock
companies, whose votes would not be equal, but proportionate to their
shares of ownership in the company assets. Each individual’s
vote, in that case, would be meaningfully tied to his share in the
ownership of joint assets.
In such a purely free
society there would be nothing for democratic electors to vote about.
Here, too, democracy can be only a possible route toward
a free society, rather than an attribute of it.
Neither is democracy conceivably workable under socialism. The ruling
party, owning all means of production, will have the complete decision,
for example, on how much funds to allocate to the opposition parties
for propaganda, not to speak of its economic power over all the
individual leaders and members of the opposition. With the ruling party
deciding the income of every man and the allocation of all resources,
it is inconceivable that any functioning political opposition could
long persist under socialism.
The only opposition that
could emerge would be not opposing parties in an election, but
different administrative cliques within the ruling party, as has been
true in the Communist countries.
Thus, democracy is compatible neither with the purely free society nor
with socialism. And yet we have seen in this work (and shall see
further below) that only those two societies are stable, that all
intermediary mixtures are in “unstable equilibrium”
and always tending toward one or the other pole. This means that
democracy, in essence, is itself an unstable and transitional form of
government.
Democracy suffers from many more inherent contradictions as well. Thus,
democratic voting may have either one of these two functions: to
determine governmental policy or to select rulers. According to the
former, what Schumpeter termed the “classical”
theory of democracy, the majority will is supposed to rule on issues.
According to the latter
theory, majority rule is supposed to be confined to choosing rulers,
who in turn decide policy. While most political scientists support the
latter version, democracy means the former version to most people, and
we shall therefore discuss the classical theory first.
According to the “will of the people” theory,
direct democracy—voting on each issue by all the citizens, as
in New England town meetings—is the ideal political
arrangement. Modern civilization and the complexities of society,
however, are supposed to have outmoded direct democracy, so that we
must settle for the less perfect “representative
democracy” (in olden days often called a
“republic”), where the people select
representatives to give effect to their will on political issues.
Logical problems arise almost immediately. One is that different forms
of electoral arrangements, different delimitations of geographical
districts, all equally arbitrary, will often greatly alter the picture
of the “majority will.” If a country is divided
into districts for choosing representatives, then
“gerrymandering” is inherent in such a division:
there is no satisfactory, rational way of demarking the divisions. The
party in power at the time of division, or redivision, will inevitably
alter the districts to produce a systematic bias in its favor; but no
other way is inherently more rational or more truly evocative of
majority will. Moreover, the very division of the earth’s
surface into countries is itself arbitrary. If a government covers a
certain geographical area, does “democracy” mean
that a majority group in a certain district should be permitted to
secede and form its own government, or to join another country? Does
democracy mean majority rule over a larger, or over a smaller, area? In
short, which majority should prevail? The very
concept of a national democracy is, in fact, self-contradictory. For if
someone contends that the majority in Country X should govern that
country, then it could be argued with equal validity that the majority
of a certain district within Country X should be allowed to govern itself
and secede from the larger country, and this subdividing process can
logically proceed down to the village block, the apartment house, and,
finally, each individual, thus marking the end of all democratic
government through reduction to individual self-government. But if such
a right of secession is denied, then the national democrat must concede
that the more numerous population of other countries should have a
right to outvote his country; and so he must
proceed upwards to a world government run by a world majority rule. In
short, the democrat who favors national government is
self-contradictory; he must favor a world government or none at all.
Aside from this problem of the geographical boundary of the government
or electoral district, the democracy that tries to elect
representatives to effect the majority will runs into further problems.
Certainly some form of proportional representation would be mandatory,
to arrive at a kind of cross section of public opinion. Best would be a
proportional representation scheme for the whole country—or
world—so that the cross section is not distorted by
geographic considerations. But here again, different forms of
proportional representation will lead to very different results. The
critics of proportional representation retort that a legislature
elected on this principle would be unstable and that elections should
result in a stable majority government. The reply to this is that, if
we wish to represent the public, a cross section is required, and the
instability of representation is only a function of the instability or
diversity of public opinion itself. The “efficient
government” argument can be pursued, therefore, only if we
abandon the classical “majority-will” theory
completely and adopt the second theory—that the only function
of the majority is to choose rulers.
