DemocracyThe God That Failed (4 page)

On the other hand, based on this deeper, "revisionist" understanding of modern history, the following studies arrive also at a "better"—clearer and more acute—understanding of the constructive alternative to the democratic
status
quo,
i.e., a natural order. There are detailed explanations regarding the operation of a natural order as a state-less social system with freely financed insurance agencies serving as competitive providers of law and order. And there are equally detailed discussions of strategic matters. In particular, there are detailed discussions specifically of secession and of privatization as the primary vehicles and means by which to overcome democracy and establish a natural order.

Each of the following chapters is self-contained and can be read separately. While this implies some thematic overlap across chapters, they combine into a progressing and expanding theoretical whole. With these studies I wish to promote in particular the tradition of Austrian social theory and contribute to its reputation as not only a bastion of truth but also as inspiring, exciting, and refreshing. And by the same token but more generally, I wish to promote and contribute to the tradition of grand social theory, encompassing political economy, political philosophy and history and including normative as well as positive questions. An appropriate term for this sort of intellectual endeavor would seem to be sociology. But while the term sociology has been sometimes used in this meaning, under the dominant influence of the empiricist-positivist philosophy the term has acquired an altogether different meaning and reputation. According to the empiricist doctrine,
normative questions are not "scientific" questions at all, and there exists no such thing as
a
priori
theory. That pretty much rules out grand social theory from the outset as "unscientific." Accordingly, most of what passes nowadays as sociology is not only just plain false but also irrelevant and dull. In distinct contrast, the following studies are everything a good positivist claims one cannot and shall not be: interdisciplinary, theoretically oriented, and dealing with both positive-empirical
and
normative questions. I hope to demonstrate by example that this is the right approach as well as the more interesting one.

Hans-Hermann
Hoppe

Las
Vegas,
Nevada

September
2000

1

On
Time
Preference,
Government,
and
the
Process
of
Decivilization

Time
Preference

In acting, an actor invariably aims to substitute a more satisfactory for a less satisfactory state of affairs and thus demonstrates a preference for more rather than fewer goods. Moreover, he invariably considers when in the future his goals will be reached, i.e., the time necessary to accomplish them, as well as a good's duration of serviceability. Thus, he also demonstrates a universal preference for earlier over later goods, and for more over less durable ones. This is the phenomenon of time preference.
¹

Every actor requires some amount of time to attain his goal, and since man must always consume something and cannot entirely stop consuming while he is alive, time is always scarce. Thus,
ceteris
paribus,
present or earlier goods are, and must invariably be, valued more highly than future or later ones. In fact, if man were not constrained by time preference and if the only constraint operating on him were that of preferring more over less, he would invariably choose those production processes which yielded the largest output per input, regardless of the length of time needed for these methods to bear fruit. He would always save and never consume. For instance, instead of making a fishing net first, Crusoe would have begun constructing a fishing trawler—as it is the economically most efficient method of catching fish. That no one,
including Crusoe, can act in this way makes it evident that man cannot but "value fractions of time of the same length in a different way according as they are nearer or remoter from the instant of the actor's decision." "What restricts the amount of saving and investment is time preference."
²

¹
See on the following in particular Ludwig von Mises,
Human
Action:
A
Treatise
on
Economics,
Scholar's Edition (Auburn, Ala.: Ludwig von Mises Institute, 1998), chaps. 18 and 19; also William Stanley Jevons,
Theory
of
Political
Economy
(New York: Augustus M. Kelley, 1965); Eugen von Bohm-Bawerk,
Capital
and
Interest,
3 vols. (South Holland, Ill.: Libertarian Press, 1959); Richard von Strigl,
Capital
and
Produc
tion
(Auburn, Ala.: Ludwig von Mises Institute, 2001); Frank Fetter,
Capital,
Interest,
and
Rent
(Kansas City: Sheed Andrews and McMeel, 1977); Murray N. Rothbard,
Man,
Economy,
and
State,
2 vols. (Los Angeles: Nash, 1970).

