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Austrians and Marxists are wrong about the state

By Lorenzo

In 1718, after admiring how orderly his recently conquered province of Livonia was, Peter the Great (r.1682-1725) commanded an enquiry into how this was so. The enquiry found that the Swedish crown had spent as much administering Livonia as Peter spent administering the entire rest of the Russian Empire. Peter promptly dismantled the provincial administration.

In 1800, the United Kingdom (population under 20m) had the same number of government officials (pdf) as Qing China (population over 300m). The British central government extracted around four times the revenue (pdf) the Qing central government received, and did so from an economy about a sixth the size of the Chinese economy.

How so?

The social bargaining state

The British state deeply penetrated society, as did society the state. Britain was famously a Parliamentary state, constructed on high levels of social bargaining. In this continual process of social bargaining, the British state was able to extract far more resources from its society as a trade-off for providing far more benefits. The British state was therefore much more responsive to its society, providing a far greater range and level of public goods–the British state probably spent as much on the Poor Law as the Qing state spent on the equivalent (famine relief). In particular, the sale of British government bonds meant that private interests had a serious stake in the viability and success of the state. An arrangement that was both based on, and led to, high levels of information flow between state and society.

In early C19th Qing Empire, one county magistrate administered, on average, 300,000 people.

Conversely, the Qing state relied entirely on command-and-control mechanisms, with any social bargaining being of an extremely passive variety. Chinese law was designed to minimise recourse to the courts, with families and associations left to manage their own affairs. The Qing state had effectively no capacity to borrow, relying on the build up of silver reserves to deal with emergency financing needs. Its financial resources were limited to past and present revenues. Conversely, the British state, with its capacity to borrow, was not constrained by past or present revenues but could raise money from future income (pdf):

Britain’s debt rose with only a few peacetime pauses to 215 per cent of national income in 1784. After a brief peacetime decline in the following decade, it rose again to 222 per cent of national income in 1815 and reached a peak of 268 percent in 1821, …

… between 1760 and 1860 Britain’s it was never lower than 100 per cent and from approximately 1780 to 1845, never lower than 150 per cent of GDP.

If the income of the British central government was around 15% of GDP (it likely peaked at around 20% of GDP in the Napoleonic wars and was still above 10% in 1850), that would make its debt never lower than 10 times its income in this period–by comparison, the current US federal government debt is around 5 times its income.

The command-and-control passive-social-bargaining-only Qing central government extracted about 3.4 grams of silver per head of population. The actively social bargaining state-and-society-penetrate-each-other British central government extracted about 304 grams of silver per head of population. In other words, 90 times as much silver-equivalent per head–hence receiving four times the revenue (in silver) from an economy less than a sixth the size. Yet it was the Qing government, not the British, which was regularly rocked by massive popular revolts.

British politics--noisy, public and clubbable.

British politics–noisy, public and clubbable.

So, when the two states went to war in the Anglo-Chinese War, the first of the Opium Wars, the Qing Empire was going to war with a state that had better military technology, better military organisation, over four times its income and great capacity to borrow funds. It was not going to end well (for the Qing). Despite the fact the Qing Empire’s economy was around six times as large with maybe 18 times the population (around 21m to 380m).

The states that developed in Europe, particularly Northwestern Europe, were dramatically different in their evolution and outcomes than the states that developed elsewhere. Trying to develop a typology of the state based on European experience is to normalise the profoundly exotic. This is not a good place from which to base analysis. Even given that the process of colonisation and emulation spread practices and techniques of European state across the globe.

This (relatively) new thing

The state is a relatively new feature of human society. The first states grew out of chiefdoms a few thousand years ago. As recently as the early C19th, much of the world’s land area was not under the control (nominal or otherwise) of any state. Scrolling through the online TimeMaps historical atlas is a useful reminder of how part of the processes of history have been the expansion in the coverage of states. (The maps exclude the steppe polities, but they could reasonably be regarded as chiefdoms rather than states.)

Which also brings to mind how little stateless societies have achieved. A few basic inventions–fire, wheel-and-axle, farming, herding–but little else. Sure, they were the basic inventions on which the rest of human history has been built, but the overwhelming bulk of human achievement has been within state societies.

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Starting with the fact that they are a lot safer to live in. Even given the horrendous killing records of modern states. State and non-state societies may have roughly similar range of homicide rates (pdf), but add in deaths from war, and state societies have much lower death-by-violence rates. It seems that on simple don’t-end-up-violently-dead grounds, Hobbes‘s Leviathan is worth having. Especially as a lack of states does not mean a lack of war; it just means war becomes a much more immediate and common experience.

The paradox of rulership

The paradox of politics–we need the state to protect us from social predators but the state is the most dangerous of all social predators–does indeed operate. Actually, we should really call it the paradox of rulership, since it begins to operate before actual states are achieved.

With lower levels of social predation, higher levels of social achievement are possible. In order for chiefdoms to become states, a certain level of population concentration and production is required. Indeed, a constant part of the story of the state from its origins onwards is its attempts to remould society so that it can be supported. In doing so, it seeks to raise the level of social activity. Hence the connection between state societies and human achievement.

