DemocracyThe God That Failed

by Hans-Hermann Hoppe

  According to the orthodox view, centralization is generally a "good" and progressive movement, whereas disintegration and secession, even if sometimes unavoidable, represent an anachronism. It is assumed that larger political units—and ultimately a single world government—imply wider markets and hence increased wealth. As evidence of this, it is pointed out that economic prosperity has increased dramatically with increased centralization. However, rather than reflecting any truth, this orthodox view is more illustrative of the fact that history is typically written by its victors. Correlation or temporal coincidence do not prove causation. In fact, the relationship between economic prosperity and centralization is very different from and indeed almost the opposite of what orthodoxy alleges.3

  Political integration (centralization) and economic (market) integration are two completely different phenomena. Political integration involves the territorial expansion of a state's power of taxation and property regulation (expropriation). Economic integration is the extension of the interpersonal and interregional division of labor and market participation.4 In principle, in taxing and regulating private property owners and market income earners, all governments are counterproductive. They reduce market participation and the formation of economic wealth.5 Once the existence of a government has been assumed, however, no direct relationship between territorial size and economic integration exists. Switzerland and Albania are both small countries, but Switzerland exhibits a high degree of economic integration, whereas Albania does not. Both the U.S. and the former Soviet Union are large. Yet while there is much division of labor and market participation in the U.S., there was almost no economic integration in the Soviet Union, where virtually no private capital ownership existed.6 Centralization, then, can go hand in hand with either economic progress or retrogression. Progress results whenever a less taxing and regulating government expands its territory at the expense of a more exploitative one. If the reverse occurs, centralization implies economic disintegration and retrogression.

  3On the following see Jean Baechler, The Origins of Capitalism (New York: St.Martin's Press, 1976), esp. chap. 7; Hans-Hermann Hoppe, "The Economic and Political Rationale for European Secessionism," in Secession, State, and Liberty, David Gordon, ed. (New Brunswick, NJ: Transaction Publishers, 1998); also Eric L. Jones, The European Miracle (Cambridge: Cambridge University Press, 1981); Nathan Rosenberg and L.E. Birdzell, How the West Grew Rich (New York: Basic Books, 1986); David S. Landes, The Wealth and Poverty of Nations (New York: Norton, 1998).

  4On the the emergence of division of labor and economic integration see Ludwig von Mises, Human Action: A Treatise on Economics, Scholar's Edition (Auburn, Ala.: Ludwig von Mises Institute, 1998), chap. 8; Murray N. Rothbard, "Freedom, Inequality, Primitivism, and the Division of Labor," in idem, Egalitarianism as a Revolt Against Nature and Other Essays (Auburn, Ala.: Ludwig von Mises Institute, 2000).

  5See on this Rothbard, Power and Market.

  However, there is a highly important indirect relationship between size and economic integration. A central government ruling over largescale territories—and even less so a single world government—cannot come into existence ab ovo. Instead, all institutions with the power to tax and regulate owners of private property must start out small. Smallness contributes to moderation, however. A small government has many close competitors, and if it taxes and regulates its own subjects visibly more than its competitors, it is bound to suffer from the emigration of labor and capital and a corresponding loss of future tax revenue. Consider a single household, or a village, as an independent territory, for instance. Could a father do to his son, or a mayor to his village, what the government of the Soviet Union did to its subjects (i.e., deny them any right to private capital ownership) or what governments all across Western Europe and the U.S. do to their citizens (i.e., expropriate up to 50 percent of their productive output)? Obviously not. There would either be an immediate revolt and the government would be overthrown, or emigration to another nearby household or village would ensue.7

  6See on this ibid.

  7Political competition, then, is a far more effective device for limiting a government's natural desire to expand its exploitative powers than are internal constitutional limitations. Indeed, the attempts of some public choice theorists and of "constitutional economics" to design liberal model constitutions must strike one as hopelessly naive. For constitutional courts, and supreme court judges, are part and parcel of the government apparatus whose powers they are supposed to limit. Why in the world should they want to constrain the power of the very organization that provides them with jobs, money, and prestige? To assume so is not only theoretically inconsistent, i.e., incompatible with the assumption of self-interest. The assumption is also without any historical foundation. Despite the explicit limitation of the power of the central government contained in the Tenth Amendment of the U.S. Constitution, for instance, it has been the interpretation by the U.S. Supreme Court, which has rendered the amendment essentially null and void. Similarly, despite the constitutional guarantee of private property by the (West) German constitution, for instance, the German supreme court, after the German reunification in 1990, declared all communist expropriations prior to the founding of the East German state in 1949 "valid." Thus, more than 50 percent of former East Germany's land used for agriculture were appropriated by the (West) German state (rather than being re- turned to the original private owners, as required by a literal interpretation of the constitution).

  Contrary to orthodoxy, then, precisely the fact that Europe possessed a highly decentralized power structure composed of countless independent political units explains the origin of capitalism—the expansion of market participation and of economic growth—in the Western world.8 It is not by accident that capitalism first flourished under conditions of extreme political decentralization: in the northern Italian city states, in southern Germany, and in the secessionist Low Countries (Netherlands).

