DemocracyThe God That Failed (16 page)

To be sure, the monopolization of law administration led to higher prices and/or lower product quality than those that would have prevailed under competitive conditions, and in the course of time kings employed their monopoly increasingly to their own advantage. For instance, in the course of time kings had increasingly employed their monopoly of law and order for a perversion of the idea of punishment. The primary objective of punishment originally had been the restitution and compensation of the
victim
of a rights violation by the offender. Under monarchical rule, the objective of punishment had increasingly shifted to compensating the
king,
instead.
²⁹
However, while this practice implied an expansion of government power, it did not involve any redistribution of wealth and income within civil society, nor did it imply that the king himself was exempt from the standard provisions of private law. Private law was still supreme. And indeed, as late as the beginning of the twentieth century, A.V. Dicey could still maintain that as for Great Britain, for instance, legislative law—public law—as distinct from pre-existing law—private law—did not exist. The law governing the relationships between private citizens was still considered fixed and immutable, and government agents in their relationship with private citizens were regarded as bound by the same laws as any private citizen.
³⁰

In striking contrast, under democracy, with the exercise of power shrouded in anonymity, presidents and parliaments quickly came to rise
above
the law. They became not only judge but legislator, the creator of "new" law.
³¹
Today, notes Jouvenel,

²⁸
De Jouvenel,
Sovereignty,
pp. 172-73 and 189; see also Fritz Kern,
Kingship
and
Law
in
the
Middle
Ages
(Oxford: Blackwell 1948), esp. p. 151; Bernhard Rehfeld,
Die
Wurzeln
des
Rechts
(Berlin, 1951), esp. p. 67.

²⁹
See Bruce L. Benson, "The Development of Criminal Law and Its Enforcement,"
Journal
des
Economistes
et
des
Etudes
Humaines
3, no. 1 (1992).

³⁰
See Albert V. Dicey,
Lectures
on
the
Relation
Between
Law
and
Public
Opinion
in
England
During
the
Nineteenth
Century
(London: Macmillan, 1903); also Friedrich A. Hayek,
Law,
Legislation,
and
Liberty
(Chicago: University of Chicago Press, 1973), vol. 1, chaps. 4 and 6.

we are used to having our rights modified by the sovereign decisions of legislators. A landlord no longer feels surprised at being compelled to keep a tenant; an employer is no less used to having to raise the wages of his employees in virtue of the decrees of Power. Nowadays it is understood that our subjective rights are precarious and at the good pleasure of authority.
³²

In a development similar to the democratization of money—the substitution of government paper money for private commodity money and the resulting inflation and increased financial uncertainty—the democratization of law and law administration has led to a steadily growing flood of legislation. Presently, the number of legislative acts and regulations passed by parliaments in the course of a single year is in the tens of thousands, filling hundreds of thousands of pages, affecting all aspects of civil and commercial life, and resulting in a steady depreciation of all law and heightened legal uncertainty. As a typical example, the 1994 edition of the
Code
of
Federal
Regulations
(CFR), the annual compendium of all U.S. federal government regulations currently in effect, consists of a total of 201 books, occupying about 26 feet of library shelf space. The Code's index alone is 754 pages. The Code contains regulations concerning the production and distribution of almost everything imaginable: from celery, mushrooms, watermelons, watchbands, the labeling of incandescent light bulbs, hosiery, parachute jumping, iron and steel manufacturing, sexual offenses on college campuses to the cooking of onion rings made out of diced onions, revealing the almost totalitarian power of a democratic government.
³³

Indicators
of
Present-Orientedness

The phenomenon of social time preference is somewhat more elusive than that of expropriation and exploitation, and it is more
complicated to identify suitable indicators of present-orientation. Moreover, some indicators are less direct—"softer"—than those of exploitation. But all of them point in the same direction and together provide as clear an illustration of the second theoretical prediction: that democratic rule also promotes short-sightedness (present-orientation) within civil society.
³⁴

³¹
See Robert Nisbet,
Community
and
Power
(New York: Oxford University Press, 1962), pp. 110-11.

³²
Bertrand de Jouvenel,
Sovereignty,
p. 189; see also Nisbet,
Community
and
Power,
chap. 5:

The king may have ruled at times with a degree of irresponsibil
ity that few modern governmental officials can enjoy, but it is doubtful whether, in
terms of effective powers and services, any king of even the seventeenth-century "
absolute monarchies" wielded the kind of authority that now in
heres in the office of many a high-ranking official in the democracies, (p. 103)

³³
See Donald Boudreaux, "The World's Biggest Government,"
Free
Market
(November 1994).

The most direct indicator of social time preference is the rate of
inter
est.
The interest rate is the ratio of the valuation of present goods as compared to future goods. More specifically, it indicates the premium at which present money is traded against future money. A high interest rate implies more "present-orientedness" and a low rate of interest implies more "future-orientation." Under normal conditions—that is under the assumption of increasing standards of living and real money incomes—the interest rate can be expected to fall and ultimately approach, yet never quite reach, zero, for with rising real incomes, the marginal utility of present money falls relative to that of future money, and hence under the
ceteris
paribus
assumption of a
given
time preference
schedule
the interest
rate
must fall. Consequently, savings and investment will increase, future real incomes will be still higher, and so on.

