Thursday, August 16, 2007 89 Comments

Against political freedom

I am quite sure there are still some UR readers who believe in democracy.

(I am supposed to be a generalist, and it hasn't escaped my notice that I've been concentrating excessively on this particular spot on the piñata. It is a tough one and it may take a couple more whacks. Then we will move on to more fun stuff. If you already feel convinced, if you are ready to open the window, stick your head out and yell like Peter Finch in Network (in your scream, please be sure to include the full URL - if you just howl "UR!", they are unlikely to understand you), you have done enough and you can skip this one.)

Let's call anyone who believes in democracy a demotist. A demotist is just anyone who has a positive association with the compound of demos and kratos. He or she thinks that democracy in general, if not necessarily every specific use to which this vague and ancient term has ever attached itself, is basically a good thing.

Presumably then an antidemotist would be one who disbelieved in democracy, who thought that democracy in general is basically a bad thing. An antidemotist might use the word demotist in much the way some demotists seem to call anything they don't like fascist.

Can you imagine a 21st-century post-demotist society? One that saw itself as recovering from democracy, much as Eastern Europe sees itself as recovering from Communism? Well, I suppose that makes one of us.

The obvious problem for any would-be antidemotist is to explain the 20th century, in which Universalist liberal democracy fought and defeated Fascism and Communism. (See my last post.) Unless you are a Nazi or a Communist, you have to explain how democracy can be bad, yet the victory of democracy over non-democracy can be good.

As I've explained, my answer is that all three of these contenders were shoots from the branch of the 19th-century democratic movement. All revered the People, all devised a doctrine by which the State represents, symbolizes, or is otherwise identified with the People, and all attributed great importance to public opinion and went to great lengths to manage it.

To borrow the cladistic method of biological taxonomy, just as a human, a gorilla and a chimpanzee are equally related (or unrelated) to a baboon, Universalism, Fascism and Communism are equally related (or unrelated) to monarchism. Just as a human may find the gorilla and chimpanzee vaguely baboonlike, a Universalist is likely to think of Fascist or Communist dictatorships as somehow monarchy-like. But to a baboon, an ape is an ape, and biology supports his claim.

The baboon, therefore, is perfectly within his right in generalizing across the whole ape clade. He notes the general tendency of apes to slaughter, dismember, and otherwise abuse baboons. That not all apes are bad apes he will cheerfully admit. Indeed he's very interested in knowing how to tell a good ape from a bad ape. But the general proposition that apes are dangerous and scary strikes him as quite uncontroversial.

I am neither a baboon nor a monarchist. However, when we look at the astounding violence of the democratic era, it strikes me as quite defensible to simply write off the whole idea as a disaster, and focus on correcting the many faults of monarchism. Certainly, it's hard to imagine how the Civil War, WWI, WWII, the Holocaust, etc, could have occurred in a world where the Stuarts, Bourbons, Hohenzollerns, Hapsburgs and Romanovs still reigned and ruled. The royal families of old Europe had their squabbles, but conscription, total war and mass murder were not in their playbooks.

So let me coin another name for formalism, and call it neocameralism. The word is mainly picked for its Google virginity, but it should also be reminiscent of cameralism, the governing philosophy of Frederick the Great, whose Anti-Machiavel is good reading for anyone wondering what went wrong in the 19th and 20th centuries. (Of course, if you're a demotist, maybe you don't think anything went wrong at all.)

The basic insight of cameralism was that well-governed states tended to be prosperous. This was associated with a variety of primitive economic theories, such as mercantilism, which are probably best discarded. And cameralism was of course associated with monarchism, whose biological vagaries are infamous. A family business is a great idea if your business is a corner store or an auto-body shop. If you have a continent to run, you want professionals.

To a neocameralist, a state is a business which owns a country. A state should be managed, like any other large business, by dividing logical ownership into negotiable shares, each of which yields a precise fraction of the state's profit. (A well-run state is very profitable.) Each share has one vote, and the shareholders elect a board, which hires and fires managers.

This business's customers are its residents. A profitably-managed neocameralist state will, like any business, serve its customers efficiently and effectively. Misgovernment equals mismanagement.

For example, a neocameralist state will work hard to keep any promise it makes to its residents. Not because some even more powerful authority forces it to, but because it is very pleasant and reassuring to live in a country where the government can be trusted, and it is scary and awful to live in a country where it can't. Since trust once broken takes a long time to rebuild, a state that breaks its own laws has just given its capital a substantial haircut. Its stock is almost certain to go down.

Suppose, for example, that our neocameralist state raises all its revenue with a property tax, a la Henry George. One easy way to run a property-tax regime is a self-assessment registry: every real-estate owner lists and updates a reserve price for every property, and anyone can buy at this price. If owners set the price too high, they will pay too much tax. If they set it too low, their property will be snapped up. This system is trivial to administer, its Laffer curve should be easy to map, and the curve's peak should be quite high.

It's easy to value this single-tax state as an enterprise. The value of the corporation is a function of its tax rate and the total value of its real estate. Assuming tax rates are fixed by contract, the neocameralist state's incentive is simply to maximize property prices. Any policy that would make it a less pleasant place to live or work is clearly contraindicated.

Imagining, therefore, that Hohenzollern Prussia had somehow failed to degenerate into quasi-democratic nationalist militarism, but instead had listed shares in London - or imagining that 21st-century Singapore, Dubai or Hong Kong could somehow do an IPO - we can examine the demotist period from our safe, if imaginary, neocameralist future.

Clearly, the worst forms of demotism, the really bad apes, were the totalitarian systems - fascism and communism. The main difference between fascism and communism was not in mechanism, but in origin - fascist elites tended to be militarist, communist elites intellectual. But the one-party state is a clear case of convergent evolution.

To a neocameralist, totalitarianism is democracy in its full-blown, most malignant form. Democracy doesn't always deteriorate into totalitarianism, and lighting up at the gas pump doesn't always engulf you in a ball of fire. Many people with cancer live a long time or die of something else instead. This doesn't mean you should smoke half of Virginia before lunch.

A political party is a political party. It is a large group of people allied for the purpose of seizing and wielding power. If it does not choose to arm its followers, this is only because it finds unarmed followers more useful than armed ones. If it chooses less effective strategies out of moral compunction, it will be outcompeted by some less-principled party.

When one party gains full control over the state, it gains a massive revenue stream that it can divert entirely to its supporters. The result is a classic informal management structure, whose workings should be clear to anyone who watched a few episodes of "The Sopranos." Without a formal ownership structure, in which the entire profit of the whole enterprise is collected and distributed centrally, money and other goodies leak from every pore.

Totalitarian states are gangster states, in other words, and they tend to corruption and mismanagement. The personality cult of dictatorship is quite misleading - a totalitarian dictator has little in common with a neocameralist CEO, or even a cameralist monarch.

The difference is the management structure. The CEO and the monarch owe their positions to a law which all can obey, and those who choose to obey the law are naturally a winning coalition against those who choose to break it. The dictator's position is the result of his primacy in a pyramid of criminals. This structure is naturally unstable. There is always some other gangster who wants your job. Dictators, like Mafia chiefs, are not good at dying in bed.

The internal and external violence typical of totalitarian states is best explained, I think, by this built-in mismanagement. Dictators are violent because they have to be - they use violence as an organizing principle. The totalitarian state has no principle of legitimacy that would render it impractical for an ambitious subordinate to capture the state with a coup. European monarchs made war, sometimes they were assassinated, and there were even succession struggles, but coups in the modern sense were very rare.

Note that the financial logic which keeps the neocameralist state lawful does not apply in any way to the totalitarian state, because the latter does not have a stable management structure which is controlled by its shareholders. Lawlessness is not profitable for the state as a whole, but it may be quite profitable for the part that chooses lawlessness, and in the totalitarian state no one is counting as a whole.

Similarly, only shareholder control gives the neocameralist state an incentive to remain small and efficient. The totalitarian state has an incentive to become large and inefficient, because every functionary has an incentive to expand his or her own department, and no bean-counter who demands that the department do more with less.

In a totalitarian state, since no gangster is permanently safe from any other gangster, there is a strong incentive for anyone with power to take what he can, while he can. And there is no disincentive for him to avoid abusing a resource which neither he nor his allies benefit from. Under gangster management, the totalitarian states often engaged not only in mass murder, but mass murder of their most economically productive citizens.

It may seem odd that a two-party state would be so much better than a one-party state. But it actually makes a great deal of sense.

Two-party or multiparty states succeed because none of the parties can redirect state revenue openly to its own pocket. They have an incentive to compromise, and they often compromise on something like professional management. The result, although still afflicted by factional tension, may approach something like the rule of law.

Unfortunately, two-party states have a number of paths by which they can degenerate into one-party states. For example, one party might use the power of government to marginalize and destroy its competitors. But this is by no means the only possible disaster.

Perhaps the greatest danger is that partylike structures form in civil-service departments that are nominally nonpartisan. If you think of Western journalists as a political party, for example, you notice that they fit the description quite well. Certainly their training is very much along the lines of cadre indoctrination. I'd argue that the entire Polygon is essentially an embryonic one-party state, although in the United States at least, it still has to be moderate in its attacks on the old political system. Nonetheless, the outlines of a "post-partisan" state are becoming clear, especially in Europe, and it is not neocameralist in the slightest.

All of this is easy to say. However, all of us grew up knowing that democracy is the best of all possible systems of government, and it takes a large stack of reasonable reasons before this deep fondness will even begin to buckle. So let me take another whack while the piñata is still swinging, and attack the idea of "political freedom."

Political freedom is the freedom to engage in acts whose purpose is not direct satisfaction, but indirect satisfaction obtained by influencing government policy. When you vote, demonstrate, print underground leaflets, etc, you are engaged in acts of political freedom. You do these things only because you believe they have some political effect.

Personal freedom is the freedom to engage in all other acts that satisfy you directly, and that do not infringe the rights of others. For example, the other day I quoted Navrozov quoting Hobbes, who lists the following personal freedoms:
to buy, and sell, and otherwise contract with one another; to choose their own abode, their own diet, their own trade of life, and institute their children as they themselves think fit; and the like.
Note that democracies tend to do a rather poor job of respecting these Hobbesian liberties. The only two that are customarily still respected are abode and trade of life - the Universalist democracies, at least, do not assign their citizens housing or jobs. They are massively obsessed with the regulation of buying, selling, and contracting, they manage enormous programs of official education, and they are not without their dietary laws.

Furthermore, there are some rather obvious candidates for "the like" in a modern society. For example, one might have freedom of medicine - absolute ownership of your own body, and the right to choose what experts help you maintain it, or what chemicals, devices, or procedures they may employ. Or freedom of association - the absolute right to choose who you work and play with, when and why. Or freedom of finance - the absolute right to manage your own property and dispose of it as you see fit.

If a neocameralist state has any reason to infringe its customers' freedoms in any of these areas, I cannot imagine what it might be. Whereas our democratic governments are constantly infringing them in almost every way imaginable, for reasons that seem to be rooted simply in the production and maintenance of official employment.

Of course, if you have political freedom, you can use it to agitate for personal freedom. Thus, the demotist catechism goes, political freedom is actually the most important sort of freedom, because if you have political freedom and enough people agree with you, you can get anything - including personal freedom. And if you can't convince the People, well, you were probably wrong in the first place.

And political freedom can also get you other goodies. Such as, for example, a share of this delicious revenue stream that the State is constantly producing. Or various benefits purchased with such.

Perhaps I'm not presenting the case for political freedom eloquently enough, because these arguments strike me as very poor. If politics is good because you can use it to achieve personal freedom, this is not a case for politics over other methods, which seem much more effective, of producing personal freedom.

And the use of politics to benefit yourself is simply lawless extortion. Here we see the essentially paramilitary nature of democracy. When you use power to monopolize some scarce resource, in the absence of a law that assigns an owner to that resource, you are inevitably struggling against others who will use power themselves. This may be extremely limited war, but it is war nonetheless.

