The Pin Factory Blog

As the Queen’s Diamond Jubilee celebrations wind down, it may be well to reflect on an aspect of public choice theory which supports constitutional monarchy — principally its rôle as a brake upon self-aggrandising politicians.

Public choice argues that, contrary to the myths propagated about the selfless motives of public servants, politicians and bureaucrats can be as self-interested in their public personas as they are as private citizens.

This is not the time to examine the unitive functions of the Crown, nor the acts of public service performed by the Royal Family — and how monarchy either refutes or conforms to the political landscape sketched out by public choice  theory (though I personally believe the opportunities for gain are very few, while the burdens are many).

Neither is this an argument for constitutional monarchy as against republican forms of government; indeed, this may be one of the few areas where both forms, when modelled on justice, are equally serviceable according to the respective country’s traditions and national character — quite in variance, by the way, with respect to economics, where all the arguments are in favour of classical liberal/Austrian theories and quite contrary to Keynesian prescriptions.

Moreover, let it be admitted that constitutional monarchy is rarely an active force in limiting the power of politicians (minority parliaments being one exception, where the Crown has legitimate avenues of intervention), but serves rather more as a passive agent in limiting the State.

First, the very hereditary nature of British constitutional monarchy — i.e., non-elective — disinclines government to aggrandise the Head of State.  Governments are reluctant to invoke public criticism for expenditures which do not in some way flatter the ‘heirs’ of democracy (especially when the House of Windsor is itself exceptionally well-endowed financially):  Witness the absence of a royal yacht when H.M.Y. Britannia was decommissioned.

Second, the constitutional role of the monarch in the Westminster parliamentary system means that the prime minister is a servant of the Crown and cannot therefore with impunity rise above his station.  It is at best to be guilty of lèse-majesté, and at worse an affront to the parliamentary party which can always be relied upon to remember that the inhabitant of No. 10 is simply primus inter pares.

The theoretical ground of this public choice defence is laid out by Austrian economist Hans-Hermann Hoppe who, while he may not necessarily be a monarchist, sees the unrestrained growth of elective governments as far more destructive of personal liberty and economic freedom.  When absolute monarchy reigned, Hoppe argues, the State and its appurtenances were held as private property, and husbanded wisely as a future inheritance; subjects were jealous of their rights and defended them tenaciously (arising from an awareness of ‘class consciousness’), leaving the Crown on guard not to exceed its authority.  Democracies, to the contrary, do not arouse a corresponding scepticism — Why, one day I too may be leader of the country! — but nor do they engender similar feelings of safeguarding wealth:  Without the responsibility of bequeathing royal estates to one’s children, politicians become mere ‘caretakers’, and the spoils of State become transitory gifts that must be enjoyed and shared with one’s cronies while the democratic gods shine (a form of present-orientedness that is reflected in citizens’ consumption rather than investment).

Arthur Seldon called this ‘the dilemma of democracy’, noting four weaknesses in popular government:  short-sighted with material resources; over-expansive with a tendency to ‘grow’; liable to conspiratorial patronage; and uncritical of majoritarian electoral decisions.

All of which leads me to wonder why classical liberals are so often enamoured of the republican ideal.  As Hoppe observes:

From the viewpoint of those who prefer less exploitation over more and who value farsightedness and individual responsibility above shortsightedness and irresponsibility, the historic transition from monarchy to democracy represents not progress but civilizational decline.

One can understand their inability to appreciate a Tory reverence for tradition and continuity, yet why do they so cavalierly dismiss the public choice arguments that demonstrate that limited government in the age of the Welfare State is held hostage to democratic fortune?

‘It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the œconomy of private people, and to restrain their expence,’ wrote Adam Smith in The Wealth of Nations.  ‘They are themselves always, and without any exception, the greatest spendthrifts in the society.  Let them look well after their own expence, and they may safely trust private people with theirs.  If their own extravagance does not ruin the state, that of their subjects never will (II.iii.36).’

Let not the irony be lost:  Britain has gone from the time when a burgeoning representative democracy set in motion the end of the divine right of kings, transformed thus into constitutional monarchy — which itself has become the most visible restraint on elected politicians who behave as if themselves graced with divine sanction.  We may no longer fear kings, but their ministers remain a threat to our rights and freedoms.  Elizabeth II embodies the limits we must impose upon the political classes; her Diamond Jubilee an occasion to remember the State is the servant of the people.  God Save the Queen!

As a good free marketeer, I love failure. It's something inevitable in the market economy, where there's no job for life. From time to time, businesses are overwhelmed by the competition, or simply make mistakes, and they fail. But new ones come along, so nobody gets too agitated about it.

Unless of course, they are big. Then the politicians step in, concerned about the political effect of job losses. When they are big financial institutions, the politicians are even more agitated, in case they also bring down other businesses that depended on them for finance. That's why the UK government nationalized Northern Rock and the US bailed out Fannie and Freddie.