Which is where both Marxism and Austrian school economics tend to go wrong about the state. They wish to draw a sharp moral distinction between state and society based on presumptions of causation. The natural tendency of the Austrians is to adopt the principle that human achievement is born in society without, even against, the state. Their principle is that human society is so great, that the state deforms it. But this is far too simplistic a conception. Again and again, the achievements they point to are profoundly based on the public goods provided by the state. And the prosperous liberal capitalist societies they extol were achieved in societies where state and society interpenetrated each other more profoundly than any other societies in human history up to that time. The Austrians keep wanting to leave the state out of (positive) historical causal processes when it was intimately, and necessarily, involved in them.

The natural tendency of Marxism is the reverse: hardly surprising, in many ways Marxism and Austrian school economics are mirror images of each other.  The natural tendency of Marxism is to hold that society is so flawed, that (only) the state can redeem it. But the state is not some epiphenomenon of social processes. State and society mutually create each other. An unequal and exploitative society has been created by, and created, its state.

Indeed, given the role of the state as dominant coercive power, the state will be the biggest force in moulding the society. But, in any decent society, it is a process of mutual creation; the notion that the state is socially omnipotent, that it can create any society with any characteristics it wants, is simply not true. Not least because the state is not, and cannot be, omniscient. Crucial to how state and societies operate is the information flows between them. Here the Austrians were spot on–the economic calculation problem will, in the end, defeat any such grandiose ambitions of state-as-society.

The scale of information flows were why the states of Northwestern Europe were so spectacularly successful. State and society interpenetrated each other, allowing high levels of information flows between them, and for state and society to tend to support and increase, rather than crush, the operation of the other. In particular, social bargaining led to more capital leading to more economic activity and more social bargaining leading to more revenue for states.

Mutual needs

Simple minded cheerleading–society good!, state bad! versus society bad!, state good!–is historical nonsense. We remain necessarily enmeshed in the paradox of politics. The notion that the paradox can be “solved”–either by creating a naturally just state or by dispensing with the state altogether–is delusory.

Of the two delusions, belief in a state which can transcend the paradox of politics is by far the more dangerous. For that project is profoundly and naturally tyrannical. To create the entirely just society, the state has to have enormous power. And if it is on the business of final justice, its actions are inherently absolutely worthy. This utopian project both expands the state to fill up any social space and justifies its power to crush any social dissent (as it defines it). It does not stop the state being predatory, it just turns it into the ultimate social predator. With C. S. Lewis‘s warning being absolutely apposite:

Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.

Later re-run as commissars and gauleiters.

Later re-run as commissars and gauleiters.

Conversely, belief that all will be so much better if we do without the state–as long as the belief is not prosecuted by acts of violence–merely encourages suspicion of the most dangerous social predator. A certain amount of that is just good sense. There is nothing in any of this which guarantees all state actions will have positive social consequences.

Indeed, the bootleggers and Baptists phenomenon reminds of how the state generates bootleggers. Just as those who complain about “developers” rarely pay any attention to how, for example, government approval processes squeeze out small developers (who are much less able to handle approval delay risks) thereby generating the housing industry dominance of well-connected large developers who then game the system. Like the rest of us, public policy operates in a world of unintended consequences. The state is not an epiphenomenon of society; it moulds the society, which then moulds it.

We live in the world of the paradox of politics where state and society create each other. The blessing is to be the heirs of a social evolution of an ever-widening spiral of social bargaining which ended up with universal suffrage and elections that matter. With states that, for all their moral limitations, are remarkably responsive and support–indeed, significantly create–societies of great openness, freedom and prosperity.

4 Comments

  1. Ian Billing
    Posted April 11, 2014 at 7:20 pm | Permalink

    Very good essay. Time for everybody to sit down and think, take their clowns hats off and talk about the things.

    For example; could the problems of London’s stinking, disastrous, open sewer drains of the 1870′s been sorted out without the influence of both venture capitalists, willing to invest in a youngish talented engineer, while ignoring the influence of trade unionists who achieved higher wages for their members? This allowed the workers to subscribe to better accommodation, outside the slums and stink, and thereby deprived the existing landlords and freeholders of income. This is society, it’s complex.

  2. Posted April 12, 2014 at 3:26 pm | Permalink

    Ian@1 Ta and agree.

  3. conrad
    Posted April 14, 2014 at 5:38 am | Permalink

    It’s interesting that information flow seems to have been useful for most of history — including when most people wern’t especially well educated. It’s interesting to think about why this is more at the level of the individual.

    For example, does it mean that, for many things, most people are pretty decent most of the time, or does it really just mean they are good at respecting the social order? Or neither?

  4. Posted May 27, 2014 at 5:44 pm | Permalink

    C@3 Cross-cultural experimental data suggest that humans divide into “knaves” (always self-interested), “saints” (always moralistic) and “moralists” (moral with punishment). So, as with a lot of things, it depends on the incentive structures. Broadly, the incentives seem to be getting better.

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