On the border between personal and political freedom are freedoms such as freedom of the press, which can be defined as personal freedoms, but which as such affect relatively few people in a relatively minor way. Not many people are intellectuals who like to write for the public - there are probably more windsurfers, for example, in the world. Banning windsurfing would be a personal cost to those that like to windsurf, but not so much to anyone else.

Of course, infringing the freedom of the press harms the freedom of those who like to read - a much larger group, if still hardly the majority. But suppose the freedom of the press is infringed only on political subjects? Or only trivial subjects? For example, suppose it's illegal to insult the King, as it is in Thailand?

When I compare freedom of medicine, for example, to freedom of political publishing, I can't help but feel that the former is much more important. Am I crazy? Perhaps I am crazy. If so, perhaps someone will write in and tell me.

The issue arises, you see, because of the existence of vaguely quasi-neocameralist states such as Singapore and Dubai. I linked earlier to this discussion on a very orthodox Universalist blog (Unfogged) of Singapore - it's interesting how Universalists can maintain their convictions even while living in a place whose very existence contradicts them. The contradiction becomes just another proof of faith. Yet another case of Auster's unprincipled exception, I suppose.

Singapore and Dubai are not neocameralist paradises. They are certainly very well-managed in most senses, but they are also extremely conscious of living in a political world. Singapore in particular emerged out of very nasty postcolonial street politics - the ruling party is still called the People's Action Party. I really cannot think of a more terrifying name.

And so Singapore in particular works very hard, and very famously, to suppress politics and political freedom. My understanding - perhaps someone can correct me - is that almost everyone in Singapore has no interest at all in antigovernment politics, that people really are genuinely happy to simply think about their own lives.

But for a Singaporean to be involved in antigovernment politics has roughly the same result that involvement in racist or other extremist politics has for an American. It is simply politically incorrect in Singapore to say bad things about the government, much as it's politically incorrect here to say bad things about protected minorities. At least it's a social faux pas, at most it might cost you your job.

I find it difficult, of course, to endorse political correctness. This is because I'm an intellectual and I have trouble keeping my mouth shut. I have enough trouble with the American version of the doctrine.

But I agree with Hobbes on one thing: a government is not a government unless it takes all necessary steps to preserve itself. It is not physically feasible to arrest and prosecute every soldier of an invading army. The same applies for domestic "militant" movements as well. A state that does not have the power to ban political organizations is leaving itself open to linked political-military movements, such as Sinn Fein and the IRA - an open invitation for every political party to grow a paramilitary wing. In Weimar Germany, even the Social Democrats had their own equivalent of the SA.

If we regard suspension of political freedom in this light, Singapore is simply protecting itself from the ravages of democracy - which has certainly afflicted it in recent memory. It's hard to fault the People's Action Party for this. But I wish there was a better modern example of Bismarck's dictum with regard to the press: "they say what they want, I do what I want."

In my ideal neocameralist state, there is no political freedom because there is no politics. Perhaps the government has a comment box where you can express your opinion. Perhaps it does customer surveys and even polls. But there is no organization and no reason to organize, because no combination of residents can influence government policy by coercion.

And precisely because of this stability, you can think, say, or write whatever you want. Because the state has no reason to care. Your freedom of thought, speech, and expression is no longer a political freedom. It is only a personal freedom.

89 Comments:

Blogger brendon said...

actually, according to Bruce Bueno de Mesquita, dictators once they pass the crucial first nine or so months in power, DO tend to remain in power for the rest of their natural lives and die peacefully in their beds.

http://www.econtalk.org/archives/2006/08/the_political_e.html

August 16, 2007 at 8:05 AM  
Anonymous Zetji said...

Overall a good post. However, your idea of a real estate owners listing a price that anyone can buy their property at is autistically awful. People get very attached to their homes and will not be willing to sell them until they're ready to. On the economic vs. the sentimental side, when anyone can buy you're property against your wishes, the incentive to make such investments and improve on them decreases. This is a case where the added inefficiencies and potential corruption of third party property valuations would be well worth the upside of securing property rights.

August 16, 2007 at 8:09 AM  
Blogger Dan Weber said...

But there is no organization and no reason to organize, because no combination of residents can influence government policy by coercion.

You are still modelling a better government as a business, yes?

In a business, don't shareholders still (occasionally) try to agitate each other to get the board to act in a certain way? (I admit this is rare because most shareholders have no idea how to organize themselves, and anyway it's just a whole lot easier to sell. Perhaps this was your point.)

But don't we sometimes see a business's customers protesting against the business, hoping through social pressure to get the business to change its ways? Yes, sometimes they hope to achieve this through the legal system, but often times the company relents and changes its ways, because it doesn't want to lose current or future customers.

August 16, 2007 at 8:11 AM  
Blogger Jewish Atheist said...

I don't understand your faith in neocameralism/formalism. I see your argument as this:

1) A state is a business which owns a country.
2) A miracle happens.
3) Everybody lives happily ever after.

Obviously, it's number 2 that I'm having trouble with. A business has incentives to make money and therefore avoid wasteful activities like restricting personal freedoms, but humans aren't rational actors.

You have your Enrons, whose owners were fabulously wealthy and took completely irrational risks with illegal and immoral activity that ultimately caused the whole enterprise to crumble. How much worse would this be if the people couldn't have done anything about it? Singapore, which you use as a partial example, hangs people for distributing illegal drugs. So much for medical freedoms.

If Microsoft were a country, wouldn't it be rational to have Steve Jobs and Linus Torvalds assassinated?

I think the big questions are these: What's to stop whoever's running this business-state from deciding to stop distributing profits to shareholders? What's to stop the group in power from deciding to kill all the Jews or the drug users or people who say, "It looks like somebody's got a case of the Mondays?"

In short, I don't understand the mechanism with which neocameralism/formalism can prevent the same totalitarianism that you are trying to prevent. The U.S., rantings of Ralph Nader aside, is quite far from one-party rule. The polygon (or military-industrial complex or whatever) is what it is, but it has the support of the people. If that stopped being the case, the polygon could be disbanded.

I see the U.S. and postwar Europe as pretty much ideal. I'm sure that doesn't surprise you. But the truth is, these countries have vastly better human rights records than any other. Even the areas where freedoms are less than desired (taxes for some, medical, etc.) there aren't countries that are much better. And it's not just about human rights -- these countries are much more profitable than others as well.

I agree that Democracy is insufficient on its own (i.e. without strong law enforcement and checks and balances.) But you haven't convinced me that it's not necessary.

August 16, 2007 at 8:23 AM  
Blogger drank said...

I've struggled with all of your formalism and neocameralism arguments on the point of corporate governance. You are quite eloquent, I think, on the shortcomings of democratic governent as we see it in the US and Europe today.

But in its place, you seem fully ready to assume a perfect and apolitical corporate government, concerned only with maximizing shareholder value. I think this would be a more convincing argument if you dealt with the many problems of actual corporate governance and corporate behavior as we observe it today.

In particular, being a customer of such a corporate state seems very dependent on the "terms of service" agreement between me and them. What prevents the corporation from changing those terms to, for example, prevent me from canceling my service or force me to purchase goods from one of the corporation's subsidiaries? And in what court may I sue them for such a breach of contract?

How would you avoid, say, a bloc of shareholders that elects enough directors to convince the corporation to acquire their medical services firm, and then require all customers to purchase those services? And if the new profits from health care were actually larger than the marginal decline in real estate prices (and thus taxes), then such a move would legitimately enhance shareholder value. But it's not going to do much for the "freedom of medicine" that this arrangement is supposed to be securing for me!

August 16, 2007 at 9:20 AM  
Blogger r.s said...

I still don't see how this gets us free from politics. I think it would be naive to claim that politics is somehow a matter of institutional government. Whatever would evolve after the establishment of business-government would be aptly coined "politics". We are talking about the nature of human interaction here, and it is not a matter of finding/selecting the institution that either does or does not allow fundamental human interaction.

On another note, I am not so certain that business politics is any less guilty of general reprehensible tendencies than government politics. Your focus has been unwaveringly upon those government institutions and their flaws.

Why not paint an adequate comparison of those flaws with cases from business? To convince those of us who aren't already convinced, you must stop assuming that business is the ideal and show why it might be. Then I might be convinced in your arguments like this one.

August 16, 2007 at 9:29 AM  
Anonymous Kautilya said...

Dan, I believe you are conflating the nature of Mencius' proposed neocameralism and his ideal neocameralist state. I am reasonably sure that his ideal business, would, in fact, not have its shareholders agitating for change, much as it would not be serving its customers in such a way that protestation is necessary. Mutatis mutandi for the neocameralist state.

August 16, 2007 at 9:51 AM  
Anonymous bbroadside said...

If I may rephrase some of what Mencius is asserting, partly just to see if I've got it right:

One way of controlling an economy is by various factions offering opinions about how resources should be distributed, and the voters picking their favorite. Here we do what is righteous. The "should"s compete to see who likes them best; the "is"s are easily disregarded as antithetical to progress. So if I invent a new product, and set up a factory to make it, everyone votes on who I hire, where I sell my product, etc.

Another way eliminates a lot of the influence of the opinion. It says, Here we do what is profitable. Not everyone agrees on what is profitable, but there is far less disagreement on something concrete like profit than their is on something nebulous like righeousness. When I run my factory my lust for profit leads me to pay workers well and treat customers well; no voting required.

Moving away from matters of opinion to matters of black and red reduces politics and uncertainty, both of which lead to violence under certain conditions. Nasty money-grubbing totalitarians simply aren't as rich as governments that provide freedom and the rule of law. The former are always killing the smartest scientists, best businessmen, etc. Since righteousness is a matter of opinion, there is no objective distinction between self-interest and altruism. You distinguish between enlightened self-interest (a la rich Singapore) and barbaric self-interest (a la dirt-poor Haiti).

It's important to note that a state can't just become totalitarian, even if it wants to be. It takes power to get it or to maintain it. Power tends to change hands in rapid, uncertain, events, i.e., massed political violence. Just because power changes hands doesn't mean it ends up with a tyrant, but revolutions tend to be won by armies, more or less, which are naturally autocratic or oligarchic. So while two governments may be structured in similar ways (say, self-perpetuating oligarchy) they may have completely different levels of arbitrary power (say, to ignore laws); the difference often lies in the history of the government (i.e., did it evolve out a victorious army or out of tradition?)

So, Mencius is asserting that it's no accident that taxes in Dubai and Singapore are fairly low, and that people can pick their own way of making a living, etc. Those states provide The Good Life (freedom and the rule of law) because a departure from it wouldn't be profitable.

I'm not sure I agree with all this. I haven't worked it through. If someone told me, "Tomorrow Singapore is going to confiscate all warehouses because the oligarchs need a place to play indoor soccer" I'm not sure I'd be able to tell them why that's not likely. It seems to me that freedom depends to a large extent on who controls the army and police. Running the state as a business just alters the management of the monopoly; I'm not sure how it provides real choice (I'm echoing drank here, I think).

Maybe a tacit part of the deal is, Dubai or Singapore's oligarchy makes it a nice place to live because it has so many (de facto) creditors. A narrower base of creditors/shareholders might wind up with a much nastier, less enlightened monopoly. But as long as the state/business is answering to a big portion of the population, scattered around in different locales and walks of life, the best approximation of a policy which maximizes profitable behavior is just to allow as much freedom as possible. It wouldn't make much sense for the creditors to rob the general public if 90% of the general public were creditors and the other 10% were poor.

Anyway, there's my brief take on the situation. I'm still a demotist, to a great degree, because my ideal "everyone a creditor" state is still fairly democratic. It's just a democracy with a built-in bias toward classical economics. It's no more realistic an ideal than a lot of others though, partly because getting there would be anti-propertarian (you'd have to wrest control from the civil service, journalists, and universities).

August 16, 2007 at 10:50 AM  
Blogger mtraven said...

