DemocracyThe God That Failed (9 page)

Consequently, taxes will increase, be it directly in the form of higher tax rates or indirectly in that of increased governmental money "creation" (inflation). Likewise, government employment and the ratio of government employees ("public servants") to private employees tends to rise, attracting and promoting individuals with high degrees of time preference and low and limited farsightedness.
²⁶

²⁶
As Bertrand de Jouvenel explains:

From the twelfth to the eighteenth century governmental authority grew continuously. The process was understood by all who saw it happening; it stirred them into incessant protest and to violent reaction. In later times its growth has continued at an accelerated pace, and its extension has brought a corresponding extension of war. And now we no longer understand the process, we no longer protest, we no longer react. The quiescence of ours is a new thing, for which Power has to thank the smoke-screen in which it has wrapped itself. Formerly it could be seen, manifest in the person of the king, who did not disclaim being the master he was, and in whom human passions were discernible. Now, masked in anonymity, it claims to have no existence of its own, and to be but the impersonal and passionless instrument of the general will—but that is clearly a fiction—today as always Power is in the hands of a group of men who control the power house. All that has changed is that it has now been made easy for the ruled to change the personnel of the leading wielders of Power. Viewed from one angle, this weakens Power, because the wills which control a society's life can, at the society's pleasure, be replaced by other wills, in which it feels more confidence. But by opening the prospect of Power to all the ambitious talents, this arrangement makes the extension of Power much easier. Under the "ancien regime," society's moving spirits, who had, as they knew, no chance of a share in Power, were quick to denounce its smallest encroachment. Now, on the other hand, when everyone is potentially a minister, no one is concerned to cut down an office to which he aspires one day himself, or to put sand in a machine which he means to use himself when his turn comes. Hence it is that there is in the political circles of a modern society a wide complicity in the extension of power.
(On
Power,
pp. 9-10)

In fact, during the entire monarchical age until the second half of the nineteenth century, which represents the turning point in the historical process of demonarchization and democratization beginning with the French Revolution and ending with World War I, the tax burden rarely exceeded 5 percent of national product (see also footnote 20 above). Since then it has increased constantly. In Western Europe it stood at 15 to 20 percent of national product after World War I, and in the meantime it has risen to around 50 percent. Likewise, during the entire monarchical age, until the latter half of the nineteenth century, government employment rarely exceeded 2

The combination of these interrelated factors—"public" ownership of the government plus free entry into it—significantly alters a government's conduct of both its internal and its external affairs. Internally, the government is likely to exhibit an increased tendency to incur debt. While a king is by no means opposed to debt, he is constrained in this "natural" inclination by the fact that as the government's private owner, he and his heirs are considered personally liable for the payment of all government debts (he can literally go bankrupt, or be forced by creditors to liquidate government assets). In distinct contrast, a presidential government caretaker is not held liable for debts incurred during his tenure of office. Rather, his debts are considered "public," to be repaid by future (equally nonliable) governments. If one is not held personally liable for one's debts, however, the debt load will rise, and present government consumption will be expanded at the expense of future government consumption. In order to repay a rising public debt, the level of future taxes (or monetary inflation) imposed on a future public will have to increase. And with the expectation of a higher future-tax burden, the nongovernment public also becomes affected by the incubus of rising time-preference degrees, for with higher future-tax rates, present consumption and short-term investment are rendered relatively more attractive as compared to saving and long-term investment.
²⁷

percent of the labor force. Since then it has increased steadily, and today it typically is 15 to 20 percent. See for details Peter Flora,
State,
Economy,
and
Society
in
Western
Europe
1815-1975:
A
Data
Handbook
(London: Macmillan, 1983), vol. 1, chaps.
5 and 8. The difficulties encountered by monarchical rulers in securing loans are notorious (see also footnote 22 above); and kings typically had to pay above-average rates of interest reflecting their comparatively high default risk. See on this North and Thomas,
The
Rise
of
the
Western
World,
p. 96. In contrast, democratic governments, as they came into full bloom with the end of World War I, have indeed demonstrated a constant tendency toward deficit-financing and increasing debts. Today, the "national debts" in Western Europe and the "Western World" rarely amount to less than 30 percent of national product and frequently exceed 100 percent.

Likewise, and directly related, the monarchical world was generally characterized by the existence of a commodity money—typically gold or silver—and with the establishment of a single, integrated world market in the course of the seventeenth and eighteenth centuries, by an international gold standard. A commodity money standard makes it difficult for a government to inflate the money supply. By monopolizing the mint and engaging in systematic "coin clipping" (currency depreciation), kings did their best to enrich themselves at the expense of the public. But as much as they tried, they did not succeed in establishing monopolies of pure fiat currencies: of irredeemable national paper monies that can be created virtually out of thin air, at practically no cost. No particular individual, not even a king, could be trusted with an extraordinary monopoly such as this! It was only under conditions
of democratic republicanism in the aftermath of World War I that the gold standard was abolished and at long last replaced with a worldwide system of irredeemable national paper monies in 1971. Since then, the supply of money and credit has increased dramatically. A seemingly permanent "secular" tendency toward inflation and currency depreciation has come into existence. Government deficit financing has turned into a mere banking technicality, and interest rates—as an indicator of the social rate of time preference—which had continuously declined for centuries and by the end of the nineteenth century had fallen to around 2 percent, have since exhibited a systematic upward tendency.