But even proportional representation would not be as
good—according to the classical view of
democracy—as direct democracy, and here we come to another
important and neglected consideration: modern technology does
make it possible to have direct democracy. Certainly, each man could
easily vote on issues several times per week by recording his choice on
a device attached to his television set. This would not be difficult to
achieve. And yet, why has no one seriously suggested a return to direct
democracy, now that it may be feasible? The people could elect
representatives through proportional representation, solely as
advisers, to submit bills to the people, but without having ultimate
voting power themselves. The final vote would be that of the people
themselves, all voting directly. In a sense, the entire voting public
would be the legislature, and the representatives
could act as committees to bring bills before this vast legislature.
The person who favors the classical view of democracy must, therefore,
either favor virtual eradication of the legislature (and, of course, of
executive veto power) or abandon his theory.
The objection to direct democracy will undoubtedly be that the people
are uninformed and therefore not capable of deciding on the complex
issues that face the legislature. But, in that case, the democrat must
completely abandon the classical theory that the majority should decide
on issues, and adopt the modern doctrine that the
function of democracy is majority choice of rulers, who, in turn, will
decide the policies. Let us, then, turn to this doctrine. It faces,
fully as much as the classical theory, the self-contradiction on
national or electoral boundaries; and the “modern
democrat” (if we may call him such), as much as the
“classical democrat” must advocate world government
or none at all. On the question of representation, it is true that the
modern democrat can successfully oppose direct television-democracy, or
even proportional representation, and resort to our current system of
single constituencies. But he is caught in a different dilemma: if the
only function of the voting people is to choose rulers, why have a
legislature at all? Why not simply vote periodically for a chief
executive, or President, and then call it a day? If the criterion is
efficiency, and stable rule by a single party for the term of office,
then a single executive will be far more stable than a legislature,
which may always splinter into warring groups and deadlock the
government. The modern democrat, therefore, must also logically abandon
the idea of a legislature and plump for granting all legislative powers
to the elected executive. Both theories of democracy, it seems, must
abandon the whole idea of a representative legislature.
Furthermore, the “modern democrat” who scoffs at
direct democracy on the ground that the people are not intelligent or
informed enough to decide the complex issues of government, is caught
in another fatal contradiction: he assumes that the people are
sufficiently intelligent and informed to vote on the people
who will make these decisions. But if a voter is not competent to
decide issues A, B, C, etc., how in the world could he possibly be
qualified to decide whether Mr. X or Mr. Y is better able to handle A,
B, or C? In order to make this decision, the voter would have to know a
great deal about the issues and know enough about
the persons whom he is selecting. In short, he would probably have to
know more in a representative than in a direct
democracy. Furthermore, the average voter is necessarily less
qualified to choose persons to decide issues than he is to vote on the
issues themselves. For the issues are at least intelligible to him, and
he can understand some of their relevance; but the candidates are
people whom he cannot possibly know personally and whom he therefore
knows essentially nothing about. Hence, he can vote for them only on
the basis of their external “personalities,”
glamorous smiles, etc., rather than on their actual competence; as a
result, however ill-informed the voter, his choice is almost bound to
be less intelligent under a representative republic than in a direct
democracy.
We have seen the problems that democratic theory has with the
legislature. It also has difficulty with the judiciary. In the first
place, the very concept of an “independent
judiciary” contradicts the theory of democratic rule (whether
classical or modern). If the judiciary is really
independent of the popular will, then it functions, at least within its
own sphere, as an oligarchic dictatorship, and we can no longer call
the government a “democracy.” On the other hand, if
the judiciary is elected directly by the voters, or appointed by the
voters’ representatives (both systems are used in the United
States), then the judiciary is hardly independent. If the election is
periodic, or if the appointment is subject to renewal, then the
judiciary is no more independent of political processes than any other
branch of government. If the appointment is for life, then the
independence is greater, although even here, if the legislature votes
the funds for the judges’ salaries, or if it decides the
jurisdiction of judicial powers, judicial independence may be sharply
impaired.
