Hoppe (Part 1): Government & Time Preference

As part of my interest in exploring ideas that might help us shift our model of governance toward something that is more aligned with civilization, human flourishing, and freedom, I'm currently reading Hans-Hermann Hoppe's Democracy: The God that Failed.

I'll be posting my rough notes here as I go. We'll probably end up covering this at some point on Fresh Lens.

Chapter 1: Time Preference

"Time Preference" is about how much people prioritize their needs today vs saving for the future.

Civilization arises when more and more people have low time preference. That is, they're willing to forego current consumption in favour of greater future consumption. They do this by producing more than they need and using the excess to re-invest in the ability to produce even more in the future. This investment is "capital".

External factors can affect people's time preference. To have low time preference, people need to have confidence that their "investment" cannot be taken away from them or otherwise destroyed. It is for this reason that private property is such an important concept for civilization.

Crime or natural disasters can adversely affect time preference – people will see that their investments are at risk, so they will prioritize their consumption before they are destroyed/stolen. However, these impacts are transient and can easily be handled. For example, one can invest in defense/security to prevent future crime. While the investment in defense might reduce useful production in the short-term, in the long term it will secure the investments and lead to even lower time preference.

Time Preference & Government

There is, however, one type of infraction on private property against which no defense can be erected: theft of private property by government. Because violation of private property by the government is seen to be legitimate and because government is a monopoly of violence, not only is the proprietor unable to erect defenses against its infractions, he often won't see the need or the justification to do so.

In this way, the impact of government infraction on civilization is worse than crime.

Private vs Public Government

Monarchy is privately-owned government. As such it has two consequences:

• It limits upward mobility and creates class-consciousness. Since every citizen can't aspire to be in the royal family, there is a very clear us-vs-them dynamic and keeps the sovereign accountable against overly aggressive violations of private property.
• Since government, and, by extension, its current and future revenues are privately owned, the monarch is similar incentivized to be future-oriented. The monarch may want to increase his revenue, but since the state is his capital and he has the means to secure it, he will not be incentivized to create a condition where his future revenue will be compromised.

Democracy is publicly-owned government. As such,

• It erases class-consciousness. Violations of private property by the government are seen as more justified since everyone (hypothetically) gets to have a go at it. Given this, state infringement on property rights can be expected to grow indefinitely.
• The government "care-taker" (eg. the president) at any given time is incentivized to have very high time-preference and thus wants to spend the state capital as fast as possible. Additionally, there is no market where public goods can be sold or appraised, so there is no accounting of what is being squandered.

Some interesting supporting points:

• Economic historians generally agree that during Europe's monarchical period, taxation never exceeded much higher than 5% of GDP. About half of that was expenditures on the military and the other half on other state employees. Under democracy, however, state revenue has grown steadily to 15-20% after WWI in western Europe and to around 50% since then. But only 5-10% of GDP (ie. 10-20% of tax revenue) is spent on the military. The rest is spent on the state bureaucracy.
• We can see this difference in public vs private ownership even when it comes to slavery. In the antebellum south, slaves were considered private property of individuals, and they were mistreated and prevented from running away. However, there was a market where owners could sell/rent their human capital and appropriate the proceeds. In contrast, in the USSR, where every citizen was seen as a fungible worker whose earnings could be appropriated by the state and whose emigration was similarly made illegal, there was no market where the owners (eg. from Lenin to Gorbachev) could sell/rent their human capital. Accordingly, permanent misallocation, waste, and "consumption" of human capital resulted. While private slave owners could occasionally kill their slaves, the murder rate of USSR slaves was orders of magnitude higher. Under private ownership, the health, life expectancy, and education level of slaves generally increased, whereas in the USSR it decreased. The rates of suicide, self-incapacitation, alcoholism and other maladies were high in both groups but significantly higher still in the USSR.

Public ownership of government will inevitably lead to a "welfare state", which in turn increases time preference and leads to the decline of civilization. According to Hoppe, once this process is underway, it'll lead to the state redistributing wealth by legislation in three forms:

• Take from the "haves" to give to "have-nots".
• Provide goods/services at below market rate (eg. "health care").
• Protectionism for a particular group (businesses protected from competition or price controls meant to protect consumers).

These regulations have a two-fold effect on civil society:

1. The mere fact that such redistribution is possible via redistribution legislation increases time preference since the rules of the game are far more malleable than when such legislation was not possible – ie. what is right and wrong today may not be right or wrong tomorrow. This raises uncertainty and thus time preference.
2. Wealth redistribution encourages more of the population to join the "have-nots" than be the "haves". In other words, production will decrease.

Note: he interestingly cites sex-based protection as a case where it's not possible to change oneself to be in the protected class. Of course, he wrote in early 2000s, and now we can absolutely change our sex to join the protected group of women.

As production decreases and the burden to support the ever greater numbers of 'have-nots' increases, it becomes necessary to increase the tax burden on the producers, which in turn accelerates this process.

War

Prior to the rise of public government (ie. democratic republics or fake monarchies), war was not something that concerned most of the citizenry, even though cases where it did are those we highlight in our reading of history.

Hoppe cites several years-long European wars during which day-to-day lives of the citizenry were unaffected. In fact, during those same wars, the citizenry could freely travel among the warring territories.

Since war was a competition between monarchs to increase their long-term revenue, they refrained from mass destruction of revenue-generating assets that they wished to capture for themselves in the future. Additionally, war was constrained by the existing funds the state had, and since for the most part, the funds were denominated in gold, it was not possible to rob the citizenry via inflation. The monarchs, therefore, had to be judicious about waging war. They had limited supplies of trained soldiers, so they had to avoid losing these valuable assets. This is why wars between monarchies often consisted of strategic maneuvers aimed at ... one might say, checkmating... the opponent instead of indiscriminate destruction of the opponent's territory.

Since the rise of public government and the notion of the "nation state", wars have become far more destructive. High time-preference governments with access to a nearly-endless supply of money (in the form of inflation) and bodies (in the form of conscription) have all the wrong incentives to engage in excessively destructive wars.

---

All of this means that the rise of public governments can be expected to have a decivilizing impact on humanity.

Hoppe says that he's not a monarchist but if he had to choose between democracy and monarchy, he would choose the latter. He believes private government is more peaceful, more respectful of private property, and more friendly to civilization.

I have some doubts about his portrayal of monarchy, since it is at odds with everything that I've been taught. But history is written by the victor and we're living in the era of public government. It's possible that Hoppe is right, but I would still want to fact-check this aspect a bit more.