The UK and US authorities have also been encouraging mergers to save big financial institutions, like HBOS and Lloyds TSB last week. But in so doing they create even bigger financial institutions, which ups the stakes even more when things go wrong again.

The regulators are on an impossible spiral. Regulation has grown more and more onerous, forcing financial firms to merge in order to absorb the cost. That created larger institutions, which couldn't be allowed to fail. And it reduced competition, making them less nifty and actually more likely to sink when they hit troubled water.

Now the regulators are going round the spiral again, creating yet larger institutions. You have to ask, though, whether even governments will have enough cash to keep these monsters afloat when the waters next get choppy.

If you subscribe to the idea that politics is a straight line, then for you there is a far right and a far left separated by the great central plains of minor differences. This separation is distinguished by the singular outcome of either the right or left establishing a system of governance that is diametrically opposite. The far left would be characterised by the abolition of private property, primarily, privacy and the complete subservience of the population to the pursuit of a commonly held good, excluding those that didn't hold the 'good will' dear. The far-right would exclude those it feared/hated, primarily, abolish/co-opt private property and privacy and attempt to ensure that the population pursued a centrally directed good. It depends where and what the emphasis of political priority falls upon that allows others to define.

Here is where the idea of politics being a straight line breaks down: the realisation that extremists, be they religious, political or just deranged are merely fanatics intent on the violent overthrow of the state. The outcomes of which are fairly certain, and are almost identical. The end result of political revolution has been seen throughout history, Stalin, The Khemer Rouge, Hitler, Mao et al. It is the outcome that should define what type of label is handed to the politics of a tribe. In the UK the BNP is continually referred to as the far-right, yet their policies drip with socialist nationalization, their descriptive is based upon one policy, not all. Yet they should be referred to as an a extremist political party; with no left or right far or otherwise prefixed. The same goes for the SWP, ANL, UAF who are all extremist groups.

The idea that you can break politics into closely defined neighbourhoods with certain areas juxtaposed is a purposely confusing message. Politics is the pursuit of power by representatives of parts of society. Within that society there are outliers who trend to extremist positions. The outcomes are all the same, a rule of centralized power characterized by extreme violence and a fear of the unknown. It is neither left nor right it is merely an expression of hatred of the individual.

Assailed by ignorance of sound economic theory and socialism's addiction to government interference, free-market capitalism is seeking to preserve its hard-won legacy. It is only by melding the ideology of the free-market to the public's most prominent worries and concerns that it can regain the initiative and ultimately defeat these threats.

The abolition or reduction of the minimum wage for example, despite being popular with businesses, is often unpopular or even unthinkable for those workers being made redundant, or those living involuntarily off unemployment benefits, even though it is beneficial to them. If free-market capitalism is to survive the ravages of the emerging "conventional wisdom" that it is a failed system, it is imperative that we forge this connection, establishing the minimum wage as an enemy of the unemployed, young workers, and those on low incomes - the very people whom it claims to defend.

It is opposition from Trade Unions along with an unthinking popular consensus that stands in the way. However, this need not be the case. Why not keep the minimum wage, but allow workers to offer their labour for a lower rate if it means they will keep their job? Businesses would then still be unable to harm workers' interests by imposing lower wages on them. It would be an opt-out scheme that can only be initiated by employees or job applicants. This would allow employment to be negotiated in the market between free and consenting adults, but with the safeguard in place that preempts any counter-arguments over exploitation from the entrenched interests of the Unions.

If a liberal free-market ideology is to endure, it must both offer this example and others to further its agenda, both by acceptable compromise, and by melding its policies with those of the vast majority of the public and especially the most dispossessed in society. Free-market capitalism has the means to claim the moral high ground over socialism at a time when it most needs to. It is now a matter of whether it succeeds in doing so or not.

Anton Howes is leader of the Social Liberalist Party.

I don't know where it started to go wrong for my family. We didn't have any money, but property prices were spiralling up and up, and getting a mortgage to buy a bigger place for ourselves just seemed the sensible thing to do. You couldn't lose. So out family got ourselves mortgaged up to the hilt, and deep in debt on credit cards as we bought new furniture and electronic gadgets. We spent even more money employing painters, gardeners, child minders and cleaners.

It's easy to look back today and blame the bank for enticing us into debt with all those mortgage and credit-card offers. Perhaps we should have been aware that when a deal looks too good to be true, it probably is. We found ourselves deep in debt, but we still had lots of financial commitments we couldn't get out of, like the hugely expensive medical care plan we promised ourselves in the good times. And lots of the people that we took on for one thing and another still depended on us for all or some of their livelihood.

Desperate, I took to robbing the company. I thought they would not notice if I dipped in and helped myself to a little bit of cash on a regular basis. But as our problems mounted, I started to take out bigger and bigger amounts. Before long the company itself started to stutter and have financial problems, then I found it just wasn't making enough to satisfy our need for cash.