While Dubai and Singapore are intriguing examples, I think probably present-day China is a better example of a state that combines authoritarian government with a market economy. For one thing, it's a real economy, not a tiny trading city. And while China "works", for some meaning of the term, it is not a place I would particularly like to live. The "owners" have not done a very good job maintaining their property, considering that the Beijing Olympics may have to cancel many events due to air pollution. And of course, if you value freedom of expression or any of those boring universalist political values, it really isn't your cup of oolong.

August 16, 2007 at 12:04 PM  
Anonymous cuchulkhan said...

how would you factor in race differences? the east asians have produced some nutjobs all right, but looking over the broad arch of history they've had ok rulers. in africa, on the other hand, robert mugabe seems to be the rule. although i guess you could say he's a product of democracy. would you apply this theory to africa and low iq regions?

August 16, 2007 at 12:59 PM  
Blogger Booklegger said...

The most obvious flaw with your neocameralist state is that it may not be able to compete with a demotist state on a military basis. As you say, "a state that can't defend itself isn't a state."

While you endorse limiting political freedom in the name of preserving the state, I note that you seem reluctant to endorse demoticism in the name of preserving the state. How will a neocameralist state properly defend itself, without becoming overly beholden to its military, resulting in a banana republic, or at best some Heinleinesque military democracy?

The source of political power remains the militia, as much as you try and pretend this truth away. The coming scarcity will not be firepower, but the will to use it. A neocameralist state has a more difficult time mustering the will to muster the militia than does a demotic state.

August 16, 2007 at 1:11 PM  
Anonymous Michael said...

I would happily live in a formalism society, but then that is the definition of utopia, a place everyone would want to live. You leave 1 question unawnswered:


How do you deal with the incredibly irritating desire most humans have to order the lives of other humans to their own liking? People are busy bodies who absolutely refuse to leave well enough alone. In a large democracy most complaints are drowned out by the sheer volume of the whining, but anyone who has ever dealt with a home owner's association or a small town zoning board will tell you that small scale corporate structures are downright totalitarian when given the chance. They endlessly pursue petty interests and engage in fueds and regulating that defy all rational thought. An end to politics would be a wonderful thing, but as far as I can tell politics and people are inseperable.

August 16, 2007 at 1:27 PM  
Anonymous ru said...

U.S. Citizenship and Immigration Services has published a list of 96 sample questions asked of applicants for citizenship. One question is, What is the most important right granted to United States
citizens?

The answer they consider correct is the right to vote, which is not even near the top of my list of the most important political rights. And I agree with MM that personal rights, particularly property rights, are more important than political rights.

August 16, 2007 at 1:56 PM  
Anonymous bbroadside said...

In response to zetji -

With his self-assessed taxes, Mencius has an interesting take on Georgism . On the face of it it looks promising: people would have an incentive to highball their property values and sacrifice some more rent (as Henry George would call it) to the ultimate owners of the land (i.e. the state). They would effectively be saying, "I like my land so much I'm willing to pay a little extra to keep it". Presumably they'd be allowed to sell for less if they wanted to; they'd just be prohibited from holding out for more since it would be breach of contract, or false advertising.

One problem I see is that, as I understood it, the Single Tax is only supposed to fall on the natural value of the land, not the value of improvements. I surmise that our tax rates would actually be much higher under the Single Tax, because you wouldn't be taxed on anything you had built or that had been built. You would only be taxed on the actual dirt underneath it all (and, of course, aspects like location: altitude, neighborhood, etc.). In that case I wouldn't know how self-assessment (or any other kind of assessment) would work, unless you assumed that all dirt is of the same value.

The advantage of the Single Tax is that I can build a museum, factory, or hotel on my land and take all the earnings to the bank, but I have a disincentive to let land go unused. Picture a built-up area in a Georgist state: there are a lot of highly-profitable industries with fairly small land "footprints". The business which wastes half its land on a parking lot gets taxed to death; the one which tucks its lot in a basement underneath pays a nice low tax rate. The vacant lot next door reverts to a medieval sort of commons (e.g. a free park), until it becomes profitable for another use (e.g. a park that charges admission). I bet a sophisticated GIS could model how dense cities would be, or how land use would work. Part of the question is what exactly would happen to land that couldn't be profitable under the tax rate; I assume it would revert public/common ownership but I'm not sure the specifics.

Also, I'm not sure if increases in land value caused by an area becoming denser or more attractive would be considered improved value or natural value. Obviously attractiveness isn't wholly determined by nature, but also isn't wholly determined by the owners' actions. If an area became more valuable due to a town springing up around it, I'm not sure if Georgist taxes would rise or not.

August 16, 2007 at 2:20 PM  
Anonymous bbroadside said...

ru -

"One question is, What is the most important right granted to United States citizens?"

"Voting" was the correct answer? I am hoping it was a multiple choice test and freedom of movement, property rights, religion, etc. weren't among the choices. If they other choices were breathing oxygen, eating fast food, and having a loving king governing from the Palace of Chicago by divine right, "voting" is indeed the best answer.

August 16, 2007 at 2:26 PM  
Anonymous nick said...

I am sad to see that this proposal gets more antilibertarian with each iteration. And as I've described here and elsewhere, it has in fact been tried many times before. But who needs history when we can have utopia instead?

Political property rights can be a very useful tool to combat oppressive 20th century style governments, but must be used in quite the opposite way propose here -- as decentralized property, decentralized by subject matter as well as territory, not merely by issuing a bunch of shares which will be worthless because the managers run the courts.

At least perhaps with this new terminology we can now distinguish formalism and political property rights (both of which in a broad sense I support)from neocameralism (which I most certainly do not).

August 16, 2007 at 3:04 PM  
Anonymous nick said...

I am sad to see that this proposal gets more antilibertarian with each iteration. And as I've described here and elsewhere, it has in fact been tried many times before. But who needs history when we can have utopia instead?

Political property rights can be a very useful tool to combat oppressive 20th century style governments, but must be used in quite the opposite way propose here -- as decentralized property, decentralized by subject matter as well as territory, not merely by issuing a bunch of shares which will be worthless because the managers run the courts.

At least perhaps with this new terminology we can now distinguish formalism and political property rights (both of which in a broad sense I support)from neocameralism (which I most certainly do not).

August 16, 2007 at 3:05 PM  
Anonymous nick said...

Another observation I've made repeatedly here and on my blog, but has still never been addressed, is that Dubai and Singapore have whatever libertarian policies they have because they specialize in international trade. They thus must maintain low exit costs for a large proportion of their population in order to maintain their revenues. Their lesson is wholly inapplicable to almost all the other countries of the world, which do not specialize in international trade and can thus tax fixed social networks. For the neocameral utopia Saudi Arabia and North Korea are much closer analogs and Dubai and Singapore. These two countries are every bit as politically stable as Dubai and Singapore, probably more so. Either of the tiny Dubai or Singapore could well in the coming decades suffer the recent troubles of Kuwait, but from which this time no superpower may bail them out, as international trade unlike oil fields can move elsewhere.

For the share-issuing aspect of the neocameralist utopia, which none of these modern countries provide a model for, there are nevertheless plenty of historical models, as I indicated in my previous comment.

It does make utopia sound much nicer to just repeatedly citing Dubai and Singapore and ignore all the closer analogs. Hell feels much nicer, too, if you just imagine yourself holding the pitchfork and ignore the fire.

August 16, 2007 at 3:41 PM  
Anonymous bbroadside said...

dave wrote: "They thus must maintain low exit costs for a large proportion of their population in order to maintain their revenues. Their lesson is wholly inapplicable to almost all the other countries of the world, which do not specialize in international trade and can thus tax fixed social networks."

That is a good point but I'm not sure I have all the economic tools to understand it. Is this is a simple matter of most capital in Singapore and Dubai being human capital, i.e., all they really have to offer is skills, which will move when the people move? That sounds plausible to me though I'm not sure I'm reading you write.

An interesting comparison would be to see how property rights are respected in by the governments of cities with similar economies, which I suppose would be port cities with less physical capital (mining, factories, etc.) A national government may heavily tax people in those cities, but the city governments may have to rely on people with skills choosing to live there. Exit costs would be even lower if you didn't need a visa. It wouldn't be an "apples to apples" comparison though; maybe it is the small size of Singapore which prohibits investment in (bulky) physical capital, where it would be able to expand into the hinterland if it were e.g. part of Malaysia.

August 16, 2007 at 4:36 PM  
Anonymous bbroadside said...

Aww Jeez. Don't know how I got from "nick" to "dave". Perhaps my skull presents only a low exit cost to my brain.

August 16, 2007 at 4:38 PM  
Anonymous George Weinberg said...

I have to agree with ja and nick. Observation says that places like Singapore aren't that big on personal freedoms, and that indicates to me that arguments that they ought to be must be somehow flawed.

It's probably true as far as it goes that the particular freedoms restricted by Singapore probably aren't all that valued by most Singaporeans. If the many of the most productive people in the country were emigrating to places where they were allowed to chew gum, no doubt Singapore would legalize gum chewing. But that would probably be true in a democracy also.

August 16, 2007 at 4:59 PM  
Anonymous nick said...

bbroadside: "That is a good point but I'm not sure I have all the economic tools to understand it. Is this is a simple matter of most capital in Singapore and Dubai being human capital, i.e., all they really have to offer is skills, which will move when the people move?"

That's an important point, as human capital is more mobile than farmland or minerals -- see my work on history and the security of property -- but it's not the main one. The main points, both closely related to the specialization in international travel, are (1) the governments of Singapore and Dubai have to encourage free travel to and from many other countries, to encourage the constant human interchange that is essential to international trade, making it impractical to set up onerous travel restrictions, and (2) most residents of Singapore and Dubai have strong social ties outside the country.

BTW, human capital is very easy to tax when it gathers in corporations, as corporations must be audited, and auditing provides the information needed for the income tax, by far the most lucrative form of tax ever developed and ideal for the managers of Moldbug's utopia.

Both factors (1) and (2), but especially the second, make exit costs much lower than in other countries (such as Scandinavia and Japan) that also have economies dominated by human capital, but the vast majority of strong social ties lie within a territory monopolized by a nation-state.

If Moldbug's utopia was enforced over a wide area -- for example, sell shares in the Russian national government -- strong internal social ties would remain the main way to curtail the flight of human capital and ratchet up taxes. But one can also imagine a virtual iron curtain that chases the fleeing taxpayer unit around the planet. The human capital (a.k.a. taxpayer unit) could protest all it wants (as in 1989), but as Moldbug points out their protests could be ignored.

BTW, I noticed that Moldbug is pulling the same stunt as the IRS and calling the victims of his neocameralist state "customers". Such rhetoric is an important part of Moldbug's magic trick of transforming the behavior of corporations in a voluntary, common-law market, which many of us quite justifiably admire, to the world of government and coercion, the current forms of which many of us quite justifiably loathe. Real customers are people who choose where to shop. Creditors, not debtors, are the customers of debt collectors. Government employees, and not taxpayers, are the customers of tax collectors.

I also notice that soon after Prussia came up with cameralism, it came up with and gave the world compulsory and nationalistic government schooling, tax funded pension programs, and militarism.

It's also quite incorrect to imply that genocides are confined to modern governments. In the century before Frederick II and his cameralism were the Wars of Religion and the accompanying peasant massacres that gave Germany many decades of utter barbarism.

August 16, 2007 at 7:12 PM  
Blogger Mencius Moldbug said...

What a thoughtful collection of comments!

August 17, 2007 at 9:13 AM  
Blogger Mencius Moldbug said...

brendon -

Since everyone keeps citing this Bueno de Mesquita podcast, I suppose at some point I'll actually have to listen to it!

But I doubt Bueno de Mesquita was comparing dictators to monarchs, just to the common public perception. Of course, monarchy without a formula for who should be the next monarch is no more than dictatorship, but at least in Europe that problem was largely solved.

August 17, 2007 at 9:16 AM  
Blogger Mencius Moldbug said...

zetji,

The self-assessed real estate tax certainly sounds autistic, but it's just counterintutive, I think.