We have not exhausted the problems and contradictions of democratic
theory; and we may pursue the rest by asking: Why democracy anyway?
Until now, we have been discussing various theories of how
democracies should function, or what areas (e.g., issues or rulers)
should be governed by the democratic process. We may now inquire about
the theories that support and justify democracy itself.
One theory, again of classical vintage, is that the majority will
always, or almost always, make the morally right decisions (whether
about issues or men). Since this is not an ethical treatise, we cannot
deal further with this doctrine, except to say that few people hold
this view today. It has been demonstrated that people can
democratically choose a wide variety of policies and rulers, and the
experience of recent centuries has, for the most part, vitiated any
faith that people may have had in the infallible wisdom and
righteousness of the average voter.
Perhaps the most common and most cogent argument for democracy is not
that democratic decisions will always be wise, but that the democratic
process provides for peaceful change of government. The majority, so
the argument runs, must support any government,
regardless of form, if it is to continue existing for long; far better,
then, to let the majority exercise this right peacefully and
periodically than to force the majority to keep overturning the
government through violent revolution. In short, ballots are hailed as
substitutes for bullets. One flaw in this argument is that it
completely overlooks the possibility of the nonviolent overthrow of the
government by the majority through civil disobedience, i.e., peaceful
refusal to obey government orders. Such a revolution would be
consistent with this argument’s ultimate end of preserving
peace and yet would not require democratic voting.
There is, moreover, another flaw in the
“peaceful-change” argument for democracy, this one
being a grave self-contradiction that has been universally overlooked.
Those who have adopted this argument have simply used it to give a seal
of approval to all democracies and have then moved on quickly to other
matters. They have not realized that the
“peaceful-change” argument establishes a criterion
for government before which any given democracy must pass muster. For
the argument that ballots are to substitute for bullets must be taken
in a precise way: that a democratic election will yield the
same result as would have occurred if the majority had had to
battle the minority in violent combat. In short, the argument implies
that the election results are simply and precisely a substitute for a
test of physical combat. Here we have a criterion for democracy: Does
it really yield the results that would have been obtained through civil
combat? If we find that democracy, or a certain form of democracy,
leads systematically to results that are very wide of this
“bullet-substitute” mark, then we must either
reject democracy or give up the argument.
How, then, does democracy, either generally or in specific countries,
fare when we test it against its own criterion? One of the essential
attributes of democracy, as we have seen, is that each man have one
vote.
But the
“peaceful-change” argument implies that each man
would have counted equally in any combat test. But is this true? In the
first place, it is clear that physical power is not
equally distributed. In any test of combat, women, old people, sick
people, and 4F’s would fare very badly. On the basis of the
“peaceful-change” argument, therefore, there is no
justification whatever for giving these physically feeble groups the
vote. So, barred from voting would be all citizens who could not pass a
test, not for literacy (which is largely irrelevant to combat prowess),
but for physical fitness. Furthermore, it clearly would be necessary to
give plural votes to all men who have been militarily trained (such as
soldiers and policemen), for it is obvious that a group of highly
trained fighters could easily defeat a far more numerous group of
equally robust amateurs.
In addition to ignoring the inequalities of physical power and combat
fitness, democracy fails, in another significant way, to live up to the
logical requirements of the “peaceful-change”
thesis. This failure stems from another basic inequality: inequality of
interest or intensity of belief. Thus, 60 percent of
the population may oppose a certain policy, or political party, while
only 40 percent favor it. In a democracy, this latter policy or party
will be defeated. But suppose that the bulk of the 40 percent are
passionate enthusiasts for the measure or candidate, while the bulk of
the 60 percent majority have only slight interest in the entire affair.
In the absence of democracy, far more of the passionate 40 percent
would have been willing to engage in a combat test than would the
apathetic 60 percent. And yet, in a democratic election, one vote by an
apathetic, only faintly interested person offsets the vote of a
passionate partisan. Hence, the democratic process grievously and
systematically distorts the results of the hypothetical combat test.
