The State by Anthony de Jasay (38 page)

One object of these musings is to underpin my contention that putting two theories of price levels (and embarrassingly calling one of them "monetarism") in the centre of excited controversies of a near-religious kind, is beneath the intellectual quality of certain of the protagonists. The controversy is either spurious, or it is implicitly about other things and the debate would gain by making them explicit.

1. My other object in insisting on the essential equivalence of the reputable theories is, however, to make sure that no pretence of innovation shall be read into the nutshell explanatory scheme I am about to put forward. It is merely another brutally abridged "translation" of received theory, largely running in the terminology used in the previous section of this chapter. Why it may be just worth making, and how it has its proper slot in the entire argument of this book, should become clear as we go on.
   
 

2. Take a society composed, for simplicity, only of organized interest groups. Each sells its particular contribution to the wellbeing of the others and buys theirs. The number of such groups is finite, hence each can influence its selling price, and we shall assume that all have done so in such a way that none can better its position. Let the advent of the millennium transform the membership of each group into like-minded altruists, who now engage in collective action to make the members of the other groups better off (without minding that this may impoverish their own fellow group members). They lower the price of the good or service they contribute, trying to improve the terms of trade for the others. However, as the others have become similarly inclined, they "retaliate" by lowering their prices, not just to restore the original position, but to overshoot it since they want the first group to become better off than it was to begin with. The first
   

group then retaliates, and so on. There is no built-in reason why the leap-frogging process should stop at any particular place, after any particular number of inconclusive rounds. The several "pricemakers," competing to make their contracting parties better off, will generate a rush of falling prices.

1. The near-perfect obverse of this millennium is, of course, some approximation to modern society as it has been taking shape in the last half-century. Over this period, while prices of assets have been known to move both up and down, the price "level" of current goods and services has never fallen. Much of the time it has risen, and the tone of current discourse would suggest that this is now quite widely accepted as an endemic condition, to be lived with and kept within bounds by one means or another (without serious hope of eradication). Endemic inflation would, of course, be generated by a society of self-seeking interest groups where vain attempts to gain distributive shares produced interaction in an upside-down mirror image of the imaginary interaction of the altruists described in the preceding paragraph.
   
 

2. Progressively better articulated versions of an explanation running in terms of attempted gains and refusal of the matching losses, can be easily conceived. We could take a state-of-nature society where interest groups, having bargained and reached stalemate, are merely seeking to protect (rather than actually enlarge) their absolute and relative shares. Though they would accept windfall gains, they refuse to take windfall losses. (Perhaps unfairly, this would be my concise reading of the idea found in much of modern Panglossian macro-sociology, of pluralistic equilibrium resulting from the reciprocal adjustment of all major adversary interests, with no one ending up very angry.) Any exogenous shock (unless it is a windfall gain, by a fluke enriching everybody in the same
   

proportion) must consequently set off an inflationary spiral. The theory provides no reason why, once started, the spiral should ever stop, and no element governing its speed (or its acceleration). However, it accommodates reasonably well the classic war-and-harvest-failure type of causation, while ascribing to the structural features of society the reasons why price stability, once lost, cannot be regained (i.e. why inflation fails to do its job).

1. Making the customary one-way passage from state of nature to political society, such a theory can spread its wings and fly. Instead of being an exogenous shock, here the tug-of-war about distributive shares is not set off by a shock from outside, but is generated by the system itself, endogenously. It is what the interaction of the state and interest groups (including single business corporations at one end of the scale, entire social classes at the other), is mostly about. From here, it is a natural step to go on to some heavily politicized variant of the theory, with redistributive gains, due to state-oriented group action, setting off either market-oriented or state-oriented counter-action or both by the losers, including such lusty hybrids where a losing group acts against some section of the neutral public (e.g. truckers blocking highways and streets) to force the state to make good its loss.
   
