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Re-inventing anarcho-capitalism in a French context.

Alexis de Tocqueville remarks (Democracy in America) that a size comparison of budgets between the early United States of America and the post-French Revolution Republic would be misleading. The Americans had dispersed their governments, while the French government had grown centralized.

The American budgets included allowance for waste caused by decentralization, but more importantly, he says, Americans expected that problems would be dealt with by local or state governments, or by charities and civil associations. They would handle even problems that the French public expected to be handled by the government. (Charity for the poor or orphaned being a case in point.) This observation may still be true; American foreign aid as a percentage of GDP are less than European aid, but competitive when private charity is included.

This difference in culture is one of the themes in de Tocqueville’s work. Cultural differences are his major explanations for why the French Revolution was so much more horrifying and unstable compared to the American Revolution. Tocqueville remarks, in a chapter comparing the morals of democratic & aristocratic societies, that in the past 50 years, no man had died for his politics in North America. This hyperbole is not strictly true - consider Alexander Hamilton or David C. Broderick, and Presidential assassinations - but sobering if you compare the respective magnitudes.

But then, one of the remarkable aspects of post-Revolution France was the growth of its territory under Napoleon and the growth of its government. That both occurred simultaneously is a little odd. The two growths needn’t be linked, after all - the British Raj was administered with 500 Englishmen1, and the American empire (Philippines etc.) did not bring with it the growth in government seen later with the New Deal & WWII. The military historians have spent centuries studying exactly how the Republic & Napoleon could control most of Europe, so the growth of government is a more interesting question.

Meet the New Boss

Ironically, neither Revolution much changed the actual administration of government. One change, thanks to the Enlightenment’s interest in Confucianism, was the attempt to shift the army & bureaucracy wholesale into the ‘civil service’ model: educated middle-class employees, with a fixed salary, employed for long periods. In particular, the judicature was made a lifetime appointment on good behavior, admitting only highly-qualified and experienced lawyers to the judicial black.

Previously, many positions and roles were filled by sale, or ‘barratry’. (The ecclesiastic analogue, ‘simony’, was common but not important for us.) For example, a tax collector for a district would be the highest bidder; the ‘salary’ was what the bidder could collect beyond what he had paid the monarch.

No doubt your good little democratic soul recoils at this practice - why, it’s even worse than outright nepotism or bribery! The system is utterly perverse: it doesn’t merely allow, but forces the officials to be corrupt, and the whole system is ripe for abuse. Tocqueville hated it:

Louis XI had limited municipal freedoms because their democratic character frightened him; Louis XIV destroyed them without being afraid of them. What proves this is that he returned their liberties to all the towns that could buy them back. In fact, he wanted less to abolish their rights than to buy and sell them, and if in fact he did abolish them, it was without intending to, purely because it was financially expedient; and oddly enough the same game went on for eighty years.

Seven times, in that period, the right to elect their magistrates was sold to the towns, and when they had once again become accustomed to the pleasure, it was taken away from them in order to be sold once again. The motive behind the action was always the same, and often openly admitted. “Our financial needs”, it states in the preamble to the edict of 1722, “require us to look for the most secure means of meeting them.”

The means were sure but disastrous for those who fell under this strange tax. “I am struck by the huge sums which have always been paid to redeem municipal offices”, writes an intendant to the controller-general in 1764. “The sum of all that money, expended in useful works, would have been to the profit of the town, which, however, has experienced only the weight of authority and the privileges of the officeholders.” I cannot find any more shameful aspect of the old regime anywhere.2

When Is a Tax Not a Tax?

But let’s take a contrarian view, perhaps an anarcho-capitalist one. What is bad about it?

Consider the case of the towns. They had a choice about whether to ‘redeem’ their offices or not. That alone ameliorates the offense; an optional tax is much less offensive than a mandatory one. And suppose they had chosen to not redeem the election of the magistracies? Then presumably the right would have reverted to the King, who would then have appointed his own.

Is this a bad thing? Let’s consider.