It is probable that no voting procedure could avoid this distortion
satisfactorily and serve as any sort of accurate substitute for
bullets. But certainly much could be done to alter current voting
procedures to bring them closer to the criterion, and it is surprising
that no one has suggested such reforms. The whole trend of existing
democracies, for example, has been to make voting easier for the
people; but this violates the bullet-substitute test directly, because
it has been made ever easier for the apathetic to register their votes
and thus distort the results. Clearly, what would be needed is to make
voting far more difficult and thus insure that only the most intensely
interested people will vote. A moderately high poll tax, not large
enough to keep out those enthusiasts who could not afford to pay, but
large enough to discourage the indifferent, would be very helpful.
Voting booths should certainly be further apart; the person who refuses
to travel any appreciable distance to vote would surely not have fought
in his candidate’s behalf. Another useful step would be to
remove all names from the ballot, thereby requiring the voters
themselves to write in the names of their favorites. Not only would
this procedure eliminate the decidedly undemocratic special privilege
that the State gives to those whose names it prints on the ballot (as
against all other persons), but it would bring elections closer to our
criterion, for a voter who does not know the name of his candidate
would hardly be likely to fight in the streets on his behalf. Another
indicated reform would be to abolish the secrecy of the ballot. The
ballot has been made secret in order to protect the fearful from
intimidation; yet civil combat is peculiarly the province of the
courageous. Surely, those not courageous enough to proclaim their
choice openly would not have been formidable fighters in the combat
test.
These and doubtless other reforms would be necessary to move the
election results to a point approximating the results of a combat
foregone. And yet, if we define democracy as including equal voting,
this means that democracy simply cannot meet its own criterion as
deduced from the “peaceful-change” argument. Or, if
we define democracy as majority voting, but not necessarily equal, then
the advocates of democracy would have to favor: abolishing the vote for
women, sick people, old people, etc.; plural voting for the militarily
trained; poll taxes; the open vote; etc. In any case, democracy such as
we have known it, marked by equal voting for each person, is directly
contradicted by the “peaceful-change” argument. One
or the other, the argument or the system, must be abandoned.
If the arguments for democracy are thus shown to be a maze of fallacy
and contradiction, does this mean that democracy must be completely
abandoned, except on the basis of a purely arbitrary, unsupported value
judgment that “democracy is good”? Not necessarily,
for democracy may be thought of, not so much as a value in
itself, but as a possible method for achieving other desired
ends. The end may be either to put a certain political leader into
power or to attain desired governmental policies. Democracy, after all,
is simply a method of choosing governors and issues, and it is not so
surprising that it might have value largely to the extent that it
serves as a means to other political ends. The
socialist and the libertarian, for example, while recognizing the
inherent instability of the democratic form, may favor democracy as a
means of arriving at a socialist or a libertarian
society. The libertarian might thus consider democracy as a useful way
of protecting people against government or of advancing individual
liberty.
One’s views of
democracy, then, depend upon one’s estimates of the given
circumstances.
APPENDIX
THE ROLE OF
GOVERNMENT EXPENDITURES IN NATIONAL PRODUCT STATISTICS
National product statistics have been used widely in recent years as a
reflection of the total product of society and even to indicate the
state of “economic welfare.” These statistics
cannot be used to frame or test economic theory, for one thing because
they are an inchoate mixture of grossness and netness and because no
objectively measurable “price level” exists that
can be used as an accurate “deflator” to obtain
statistics of some form of aggregate physical output. National product
statistics, however, may be useful to the economic historian in
describing or analyzing an historical period. Even so, they are highly
misleading as currently used.
Private product is appraised at exchange values set by the market, and
difficulty occurs even here. The major trouble, however, enters with
the appraisal of the role of the government in contributing to the
national product. What is the government’s contribution to
the product of society? Originally, national income statisticians were
split on this issue. Simon Kuznets evaluated government services as
equal to the taxes paid, assuming that government is akin to private
business and that government receipts, like the receipts of a firm,
reflect the market-appraised value of its product. The error in
treating government like a private business should be clear by this
point in our discussion. Now generally adopted is the Department of
Commerce method of appraising government services as equal to their
“cost,” i.e., to government expenditures on the
salaries of its officials and on commodities purchased from private
enterprise. The difference is that all governmental deficits are
included by the Department in the government’s
“contribution” to the national product. The
Department of Commerce method fallaciously assumes that the
government’s “product” is measurable by
what the government spends. On what possible basis can this assumption
be made?