 

2. A properly articulated theory might further incorporate such elements as inertia, money illusion or the differential power of various groups over their own terms of trade. It should allow for the stealthy nature of much redistribution due to the vastness and sheer complexity of modern fiscal and economic policy "toolboxes," the frequently uncertain incidence of policies, as well as the seductive optical trick whereby incremental budgetary expenditure effects "real" redistribution in the present while the incremental budget deficit ostensibly shifts the "financial" burden
   

to the future. The stealth inherent in the mechanics of many forms of redistribution-overt to the gainers, covert to the losers-for all that it is largely fortuitous and unplanned, may be supposed to lead to delayed or only partial counter-moves on the part of the losers; so that inflation may not nullify all redistribution. Once no one who can help it will give any more way, however, further redistribution at their expense is ex hypothesi bound to fail. As long as the attempt to do so continues, inflation to frustrate it must continue, too. If the nature of democratic politics is such that the attempt is endemic, so must be inflation.

1. A less abstract scenario would have a role written in for some unorganized section, stratum or function of society, captive bondholders, small savers, widows and orphans (and all sufferers from "liquidity preference"), which would have to end up losing if the gainers agreed to by the state were to gain, yet the designated losers manage to recapture the loss they were supposed to undergo. Inflation will, so to speak, "search out" and wrest from weak hands, if there are any such, the resources the gainers were intended to gain. It will have acted as a cure of the resource imbalance. Having dealt with its own cause, it could then abate. The corollary is that once everybody is equally worldly-wise, organized, alert and absolutely determined to defend, in the market, in the picket line, in the party caucus or under banners out in the street, whatever he holds, inflation becomes powerless to change distributive shares. It becomes instead one of the more powerful means by which such shares are defended against pressures originating either in the political process or in nature.
   
 

2. A theory of inflation couched mainly in terms of the bulwarks the democratic state helps build around the very distributive shares whose manipulation is perhaps its principal method of staying in
   

power, need not offer an explanation of why these shares are what they are to start with, nor why interest groups have a particular degree of price-making power. It can, of course, be plugged into the main corpus of economic theory which does contain such explanations. The plugging-in would in fact be the natural sequel to the "translation" of this sort of vaguely sociological and political discourse into more rigorous economics of one kind or another. The exercise, however, would only serve to lay bare the relative lack of novelty of the present approach, whose real claim to a raison d'être is not that it helps understand inflation but that, through looking at the use or uselessness of inflation, it helps understand the mounting contradiction between redistribution building consent for state power and promoting the very conditions where society becomes refractory to its exercise.

4.4.12
In the section on addictive redistribution, I proposed the thesis that as democratic values are produced, ever more people get, use and come to require public aid, whose availability teaches them to organize for getting more of it in various forms. A consideration of inflation readily furnishes the antithesis. Redistribution changes personal, family and group character in such a way as to "freeze" any given distribution. In breeding "entitlements" and stimulating the rise of corporatist defences of acquired positions, it makes redistributive adjustments ever more difficult to achieve. Ringing the changes, "making policy," erecting any novel pattern of gainers and losers overtaxes statecraft. If some overriding fact of life makes it imperative that there be losers, withdrawal symptoms start to show, tantrums are thrown, latter-day Luddites yield to the death wish and wreck their own livelihood rather than see it diminish, while misinvested capital moves heaven and earth to be rescued. If the state finds society "ungovernable," there is at least a presumption that it is its own government that has made it so.

4.4.1
3

Author: Jasay, Anthony de Title: The State

Anthony de Jasay

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4.
RedistributionChurning

A cascade of gains whose costs must be borne by the gainers themselves, ultimately breeds more frustration and morose turbulence than consent.

1. Democracy's last dilemma is that the state must, but cannot, roll itself back.
   
 

2. Whether by simple-minded tax-and-transfer, or by the provision of public goods mostly paid for by some and mostly enjoyed by others, or by more roundabout and less transparently redistributive
   

trade, industrial etc. policies, some of the state's subjects are on balance being hindered so that others may be helped. This holds true regardless of the aim of the exercise, i.e. even if the redistributive effect is an incidental, indifferent, unintended and maybe unnoticed by-product. The general common feature of these transactions is that on balance the state is robbing Peter to pay Paul. They are not "Pareto-optimal"; they would not get unanimous assent from a self-interested Peter and Paul. In this sense they rank below "social contracts" of the type where sovereign coercion is called in only in order to assure everybody of everybody else's adherence to a cooperative solution, so that Paul can gain without Peter losing (in Rousseau's infelicitous phrase, so that both can be "forced to be free," i.e. better off than either could be without being forced to cooperate).