  The competition among small states for taxable subjects brings them into conflict with each other. As a result of interstate conflicts, historically drawn out over the course of centuries, a few states succeed in expanding their territories, while others are eliminated or incorporated. Which states win in this process of eliminative competition depends on many factors, of course, but in the long run, the decisive factor is the relative amount of economic resources at a government's disposal.9 Through taxation and regulation, governments do not positively contribute to the creation of economic wealth. Instead, they parasitically draw on existing wealth. However, they can influence the amount of existing wealth negatively. Other things being equal, the lower the tax and regulation burden imposed by a government on its domestic economy, the larger its population tends to grow (due to internal reasons as well as immigration factors), and the larger the amount of domestically produced wealth on which it can draw in its conflicts with neighboring competitors. For this reason centralization is frequently progressive. States which tax and regulate their domestic economies little—liberal states—tend to defeat and expand their territories at the expense of nonliberal ones.10 This accounts for the outbreak of the "Industrial Revolution" in centralized England and France. It explains why in the course of the nineteenth century Western Europe came to dominate the rest of the world (rather than the other way around), and why this colonialism was generally progressive. Furthermore, it explains the rise of the U.S. to the rank of superpower in the course of the twentieth century.

  8The importance of international "anarchy" for the rise of European capitalism has been justly emphasized by Jean Baechler. Thus, he writes in The Origins of Capitalism:

  "The constant expansion of the market, both in extensiveness and in intensity, was the result of an absence of a political order extending over the whole of Western Europe." (p. 73) "The expansion of capitalism owes its origin and raison d'etre to political anarchy. . . . Collectivism and state management have only succeeded in school textbooks." (p. 77)

  A
ll power tends toward the absolute. If it is not absolute, this is because some kind of limitations have come into play. . . . those in the position of power at the center ceaselessly tried to erode these limitations. They have never succeeded, and for the reason that also seems to me to be tied to the international system: a limitation of power to act externally and the constant threat of foreign assault [the two characteristics of a multi-polar system) imply that power is also limited internally and must rely on autonomous centers of decisionmaking and so may use them only sparingly, (p. 78)

  9See on this Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (New York: Vintage Books, 1987).

  However, the further the process of more liberal governments defeating less liberal ones proceeds—i.e., the larger the territories, the fewer and more distant the remaining competitors, and thus the more costly international migration—the lower a government's incentive to continue in its domestic liberalism will be. As one approaches the limit of a One World state, all possibilities of voting with one's feet against a government disappear. Wherever one goes, the same tax and regulation structure applies. Thus relieved of the problem of emigration, a fundamental rein on the expansion of governmental power is gone. This explains developments of the twentieth century: with World War I, and even more so with World War II, the U.S. attained hegemony over Western Europe and became heir to its vast colonial empires. A decisive step in the direction of global unification was taken with the establishment of a pax Americana. And indeed, throughout the entire period the U.S., Western Europe, and most of the rest of the world have suffered from a steady and dramatic growth of government power, taxation, and regulatory expropriation.11

  10See on this Hans-Hermann Hoppe, "Marxist and Austrian Class Analysis," in idem, The Economics and Ethics of Private Property; idem, "Banking, Nation States, and International Politics"; on the requirement of a liberal market economy, i.e., domestic laissez-faire, for the successful conduct of war see Ludwig von Mises, Nationalokonomie. Theorie des Handelns und Wirtschaftens (Munich: Philosophia Verlag, 1980), part 6, chap. 9; idem, Interventionism: An Economic Analysis (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1998), chap. 6; on the contrary tendency of states to use wars as pretexts for the destruction of domestic laissez-faire and the implementation of increasingly interventionist or socialist economic systems see Robert Higgs, Crisis and Leviathan (New York: Oxford University Press, 1987).

  nOn this theme see also Paul Johnson, Modern Times (New York: Harper and Row, 1983); Robert Nisbet, The Present Age (New York: Harper and Row, 1988).

  In light of social and economic theory and history, then, a case for secession can be made.'2

  Initially, secession is nothing more than a shifting of control over the nationalized wealth from a larger, central government to a smaller, regional one. Whether this leads to more or less economic integration and prosperity depends largely on the new regional government's policies. However, the act of secession in itself has a positive impact on production, for one of the most important reasons for secession is typically the belief on the part of the secessionists that they and their territory are being exploited by others. The Slovenes felt, and rightly so, that they were being robbed systematically by the Serbs and the Serbian-dominated central Yugoslavian government; the Baltic people resented the fact that they had to pay tribute to the Russians and the Russian-dominated government of the Soviet Union.13 By virtue of secession, hegemonic domestic relations are replaced by contractual—mutually beneficial—foreign relations. Instead of forced integration there is voluntary separation. Forced integration, as also illustrated by measures such as busing, rent controls, affirmative action, antidiscrimination laws and, as will be explained shortly, "free immigration," invariably creates tension, hatred, and conflict. In contrast, voluntary separation leads to harmony and peace.14 Under forced integration any mistake can be blamed on a "foreign" group or culture and all success claimed as one's own; hence, there is little reason for any culture to learn from another. Under a regime of "separate but equal," one must face up to the reality not only of cultural diversity but in particular of visibly different ranks of cultural advancement. If a secessionist people wishes to improve or maintain its position vis-a-vis a competing one, nothing but discriminative learning will help. It must imitate, assimilate, and, if possible, improve upon the skills, traits, practices, and rules characteristic of more advanced societies, and it must avoid those characteristic of less advanced societies. Rather than promoting a downward leveling of cultures as under forced integration, secession stimulates a cooperative process of cultural selection and advancement.15