Everyone has a reserve price for everything they own. That price is the point at which they would be indifferent to selling or keeping.

If you are sentimentally attached to your house, price it at 30% over market value. I could get pretty sentimental over another 200K or so - I think most people could.

In a system like this, involuntary purchases would probably be quite rare, because you would have two tiers of pricing: want-to-sell pricing and want-to-stay pricing. Normally the distinction would be quite clear, and those who wanted to stay but had to sell would be paid for it. (Notice that with this system, eminent domain is also unnecessary.)

Essentially, self-assessment taxes you, not on what your property is worth to some imaginary market on which it's not actually listed, but on what it's worth to you.

August 17, 2007 at 9:22 AM  
Blogger Mencius Moldbug said...

JewishAtheist,

One of the all-time great stories of interaction between civilizations is the autobiography of Yukichi Fukuzawa, one of the intellectual founders of modern Japan (he founded Keio University).

Fukuzawa had no culturally inherited Western traditions - he was a pure product of Tokugawa civilization. As a Westernizer, he studied the West in much the same way that, say, Germans of the same period studied the East. Basically, he might as well have been a space alien, which makes his reactions to Western civilization exceptionally fascinating.

What made me think of this was a story Fukuzawa tells from his visit to Europe in the 1860s. The idea of a non-militarized society was extremely hard for him to grasp. In Amsterdam, he asked a local burgher what would happen if some wealthy citizen decided to build a castle in the center of the town. Of course the burgher's response was, basically, nothing - but why would he want to do that?

So, my general answer to your question is - nothing, but why would they want to do that?

However, you ask a number of questions, and they can be separated into two categories.

The first category is: how do the shareholders retain control of the corporation? The second category is: why do you assume the corporation will be well-managed?

For the first, the easy solution is to list the shares in a separate jurisdiction, where it will be subject to normal corporate law. In my ideal world there would be tens of thousands of city-states, so it shouldn't be hard to pick.

Then you need to make the link between the management and the security forces unbreakable. Cryptographic weapon locks are probably an essential component in this.

Second, humans are people and of course mismanagement happens. However, if you compare the incidence or magnitude of corporate mismanagement to that of democratic misgovernment, you are comparing cherries to watermelons.

Enron is an example of incompetent, not malicious, mismanagement. The managers of Enron were actually trying to make money for their shareholders. They just chose a very stupid way to do so. A better example of malicious, or at least vicariously stupid, management is "Chainsaw Al" Dunlap of Sunbeam fame.

I have worked for a lot of bad managers, though no one this spectacularly bad, in my time. And bad management is not random. It tends to be either conventional or faddish. It is seldom Napoleonic and it is never psychotic.

If you read the Anti-Machiavel, you will see how compelling and obvious the cameralist tradition of good government is.

What stops a CEO from ordering his subordinates to burn down all the company's factories tomorrow? Nothing, but why would he want to? Yet the equivalent has happened often under totalitarian and democratic regimes.

It's unfortunate that - as I mention - there are no good examples of modern neocameralist regimes. Singapore is marred by its democratic, colonialist (the moralizing bit), and leftist roots. Dubai has weirdness with Arab nationalism. Hong Kong is part of China. None of them has anything even remotely like a corporate management structure.

Also, don't confuse the Polygon and the military-industrial complex! They are on opposite sides of the chessboard. The Polygon is the academic-industrial complex.

August 17, 2007 at 9:50 AM  
Blogger Mencius Moldbug said...

drank,

Your point about "terms of service" is very well stated.

Simply put: a "corponation" does not change the ToS unless it absolutely has to, because the value of property in which law is respected is much higher than the value of property in which it's disregarded.

Of course, if it has to, it has to. Suppose, for example, that the original ToS does not allow for the possibility of martial law. Then the country is invaded or subject to an insurrection. Clearly, if no change is made, the entire property is lost, so it has to happen.

One of the complaints of the barons at Runnymede was nolumus leges Angliae mutari: "we object to changes in the laws of England." People these days have gotten used to unstable law, but stable law is still better, and if it appeared again on our planet, I suspect people would quickly flock to it.

August 17, 2007 at 9:57 AM  
Blogger Mencius Moldbug said...

dan,

Shareholder activism is certainly a problem, as is customer activism. But note that in our present society, the former is very rarely effective, as is the latter - unless they are implicitly soliciting government support, as they generally are.

August 17, 2007 at 10:00 AM  
Blogger Mencius Moldbug said...

RS,

You're right - I clearly need a whole post on corporate governance.

August 17, 2007 at 10:00 AM  
Blogger Mencius Moldbug said...

bbroadside,

Thanks as always for your comments - I think to some extent you are extending rather than rephrasing the essay, but since I agree I cannot complain.

I think this point is crucial: "Dubai or Singapore's oligarchy makes it a nice place to live because it has so many (de facto) creditors."

Indeed. It is difficult to study the government of Dubai and Singapore, because it is extremely opaque. In practice, I think that what they have done is created a large class of wealthy, powerful people - a plutocracy - whose interests are aligned with the State, and whose influence ensures that the state's actions are (very roughly) similar to the actions it would take if it had a formal corporate management structure, which of course it doesn't.

August 17, 2007 at 10:04 AM  
Blogger Mencius Moldbug said...

nick,

I should have linked to your Unenumerated post - I suppose I was afraid of somehow pulling in Mike Huben. (Who, in case he is googling himself, is banned at UR.)

You have indeed raised this objection many times before. I have answered it many times before. Nonetheless I'll continue to do so, because there is no chance of you wearing out your welcome here.

My basic answer is that none of your historical examples, nor any of mine, nor any present-day example, comes anywhere close to neocameralism. At best we see hints and flashes of how a true corporate state might work. The flashes you see tend to be uglier than the flashes I see. This is a matter of judgment - it will not be settled.

This is how I justify arguing deductively and praxeologically. If the likes of Locke had not argued politics from first principles, the return of republicanism would never have happened. As a (small-r) republican, I don't see how you can object to this method.

So, on exit costs: see my discussion of ToS violations above. Would you live in a country where the right to exit wasn't in the ToS? Do you really think that instantly converting even the most benighted hermit kingdom into a prison, supposing it was even possible (you'd have to do it overnight, as in Berlin) would raise property values, and be mentioned at Harvard Business School as an example of a brilliant management coup - pun intended?

If I were "holding the pitchfork," not only would I do just about anything to avoid violating my ToS (ie, my legal system), I would separate my judiciary from my executive, to avoid even the suspicion of lawlessness. For example, I might outsource it to Szabo Judiciary Services, an international legal provider which can arbitrate and interpret any legal code - for a fee, of course.

I don't understand why you favor income taxes over property taxes. Not only are the former incredibly intrusive and annoying, there is no reason at all to think they can extract more from an economy, or produce less distortion. As a matter of fact, income taxes produce enormous distortion. Do you have any reason to think their Laffer peak is higher?

As for "customers" versus debtors, I am certainly both a customer and a debtor of CitiMortgage, as I am a customer and a debtor of "FedCo." Collection of fees is an essential part of any business relationship.

The main difference between a customer and a "citizen" (after 1791 or so, the latter word should have struck terror into everyone's ear, but for some reason it continues to be used; at least we have gotten rid of "comrade," however) is that a customer has no political power over a service provider.

His level of economic power may vary - there is such a thing as customer lock-in, and it is not good. But I think you're greatly overrating the relative value of "fixed social networks" and underrating the value of trade. I've seen customer lock-in firsthand and I have no reason to love it, but I also know that businesses which rely on it have a pronounced tendency to curl up and die.

Of course, if you're North Korea, you do everything wrong. I have explained many times how and why North Korea is mismanaged, and I really fail to see how the existence of, say, some mismanaged Lada factory in Belarus, proves that Toyota can't exist.

August 17, 2007 at 10:31 AM  
Blogger Mencius Moldbug said...

michael,

An excellent question.

Basically, the whole idea of "government for profit" is that it provides an economic incentive that pushes back against this nosy desire that everyone has to gain power over everyone else.

You cannot eliminate the human tendency to politics. But you can build systems which have at least theoretical economic motivations to discourage it. Which is certainly more than we have right now.

August 17, 2007 at 10:34 AM  
Blogger Mencius Moldbug said...

booklegger,

I disagree not with your analysis but with your facts.

Now and for the foreseeable future, firepower is supreme on the battlefield. Weapons platforms are steadily more automated. The purpose of modern infantry is not power, as it was in the Napoleonic era, but political discretion. If discretion is unimportant, grid squares of arbitrary dimension can be arbitrarily devastated remotely.

A neocameralist state is actually militarily quite competitive, because it is immune to head games - its behavior is predictably rational. It can be expected to deter aggression with all necessary force, and if it has any chance of winning the financial markets will back it up. But it will not be aggressive itself unless aggression would be profitable - and, in the nuclear age, it is not hard to make aggression unprofitable.

August 17, 2007 at 10:40 AM  
Blogger Mencius Moldbug said...

george,

The basic thing to realize about Singapore is that it is a tiny fragment, in the middle of nowhere, of an old civilization since destroyed. It is amazing that Singapore exists at all. Expecting it to be perfect would be too much. And it certainly does not have anything like the management structure I'm proposing.

The history of the gum ban is actually quite interesting, because it shows how hard Singapore has had to work to do things its own way. It certainly has no friends in the international press.

I suspect that if you plopped today's Singapore down in a really competitive world of neocameralist city-states, its most productive citizens would flee the place like cockroaches when you turn the light on, and property values would crash. The fact that Singapore as it is today is such a relative success, and seems to be a very desirable place to live, is testament to the generally low quality of government in the world today. (Note also the awful, awful weather in that part of the world.)

August 17, 2007 at 10:48 AM  
Blogger Mencius Moldbug said...

bbroadside,

Basically all my self-assessment model has in common with Georgism is that it's a single property tax.

The trouble with George's model, which as usual was based on an elaborate theory of righteousness, is that it's impossible to measure the "value" of land without fixed improvements. There is no such thing as value, only price.

August 17, 2007 at 10:51 AM  
Blogger Mencius Moldbug said...

mtraven,

Indeed China is a good example as well, though its management structure is hardly neocameralist in any way. But what matters is results, and I have to say their results have been pretty good.

Like everyone, I was shocked and appalled in 1990. But most people in China now believe that the suppression of the democracy movement was the best thing that ever happened to the place, and I'm obviously inclined to agree.

What 1990 proved was that democracy was not a real threat to the military rulers of China, which in turn gave them far more leeway to introduce personal and economic freedoms. The Chinese are still reaping the dividends of this victory - in many cases, literally.

Whereas, say, the ruling party of North Korea fears, probably quite rightly, that any liberalization or reform will leave them dangling from the lampposts. They are truly riding the tiger. China, which was once as badly governed as North Korea, somehow managed to dismount - at least partially.

August 17, 2007 at 10:56 AM  
Anonymous Michael S. said...

On self-assessed property taxes, here's an alternative idea: how about allowing landowners to buy freedom from future taxation - effectively ending their status as feudatories of government, and acquiring the dominium plenum of their properties - by compounding the tax for perpetuity?

A similar scheme was used in Scotland, prior to the abolition of feudal tenures (which became effective there only as recently as November 2004), to enable tenants holding the dominium utile of their properties to pay a lump sum to the holders of the dominium directum - their feudal superiors - and thereby to escape the ongoing payment of feu duties.

Local property taxes are, as a moment's contemplation makes clear, exactly analogous to feu duties. The status of the typical U.S. property owner is that of someone who, under feudal law, owned the dominium utile but not the dominium directum, or tenure in liberam baroniam, of his property; while the local government is effectively that of the feudal superior, which owns the dominium directum, and collects feu duties from its vassals. Properties over which the holder exercises both dominium utile and dominium directum are owned in dominium plenum, and are exempt from feu duty.

