Democracy never lasts long. It soon wastes, exhausts, and murders itself. There was never a democracy that did not commit suicide.”
John Adams
Is democracy the greatest thing since sliced bread? We are certainly raised to believe so, but not every American is so convinced that democracy is the holy calf of government.
In today’s letter, I want to expose you to a different line of thought — monarchy is better than democracy!!
Democracy: The God That Failed
To begin with, we’ll need to define what we mean by the word “democracy.”
In order to do that, I will turn to the man who famously (infamously?) argued that democracy was a failed experiment — Hans Hermann Hoppe.
Hoppe was an American philosopher, journalist, and economist of the Austrian tradition.
He authored a great number of books on economics, but he was particularly notorious for one — Democracy: The God That Failed: The Economics of Monarchy, Democracy, and the Natural Order.
In that book, he outlines his arguments for the thesis that democracy is a worse form of government than monarchy.
The argument hinges on an idea in economics known as “time preferences.” Before we get into that, however, let’s define some basic terms.
First, Hoppe defines government as a territorial monopoly over decision-making (jurisdiction) force (law and executions of law) and taxation.
Hoppe is well within mainstream economic theory with his definition of government. Many economists have felt that the best economic definition of government is a monopoly on force.
Hoppe would define any state or government (monarchical, democratic, or otherwise) in this sense — that is, as a territorial monopoly over decision-making, force, and taxation.
After that, the distinction between democracies and monarchies is simple for Hoppe — a monarchy is a privately-owned government, and a democracy is a publicly owned government.
By “privately-owned” I mean that the territorial monopoly on force, law, and taxation is owned by a certain family or families, and one monarch’s possessions will flow by succession to his heirs.
Notably, then, Hoppe is concerned with hereditary Monarchies — particularly European monarchies of the middle ages and onwards.
He is comparing these hereditary monarchies with elected democrats, who do not pass on government assets to their heirs.
This means that military dictatorships — like Stalin or Hitler — would not qualify as monarchies, per se.
Democracies, by contrast, are governments where the power of the monopoly is transferred from one individual or group of individuals to another through direct popular election.
By this definition, even the United States is a democracy — sorry, conservatives.
So, with definitions out of the way, should we be monarchists or democrats?
Time is of the Essence
According to Hoppe — neither.
It is important to distinguish from the outset that Hans Hermann Hoppe is not a monarchist.
He is simply arguing that if we had to choose between the two, we’d likely be better off with a crown, than with a ballot box.
Why? And what does he think we should do instead?
To understand the argument Hoppe gives in Democracy: The God That Failed, we need to define one more term — time preference.
“Time preference” can sound like a confusing and overly-academic term, but in truth it is very similar to another word most of us know all too well — interest rate.
What is an interest rate? In economics, an interest rate is generally thought of as a price for time.
Wait, I thought interest rates had something to do with money?
That’s correct, interest rates are prices for the time value of money.
If you’re unfamiliar with that concept, it refers to the fact that money is always more valuable in the present than in the future.
Even without inflation, a dollar today is more valuable than a dollar tomorrow, because the future always has an amount of uncertainty or risk.
The mainstream economic theory states that interest rates were developed as a way to cover this risk of delayed consumption.
So, for example, if I lend you a dollar today it means I’m giving up the opportunity to buy something (or “consume”) with that dollar until tomorrow.
(As if you can buy anything with a dollar today…Ugh….)
Let’s say I lend you this dollar, and you agree to pay me back in a month. Well, depending on how much I trust your credit, I may think that you are unlikely to pay me back.
That means I may very well be out of a dollar in a month. This uncertainty about whether you are going to pay me back — or that I’ll be alive in a month to receive the repayment — probably results in me charging you an interest rate.
The interest rate will be small, because with such a short window of time it would be unreasonable for me to charge you $1,000 interest on that $1 loan.
(Usury laws were developed to prevent people from charging unreasonable interest rates like this).
So, I give up the consumption of $1 today for the consumption of $1 in the future, and I charge you an interest rate for the risk I take in forgoing that consumption.
Obviously, if you agree to pay me back in 10 years, then my interest rate will be higher — and if you are a drug-addict that is in-and-out of prison a lot, I may refuse the loan altogether.
This risk assessment — or underwriting — is why certain demographics are often charged different interest rates.
For example, in the early 2000s it became national news to find that Black Americans are often charged higher mortgage rates than White Americans.
The sensational news stories that spurred on policy changes failed to report that on average Black Americans were more likely to default on their mortgages than whites.
As someone who worked closely in the debt markets for extremely wealthy Americans, I can tell you with certainty that banks do not charge black billionaires more for their loans than white billionaires — just FYI.
But what does this have to do with monarchy? I’m getting there…
Let’s say you come to me for a private loan, only this time the loan is for one million dollars, and I am 98 years-old.
You want one million dollars, and you want to pay me back in 25 years. This time I’m next-to-certain I will never see that money again, even if your credit is divine.
The interest rate I will charge you for that loan is going to be a lot higher — in all likelihood — then a rate you might get from another private lender in their fifties with a steady income.
The difference in interest rates is a result of our differing time preference. A time preference is the value you assign to “consumption” today versus in the future.