Constrained by time preference, man will only exchange a present good for a future one if he anticipates thereby increasing his amount of future goods. The rate of time preference, which is (and can be) different from person to person and from one point in time to the next, but which can never be anything but positive for everyone, simultaneously determines the height of the premium which present goods command over future ones as well as the amount of savings and investment. The market rate of interest is the aggregate sum of all individual time-preference rates reflecting the social rate of time preference and equilibrating social savings (i.e., the supply of present goods offered for exchange against future goods) and social investment (i.e., the demand for present goods thought capable of yielding future returns).

No supply of loanable funds can exist without previous savings, i.e., without abstaining from a possible consumption of present goods (an excess of current production over current consumption). And no demand for loanable funds would exist if no one perceived an opportunity to employ present goods productively, i.e., to invest them so as to produce a future output that would exceed current input. Indeed, if all present goods were consumed and none invested in time-consuming production methods, the interest rate would be infinitely high, which, anywhere outside of the Garden of Eden, would be tantamount to leading a mere animal existence, i.e., eking out a primitive subsistence living by encountering reality with nothing but one's bare hands and a desire for instant gratification.

A supply of and a demand for loanable funds only arise—and this is the human condition—if it is recognized first that indirect (more roundabout, lengthier) production processes yield a larger or better output per input than direct and short ones.
³
Second, it must be possible, by means of savings, to accumulate the amount of present (consumption) goods
needed to provide for all those wants whose satisfaction during the prolonged waiting time is deemed more urgent than the increment in future well-being expected from the adoption of a more time-consuming production process.

²
Mises,
Human
Action,
pp. 483 and 491.

³
To be sure, not all lengthier production processes are more productive than shorter ones, but under the assumption that man, constrained by time preference, will invariably (and at all times) select the shortest conceivable methods of producing some given output, any increase in output then can—praxeologically—only be achieved if the production process is lengthened, given constant technology

So long as these conditions are fulfilled, capital formation and accumulation will set in and continue. Land and labor (the originary factors of production), instead of being supported by and engaged in instantaneously gratifying production processes, are supported by an excess of production over consumption and employed in the production of capital goods. Capital goods have no value except as intermediate products in the process of turning out final (consumer) goods later, and insofar as the production of final products is more productive with than without them, or, what amounts to the same thing, insofar as he who possesses and can produce with the aid of capital goods is nearer in time to the completion of his ultimate goal than he who must do without them. The excess in value (price) of a capital good over the sum expended on the complementary originary factors required for its production is due to this time difference and the universal fact of time preference. It is the price paid for buying time, for moving closer to the completion of one's ultimate goal rather than having to start at the very beginning. For the same reason, the value of the final output must exceed the sum spent on its factors of production (the price paid for the capital good and all complementary labor services).

The lower the time-preference rate, the earlier the onset of the process of capital formation, and the faster the roundabout structure of production will be lengthened. Any increase in the accumulation of capital goods and the roundaboutness of the production structure in turn raises the marginal productivity of labor. This leads to either increased employment or wage rates, or even if the labor supply curve should become backward sloping with increased wage rates, to a higher wage total. Supplied with an increased amount of capital goods, a better paid population of wage earners will produce an overall increased—future—social product, thus also raising the real incomes of the owners of capital and land.

Factors
Influencing
Time
Preference
And
The
Process
Of
Civilization

Among the factors influencing time preference one can distinguish between external, biological, personal, and social or institutional ones.

External factors are events in an actor's physical environment whose outcome he can neither directly nor indirectly control. Such events affect time preference only if and insofar as they are expected. They can be of
two kinds. If a positive event such as manna falling from heaven is expected to happen at some future date, the marginal utility of future goods will fall relative to that of present ones. The time-preference rate will rise and consumption will be stimulated. Once the expected event has occurred and the larger supply of future goods has become a larger supply of present goods, the reverse will happen. The time-preference rate will fall, and savings will increase.