By paying some multiple of the annual assessment, calculated to yield an annual income equal to the assessment, a property could be forever freed from taxation. The one-time payment made by a taxpayer to buy his dominium plenum could go into a sequestered endowment from which the taxing authority would be empowered to draw the income but not the principal. Eventually, if all property owners buy the dominium plenum of their properties, local governments will be entirely funded by the incomes from their endowments - and, most importantly, would be forced to operate within them.

Properties which have been redeemed from feudatory status would increase in value, being no longer subject to the encumbrance of ongoing taxation. Those property owners who could not raise the sum necessary to buy their dominium plenum out of ready cash could borrow it. Mortgage lenders should welcome the opportunity to lend in a way that would lead to an increase in the value of their collateral. Property owners who declined to buy their dominium plenum would risk future increases in taxation, in the same way that people who do not buy life memberships in organizations to which they belong risk future increases in dues.

This is, at any rate, one solution to the property tax problem that could circumvent most of the difficulties of MM's self-assessment proposal by leading ultimately to the abolition of property taxation.

As for the abolition of politics: it strikes me that since warfare has been the normal condition of human society since time immemorial, it is reasonable conclusion that warlike behavior is deeply instinctual in man. And, to upend Clausewitz, since politics is the continuation of war by other means, we must conclude further that to abolish politics is as bootless a quest as to abolish the sex drive or the desire to eat.

The mention of cameralism and Frederick the Great's Prussian state brings to mind what happens when one tries to abolish politics. It simply goes underground. In the case of 18th-c. Germany, it went into the Masonic lodges, where pledges of secrecy and fraternal assistance gave it a congenial atmosphere in which to flourish. This phenomenon reached its apogee under Frederick the Great's successor, Frederick William II, who was himself a member of the "conservative" Masonic party, the Gold-und-Rosenkreutz, as were two of his ministers, Wöllner and Bischoffswerder. The opposing "liberal" party was none other than Weishaupt's Illuminati.

Political freemasonry (or kindred secret societies such as the Carbonari) seems to arise in every country in which political activity has at one time been suppressed, and it persists even after the efforts at suppression have been abandoned, as in France, Italy, and Mexico. This is a phenomenon which preoccupies Roman Catholic traditionalists - some to the point of paranoia, e.g. E. Michael Jones or Thomas Fleming - and which puzzles Anglo-American freemasons, who are almost strenuously apolitical. Of course, in Britain and its cultural dependencies (including the U.S.) in which political discourse has been mostly open and secrecy has been mostly unnecessary. It is worth noting that the only significant political secret society in U.S. history, the Ku Klux Klan, originated in the American South during Reconstruction, when it was militarily occupied and when a large segment of the native white population was disenfranchised.

August 17, 2007 at 11:02 AM  
Blogger Mencius Moldbug said...

cuculkhan,

It is democracy, of course, that really depends on its citizens' cognitive capacities. I have no hesitation in claiming that neocameralism works for anything north of Homo erectus.

Of course, "works" may be a relative term, because a neocameralist state has no use for unproductive individuals. However, it has a use for the productive individuals who are typically inclined to charity, and whose charity tends to sustain the others. Since charity tends to be pretty globalized these days, I don't anticipate any huge problem, even as the cognitive threshold of productivity increases due to technical advance.

August 17, 2007 at 11:06 AM  
Blogger Mencius Moldbug said...

Michael S.,

Good to see you here again!

Although in today's rather shopworn legal world it is an excellent idea, from the perspective of neocameralism there are a couple of problems with selling the dominium plenum.

The basic problem is that it is impossible to accurately assess the future price of a property. Thus the state has no idea how much future revenue it is foregoing for a present sum.

Suppose you buy the dominium plenum for a ranch, then turn it into a subdivision. You, rather than the state that protects you, will become the feudal lord of this little city. You have paid little for this privilege and you reap great returns.

This is a problem, because it creates an unstable legal structure - the state has a great incentive to violate its own promise, and reimpose the taxation you have tricked it out of. Unless you are actually raising your own army to go with your new feudal status, economic and political power have become misaligned.

August 17, 2007 at 11:19 AM  
Blogger Mencius Moldbug said...

As for Prussia and the abolition of politics, Michael S. effectively answers a question raised by Nick: if Frederick the Great's Prussia was so great, why did it all go to hell?

Politics was never successfully suppressed in Prussia, certainly not as it has been in, say, Singapore. (Are there any secret societies in Singapore? If there are, they are secret enough that I haven't heard of them!)

What accounts for this? I disagree slightly with Michael S. - I'd say not the human urge for politics. Because I think the human urge for politics is a derived result of an even more basic human urge, the desire for power.

Politics, whether in secret societies or open parties, happens because politics is a route to power. And politics will not disappear unless this route is clearly closed.

We know that the secret-society joiners of Italy and Germany were right in their estimate that politics would lead to power, because - as Michael points out - it led so many of them to power. In Italy the Carbonari were even worse.

The Masons and Illuminati were demotist revolutionaries - Germany was by no means immune to democracy. And I see the militarism and nationalism of later Prussia and the Second Reich as largely an attempt by the German aristocratic state to compete with and coopt the forces of democracy. The combination, of course, was fatal, but the masses of delirious revelers at the start of the Great War shows that its effectiveness was nontrivial.

August 17, 2007 at 11:38 AM  
Anonymous Michael S. said...

The subdivision problem is easily solved. When "all and haill" of a dominum plenum is sold or transferred by inheritance, dower, curtesy, etc., it remains redeemed and the state charges nothing but a small fee to change the title on the Register of Sasines or whatever the record of land titles is called. When the dominium plenum is divided and a part of it is transferred, a fee commensurate to the compounded taxes on the increase in its value is assessed, to be shared proportionately between the seller and the buyer. It is essential in this system that no subinfeudation take place, so that the circumstance you envision, in which the developer of a large piece of land becomes a feudal superior over its subdivisions, cannot happen.

The occasion of much of the increase in price of real property is simply inflation, which has to be distinguished from increase in its genuine value. I'll admit that my suggestion would work better given a stable currency than one that is subject to inflation - even at the 2% per annum we are now conditioned to regard as low and acceptable. That is, however, another problem. Let us also note that making government dependent upon income from an endowment, rather than from an open-ended power to tax real estate, would be a profound incentive to that government to prefer a stable currency over one that is depreciable by inflation. At present, government has much incentive to prefer inflation over stability.

I should not call all Freemasons demotist revolutionaries - the Gold-und-Rosenkreutz certanly was not, and the program of the Wöllner/Bischoffswerder ministry under Frederick William II has indeed been called the first self-consciously conservative one in European history, swimming as it did against the tide of the Aufklärung. The problem in understanding Masonic influence in politics is that we hear only of those parts of it that are preoccupations of the Catholic right.

As for secret societies in Singapore, I'd bet dollars to doughnuts that there are Triad societies (tongs) in that city. They are as commonplace in every Chinese community the world around as Rotarians are in the U.S. Most now occupy a roughly similar position to Rotary in those communities, though their long history of political involvement goes back to their resistance to the Manchu ascendancy in the 17th. century - and of course they had a rôle in the Boxer rebellion, the rise of Sun Yat-sen, etc., early in the 20th.

August 17, 2007 at 12:09 PM  
Blogger Booklegger said...

You have misunderstood the crux of my analysis, and as a consequence misunderstood the facts I assert.

That the infantry as an offensive weapon is well exceeded isn't at dispute. My claim is of the superiority of the militia as a defensive weapon. Assuming all you want to do is command dirt, certainly firebombing and fission will stead ye well, but if you want to secure anything of value, you must overcome the resistance of the militia.

When you speak of the neocameralist state, I'm reminded of the city states of Italy. I also remember Charles V's armies stomping the Italian mercenaries into pulp. The Italians were wealthier, their armies better equipped, and better paid, but Charles et alia played for keeps.

I'm also reminded of Vernor Vinge's short story "The Ungoverned". He argues that violence is like banking, in that you pool a lot of potential violence in one place, and then sell the threat of violence multiple times for profitability. The problem being a run on the bank.

How would a profitably run neocameralist state prevent runs on violence?

Finally, I note that the notion of corporate governance replaces a republic of all with a republic of most, with some people's votes counting more than others. Let me propose a thought experiment. We'll take a country and divide it in half. On one side we'll oppress a randomly selected group of people socially and economically, but not politically. On the other, we'll oppress them socially, economically, and politically. Then, we let the country be for a few generations. Now, we won't ask how the oppressed people are doing(because it should be obvious), but rather how their oppressors are doing in each half of the country.

That the whites in the South were worse off than their Northern brethren isn't controversial. That the greatest gains for the white South happened only after the effects of the Voting Rights Act were felt is also not disputed. Why do you feel that giving special privileges to the current incumbents will incentivize those incumbents to make their own successors(much less the citizens your method would demote) more wealthy than does the current system of requiring the incumbents to stand and deliver?

That the requirements of delivery are currently tepid at best isn't an argument against requirements per se.

August 17, 2007 at 1:20 PM  
Blogger Daniel A. Nagy said...

I'm actually fairly certain that any social system is livable, if entry- and exit costs are sufficiently low. That is both necessary and sufficient.

How can a country be a bad place if it is populated by those and only those who prefer living there?

Then the question becomes how to align incentives in such a way that entry and exit costs go down and stay low? I'm not convinced that MM's answers are right; I share Nick's scepticism.

August 17, 2007 at 3:05 PM  
Anonymous nick said...

nagy: "I'm actually fairly certain that any social system is livable, if entry- and exit costs are sufficiently low. That is both necessary and sufficient."

I've been thinking the same thing with my latest essay "Exit and Freedom", which also elaborates on points I've made about Singapore etc. in this thread.

August 17, 2007 at 3:34 PM  
Anonymous nick said...

MM: "If the likes of Locke had not argued politics from first principles, the return of republicanism would never have happened."

There were dozens of European city-state republics, as well as the Swiss and Dutch confederations and a wide variety of essentially republican municipal corporations, long before Locke. In general I find the role of philosophy in the evolution of politics and law to be exagerated, and when real to usually be more harmful and helpful, due to the intellectual hubris of philosophers who think they can sweep away sophisticated and highly evolved legal systems and replace them with their own reasoned from scratch. The result is even worse than the goo you'd get if you tried to engineer a genetic code from scratch.

MM: "So, on exit costs: see my discussion of ToS violations above. Would you live in a country where the right to exit wasn't in the ToS?"

I wouldn't go there to live, but what if my family and job was already there when your IPO occurs, so that I'm stuck there?

MM: "If I were "holding the pitchfork," not only would I do just about anything to avoid violating my ToS (ie, my legal system), I would separate my judiciary from my executive, to avoid even the suspicion of lawlessness. For example, I might outsource it to Szabo Judiciary Services, an international legal provider which can arbitrate and interpret any legal code - for a fee, of course."

You'd give up on sovereignty? This is indeed progress -- even if you choose my nasty competitor to provide your judiciary services. :-) But I suspect Frederick II would object.

MM: "I don't understand why you favor income taxes over property taxes. "

Just look at how tax revenues have mushroomed since the inception of the income tax. Property taxes do not come anywhere close.

Conceptually, if you want to maximize your revenue you have to make like Willie Sutton and go where the money is. Since the industrial revolution most money these days doesn't come from property income. But almost all money flow is made visible by modern accounting. All but the smallest businesses depend on auditing for their financial integrity. So that's where you go. It's far more effective to tax money than to measure acres and crudely estimate that acres (the income of which actually vary widely) correspond to so much taxable revenue. The Laffer maximum for the income tax is far, far higher than for the property tax.

For some general principles of tax collection, see "The Tax Collector's Problem" section of this essay.

August 17, 2007 at 4:14 PM  
Anonymous nick said...

"more harmful and helpful" should read "more harmful than helpful." :-)

August 17, 2007 at 4:16 PM  
Anonymous nick said...