Actually, since governmental services are not tested on the free
market, there is no possible way of measuring government’s
alleged “productive contribution.” All government
services, as we have seen, are monopolized and inefficiently supplied.
Clearly, if they are worth anything, they are worth far less than their
cost in money. Furthermore, the government’s tax revenue and
deficit revenue are both burdens imposed on production, and the nature
of this burden should be recognized. Since government activities are
more likely to be depredations upon, rather than contributions to,
production, it is more accurate to make the opposite
assumption: namely, that government contributes nothing to the national
product and its activities sap the national product and channel it into
unproductive uses.
In using “national product” statistics, then, we
must correct for the inclusion of government activities in the national
product. From net national product, we first deduct “income
originating in government,” i.e., the salaries of government
officials. We must also deduct “income originating in
government enterprises.” These are the current expenditures
or salaries of officials in government enterprises that sell their
product for a price. (National income statistics unfortunately include
these accounts in the private rather than in the
governmental sector.) This leaves us with net private product, or NPP.
From NPP we must deduct the depredations of government in order to
arrive at private product remaining in private
hands, or PPR. These depredations consist of: (a)
purchases from business by government; (b) purchases
from business by government enterprises; and (c)
transfer payments.
The total of these
depredations, divided by NPP, yields the percentage of government
depredation on the private product. A simpler guide to the fiscal
impact of government on the economy would be to deduct the total
expenditures of government and government enterprises from the NNP
(these expenditures equalling income originating in government and
government enterprises, added to the total depredations). This figure
would be an estimate of total government depredation on the economy.
Of course, taxes and revenues of government enterprises could be
deducted instead from the NNP, and the result would be the same in
accordance with double-entry principles, provided
that a government deficit is also deducted. On the other hand, if there
is a surplus in the government budget, then this surplus should be
deducted as well as expenditures, since it too absorbs funds from the
private sector. In short, either total government
expenditures or total government receipts (each figure inclusive of
government enterprises) should be deducted from NNP, whichever
is the higher. The resulting figures will yield an
approximation of the impact of the government’s fiscal
affairs on the economy. A more precise estimate, as we have seen, would
compare total depredations proper with gross private product.
In subtracting government expenditures from the gross national product,
we note that government transfer payments are
included in this deduction. Professor Due would dispute this procedure
on the ground that transfer activities are not included in the national
product figures. But the important consideration is that taxes
(and deficits) to finance transfer payments do act
as a drain on the national product and therefore must be subtracted
from NNP to yield PPR. In gauging the relative size of governmental vis-à-vis
private activity, Due warns that the sum of governmental expenditures
should not include transfer payments, which “merely shift
purchasing power” without using up resources. Yet this
“mere shift” is as much a burden upon the
producers—as much a shift from voluntary production to
State-created privilege—as any other governmental expenditure.
This differs completely from the
artificial play-at-markets advocated by some writers as a method of
permitting calculation under socialism. The “black
market” is a real market, though very limited in scope.
On the Yugoslav experience, see
Rudolf Bicanic, “Economics of Socialism in a Developed
Country,” Foreign Affairs, July, 1966,
pp. 632–50. See also Deborah D.
Milenkovitch, “Which Direction for Yugoslavia’s
Economy?” East Europe, July, 1969, pp.
13–19. Yugoslav economists are even thinking in terms of
developing a stock market and refer to this latent development as
“socialist people’s capitalism”! See
the November 25, 1966, Research Report of Radio Free Europe.
On the impossibility of economic calculation under socialism, see
Mises, Human Action; F.A. Hayek, ed., Collectivist
Economic Planning (New York: Augustus M. Kelley, 1967); and
Trygve Hoff, Economic Calculation in the Socialist Society
(London: William Hodge & Co., 1949).
F.A. Harper, Liberty, a
Path to Its Recovery (Irvington-on-Hudson, N.Y.: Foundation
for Economic Education, 1949), pp. 106, 132. See also
Paterson, God of the Machine, pp. 179ff. Paterson
has a stimulating discussion of the
“two-dimensionality”—neglect of real
conditions—in the theory of collective ownership.
