Democracy

1. Monarchy vs. Democracy: Private vs. Public Government

The world-historic transformation from the ancien regime of royal or princely rulers to the new democratic-republican age of popularly elected or chosen rulers may be also characterized as that from Austria and the Austrian way to that of America and the American way.

A fundamental shift. World War I marked a pivotal moment, completing the transition from monarchical rule to democratic republicanism across the Western world. Before 1914, Europe was dominated by monarchies; by 1918, most had disappeared or become figureheads, replaced by republics with universal suffrage. This change wasn't just political but represented a shift in the very nature of government ownership.

Private vs. Public. Monarchy is characterized as private government ownership, where the ruler personally owns the state apparatus and its territory, treating it as a private estate to be passed down through inheritance. Democracy, conversely, is public government ownership, where the state is considered public property managed by temporary caretakers (elected officials) who do not personally own it. This distinction is key to understanding their different incentives and outcomes.

Ideological conflict. The shift was fueled by an ideological conflict, notably embodied by monarchical Austria and republican America under Woodrow Wilson. Wilson championed making the world "safe for democracy," viewing monarchies as inherently evil. This ideological fervor transformed WWI from a territorial dispute into a total war aimed at regime change, leading to the dismantling of empires and the rise of democratic states.

2. The Economic Logic of Monarchy: Long-Term Stewardship

As the government's private owner, it is in his interest to draw—parasitically—on a growing, increasingly productive and prosperous nongovernment economy, as this would—always and without any effort on his part—also increase his own wealth and prosperity.

Owner's incentives. As the private owner of the state, a monarch has a vested interest in maximizing the long-term value of his "estate" (the country). This encourages a longer planning horizon and a lower time preference compared to a temporary ruler. He benefits directly from the country's prosperity and suffers from its decline, motivating him to act as a careful steward.

Moderation in exploitation. While a monarch is a monopolist and will exploit his subjects through taxation, his private ownership provides a built-in constraint. Excessive taxation or regulation would harm the productive capacity of the economy, ultimately reducing the capital value of his kingdom and his future income stream. Thus, it is in his self-interest to keep exploitation relatively low to ensure a growing tax base.

Exclusive privilege. Monarchy's exclusive nature, where only the ruling family benefits from taxation, fosters a clear class distinction between rulers and ruled. This distinct class consciousness among the ruled makes them more aware of and resistant to increases in government power and taxation, further moderating the monarch's exploitative tendencies.

3. The Economic Logic of Democracy: Shortsighted Exploitation

In distinct contrast, a presidential government caretaker is not held liable for debts incurred during his tenure of office.

Caretaker's incentives. Unlike a monarch, a democratic ruler (a temporary caretaker) does not own the state's capital value but only its current use. This creates an incentive to maximize short-term gain (current income and power) even at the expense of long-term capital value. What he doesn't consume or benefit from now, he may never get to.

Capital consumption. Public ownership, lacking market prices for state assets, makes economic calculation impossible and leads to capital consumption. A democratic ruler has no personal stake in maintaining or enhancing the country's long-term value. Why preserve the "government estate" when its increased value cannot be privately reaped, but higher current income can?

Increased debt and inflation. Democratic rulers are less constrained in incurring debt because the liability falls on future governments and taxpayers, not themselves personally. Similarly, they have a stronger incentive to inflate the money supply, as they benefit from the immediate increase in purchasing power, while the future decline in money value affects others. This leads to higher debt and inflation under democracy.

4. Historical Evidence: Democracy Increases Exploitation

With the onset of the democratic-republican age this earlier tendency [of falling interest rates] came to a halt and seems to have changed direction, revealing twentieth century Europe and the U.S. as declining civilizations.

Quantifiable decline. The theoretical predictions about democracy's inherent tendency towards increased exploitation are supported by historical data since WWI.

• Taxes: Government expenditure as a percentage of GDP rose from 5-15% under monarchies to 50% or more under democracies.
• Employment: Government employment increased from rarely exceeding 3% of the labor force to 15-20%.
• Money: The gold standard was replaced by fiat money, leading to unprecedented inflation and currency depreciation.
• Debt: Government debt, which monarchs often reduced in peacetime, has increased continuously under democracies.

Erosion of law. The nature of law changed from immutable, discovered principles (private law) to flexible, government-made legislation (public law). This shift, where government agents became above the law, led to a flood of regulations affecting all aspects of life, creating legal uncertainty and undermining property rights.

Decivilizing forces. These increases in exploitation are linked to rising social time preference and decivilization, as discussed in other takeaways. The historical record suggests that the democratic age has been marked by a systematic increase in government power and a decline in the security of private property.