In my essay Exit and Freedom, I made this comment which is particularly relevant to this thread:

"The maximum point on the Laffer curve -- the most tax that a government can collect -- is lower and occurs at a lower percentage tax rate in countries where exit costs are low. Thus the tax rates in Hong Kong, Singapore, and Bahrain are lower than among their culturally similar neighbors that do not specialize as international intermediaries."

Thus those whose incentives are primarily to maximize tax revenues for that reason have incentives to increase exit costs to the extent they can get away with doing so. This is, alas, the opposite of the incentive alignment between government and low exit costs that Nagy and I are hoping for.

August 17, 2007 at 4:27 PM  
Anonymous George Weinberg said...

Say, if your government is contracting out national security and the administration of justice, and doesn't get involved in charity or enforcing personal morality, what is the state actually doing? Is it just sort of a general contractor?

August 17, 2007 at 5:06 PM  
Blogger Mencius Moldbug said...

That the infantry as an offensive weapon is well exceeded isn't at dispute. My claim is of the superiority of the militia as a defensive weapon. Assuming all you want to do is command dirt, certainly firebombing and fission will stead ye well, but if you want to secure anything of value, you must overcome the resistance of the militia.

As a neocameralist state you have two security problems: securing your own territory, and preventing attacks by others.

Securing your own territory is done by having no independent military forces - "militia" or anything else - on its territory.

Preventing attacks by others is a matter of deterrence. Deterrence, as you note, does not demand infantry. Conquest is not required.

When you speak of the neocameralist state, I'm reminded of the city states of Italy. I also remember Charles V's armies stomping the Italian mercenaries into pulp. The Italians were wealthier, their armies better equipped, and better paid, but Charles et alia played for keeps.

Sure. The military realities were different, that's all. I'm not sure what advice I would have given to the city-states of Italy. Perhaps no different than Machiavelli's.

How would a profitably run neocameralist state prevent runs on violence?

I think I read the Vinge story a very long time ago, but I'm not sure I follow the analogy. Can you elucidate?

Finally, I note that the notion of corporate governance replaces a republic of all with a republic of most, with some people's votes counting more than others.

That's one way to look at it, but it gives you very much the wrong impression.

A "republic of most" is also called an oligarchy, and oligarchy is really not much of an improvement on democracy. The flow of benefits and power remains informal.

The critical point of the joint-stock model is that one can analyze the incentives of the state solely in terms of profit and loss. In particular, a corporate state will not act directly to reward its shareholders as customers - for exactly the same reason Starbucks' shareholders don't get free lattes. (I suppose I should probably explain why this is!)

August 18, 2007 at 12:55 PM  
Blogger Mencius Moldbug said...

nick,

Thus those whose incentives are primarily to maximize tax revenues for that reason have incentives to increase exit costs to the extent they can get away with doing so.

But you're holding a variable equal when it's not. Thus "the extent they can get away with doing so." Which is, in practice, very limited.

If you treat ownership of a country as capital, that country is much more valuable if it has low, rather than high, exit costs.

Even more so, your country is much more valuable if it has a record of obeying its own laws. Economists, as I'm sure you know, call this "goodwill," and it makes up a substantial percentage of quite a few balance sheets.

Look at the world now. Lawless countries are shunned by all manner of trade and industry. Sure, if you have arable land, you probably will always be able to find people to farm it. Just like North Korea. Anyone want to buy some real estate in Pyongyang?

August 18, 2007 at 1:01 PM  
Blogger Mencius Moldbug said...

You'd give up on sovereignty? This is indeed progress -- even if you choose my nasty competitor to provide your judiciary services. :-)

Not at all! This is exactly the crux of the matter.

By retaining Szabo Judiciary Services, I do not in the slightest give up on sovereignty. I can fire Szabo and hire its nasty competitor, or insource, any time I like - just the same way GE, for example, can change auditors.

On the other hand, Szabo - for example, if it doesn't feel its rulings are not executed properly - can also drop me as a client. Which, if my actions damage the brand, I'm sure it will have no hesitation in doing!

Now what do you think will happen to my stock price if either of these events occurs? What happens to GE's stock if it has a blowup with its accountant?

If I switch judiciary providers, I had better have a damn good reason. Otherwise, the perception that I am running a lawless Third World operation will become widespread, and all manner of commerce and personnel will depart for safer havens.

As a profit-oriented sovereign, I am caught in my own web of incentives. I need to promulgate laws very carefully, because I cannot afford to be in the habit of breaking them. Just because I could, militarily, break them, doesn't mean I have a reason to.

August 18, 2007 at 1:09 PM  
Blogger Mencius Moldbug said...

In general I find the role of philosophy in the evolution of politics and law to be exaggerated, and when real to usually be more harmful and helpful, due to the intellectual hubris of philosophers who think they can sweep away sophisticated and highly evolved legal systems and replace them with their own reasoned from scratch.

If you consider the average product of all philosophers, this is surely true. But there is no reason to compute this average. Have you read, for example, Mises?

The result is even worse than the goo you'd get if you tried to engineer a genetic code from scratch.

And yet people are working on exactly that. A little bit of pragmatism can keep you centered, but when you adopt the faith wholesale you are enlisting in the revolt against reason.

August 18, 2007 at 1:12 PM  
Blogger Mencius Moldbug said...

george,

Say, if your government is contracting out national security and the administration of justice, and doesn't get involved in charity or enforcing personal morality, what is the state actually doing? Is it just sort of a general contractor?

This question exhibits a high degree of enlightenment, I feel.

The sine qua non of the state is the monopoly right to govern a territory. In my view this is exactly identical to any property right which confers a monopoly of use.

The difference is only that the state's right exists in a world of anarchy, in which all law must be self-enforcing. I don't really agree with Leeson that self-enforcing law can scale to a city of a million people, but on a planet of hundreds or thousands of states I think it can.

"The state" is just whatever organization owns this right. The details of whether it insources or outsources some function - whether it buys it or administratively controls it - is as irrelevant as asking whether your condo complex does its own landscaping.

The only exception to this principle is the provision of security, in which the owners must have effective practical control over the security forces. As I've said before, cryptographic security is of enormous assistance in the solution of this ancient problem.

August 18, 2007 at 1:19 PM  
Blogger Mencius Moldbug said...

Just look at how tax revenues have mushroomed since the inception of the income tax. Property taxes do not come anywhere close.

This is simply because of how they're used - it is a political choice, not an engineering limitation.

Conceptually, if you want to maximize your revenue you have to make like Willie Sutton and go where the money is. Since the industrial revolution most money these days doesn't come from property income. But almost all money flow is made visible by modern accounting. All but the smallest businesses depend on auditing for their financial integrity. So that's where you go. It's far more effective to tax money than to measure acres and crudely estimate that acres (the income of which actually vary widely) correspond to so much taxable revenue. The Laffer maximum for the income tax is far, far higher than for the property tax.

I disagree with all of this.

The cost of property is a cost of doing business in your territory. Even if you have no office space, your employees, for example, have to live somewhere, and they will compete for the most desirable property. You can extract just as much from them by taxing them where they live, as where they work.

Until you're so desperate that you start raiding savings, all taxes come from productivity. An income tax is really a labor tax - ideally it would be levied entirely on the employer. If you follow the money in a property tax, it ends up in the same place. Workers demand higher wage rates because they have to pay higher rents, and so on.

Did you follow my self-assessment proposal? It entirely eliminates any problem of "measuring acres."

The Laffer peak is not determined by the form of the tax, but by the level of disruption and distortion it inflicts on the productive economy. I like property taxes because I find them less distorting than income taxes, which is why - especially in the presence of tax competition - I think their peak is higher.

August 18, 2007 at 1:26 PM  
Blogger Mencius Moldbug said...

MM: "So, on exit costs: see my discussion of ToS violations above. Would you live in a country where the right to exit wasn't in the ToS?"

NS: "I wouldn't go there to live, but what if my family and job was already there when your IPO occurs, so that I'm stuck there?"

The reason "ToS violations" won't happen is not that they are bad or that they affect you personally. The reason they won't happen is that they affect enough people that they damage the productive economy.

Again, read the Anti-Machiavel. It's an obvious basis for the corporate culture of government for profit. I suspect that even if in some cases lawlessness might be profitable, most governments for profit wouldn't even consider the possibility of indulging in it.

August 18, 2007 at 1:29 PM  
Blogger Mencius Moldbug said...

Michael S.,

"Self-consciously conservative" is an interesting phrase, because it describes the entire pathology of the resistance to demotism so well.

I certainly did not mean to imply that the nationalist Prussian ideology which reached its peak in the Wilhelmine area was demotist - it was antidemotist, of course.

But, because it recognized the power of demotism, it had a bad habit of borrowing its enemies' tools in order to fight fire with fire. The result was a kind of populist antidemotism that is accurately, I think, identified as a precursor to fascism.

In other words, conservatism was and is an epiphenomenon of the fact that public opinion has influence over the state. When the legitimist ruling forces of Europe recognized this and tried to work with it, they wound up sinking to the level of their enemies - accepting a crown from the gutter, as it were. And when they failed to adopt this strategy, they became, like the French Legitimists proper, irrelevant. (Yes, I have just been reading Remond.) Methinks if there was any good way out of this dilemma, someone would have found it.

As for subinfeudation, I don't think transfer controls are an effective way to stop this. It creates a loophole in which people will find ways to effectively perform transfers, without going through the nominal procedure. This starts the great game of legal Whack-A-Mole rolling again.

I would be very wary of the term "genuine value." This is not the place for a lecture in Austrian economics, but as an Austrian I believe very firmly that there is no such thing as value, only price. Prices certainly change as the result of monetary dilution, but there is no procedure that can separate monetary effects from "real" effects.

The result is that when we talk about "real" or "genuine" economic figures we are inevitably blending fudge with our numbers. It is actually the "nominal" numbers that should be called "real." The others are a kind of luminiferous ether, existing only for the purpose of models that are inevitably fudge-in, fudge-out.

August 18, 2007 at 1:40 PM  
Anonymous Anonymous said...

"Certainly, it's hard to imagine how the Civil War, WWI, WWII, the Holocaust, etc, could have occurred in a world where the Stuarts, Bourbons, Hohenzollerns, Hapsburgs and Romanovs still reigned and ruled"

I could not agree with you more. In addition monarchs were a stabilizing factor in religious issues and often personally took care of their countrymen abroad. Its like belonging to an extended family, including its downsides.

August 18, 2007 at 2:03 PM  
Anonymous Anonymous said...

"A family business is a great idea if your business is a corner store or an auto-body shop. If you have a continent to run, you want professionals."

Big mistake. Your "professionals" are simply lackeys in suites, out for their own stock options. Family businesses such as BMW are more profitable and durable than publicly traded companies.

As for mercantilism: Prussian merchants were honourable men. You could trust their word. In German there is the concept of "Ein königlicher Kaufmann". A royal merchant. Sure sounds a lot better than the claptrap capitalism we have nowadays.

August 18, 2007 at 2:20 PM  
Anonymous Michael S. said...

I take your points about "real value," though the problem is perhaps more that I made a bad choice of words to describe what I mean than that the concept is devoid of meaning.

Thirty years ago, in my small town, one could buy an ordinary 3-bedroom house in good repair for $40,000. Today, the same house costs $250,000. If the person who bought the house thirty years ago sells it today, has he realized a gain of $210,000, or any real gain? The matter of fact is that there has been no real gain, because all he can buy with the proceeds of the sale is another house comparable to the one he sold.

Price indices and other measures of inflation are imperfect things of their kind, but they do mean something. Admittedly there are changes in the prices of some articles of trade that do not reflect inflation, but most such changes are simply inflationary. I suggest that a three-bedroom house represents a more constant unit of value than do dollars, euros, or any other unit of currency.

Real estate title is a creation of law; clear title to a piece of real property is what makes it salable. Economies where it is very difficult to get clear title to real estate (e.g., Peru - see Hernando de Soto) suffer greatly because a huge sector of economic activity in such places is "informal," and its participants cannot avail themselves of the methods of legal commerce we take for granted in the United States.