In fact, a tendency toward falling interest rates characterizes mankind's suprasecular trend of development. Minimum interest rates on 'normal safe loans' were around 16 percent at the beginning of Greek financial history in the sixth century B.C., and fell to 6 percent during the Hellenistic period. In Rome, minimum interest rates fell from more than 8 percent during the earliest period of the Republic to 4 percent during the first century of the Empire. In thirteenth-century Europe, the lowest interest rates on 'safe' loans were 8 percent. In the fourteenth century they came down to about 5 percent. In the fifteenth century they fell to 4 percent. In the seventeenth century they went down to 3 percent. And at the end of the nineteenth century minimum interest rates had further declined to less than 2.5 percent.
³⁵

This trend was by no means smooth. It was frequently interrupted by periods, sometimes as long as centuries, of rising interest rates. However, such periods were associated with major wars
and revolutions such as the Hundred Years' War during the fourteenth century, the Wars of Religion from the late sixteenth to the early seventeenth century, the American and French Revolutions and the Napoleonic Wars
from the late eighteenth to the early nineteenth century, and the two World Wars in the twentieth century. Furthermore, whereas high or rising minimum interest rates indicate periods of generally low or declining living standards, the overriding opposite tendency toward low and falling interest rates reflects mankind's overall progress—its advance from barbarism to civilization. Specifically, the trend toward lower interest rates reflects the rise of the Western World, its peoples' increasing prosperity, farsightedness, intelligence, and moral strength, and the unparalleled height of nineteenth-century European civilization.

³⁴
See also T. Alexander Smith,
Time
and
Public
Policy
(Knoxville: University of Tennessee Press, 1988).

³⁵
See Homer and Sylla,
A
History
of
Interest
Rates,
pp. 557-58.

With this historical backdrop and in accordance with economic theory, then, it should be expected that twentieth-century interest rates would be still
lower
than nineteenth-century rates. Indeed, only two possible explanations exist why this is
not
so. The first possibility is that twentieth century real incomes did not exceed, or even fell below, nineteenth-century incomes. However, this explanation can be ruled out on empirical grounds, for it seems fairly uncontroversial that twentiethcentury incomes are in fact higher. Then only the second explanation remains. If real incomes are higher but interest rates are not lower, then the
ceteris
paribus
clause can no longer be assumed true. Rather, the social time preference
schedule
must have shifted upward. That is, the character of the population must have changed. People on the average must have lost in moral and intellectual strength and become more presentoriented. Indeed, this appears to be the case.

From 1815 onward, throughout Europe and the Western World minimum interest rates steadily declined to a historic low of well below 3 percent on the average at the turn of the century. With the onset of the democratic-republican age this earlier tendency came to a halt and seems to have changed direction, revealing twentieth century Europe and the U.S. as declining civilizations. An inspection of the lowest decennial average interest rates for Britain, France, the Netherlands, Belgium, Germany, Sweden, Switzerland, and the U.S., for instance, shows that during the entire post-World War I era interest rates in Europe were never as low as or lower than they had been during the second half of the nineteenth century. Only in the U.S., in the 1950s, did interest rates ever fall below late nineteenth-century rates. Yet this was only a short-lived phenomenon, and even then U.S. interest rates were not lower than they had been in Britain during the second half of the nineteenth century. Instead, twentieth-century rates were significantly
higher
than nineteenth century rates universally, and if anything they have exhibited a
rising
tendency.
³⁶
This conclusion does not substantially change, even
when it is taken into account that modern interest rates, in particular since the 1970s, include a systematic inflation premium. After adjusting recent nominal interest rates for inflation in order to yield an estimate of
real
interest rates, contemporary interest rates still appear to be significantly higher than they were one-hundred years ago. On the average, minimum long-term interest rates in Europe and the U.S. nowadays seem to be well above 4 percent and possibly as high as 5 percent—that is above the interest rates of seventeenth-century Europe and as high or higher than fifteenth-century rates. Likewise, current U.S. savings rates of around 5 percent of disposable income are no higher than they were more than three hundred years ago in a much poorer seventeenth-century England.
³⁷

³⁶
See ibid., pp. 554-55.

Parallel to this development and reflecting a more specific aspect of the same underlying phenomenon of high or rising social time preferences, indicators of
family
disintegration
—"dysfunctional families"— have exhibited a systematic increase.

Until the end of the nineteenth century, the bulk of government spending—typically more than 50 percent—went to financing the military. Assuming government expenditures to be then about 5 percent of the national product, this amounted to military expenditures of 2.5 percent of the national product. The remainder went to government administration. Welfare spending or "public charity" played almost no role. Insurance was considered to be in the province of individual responsibility, and poverty relief seen as the task of voluntary charity. In contrast, as a reflection of the egalitarianism inherent in democracy, from the beginning of the democratization in the late nineteenth century onward came the collectivization of individual responsibility. Military expenditures have typically risen to 5-10 percent of the national product in the course of the twentieth century. But with public expenditures currently making up 50 percent of the national product, military expenditures now only represent 10-20 percent of total government spending. The bulk of public spending—typically more than 50 percent of total expenditures (or 25 percent of the national product)—is now eaten up by public welfare spending: by compulsory government "insurance" against illness, occupational injuries, old age, unemployment, and an ever expanding list of other disabilities.
³⁸

³⁷
See Cipolla,
Before
the
Industrial
Revolution,
p. 39.

³⁸
See ibid., pp. 54-55; Flora,
State,
Economy,
and
Society
in
Western
Europe,
chap. 8 and p. 454.