On the other hand, if a negative event such as a flood is expected, the marginal utility of future goods rises. The time-preference rate will fall and savings will increase. After the event, with a reduced supply of present goods, the time-preference rate will rise.
⁴

Biological processes are technically within an actor's reach, but for all practical purposes and in the foreseeable future they too must be regarded as a given by an actor, similar to external events.

It is a given that man is born as a child, that he grows up to be an adult, that he is capable of procreation during part of his life, and that he ages and dies. These biological facts have a direct bearing on time preference. Because of biological constraints on their cognitive development, children have an extremely high time-preference rate. They do not possess a clear concept of a personal life expectancy extending over a lengthy period of time, and they lack full comprehension of production as a mode of indirect consumption. Accordingly, present goods and immediate gratification are highly preferred to future goods and delayed gratification. Savings-investment activities are rare, and the periods of production and provision seldom extend beyond the most immediate future. Children live from day to day and from one immediate gratification to the next.
⁵

In the course of becoming an adult, an actor's initially extremely high time-preference rate tends to fall. With the recognition of one's life
expectancy and the potentialities of production as a means of indirect consumption, the marginal utility of future goods rises. Saving and investment are stimulated, and the periods of production and provision are lengthened.

⁴
if it is expected that nothing at all can be done about the impending losses of future goods such that no present attempt to mitigate these losses through compensatory savings (or insurance) appears possible because such savings would be destroyed as well, the time-preference rate will immediately rise, and it will remain high after the event.

⁵
On the high time preference of children as well as on biological (racial) and cultural factors modifying it see Walter Mischel, "Preference for Delayed Reinforcement: An Experimental Study of a Cultural Observation,"
Journal
of
Abnormal
and
Social
Psychology
56 (1958); idem, "Preference for Delayed Reinforcement and Social Responsibility,:
Journal
of
Abnormal
and
Social
Psychology
62 (1961); idem, "FatherAbsence and Delay of Gratification: Cross-Cultural Comparisons,"
Journal
of
Abnor
mal
and
Social
Psychology
63 (1961).

Finally, becoming old and approaching the end of one's life, one's time-preference rate tends to rise. The marginal utility of future goods falls because there is less of a future left. Savings and investments will decrease, and consumption—including the nonreplacement of capital and durable consumer goods—will increase. This old-age effect may be counteracted and suspended, however. Owing to the biological fact of procreation, an actor may extend his period of provision beyond the duration of his own life. If and insofar as this is the case, his time-preference rate can remain at its adult-level until his death.

Within the constraints imposed by external and biological factors, an actor sets his time-preference rate in accordance with his subjective evaluations. How high or low this rate is and what changes it will undergo in the course of his lifetime depend on personal psychological factors. One man may not care about anything but the present and the most immediate future. Like a child, he may only be interested in instant or minimally delayed gratification. In accordance with his high time preference, he may want to be a vagabond, a drifter, a drunkard, a junkie, a daydreamer, or simply a happy-go-lucky kind of guy who likes to work as little as possible in order to enjoy each and every day to the fullest. Another man may worry about his and his offspring's future constantly and, by means of savings, may want to build up a steadily growing stock of capital and durable consumer goods in order to provide for an increasingly larger supply of future goods and an ever longer period of provision. A third person may feel a degree of time preference somewhere in between these extremes, or he may feel different degrees at different times and therefore choose still another lifestyle-career.
⁶

⁶
In contrast to the widespread recognition of the phenomenon of time preference by economists, in particular those of the "Austrian School," amazingly little attention has been paid to it by sociologists and political scientists. For a notable exception see Edward Banfield,
The
Unheavenly
City
Revisited
(Boston: Little, Brown, 1974), esp. chap. 3. Banfield identifies time preference as the underlying cause for the persistent distinction between social classes and cultures, in particular between the "upper class" and the "lower class." Whereas members of the former are characterized by future-orientation, self-discipline, and a willingness to forego present gratification in exchange for a better future, members of the "lower class" are characterized by their present-orientation and hedonism.