If subinfeudation should occur under the system I propose, it could only do so because some law makes it feasible. It should be possible so to draft the law that it is not feasible.

I should point out that American real estate conveyancing follows the English rather than the Scots law model. This is, among other things, why we have to go through complicated title searches every time we convey real property, mantaining detailed title abstracts, and why title insurance is nearly a necessity. If we had a Register of Sasines, as the Scots have had since the early seventeenth century, the process would be much simpler.

Anyway, under English law there has been no subinfeudation since the statute Quia emptores in what - 1290? Most other feudal tenures were never introduced into North America, and in any event those that were (e.g., in New York, Maryland, or South Carolina) ceased to exist by the time of the Revolution. Because of this, there are only two basic forms of real estate tenure here, viz., "fee simple" or freehold (though subject to property taxation, so in effect freeholders are tenants of the state), and leasehold.

Where do we find complications? Only _where the state has created them,_ e.g., in rent-controlled and rent-stabilized leasehold properties in the city of New York. There, the tenant occupying a property has more rights than an ordinary leasehold tenant. He pays a rent that is not set by free negotiation between him and the landlord, but is subject to the approval of a governmental agency; he cannot be put out of his apartment at the will of the landlord, even when some conditions of his lease have been breached; he can bequeath his rent-controlled apartment, at the controlled rent, to relatives; if the landlord sells the building, the new owner is bound by the conditions that were applicable to the old one in his dealings with the tenants. Accordingly, a form of tenure has been created for occupants of rent-controlled properties that is rather like the old English copyhold, intermediate between freehold and leasehold.

And the point about this is, that this strange form of tenure would not and could not exist, were it not for the sanction of government. I am told by a friend who practices law in New York that there is a lucrative legal specialty in the practice of rent-control law, the jealously guarded precinct of practitioners who have mastered its complex, and mostly inaccessible case law. Were government to cease to sanction it, all of this bizarre efflorescence would disappear at once, like the enchanted forest in a fairy tale.

August 18, 2007 at 2:58 PM  
Anonymous nick said...

MM: "Now what do you think will happen to my stock price if either of these events occurs? [i.e. if either MM's city-state fires the judiciary service or the judiciary service quits]"

OK, so we have an at-will contract between Moldtopia and its judiciary service. Those kinds of details are important.

BTW, to avoid confusing any potential legal clients or guilds, let's be clear that I am not in fact running any judiciary service. Let's call our hypothetical service Coke, Field, and Sutherland LLP, or CFS for short, after three of my favorite justices.

Even at-will outsourcing (as well as constraining yourself to shareholders) is a marked departure from what has traditionally been considered to be sovereignty. But it's not anywhere near sufficient to provide a credible commitment to your citizens/customers/victims that you will abide by the Terms of Service.

Tax schemes that optimally generate tax revenue are complicated and imprecise(see again my "The Tax Collector's Problem"). But let's say you try to keep it simple and declare in the ToS that you will only tax "gadgets". At first your city-state raises enormous revenue because gadgets are the hot industry. But within a few years the gadget industry declines, and in its place your city attracts the hot new industry, widgets. The widget makers come in based on their own long understanding and reasonable expectation that a widget is not a gadget and so the tax does not apply to them.

But your tax revenues are way down, your share price is way down, your bond holders are breathing down your neck and your shareholders are threatening to oust the management.

Just as the shareholders are about to call their meeting to have you fired, you realize that the revenue problem is easily solved. You declare that widgets are a kind of gadget, you tax the widgets, and quite soon your coffers are overflowing. Your share price rockets and your grateful creditors and shareholders throw you a huge party. But the widget makers, who have never before believed and refuse now to believe that widgets are gadgets, and moved to Moldtopia expecting a new libertarian paradise where government keeps its promises, just like the slick brochures said it would be, are pissed.

But there is that cool-sounding private independent judiciary the brochure talked about. So they sue you in CFS court. And the CFS court, being made up of Coke, Field, and Sutherland, who believe that widgets are widgets, gadgets are gadgets, and that meanings of words should not be strained even to maintain a good customer like Moldtopia, hold that widgets are not gadgets and thus not taxable under the ToS.

This threatens most of your future revenue, and your job. The market reacts immediately. Your share price tanks, your shareholders call that meeting to oust management, and your creditors threaten bankruptcy proceedings.

But you have a solution to this too. It's just an at-will contract, and it is time for a New Deal. So you fire CFS and hire Frankfurter, Jackson and Douglas LLP. These legal positivists know that policy considerations -- here being their desire to win Moldtopia as a customer and keep its revenue flowing -- trump any picayune considerations of "original meaning." They thus hold that a widget is a gadget after all, and fully taxable under the ToS.

Your share price rises, your bond yields return from junk status to grade A, and everybody except the widget makers are throwing parties for you again.

But the widget makers have been screwed. And no amount of their complaining is going to damage your renewed great reputation among your shareholders and creditors.

What's the lesson here? A major general problem is that there is actually no such thing as a perfect market. A market imperfection that is usually little more than a minor annoyance, such as the tendency of car salesmen to "bait and switch", making you either waste your time visiting a car lot or inducing you to buy a car you really didn't want, becomes a huge problem when exit costs are increased. You might waste and hour or two visiting a car lot, but those widget makers have wasted vast sums of capital investment, and their employees have wasted years of their lives moving to Moldtopia on what turned out from their point of view to be false pretenses. They are stuck and they are screwed. And those are the ones who moved there voluntarily. The gadget makers who were there to begin with, and were told to sign the ToS or leave, were even more screwed. Austrian economics describes a competitive market, not high exit cost politics. And you have not yet come up with a scheme for credibly committing to abide by your charter and other contracts.

August 18, 2007 at 5:55 PM  
Anonymous TGGP said...

You banned Mike Huben? The one post I read from him wasn't even that trollish. I would think he'd be just the type of person you'd want here.

August 18, 2007 at 7:38 PM  
Anonymous Michael said...

"Certainly, it's hard to imagine how the Civil War, WWI, WWII, the Holocaust, etc, could have occurred in a world where the Stuarts, Bourbons, Hohenzollerns, Hapsburgs and Romanovs still reigned and ruled"

Except it was the Romanovs, Habsburgs and Hohenzollerns who caused WWI, and the relatively high cost of modern wars is caused by technology, not a lack of restraint in democratic governments. The European Dynasts all played for keeps and didn't hold anything back, witness the 100 Years War, the Crusades, or the Holy Roman Emperors' costant warring.

August 19, 2007 at 5:12 PM  
Blogger Mencius Moldbug said...

nick,

You've broken my design in order to show that it doesn't work!

I find your narrative perfectly realistic. I have no problem in believing that events might transpire exactly as you describe.

This is why Moldtopia doesn't tax widgets - or even income - but property. If people can find an alternative to property, they can find an alternative to Moldtopia.

When Moldtopia taxes property, it is effectively dividing its one capital asset into blocks, and taxing each according to its market price. Its incentives are perfectly aligned. Anything that increases property values increases Moldtopia's stock price; anything that decreases property values decreases Moldtopia's stock price.

This is not true with other taxation systems. Consider one of my favorite: taxing only corporate profits, and doing so by assigning the State a (nonvoting) block of shares in every corporation.

The trouble is that, essentially, even this very elegant tax - let alone the income tax - is taxing contracts. It is forcing people to write their agreements in a way that gives the State a cut of the deal.

The result is an antiformalist incentive. It gives rational actors a motivation to try to make deals outside the eye of the State. Various opaque "under-the-table" channels will appear, which are very inefficient but do not incur taxation.

Notice that, with a property tax, there is no equivalent phenomenon.

At a slightly higher level, what has happened in your example is that Moldtopia has played the game and lost. It will fire CFS and hire FJD. It has failed to maintain the rule of law and will have to pay the price of a reboot.

That price is becoming an FJD state. Which is sort of the neocameralist equivalent of being listed on the Pink Sheets.

Sadly, the world today has no CFS. But it does have Transparency International rankings, which is the closest thing. If you think of the Transparency top 20 as the CFS states, and the next 80 as the FJD states (actually, today's top 20 are well below even the FJD level in my opinion, but hey), you see the difference in prosperity.

Furthermore, let's not forget that we're comparing one system to another here. I am not offering anyone the Millennium.

In our present system, FJD is in practice sovereign - that is, the Supreme Court's decisions are final. This usage is perfectly in keeping with the absolutist theory of sovereignty - I can dig up quotes if you like.

In the Moldtopian system, either CFS or FJD can mutate, rather imperceptibly, into GST - the firm of Ginsburg, Schmitt, and Taney. The motto of GST, LLP is "Social Justice for the White Race."

Since, in Moldtopia's judgment, National Socialism is bad for property values, it has a reasonable explanation for its decision to fire GST and replace it with the new breakaway firm of Barnett, Epstein and Kosinski. The market - both in property and in shares - applauds. Balance is restored.

Of course our present masters have many explanations of why "it can't happen here." But I'm not so sure I believe them.

August 19, 2007 at 5:39 PM  
Blogger Mencius Moldbug said...

tggp,

This was as a result of interacting with Huben on Unenumerated, in which he was so rude that Nick just deleted the thread.

There are two kinds of trolls: ones who behave properly if you shame them with politeness, and ones who take it as an admission of weakness. Every dog gets one bite, but not two.

August 19, 2007 at 5:41 PM  
Blogger Mencius Moldbug said...

Michael (V),

It's somewhat debatable that the Great War was caused by the royal families of old Europe, to say the least!

But to the limited extent that this claim is accurate, I'd ascribe it to the militarism and nationalism that the Wilhelmine regime, especially, fostered.

And this was not a trait of the Old Regime. The Congress of Vienna did not take place because the royal families wanted to see chanting, bloodthirsty mobs in the streets.

Over the course of the 19th century, however, the surviving monarchies discovered that public opinion mattered. And they found ways of competing with the rabble-rousers, using tropes that were themselves a product of the French Revolution.

That, in hindsight, the obvious endpoint of this trend was fascism, is perfectly clear. And it is perfectly fair to blame Wilhelm II, in particular, for many things. But blaming monarchy, as a system, for the rise of nationalist socialism, is like blaming the sandcastle for the incoming tide.

August 19, 2007 at 5:48 PM  
Blogger Mencius Moldbug said...

Michael S,

I suspect we basically agree on this subject, but you have pressed the red button and there is no way to prevent the lecture from emerging.

Of course I understand what you mean by "real value." Intuitively, the concept is very appealing. But it is imprecise and impossible to make precise, and as such it competes with concepts which are precise - to the latter's detriment.

I'm afraid the metaphor is not mine (it's from Gary North, I think), but in my view all economic problems can be solved with two parrots, one on each shoulder. Just teach one parrot to scream "supply and demand!", and the other to scream "price, not value!"

Any price is really an exchange rate between two goods. One or both of these may be currencies, but a currency is a commodity like any other - it just obeys an unusual model of price formation.

So, for example, we have markets that can estimate the price ratio of orange juice to copper in April 2008. These markets may be right and they may be wrong - the rate as estimated in August 2007 may not hold in April 2008. But if we have no inside information about OJ or copper, we tend to trust these markets, because we know that they are constantly rewarding the smart and punishing the stupid. And we can say the same about the ratio of, say, the yen to the euro, or OJ to the euro, or whatever.

However, there is no market that can establish a price ratio between three-bedroom houses in 1977 and the same goods - even the same exact house - in 2007. One would require not only a time machine, but a very large one. I have never seen such a big time machine, even in a movie. And even if the benchmark of choice is smaller or more divisible, since we have no time machines at all, it is impossible to trade any goods between the present and the past. This means there can be no market, and thus no price.

Another way to see this is to imagine that there is an Earthlike civilization on Venus. Earth can see Venus and vice versa, but trade is impractical. What is the exchange rate between the Earth dollar and the Venusian dollar? The question simply cannot be defined in any meaningful sense. Substitute the past for Venus and you have exactly the problem of measuring "inflation."