In other words, someone with a high time preference greatly prefers to consume goods today, rather than invest in the future — like a 98-year-old living on savings.
Conversely, someone with a relatively low time preference would rather invest so their future consumption may be greater than what they can consume today — like a young professional building their investment portfolio.
A time preference is not identical to an interest rate, but it can often be converted into one due to the value it ascribes to consumption through time.
Some fascinating research in economics has shown that time preferences explain a great deal about society.
For example, research has suggested that criminals often have very high time preferences, in that they forego future consequences for present ones.
Similarly, it has long been understood that low time preferences are responsible for the success of investors and businessmen, like Elon Musk, who value future consequences very highly.
Now, what in the heavens does this have to do with democracy and monarchy?
Keeping It In The Family — Democracy, Monarchy, and Time Preferences
As I mentioned already, Hoppe’s belief that monarchy is a superior form of government to democracy centers around time preferences.
Specifically, he argues that the incentives for lower time preferences in monarchies are more desirable than the incentives for higher time preferences in democracies.
By “better” or “superior” Hoppe means more economically efficient.
In the sense that Hoppe uses the term, economic efficiency is the idea of reaching a maximum point of productive and social benefit.
In other words, he thinks the whole of society would be better served by a hereditary monarchical political system than by a democracy.
To justify his claim, he argues that monarchies tend to have lower time preferences than democracies — and his argument is rather intuitive.
Hoppe begins with the assumption that all governments are economically inefficient — all governments are monopolies, and all monopolies are economically inefficient.
What that breaks down to is that politicians in any government will act to enrich themselves and their loved ones over the interest of the people they govern.
I know it's hard, but just try to imagine that politicians would naturally rather enrich themselves than to provide you with justice and economic prosperity.
If you can swallow that, then you simply need to ask yourself a thought experiment:
Imagine you are the king of a country. If you play your cards right, you can expect to be on the throne until the day you die.
Like all governments, you have one chief asset — your taxable base. That is, you have the ability to exact taxes from your populace. You have various means by which you can do this.
Now, imagine you have a Queen and several children. One of your kids will succeed you as the ruler of your fine nation. What do you do with your government?
Honestly ask yourself — do you plunge your nation into abject poverty in order to enrich yourself and your family, then hope to flee to another nation?
You could do that, but it's risky, and you aren’t likely to make it through that plan alive, especially in the feudal systems of medieval Europe.
Conversely you could enrich your tax base through investment and solid economic policy, making everyone in your nation happier and wealthier — which has the added benefit of making your family richer in the process.
Hoppe would argue that if you want to keep your family in power for a long time, then you are more likely to take the latter route.
What if you’re a newly elected president of the US? What do you do? You know that you have this position for, at most, eight years.
Again, if your goal is to enrich yourself and your family at the expense of the tax base, would you make different decisions? Probably.
Why? Because you don’t own the government. The government is a public asset, and you have been given temporary authority over it.
You have eight years to make yourself as wealthy as possible and set your family up for life. After that, you don’t really care what happens to the nation after you leave office — so long as it doesn't affect your affairs.
Hoppe compares it to the difference between a homeowner and a housekeeper. The homeowner has a long-term incentive to see the value of a house rise, whereas the housekeeper does not.
I think a better analogy is the difference between the owner of a private company and the CEO of a public non-profit.
There are many non-profits that combat hunger, but none of them have gone so far as to end world-hunger as Chick-Fil-A.
Monarchy, according to Hoppe, is better than democracy because the leaders of a monarchy have better incentives to keep their tax base alive and thriving (on average) than leaders of a democracy.
Conclusion
I should say that this is only the beginning of Hoppe’s argument (he wrote two large books on it after all), but this is the heart of his analysis.
It goes without saying that many political theorists, historians, and economists do not agree with Hoppe’s conclusions.
For example, many people criticize Hoppe’s methods as being too “ahistorical".” Hoppe was a believer in the praxeological method of history and economics — which values logical analysis over empirical data.
I myself tend not to agree with the praxeologist, and I think Hoppe’s argument is susceptible to some criticism.
For example, it isn’t obvious to me why Castro’s regime wouldn’t be considered a hereditary monarchy.
Nevertheless, Hoppe doesn’t argue that every monarchy is well and good. He argues that monarchy tends over time to be more efficient than democracy — which tends to rapidly decay.
I’ve also read a fair number of the criticisms against Hoppe, and many of them fall very short of convincing.
In truth, he is very critical of monarchy — only he is more critical of democracy. He seems to advocate for a kind of private aristocracy in his writing.
He is a strong believer in property rights, and argues that if the incentives of a private monarchy could be multiplied many times over in a culture, then freedoms are more likely to be protected.
Whether he is correct is a matter of academic interest, as the return of an aristocracy or modern monarchy seems unlikely — to put it mildly — but his economic analysis is relevant for all of us.
Hoppe has a distinct economic perspective on the world which cares little for “stated intentions” like “equality for all” but rather looks at economic incentives.
Many of us would do well to remember, like Hoppe, that the government does not operate by good intentions, but the actions of self-interested individuals.
In that, we have a good deal to learn from him.
Comentarios