4.5.2 They rank below the some-gain-and-none-loses type of arrangements, not because we always prefer an arrangement where Paul gains without Peter losing, to one where Paul gains a lot and Peter loses a little. Some would regard it as positively good to take Peter down a peg or two. There may also be some other ground for favouring one over the other even if we do not believe that deducting one's loss from the other's gain to find the true balance of good makes sense. The some-gain-and-some-lose type of arrangements are inferior to the some-gain-and-none-loses sort only because the latter are ipso facto good (at least if envy is ruled out of the calculus), while the former require a ground on which to base the claim of their goodness. Gainers-only arrangements requiring coercion are interesting intellectual constructs. It is a moot point whether they really exist in reality, or that, if they do, they play an important part in the relations between state and society.*26 Some-gain-and-others-lose arrangements, on the other hand, are what consent and the
adversary relations between state and subjects mainly revolve around.

1. Before having one last look at the dead end the state seems fated to manoeuvre itself into in the course of dealing out gains and losses, it seems to me necessary, and more than just pedantry, to protest against a spreading misconception of the very mechanics of robbing one to pay the other. For some time now it has been the custom to consider the fiscal functions of the state under the headings of allocation and distribution.*27 Under allocation are subsumed the who does what decisions about providing public goods, "steering the economy" and making sure that markets perform their work. Distribution as a fiscal function deals with who gets what, with undoing the markets' work. The conceptual separation has led to treating these functions as a sequence, inducing social engineers to roll up their sleeves and set to work: "First we allocate, then we distribute what the allocation has produced." The supposition that, in a system of strong interdependences, distribution depends on allocation but allocation does not depend on distribution, is remarkable.*28 Those who so blithely make it, would in fact get quite cross if it turned out to be valid. If robbing Peter did not result in his consuming less champagne and fewer dancing girls, and paying Paul did not lead to his getting more health care and to his deserving children staying longer at school, why did the social engineers bother at all? What did the redistribution accomplish? The decision to let Paul get more and Peter less, is implicitly also a decision to allocate ex-dancing girls to teaching and nursing. This fails to be true only in the freak case of an impoverished Peter and an enriched Paul jointly requiring the services of the same total "mix" of dancing girls, hospital nurses and schoolteachers as before.
   
2. Carrying on from the allocation-distribution dichotomy, liberals consider that politics is about two different sorts of domains. One is the basically non-conflictual one of allocation, giving rise to "positive-sum games." The other is the grimmer, conflictual who-gets-what domain of "zero-sum games." (Note again, as in chapter 3, pp. 176-7, 180, that as these are not games, the invocation of game theory language is a little trendy, but let that pass.) I have insisted, perhaps more than sufficiently, that these alleged games cannot be played separately, and that allocative decisions are at the same time distributive decisions and vice versa. A who-gets-what decision conditions what shall be provided and hence who does what. Emancipating one decision from the other recalls the Marxist ambition to distinguish the "government of men" from the "administration of things."
   
 

3. While it may be legitimate to view changes in allocation as capable, if all goes well, of yielding positive sums so that mathematically nobody need lose as a result of the change, what do we say if somebody did lose? It is no use saying that the loss is really attributable to an attendant zero-sum distributional decision, and that if only the distribution had been different, the loser need not have lost; since a different distribution would have entailed a different allocation. The statement about the two decisions would be incoherent even if it ran in terms of sums of money, or apples, for we could not just suppose that the allocative gain would have been preserved if we had tried to distribute it differently. It would be doubly incoherent if it ran in terms of mixed bundles of goods, let alone utilities, for this would strike many people as an attempt to seek the residual balance between more apples for Paul and fewer pears for Peter.