Of course the problem is that we have to live with an enormous pile of tax laws and accounting regulations, all of which assume there is such a thing as "value" and "gain." It certainly does not pay to ignore these rules.

However, when we think about economic action in the abstract, I find it's actually quite liberating to abandon such concepts as "real," "value," and "gain."

For example, rather than speaking of "inflation," I prefer the term "dilution," or "monetary dilution" if it's necessary to be specific. Once upon a time, the English word "inflation" did just mean "dilution," but there was a change at a certain point. I'm sure I don't need to lecture you about what that point was.

The genius of Einsteinian physics is that it actually turned out to be simpler than Newtonian physics. Much the same can be said of Misesian economics. The latter, unfortunately, had no way of making itself palatable to the powerful.

August 19, 2007 at 6:13 PM  
Blogger Mencius Moldbug said...

Michael S,

Interesting - I had no idea that central title registries were that old. I'd thought this originated with Torrens title.

When you are a software engineer and write a check to a title insurance company, you definitely feel the gentle rectal pressure that reminds you that you are being jobbed, albeit in a way most have long since grown accustomed to.

Databases, in the form of their great predecessor, the file cabinet, were not even an esoteric technology in 18th-century Scotland, and so I'm not surprised that they were deployed. But nor am I surprised that others resisted and still resist them. Officials, in or out of government proper, have a way of making work for themselves. Consider the ubiquitous "notaries" of Italy, who are essentially imposing a private transfer tax which sustains them in their patronage position. Title insurance is no different.

However, as for subinfeudation, I think you miss my point slightly. I am certainly no friend of these strange flowers of legal complexity, but I have seen their like in the software world, where they definitely do not develop by accident. I suspect the process of growth is much the same.

At present we live in a legal world where, in many realms of life, anything that isn't explicitly permitted is prohibited. In this world, prohibiting subinfeudation is relatively trivial, because the forms of all contracts relating to real estate are highly standardized.

In a world with actual freedom of contract, preventing virtual pseudo-subtitles from springing up is more difficult. Informal customary titles emerge and have to be formalized, and the result is a mess that only gets more complex over time.

To the neocameralist state, the danger is that people will find some way to avoid, but not evade, taxes - to legally make productive use of the property to which they have title, but over which the state is sovereign, without paying the modern equivalent of feudal dues. The result may be as Nick describes, a breach of legal continuity. Market self-assessment is, as far as I can tell, an impermeable barrier to any such trick.

August 19, 2007 at 6:31 PM  
Anonymous George Weinberg said...

The idea of property taxes based on self-assessment was used in Heinlein's Number of the Beast. Of course, that isn't sufficient grounds for rejecting it.

There can be a significant gap between the price for which you would willingly sell an item and the price you could fetch for an item if you chose to get it. I'm sure people could find ways of keeping this gap large if it was to their advantage to do so.

August 20, 2007 at 10:01 AM  
Blogger Mencius Moldbug said...

Was it! God, it's been ages since I read any Heinlein. His later work, especially, has quite a - flavor.

But in a self-assessment system, you of course pay extra tax if you overassess, whereas you risk losing the property to forced sale if you underassess. There will certainly be a gap in most cases between your own assessment and the Zillow price or whatever, but the gap is upward and you have an incentive to minimize it.

Computers, of course, help a lot with all this stuff.

August 20, 2007 at 2:03 PM  
Anonymous nick said...

MM: "This is why Moldtopia doesn't tax widgets - or even income - but property."

Alas for Moldtopia, this makes the credible commitment problem even worse. The arguments astronomers have over the meaning of "planet" are as nothing next to the quarrels lawyers have over the meaning of "property", much less all the complications that go with a property tax.

Also, Bryan Caplan makes a good argument that property taxes radically increase exit costs, rendering competition between local jurisdictions illusory.

BTW, what happens if the gadget and widget employees decide to save on property taxes by commuting from the next city-state over, and they work in mobile server farms that can also drive out of Moldtopia at night, if they find that the parking fees are too high? Everybody self-assesses for pennies because there is plenty of space to park. Your shareholders and creditors will be pretty pissed if you don't implement travel restrictions. If the goal is maximizing tax revenue, restricting the travel of the victims (excuse me, "customers") is an important means to that end, and one that is always available to a sovereign.

MM: "The result is an antiformalist incentive."

So what? Now you are reverting to the Rothbardian argument technique of "they shouldn't, under libertarian [here formalist] principles, therefore they won't." As my scenario demonstrated, in Moldtopia legal positivism, not formalism, maximizes tax revenue.

A sovereign entity cannot make a credible commitment to important long-term contracts. It cannot credibly commit to follow formalism. You might as easily build a perpetual motion machine or a faster-than-light spaceship.

August 20, 2007 at 3:53 PM  
Anonymous George Weinberg said...

the gap is upward and you have an incentive to minimize it.

No you don't. Your self-assessment price should be at least as high as the market price, but there's no reason to make it as high as what you would sell for if you don't expect any offers. If you can somehow make your property worthless to anyone except yourself, you can enjoy it tax free.

August 20, 2007 at 4:01 PM  
Anonymous TGGP said...

I know you said you don't listen to podcasts, but if you do the latest with Barry Weingast (who has worked with Douglass North) might be of interest. He discusses "limited access orders" or "natural states", how politics is based on violence, opposition to reform that would result in greater efficiency, and proxy struggles in Africa (he comes close to endorsing Give War a Chance there).

August 20, 2007 at 8:14 PM  
Blogger Mencius Moldbug said...

nick,

Alas for Moldtopia, this makes the credible commitment problem even worse. The arguments astronomers have over the meaning of "planet" are as nothing next to the quarrels lawyers have over the meaning of "property", much less all the complications that go with a property tax.

"Property" of course means many things to many people. But what I mean is land titles, which are hardly complicated, unless you make them so!

BTW, what happens if the gadget and widget employees decide to save on property taxes by commuting from the next city-state over, and they work in mobile server farms that can also drive out of Moldtopia at night, if they find that the parking fees are too high? Everybody self-assesses for pennies because there is plenty of space to park.

Then Moldtopia isn't worth much, and was never worth much to begin with. The value of land is the value of land.

You keep having this vision in which a state decides to capture everyone who is within its borders and convert them, overnight, into serfs. The only time this has ever happened is in the case of Eastern Europe, which as I'm sure you'll agree was a mismanaged disaster.

And furthermore, you can't compare apples to nothing. You offer no theory at all that would prevent this from happening in Juristopia. The Supreme Court is sovereign in the US. They could close the borders tomorrow for any reason - political, economic, or personal - and no one could legally stop them.

It's impossible for me to take Caplan's numerology seriously. I'm appalled that people still do this stuff. It makes Freud or Mesmer look like a scientist. Until Caplan or you can explain his argument in English, I will continue to assume that lower property taxes mean you get more house for less money.

So what? Now you are reverting to the Rothbardian argument technique of "they shouldn't, under libertarian [here formalist] principles, therefore they won't.

No, actually, I'm pointing out that they won't because it's not in their best interest.

A sovereign entity cannot make a credible commitment to important long-term contracts.

Such as the Constitution? Well, certainly the US has seen a few roles ripped in that one, so perhaps you have a point.

But it depends what you mean by "credible." If credibility implies the same level of confidence we associate with physical or mathematical law, then, no.

However, in ordinary economic life, economic actors think of credibility in terms of probability and in terms of incentive.

As I've repeatedly explained, an owner of a country has about the same incentive to turn it into a Gulag that an owner of a hotel has to turn it into a home for wild dogs. It doesn't mean it can't happen, even overnight. You could be staying at the Hyatt and a pack of rabid Dobermans could come surging down the hall. But it's never happened to me.

August 20, 2007 at 9:32 PM  
Blogger Mencius Moldbug said...

george,

Aha - I understand what you mean now.

You might get a few people who would try this. But remember that since just about any structure can be razed, unless you have a taste for radioactive waste (which would probably not be legal, anyway), the upside of lowering your tax bill through extreme personal eccentricity - five-foot ceilings or what not - would be limited. And most of us just aren't that eccentric, anyway.

August 20, 2007 at 9:35 PM  
Anonymous Michael said...

That, in hindsight, the obvious endpoint of this trend was fascism, is perfectly clear. And it is perfectly fair to blame Wilhelm II, in particular, for many things. But blaming monarchy, as a system, for the rise of nationalist socialism, is like blaming the sandcastle for the incoming tide.


My point was not that the Kaiser was an idiot (he was) but that monarchism is no defense against idiocy. If you read the biographies of 20th century kings(particularly Robert K Massie's excellent "Nicholas and Alexandra") they clearly regard their kingships as both personal property to pass on to their heirs, valuable bulwarks against foolhardy democracy, and a sacred duty. More Neo-cameralist you cannot be. But these well meaning individuals all lead their countries into multiple disasters and did astoundingly foolish things for all manner of reasons. They screwed up their countries at least as badly as Alcibiades or Robbspierre ever did theirs.

And public opinion has always mattered. Leaders from Augustus to Hitler have realized that no government on earth can stand against a big enough mob in the capital. In fact, I would argue that the greatest achievement of Anglo-Saxon legalism and democracy is in creating myth you despise, that the people are in charge because doing so has delegitimized mobs in the capital.

August 21, 2007 at 1:19 AM  
Blogger Mencius Moldbug said...

But these well meaning individuals all lead their countries into multiple disasters and did astoundingly foolish things for all manner of reasons. They screwed up their countries at least as badly as Alcibiades or Robespierre ever did theirs.

Yup. That's why running a country as a family business, like it was a corner store, is a bad idea. Nicky Romanov, in particular, was a regular ass.

A joint-stock structure solves this problem quite completely.

And public opinion has always mattered. Leaders from Augustus to Hitler have realized that no government on earth can stand against a big enough mob in the capital.

Not at all. Militarily, the problem is not in the least difficult. It is a political problem. A government which claims its authority through popular sovereignty cannot stand against the mob.

In fact, I would argue that the greatest achievement of Anglo-Saxon legalism and democracy is in creating myth you despise, that the people are in charge because doing so has delegitimized mobs in the capital.

This, on the other hand, I agree with. But the myth is fragile.

August 22, 2007 at 11:03 AM  
Anonymous OhHaHa said...

This is some of the most delightfully and thoroughly insane nonsense I've ever read.

Please keep it up. Follow this trainwreck of a muse to wherever it may take you.

December 24, 2007 at 1:55 AM  
Anonymous Anonymous said...

What about the problem exemplified by hostile takeovers and corporate raiders. Once an interest group (or coalition of interest groups) acquires 51% of the shares in Corponation (and thus control of a majority of the board of directors), they can give themselves all the free lattes and rides on the corporate jet that they want. Unlike modern corpoations in which the interests of minority shareholders (and the public) are somewhat protected by the state, Corponation would have no oversight and would be free to abuse the interests of minority shareholders (and of course non-shareholders) until the marginal return on looting reached equilibrium with the marginal decreased productivity caused by the looting. And although the corporate takeover example is an extreme it illustrates my point: Corponation is essentially a democracy. The voters are just called shareholders rather than adult citizens, and votes are for sale. What would stop rent-seeking behavior by shareholder groups in Corponation?

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Anonymous HGiles said...

"Certainly, it's hard to imagine how the Civil War, WWI, WWII, the Holocaust, etc, could have occurred in a world where the Stuarts, Bourbons, Hohenzollerns, Hapsburgs and Romanovs still reigned and ruled"

No, it's not. Because that happened (30 years war, Hundred years war, huge fights across massive swaths of land, etc). Monarchists aren't interested in citizenry any more than leaders in democratic societies - democratic leaders need votes, tyrants of whatever flavor need to not have revolutions. So long as the citizenry supports the leader (for whatever value of support the leader wants), neither leader is interested in taking care of citizens, which is why your inexplicable attachment to absolutism is worse than wrong- it's also naive, and ignorant.

February 10, 2010 at 10:35 AM  

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