5. Democracy and the Rise of Present-Orientedness

By simultaneously reducing the supply of present and expected future goods, governmental property-rights violations not only raise time-preference rates (with given schedules) but also time-preference schedules.

Impact on time preference. Government property rights violations, unlike crime, are legitimate and continuous. This institutionalized nature means victims cannot defend themselves and must anticipate future violations. This reduces the expected rate of return on productive, future-oriented actions, making everyone more present-oriented.

Blurring class lines. Democracy blurs the distinction between rulers and ruled, creating the illusion of self-rule. This weakens public resistance to government power and exploitation. Anyone can potentially join the ruling class, reducing solidarity among the ruled and making them less vigilant against state expansion.

Social indicators. This rise in present-orientedness is reflected in various social indicators since the democratic age began:

• Interest Rates: Minimum interest rates, which had fallen for centuries, stopped declining and even rose.
• Family: Family disintegration increased (divorce, illegitimacy, single parenting), and birthrates declined.
• Savings: Personal savings rates stagnated or fell despite rising incomes.
• Crime: Crime rates, particularly for serious offenses, showed a systematic upward trend.

Accelerating decay. The redistribution inherent in democracy (subsidizing "bads") further accelerates this process, rewarding present-oriented behavior and punishing future-orientation, leading to progressive decivilization.

6. Democracy as a Redistribution Machine

One-man-one-vote combined with "free entry" into government democracy implies that every person and his personal property comes within reach of and is up for grabs by everyone else.

Tragedy of the commons. Democracy creates a "tragedy of the commons" for private property. With universal suffrage and open entry into government, majorities of "have-nots" are empowered to vote to redistribute wealth and income from minorities of "haves." This sets in motion a relentless process of expropriation.

Subsidizing "bads". Redistribution, regardless of its target, involves taking from producers/owners and giving to non-producers/non-owners. This reduces the incentive to produce and increases the incentive to be a non-producer. Subsidizing undesirable conditions or behaviors leads to their increase:

• Subsidizing poverty creates more poverty.
• Subsidizing unemployment creates more unemployment.
• Subsidizing single motherhood increases illegitimacy and divorce.
• Subsidizing illness and disability increases illness and disability.
• Subsidizing politicians and civil servants increases waste and parasitism.

Self-accelerating decline. This process is self-accelerating. As more people become dependent on redistribution, the tax base shrinks, requiring higher taxes on the remaining producers, further strengthening the incentive to shift from production to non-production, leading to continuous rising time preference and progressive decivilization.

7. The State: A Monopoly of Protection, Not a Protector

A tax-funded protection agency is a contradiction in terms, for it is an expropriating property protector that will inevitably lead to more taxes and less protection.

The Hobbesian myth. The belief that a state is necessary for protection is a myth. The state is defined as a compulsory territorial monopolist of jurisdiction and taxation. This monopoly position inherently conflicts with the goal of providing protection.

Monopoly inefficiency. Like any monopolist, the state, as the sole provider of protection, will inevitably raise the price (taxes) and lower the quality of its service. Motivated by self-interest and the power to tax, state agents will maximize spending on protection while minimizing actual protection provided.

Perversion of justice. A judicial monopoly means that the state is the ultimate judge in all disputes, including those involving itself. This leads to a perversion of justice in favor of the state. The definition of property and rights is continually altered to expand state power, not protect citizens.

Alternative: Private security. Protection and security are services that can and should be provided by private, competitive firms. In a free market, insurance agencies, motivated by profit and loss, would offer protection and arbitration services to voluntary clients, leading to lower costs and higher quality security than any state monopoly.

8. Centralization vs. Decentralization: Impact on Prosperity

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.

Distinct phenomena. Political centralization (state expansion) and economic integration (market expansion) are fundamentally different and often conflicting processes. State power is parasitic on production; its expansion through taxation and regulation hinders market activity.

Decentralization fosters capitalism. Historically, capitalism and economic growth flourished most under conditions of political decentralization, such as in medieval Europe with its competing city-states and principalities. Competition among smaller states limited their ability to tax and regulate excessively, as subjects could "vote with their feet" by moving to less oppressive jurisdictions.

Centralization hinders prosperity. As states grow larger and competitors fewer, the incentive for domestic liberalism decreases. Approaching a single world state removes the check of emigration entirely, allowing for maximum exploitation. The 20th century's rise of global statism under US hegemony has coincided with increased government power and economic stagnation.