  12On the following see also Secession, State, and Liberty, Gordon, ed.; Robert McGee, "Secession Reconsidered," Journal of Libertarian Studies 11, no. 1 (1994); Ludwig von Mises, Liberalism: In the Classical Tradition (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1985), esp. pp. 108-10.

  13Similarly, one of the decisive reasons for the attempt by the Southern Confederacy to secede from the American Union was the Morrill Tariff Act of 1861, which imposed a 47 percent tax on the value of all imported goods. At the time, the American South exported three-fourths of its agricultural output and imported in turn most of its manufactured goods from abroad. In effect, the tariff meant that the South was forced to pay higher taxes that went to the North to subsidize inefficient northern manufacturers and industrial workers.

  14See on this Murray N. Rothbard, "Nations by Consent: Decomposing the Nation-State," in Secession, State, and Liberty, David Gordon, ed.; Ludwig von Mises, Nation, State, and the Economy (New York: New York University Press, 1983), esp. pp. 31-77; also chap. 7below.

  Moreover, while everything else depends on the new regional government's domestic policies and no direct relationship between size and economic integration exists, there is an important indirect connection. Just as political centralization ultimately tends to promote economic disintegration, so secession tends to advance integration and economic development. First, secession always involves the breaking away of a smaller from a larger population and is thus a vote against the principle of democracy and majoritarian rule in favor of private, decentralized ownership. More importantly, secession always involves increased opportunities for interregional migration, and a secessionist government is immediately confronted with the threat of emigration. To avoid the loss in particular of its most productive subjects, it comes under increased pressure to adopt comparatively liberal domestic policies by allowing more private property and imposing a lower tax and regulation burden than its neighbors." Ultimately, with as many territories as separate households, villages, or towns, the opportunities for economically motivated emigration is maximized and government power over a domestic economy minimized.

  15Egalitarian propaganda notwithstanding, enormous differences with respect to the degree of cultural advancement exist, for instance, in former Yugoslavia between Slovenes, Croats, Serbs, and Kosovo-Albanians and/or Catholics, Orthodox, and Muslims; or in the former Soviet Union between Latvians, Estonians, Lithuanians, Germans, Poles, Ukrainians, Russians, Georgians, Rumanians, Armenians, Chechens, Aszerbaijanis, Turkmenis, Kazaks, and so on. The immediate result of the political separation of these culturally distinct people will simply be an increased variety of governments and forms of social organization. It will have to be expected further, however, that some of these newly independent governments and their social policies will be worse (from the point of view of economic integration and prosperity) than those that would have prevailed if the former central government had remained in power, while others will turn out to be better. For instance, it may well be worse for Aszerbaijanis to be ruled by a native government than by one made up of Russians, or for Kosovo-Albanians to fall into the hands of some of their own rather than those of a Serbian government. At the same time, the social policies in Estonia, Latvia, and Lithuania, for instance, will be likely better than what a Russi
an government would have had in store, and Croatians will prosper more under home-rule than if they had remained under Serbian control. Secession, then, will not eliminate cultural differences and rank orders; and indeed, it may well accentuate them. And yet, precisely in laying bare the cultural differences and different ranks of socio-economic development of various people secession will in time provide the best stimulus for the cultural and economic advancement of all people, developed and undeveloped alike.

  Specifically, the smaller the country, the greater will be the pressure to opt for free trade rather than protectionism. All government interference with foreign trade forcibly limits the range of mutually beneficial interterritorial exchanges and thus leads to relative impoverishment, at home as well as abroad.17 But the smaller a territory and its internal markets, the more dramatic this effect will be. A country the size of the U.S., for instance, might attain comparatively high standards of living even if it renounced all foreign trade, provided it possessed an unrestricted internal capital and consumer goods market. In contrast, if predominantly Serbian cities or counties seceded from surrounding Croatia, and if they pursued the same protectionism, this would likely spell disaster. Consider a single household as the conceivably smallest secessionist unit. By engaging in unrestricted free trade, even the smallest territory can be fully integrated into the world market and partake of every advantage of the division of labor, and its owners may become the wealthiest people on earth. The existence of a single wealthy individual anywhere is living proof of this. On the other hand, if the same household owners decided to forego all interterritorial trade, abject poverty or death would result. Accordingly, the smaller a territory and its internal markets, the more likely it is that it will opt for free trade.