"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance." Murray Rothbard
Part 1 Theory: The Comparative Economics of Private and Public Government Ownership
Reiterating his point from Chapter 1, Hoppe notes that a government is always and forever a "territorial monopolists of compulsion-an agency which may engage in continual, institutionalized property rights violations and exploitation-in the form of expropriation, taxation and regulation - of private property owners."[Emphasis added]
As discussed in Chapter 1, the personal interest of the monarch naturally causes him to consider the long range impact on himself and his heirs when deciding about his private property and exploiting those he rules. The stimulated class consciousness of the ruled (given the exclusive nature of the monarchy) will resist his attempts to increase exploitation.
None of the foregoing constrains apply to the public government.
Because public owned property is usually unsaleable, market prices are unknown and "economic calculation is impossible...[it] is unavoidable that public government ownership will result in continual capital consumption." The government will always be engaged in using as much as possible of current resources since the opportunity to do so may be lost in the future. "Moderation [in the use of resources] has only disadvantages;" therefore, it is predictable that public expenditures will continually increase.
This increasing and predictable exploitation of producers- because the imposition of a tax on property or income are considered legitimate and the producer cannot defend himself against those crimes-means that all future production becomes riskier and all producers expect lower returns on future production. They must necessarily become more present oriented.
Part 2 Application: The Transition from Monarchy to Democracy (1789-1918)
"Throughout most of its history, mankind, insofar as it was subject to any government control at all, was under monarchical rule." There were a few exceptions, certain cities during the Renaissance Period and Switzerland since 1291, but these were rare exceptions and generally, except in the case of Switzerland, short-lived. Prior to World War I, even when governments were viewed as republican (a public form of governance), the right to vote was very constrained: e.g. in France, out of some 30 million people, only about 100,000 property owners had the right to vote; in England about 4% of the population, roughly 500,000 well-to-do landowners had the right to vote, and so on.
Prior to World War I, there were only two republics in Europe-France and Switzerland- and only the United Kingdom had a parliamentary system. Following World War I, European monarchies were replaced with democratic republicanism, usually accompanied by universal suffrage. All of these new democracies were influenced by the United States with its tradition of democratic republicanism and universal suffrage.
Part 3 Evidence and Illustrations: Exploitation and Present-Orientedness Under Monarchy and Democratic Republicanism
"From the viewpoint of economic theory, the end of World War I can be identified as the point in time at which private government ownership was comletely replaced by public government ownership, and when a systematic tendency toward increased exploitation-government growth-and rising degrees of social time preference-present orientedness-can be expected to take off."
A. Indicators of Exploitation Hoppe identifies 5 different indicators of Exploitation. These are: increasing taxation, increasing government employment, increasing inflation and money supply, increasing debt and increasing legislation and regulation.
B. Indicators of Present-Orientedness Present-Orientedness, according to Hoppe, is more difficult to measure than exploitation; however, interest rates may be an indicator of future vs present orientation with the expectation that a civilizing society would experience declining interest rates. "Under normal conditions... an interest rate can be expected to fall and ultimately approach, yet never quite reach zero, for with rising incomes, the marginal utility of present money falls relative to that of future money." [At which point, I must digress to note that Democracy was published in 2001, when zero (much less negative) interest rates were seen as an economic impossibility--no one imagined the degree of monetary manipulation that the central banks were capable of--perhaps Hoppe can provide a new analysis given this extraordinary phenomena.] In any case, Hoppe notes interest rates historically declined through the 19th Century, although the decline was periodically interrupted by wars and revolutions, till the tendency to decline was reversed in the 20th Century. This 20th Century reversal was the result of people becoming less moral (as evidenced by family disintegration), less intellectual and more present oriented.
Hoppe sees the welfare state as having a direct negative impact on the individual. By relieving individuals of the responsibility of providing for their own health, safety and old age through private action, the value of having and being part of a family has fallen and present-orientedness has increased. He also links rising crime rates to the process of democratization, an increasing loss of individual responsibility, a diminished respect for all law due to an "unabated flood of legislation" and also to the adoption in society of a more egalitarian outlook. [See Wilson & Herrnstein footnote 44 at page 68: "As society becomes more egalitarian in its outlook, it becomes skeptical of claims that the inputs of some persons are intrinsically superior to those of others, and thus its members become more disposed to describe other's output as unjustly earned...[people] allow themselves to be persuaded that the current owner of a car has no greater (i.e. no more just) claim to it than they do...."]
Part 4 Conclusion: Monarchy, Democracy, and the Idea of Natural Order
"From the viewpoint of those who prefer less exploitation over more and who value farsightness and individual responsibility above short-sightedness and irresponsibility, the historic transition from monarchy to democracy represents not progress, but civilizational decline." This conclusion can be reached without considering war, but war must be considered since the 20th Century must be viewed as one of the "most murderous periods in all of history."
Returning to the idea expressed at the end of Chapter 1, Hoppe restates that it is necessary to delegitimize democracy and majority rule, but not for the purpose of returning society to a monarchy, for "whatever their relative merits, [monarchies] do exploit and do contribute to present-orientedness."
Hoppe's positive alternative to both democracy and monarchy is the idea of a natural order of civilization involving private property, production and voluntary exchange. Such a system "requires...the existence of a voluntarily acknowledged natural elite--a nobilitas naturalis."
This idea of a natural elite is so central to the thesis of the entire book and so contrary to our current thinking that I encourage everyone to read at least pages 69-75 so that Hoppe can make his case for himself. Below I will quote the most salient points.
"The natural outcome of voluntary transactions between various private property owners is decidedly nonegalitarian, hierarchical and elitist. As a result of widely diverse human talents...a few individuals quickly acquire the status of an elite....It is to the heads of these families with long-established records of superior achievement, far-sightedness, and exemplary personal conduct that men turn with their conflicts and complaints against each other, and it is these very leaders of the natural elite who typically act as judges and peacemakers, often free of charge, out of a sense of obligation required and expected of a person of authority."
"The endogenous origin of monarchy (as opposed to its exogenous origin via conquest) can only be understood against the background of natural elites....[T]he original sin [of the monarch]-consisted precisely in the monopolization of the function of judge and peacemaker....A monopolistic judge, who did not have to fear losing clients as a result of being less than impartial in his judgments, could successively alter the existing law to his own advantage.
...[t]he problem lay with the monopoly, not with the elites or nobility."
This mistake in thinking that the problem of manipulation of the law was a problem natural to the elites (instead of a problem arising from the territorial monopoly demanded by the monarchy) led to the belief that manipulation of the law could be solved by the "presumed modesty and decency of the 'common man,'' ergo, the belief that democracy was superior to monarchy.
Unfortunately, even were we to agree today that a natural elite could provide leadership and guidance, there is not one to be had. "Rich men still exist today, but more frequently than not owe their fortunes directly or indirectly to the state.... Their conduct is not marked by special virtue, dignity, or taste but is a reflection of the same proletarian mass-culture of present-orientedness, opportunism, and hedonism that the rich now share with everyone else."
Hoppe ends the Chapter by noting that "only in small regions, communities or districts will it be possible again for a few individuals, based on the popular recognition of their economic independence, outstanding professional achievement, morally impeccable personal life and superior judgment and taste, to rise to the rank of natural, voluntarily acknowledged authorities and lend legitimacy to the idea of a natural order of competing judges and overlapping jurisdictions-an 'anarchic' private law society."