Things got even worse. I started up a Ponzi scheme, promising customers wonderful benefits today – but using the investments of customers tomorrow to pay for them. But even that wasn't enough to support my family's lifestyle. Eventually I robbed a couple of banks. I even resorted to forging currency, trying to print my way out of my debt hole.

Now I'm facing charges of fraud and embezzlement, but I still can't admit my guilt. I was just trying to provide a good life for myself and my family. And the large amounts I spent helped create jobs for other people in our community, who had debt problems of their own. Everyone tells me that, if only I had lived within my means, my life would be very different and my family would not be in this awful position. But they just don't understand how overwhelming was the pressure on me to spend and spend, so as to maintain the pretence that everything was going well. Or how big my needs were. After all, mine is a big family, some 61m strong.

Dictated by the accused G Brown at Cannon Row Police Station, April 2011.

The finances of the UK must be brought under control. David Cameron is planning on cuts. But where? The NHS? Nope, off-limits. The behemoth will stumble on, consuming tax dollars and laying waste to the quality of health care. Education? Protected I’m afraid; in contravention of advice offered by this think tank, Britain’s higher education system will continue to be funded by the population at large rather than those who actually benefit from university. Foreign aid? Also protected.

The simple logic of having protected areas of the budget suggests that there must be more severe cuts elsewhere. But rather than face up to this reality, or drop the notion of protected areas, the Tories seem to be instead toning down initially aggressive rhetoric on balancing the books. I understand that political expediency is important, but so is running the country. Rather than making explicit promises to ‘cut the deficit, not the NHS’, Cameron could be discreet. It would leave him room to manoeuvre when cuts are being made. Just as distressing is the shadow universities secretary’s proposal to create an ‘inspectorate’ to ensure high standards. Bureaucracy doesn’t create high standards; competition and choice does. Mr. Cameron should know better.

The Tories are the party that have spoken with the most honesty on what needs to be done to revive the country’s economy. But this has been muddled by numerous contradictions. Those of us who’ve read our Atlas Shrugged know that when there appears to be a contradiction, we must check our premises. And indeed, the premise that Cameron intends meaningful cuts is seriously in doubt.

Mark Pennington has an interesting piece on public choice theory here. He's specifically looking at how it challenges certain lefty world views.

I do like his implication that public choice theory is the classically liberal refutation of Marxian class arguments. We don't doubt that it's possible, that it happens at times, that the State is captured for the good not of the citizenry but of those who have done the capturing. All we're pointing out is that it tends not to be a class that does this but individuals.

He also points to the way in which some simply deny the existence of public choice probems at all. All politicians, for example, are motivated by nothing more than public service. There are no economic motives here at all so that economics is irrelevant. Yes, I find that terribly convincing too.

My usual answer to these types is to start asking whether CEOs and bankers are worth millions per year. The answer that comes back is that no they're not and thus we can start talking about the principal/agent problem. Bosses are greedy b'tds ripping everyone off: it's not difficult to gain agreement along these lines.

But the principal/agent problem and public choice are really the same thing. When we offer over to someone else the right to control an asset (a company, the State), tell them to help themselves to our money, we face exactly the same problem of trying to make sure that they do all of that running of it for our benefit not their.

And to be a little Marxian about it, those who go into the civil service fast stream, those who go into Westminster politics, those who go into banking and those who go into business, they're all from pretty much the same narrow class here in the UK. If you believe the principal /agent problem it's very difficult indeed to see why you wouldn't believe the public choice one, for they're at times the same problem.

As an example of dodgy government statistics, the Taking Part Survey* by the Department for Culture, Media and Sport takes some beating. In an effort to prove their success at encouraging participation, they’ve come up with some gems of creative terminology:

• ‘Attending an art event’ stretches to seeing “street arts (art in everyday surroundings like parks, streets or shopping centres)".
•  'Visiting a historic site is as easy as going to “a city or town with historic character".
•  It counts as using a public library if one “used a computer outside the library to view the website".
• The most popular way for Britons to participate in an arts activity in 2007 was by “buying original/handmade crafts".
• The list of “active sports" includes snooker.

Shameless.

*Technical Note PSA21: Indicator 6", “annual data 2006/07", “Final assessment of progress on PSA3: complete estimates from year three, 2007/08." All published since May 2008.

Flicking through a copy of Dr Madsen Pirie's Freedom 101, I found a prescient paragraph [p.66] on capitalism and the business cycle:

 In recent years independent central banks have tried to smooth the business cycle's severities by combining the pursuit of sound money with making credit easier when economic downturn loomed. It has been a precarious act which cannot necessarily be sustained, but this is not a crisis of capitalism either. It may just be problems arising from one type of financial management. 

This was written well before most commentators even realised there was a financial crisis.