Those who object that private
individuals are mortal, but that “governments are
immortal,” indulge in the fallacy of “conceptual
realism” at its starkest. “Government” is
not a real acting entity but is a real category of action adopted by
actual individuals. It is a name for a type of action, the
regularization of a type of interpersonal relation, and is not itself
an acting being.
This idea that democracy must
force the majority to permit the minority the freedom to become a
majority, is an attempt by social democratic theorists to permit those
results of democracy which they like (economic interventionism,
socialism), while avoiding the results which they do not like
(interference with “human rights,” freedom of
speech, etc.). They do this by trying to elevate their value judgments
into an allegedly “scientific” definition of
democracy. Aside from the self-contradiction, this limitation is itself
not as rigorous as they believe. It would permit a democracy, for
example, to slaughter Negroes or redheads, because there is no chance
that such minority groups could become majorities. For more on
“human” rights and property rights, see below.
To Spencer Heath, this is the only
genuine form of democracy:
When
persons contractually pool their separate titles to property by taking
undivided interests in the whole, they elect
servants—officers—and otherwise exercise their
authority over their property by a process of voting, as partners,
share owners or other beneficiaries. This is authentically democratic
in that all the members exercise authority in proportion to their
respective contributions. Coercion is not employed against any, and all
persons are as free to withdraw their membership and property as they
were to contribute it. (Heath, Citadel, Market, and Altar,
p. 234)
Even if, as is highly
unlikely—especially in view of the fact that rulers under
socialism are those most adept at wielding force—the
socialist leaders were saintly men, wishing to give a political
opposition every chance, and even if the opposition were unusually
heroic and risked liquidation by emerging into the open, how
would the rulers decide their allocations? Would they give funds and
resources to all opposing parties? Or only to a
pro-socialist opposition? How much would they allocate to each
opposition party?
See Schumpeter,
Capitalism, Socialism and Democracy, passim.
The “modern
democrat” might object that the candidate’s party
affiliation enables the voter to learn, if not his personal competence,
at least his political ideology. But the “modern
democrat” is precisely the theorist who hails the current
“two-party” system, in which the platforms of both
parties are almost indistinguishable, as the most efficient, stable
form of democratic government.
These considerations also serve to
refute the contention of the “conservative” that a
republic will avoid the inherent contradictions of a direct
democracy—a position that itself stands in contradiction to
its proponents’ professed opposition to executive as against
legislative power.
Thus Etienne de La
Boétie:
Obviously
there is no need of fighting to overcome this single tyrant, for he is
automatically defeated if the country refuses consent to its own
enslavement: it is not necessary to deprive him of anything, but simply
to give him nothing; there is no need that the country make an effort
to do anything for itself provided it does nothing against itself. It
is therefore the inhabitants themselves who permit, or rather, bring
about, their own subjection, since by ceasing to submit they could put
an end to their servitude. (La Boétie, Anti-Dictator,
pp. 8–9)
Even though, in practice, votes of
rural or other areas are often more heavily weighted, this democratic
ideal is roughly approximated, or at least is the general aspiration,
in the democratic countries.
Some libertarians consider a
constitution a useful device for limiting or preventing governmental
encroachments on individual liberty. A major difficulty with this idea
was pointed out with great clarity by John C. Calhoun: that no matter
how strict the limitations placed on government by a written
constitution, these limits must be constantly weakened and expanded if
the final power to interpret them is placed in the hands of an organ of
the government itself (e.g., the Supreme Court). See
Calhoun, Disquisition on Government, pp.
25–27.
For a critique of the arguments
for government activity—“collective
goods” and “neighborhood effects” or
“external benefits”—see
Man, Economy, and State, pp. 1029–41.
Purchases from business should be
deducted gross of government sales to the public,
rather than net, for government sales are simply equivalent to tax
revenue in absorbing money from the private sector.
Due, Government Finance,
pp. 76–77. For application of the above method of correcting
national product statistics, see Murray N.
Rothbard, America’s Great Depression
(Princeton, N.J.: D. Van Nostrand, 1963), pp. 296–304.
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