More importantly still, the government's conduct as the monopolist of law and order will undergo a systematic change. As explained above, a king will want to enforce the preexisting private property law, and notwithstanding his own exceptional status
vis-a-vis
some of its key provisions, he, too, will assume and accept private-property notions for himself and his possessions (at least insofar as
international
king-to-king relations are concerned). He does not create new law but merely occupies a privileged position within an existing, all-encompassing system of private law. In contrast, with a "publicly" owned and administered government a new type of "law" emerges: "public" law, which exempts government agents from personal liability and withholds "publicly owned" resources from economic management. With the establishment of "public law" (including constitutional and administrative law) not merely as law but as a "higher" law, a gradual erosion of private law ensues; that is, there is an increasing subordination and displacement of private law by and through public law.
²⁸

See also Murray N. Rothbard,
What
Has
Government
Done
to
Our
Money?
(Auburn, Ala.: Ludwig von Mises Institute, 1992); idem,
The
Mystery
of
Banking
(New York: Richardson and Snyder, 1983); on the history of interest rates Sidney Homer and Richard Sylla,
A
History
of
Interest
Rates
(New Brunswick, NJ: Rutgers University Press, 1991), esp. chap. 23, pp. 553-58.

²⁸
In fact, although undermined by the Renaissance and the Protestant Revolutions, throughout the monarchical age the notion prevailed that kings and their subjects were ruled by a single, universal law—"a code of rules anterior to and co-existent with the sovereign—rules which were intangible and fixed" (de Jouvenel,
Sovereignty,
p. 193). Law was considered something to be discovered and recognized as eternally "given," not something to be "made." It was held "that law could not be legislated, but only applied as something that had always existed," (Bernhard Rehfeld,
Die
Wurzeln
des
Rechts
[Berlin 1951], p. 67). Indeed, as late as the beginning of the twentieth century, Albert V. Dicey
(Lectures
on
the
Relation
Between
Law
and
Public
Opinion
in
England
During
the
Nineteenth
Century
[London: Macmillan, 1903]) could still maintain that as for Great Britain, public or administrative law, as distinct from private law, did not exist: government agents, in their relationship with private citizens, were still regarded as bound by the same rules and subject to the same laws as any private citizen. It is again only after World War I, under
democratic republicanism, that public agents achieve "immunity" from the provisions of private law, and that a view such as the leading socialist legal-theorist Gustav Radbruch's found general acceptance: that

Rather than upholding private law among the nongovernment public and exploiting its legal monopoly solely for the purpose of redistributing wealth and income from civil society onto itself, a government "ruled" by public law will also employ its power increasingly for the purpose of legislation, i.e., for the creation of new, "positive" civil law, with the intent of redistributing wealth and income
within
civil society. For as a government's caretaker (not owner) it is of little or no concern that any such redistribution can only reduce future productivity. Confronted with popular elections and free entry into government, however, the advocacy and adoption of redistributive policies is predestined to become the very prerequisite for anyone wanting to attain or retain a government caretaker position. Accordingly, rather than representing a "consumption state" (as the typical monarchy does), with public government ownership, complementing and reinforcing the overall tendency toward rising taxes (and/or inflation), government employment and debt, the state will become increasingly transformed into a "welfare state."
²⁹
And contrary to its typical portrayal as a "progressive" development, with this transformation the virus of rising degrees of time
preference will be planted in the midst of civil society, and a self-accelerating process of decivilization will be set in motion.
³⁰

for an individualistic order of public law, the state, is only the narrow protective belt surrounding private law and private property. In contrast, for a social [democratic republican] order of law private law is to be regarded only as a provisional and constantly decreasing range of private initiative, temporarily spared within the all-comprehensive sphere of public law.
(DerMensch
im
Recht
[Gottingen: Vandenhoeck, 1957], p. 40)

In the meantime,

in our own day we are used to having our rights modified by the sovereign decisions of legislators. A landlord no longer feels surprised at being compelled to keep a tenant; an employer is no less used to having to raise the wages of his employees in virtue of the decrees of Power. Nowadays it is understood that our subjective rights are precarious and at the good pleasure of authority, (deJouvenel,
Sovereignty,
p. 189)

On the distinction between law and legislation see also Bruno Leoni,
Freedom
and
the
Law
(Princeton, N.J.: D. Van Nostrand, 1961); Friedrich A. Hayek,
Law,
Legis
lation,
and
Liberty
(Chicago: University of Chicago Press, 1973), vol. 1, chaps. 4 and 6.

²⁹
Until the end of the nineteenth century, the bulk of public spending—often more than 50 percent—typically went to financing the army (which, assuming government expenditures to be 5 percent of national product, amounted to military expenditures of 2.5 percent of national product). The rest went to government administration. Welfare spending or "public charity" played almost no role. In contrast, under democratic republicanism military expenditures have typically risen to 5-10 percent of national product. But with public expenditures making up 50
percent of national product, military expenditures now only represent 10 to 20 percent of total government spending. The bulk of public spending, typically more than 50 percent of total expenditures—and
25 percent of the national product—now is eaten up by public-welfare spending. See also Cipolla,
Before
the
Industrial
Revolu
tion,
pp. 54-55; Flora,
State,
Economy,
and
Society
in
Western
Europe,
chap. 8.