Beautiful article. I found this site just today, and have devoured a handful of articles, already.

I’ve been into Ayn Rand for a while, and knew the similarities in philosophy between hers and von Mises’s, but up until now, I hadn’t studied the latter.

Thank you for a great article, and to all who make possible this site. I shall be a regular reader!

To freedom,

Scotty

“In other words, all governmental departments, whether in a liberal or a totalitarian government, must operate bureaucratically, not according to business principles.”

I see this differently. Even government departments work according to business principles, in that the human actors who work in and control the departments wish like all other humans to maximize their returns (financial and otherwise). Just like lower-level workers in a private business, the lower-level bureaucrats are in it for the paycheck. The upper-level workers, the bureaucratic mandarins, receive a paycheck plus bonuses in the form of kickbacks on the contracts they supervise, and the opportunity for significant post-retirement income in the form of consulting gigs and various types of jobs such as board positions, etc. with contractors and with various governmental and quasi-governmental organizations with whom they had previous official dealings. The politicians at the top of a government department are like the board of directors, who represent the shareholders.

But the average member of the public is like a minority shareholder who has in practice no effective influence over the organization of which he is a nominal owner. Politicians do not win elections by appealing to the broad public as such, but by cultivating certain narrow, geographically concentrated and well organized blocks of voters, who are inevitably dependents of some kind on government spending. They also cultivate certain large corporate groups who, in return for government favors, contribute enormous amounts of money and propaganda effort to political campaigns and essentially make the difference in almost any election between winning and losing. These constituencies, the strategic voting blocks, the large political donors, the licensed media and subsidized academics are what you would call the controlling shareholders.

So just like any corporation, a government department works according to the profit and loss considerations calculated by the various actors who influence it. But of course there are major differences in the means available to a government department compared to a corporation working in a free market. The most important difference is that of coercion. Coercion exists for the sole purpose of giving the government department the special status of a monopoly.

The article does not mention the word monopoly, which I think is the single most important difference between private corporations and government departments. Government departments are by definition coercive monopolies. Even where they do not explicitly forbid competition (as for the post office), they tend to crowd out any competition by upsetting the market with regulations and subsidies which leave private actors with little opportunity to create a competitive market (as with medical care).

The single largest difference between the way that a monopoly operates compared to a non-monopoly, is the difference between the methods which must be used by the actors in each type of organization to maximize their returns. A non-monopoly must work as efficiently and effectively as possible in order to satisfy its customers’ demands, or it will quickly lose them to its competitors. A monopoly has the opposite incentive. Providing efficient and effective services will only minimize the returns of a monopoly, because it will solve the problems that its customers were having, and they will go away happily with their remaining cash in their pockets to be used for other expenditures. There is no upside to running a monopoly well, because there is no extra business to be won from competitors. Instead, the primary motivation for the people who control a monopoly is to run it as inefficiently and ineffectively as possible. This leads to greater revenues as its services and products become more expensive. It leads to greater and greater political pressure to “do something” about the problem, which leads to more and more money and power being conferred on the monopoly.

The benefits conferred to the people working in an inefficient government department are the same as for the employees of a private corporation which has a hot product – higher salaries, higher headcounts with more opportunity for promotion and for hiring one’s friends and family, bigger office budgets with nicer accommodations, more perks, more opportunity for enjoyable travel junkets, and more gifts and other kickbacks from contractors and suppliers.

There is no remedy available to the average shareholder, because unless they are part of an organized voting block or they have enormous financial means, their opportunity to make any difference at an election of the board of directors is virtually nil. And the nomination of candidates for these elections is even more subject to block voting, insider manipulation and influence peddling than the elections themselves, so that the opportunity of casting a vote for a better slate of directors for Government, Inc. is a rare event.

Politics is the art of running monopolies so that the biggest losers of the monopolistic practices are widely dispersed and difficult to organize in the form of self-defensive voting blocks, while the smaller number of beneficiaries of the monopolies are highly concentrated and organized in such a way that the monopolies can be maintained for the longest possible time.

Thank you Henry for this analysis. You present some good rational thought on why governments do what they do. I believe that it is actually the ability to use deadly force that guarantees the immorality of government. Once one grants the use of deadly force to a group, it is from that point on and inevitably a criminal enterprise.