Secession as a counterforce. Secession, by breaking larger states into smaller units, reintroduces political competition and the threat of emigration, forcing governments to be more liberal to retain productive citizens.

9. Secession: A Progressive Force Against Centralization

Secession increases ethnic, linguistic, religious, and cultural diversity, while centuries of centralization have stamped out hundreds of distinct cultures.

Vote against majoritarianism. Secession is inherently an undemocratic, anti-majoritarian act, as it involves a smaller group breaking away from a larger one. This aligns it with the principle of private, decentralized ownership rather than public, centralized control.

Promotes voluntary association. Secession replaces forced integration (imposed by centralized states) with voluntary separation and association. This allows different cultural, ethnic, and religious groups to coexist peacefully by choosing their own neighbors and rules, fostering cooperation from a distance (free trade) rather than conflict from forced proximity.

Incentive for liberalism. Smaller, seceded territories face greater pressure to adopt liberal policies (low taxes, minimal regulation, free trade) to attract and retain productive residents and capital, as the cost of emigration is lower for individuals in smaller jurisdictions.

Monetary integration. Extensive secession would likely lead to the abandonment of national fiat currencies and a return to an international commodity money standard like gold, promoting genuine monetary integration and stability.

10. Free Trade vs. Forced Integration: The Immigration Fallacy

Free in conjunction with immigration does not mean immigration by invitation of individual households and firms, but unwanted invasion or forced integration; and restricted immigration actually means, or at least can mean, the protection of private households and firms from unwanted invasion and forced integration.

False analogy. The common belief that free trade requires free immigration is based on a false analogy. Free trade means voluntary exchange of goods by invitation of private property owners. Immigration, however, involves the movement of people, who can arrive uninvited.

Private property implies exclusion. In a society based on private property, owners have the right to exclude anyone from their property. This right is fundamental to protection and security. "Free immigration" under a state means the state allows uninvited persons onto public property (roads, parks) and into proximity with private property owners, which is forced integration.

State vs. Private decision. Under a state, the decision to admit or exclude immigrants rests with the government, not private property owners. This leads to forced exclusion (state bars someone a resident wants to invite) or forced integration (state admits someone no resident wants).

Consistent policy. A consistent policy based on private property rights requires that both goods and people be admitted only by invitation of private property owners. Thus, free trade is compatible with, and indeed requires, restricted immigration (meaning immigration by invitation).

11. Socialism's Inherent Economic Failure

Because he is not permitted to take offers from private individuals who might see an alternative way of using a given means of production, the socialist caretaker of capital goods does not know what his foregone opportunities are.

Lack of calculation. Socialism, defined by the absence of private ownership of the means of production, inherently leads to economic impoverishment. Without private property in capital goods, there are no market prices for these factors. Without factor prices, rational economic calculation (cost-accounting) is impossible.

Misallocation and waste. Without the ability to compare inputs and outputs in monetary terms, socialist planners cannot determine the most efficient use of scarce resources. This inevitably leads to widespread misallocation, waste, and squandering of capital goods.

Reduced incentives. Collective ownership weakens individual incentives to produce, maintain capital, and innovate. Gains and losses are socialized, encouraging laziness and negligence among producers.

Politicization. Economic decisions become political decisions, requiring collective mechanisms. Success depends on political maneuvering (persuasion, demagoguery, intrigue) rather than serving consumer needs, further hindering productivity.

12. The Future of Liberty: Beyond Liberalism to Private Property Anarchy

Private property anarchism is simply consistent liberalism; liberalism thought through to its ultimate conclusion, or liberalism restored to its original intent.

Liberalism's fatal flaw. Classical liberalism's acceptance of the state, even a limited one, was its fundamental error. The state's inherent nature as a compulsory monopoly with taxing power is incompatible with the protection of liberty and property.

Minimal state to maximal state. A minimal state has an inherent tendency to grow into a maximal state. Judicial monopoly leads to perversion of justice; taxing power leads to increased exploitation. The liberal ideal of a constitutionally limited government is a contradiction in terms.

Beyond the state. True liberty requires recognizing that protection and security can only be rightfully and effectively provided by a system of competitive, private security suppliers (insurance agencies). This system, based on voluntary contracts and private property rights, is the logical conclusion of liberal principles.

Radical vision. The future of liberty lies in transforming liberalism into the theory of private property anarchism. This involves renouncing allegiance to the state, promoting unlimited secession, and envisioning a world of countless independent, voluntarily associated territories integrated by free trade and commodity money, where private property rights are fully restored and protected.

Last updated: May 13, 2025