Either the King can be defied or he cannot be defied; he is either king or not king, able to enforce his decisions or not able to. If he can be defied, then the town is no worse off for the demand as it can both not pay & simply elect the magistrates it wants if the King’s choices are suboptimal. If he cannot be defied, then he can appoint whomever he wants. But, you say, what if he appoints a bad’un, or just an indifferent one, when the wise locals familiar with their peculiar area & issues could select an eminent town father instead?

Well, if the King is bad at picking magistrates or he is malicious, then the town is screwed. Since he cannot be defied, he could do other things, such as simply impose a massive tax or order the town razed. He could appoint magistrates regardless of whether or not the town pays; if one must trust the King in great matters, then it’s little worse trusting him in small matters. If he maliciously appoints magistrates upon nonpayment, the town has larger issues to worry about.

I’ve not heard of Louis XIV frequently besieging and leveling his towns, and France did reasonably well under him; we can probably assume that he wasn’t too incompetent or malicious. So the town might not be worse off letting the king pick the magistrates. (It’s worth noting that local rule is not always better; the Romans had a long-standing rule that none could be governor of their birth province3, and the British Raj provided better government and law to the patchwork of maharajahs it conquered.)

Selling offices might not be such a bad thing. Revenue has to be raised somehow, and selling offices is more easily controlled than sending the soldiers out to shake down the peasants and less economically destructive than debasing the coinage. Indeed, if we squint, selling offices could have all the advantages of capitalism.

Defending Markets in Everything

Pros: Supply & Demand

Suppose we have a district which needs 1 judge. The king sells the judgeship for a year to some distant noble, who gives it to his capable (yet disinherited) 7th son.

The son knows that the judgeship cost, say, 1000 French livres. If he doesn’t have 1000 livres ready-money at the end of the year, he heads home in shame. And say there are 100 cases a year - these farmers are a bumptious lot. So the judge will want an average of at least 10 livres in bribe money per case, or 5 livres per side of a case. (We’ll use ‘case’ for each major judicial task, and use ‘bribe’ to refer to all compensation, fee, bribe, or otherwise.)

But the judge in the neighboring district only paid 500 livres, and is charging each side 2.5 livres! So now all the infatuated yet penurious youngsters are walking a few miles to the next town and paying that other judge to marry them. What’s the original going to do - refuse to recognize the marriages? His authority from the king doesn’t cover undoing the actions of another judge (and for good reason - the King knows that it would be tantamount to anarchy).

So here is competition of a sort, preventing the judge from capturing most of the value flowing through the district’s transactions.

But there’s competition within a district as well as between districts.

Perhaps the case must be settled by the first judge and not the neighboring. Let’s say the case is over ownership of local property (worth 100 livres). What the neighboring judge says is irrelevant - this is something the first judge has near-exclusive jurisdiction over. Villainously steepling his hands, he demands that the 2 sides engage in a bribery war. But if the plaintiff offers 1 livre, then the defendant will offer 2 livres (because 100 > 2), and then the plaintiff will offer 3, and so on right up to 99 livres, leaving one side with 0 livres, and the other with just 1. (This is similar but not identical to a dollar auction.)

The next such case that comes up, the 2 sides mutually agree to cut out the judge entirely & to just flip a coin, since an expected value of 50 livres beats the 1 livre left after a bribery war. The judge, not being a fool, realizes that he cannot charge more than 50 livres; and if there should happen to be some cheaper arbitrator like a village elder? Then he might have to charge even less. If he’s not careful, he’ll cause the formation of an entirely independent private legal & commercial system from which he cannot extract bribes (such systems are not uncommon; eg. hawala or the Lex mercatoria4).

But the judge can’t even charge up to the costs of the private legal system! Suppose the district has 100 transactions a year (as before), the alternative system costs 15 livres per transaction, and that the judge costs 14 livres a transaction (giving him 1400 livres: 1000 to buy the position next year, and 400 livres to live nobly), but there is a village elder willing to be a judge for 50 livres (regardless of how many transactions). Now the village can’t resort to the alternative system, but now it has an incentive to go collect 10 livres from the parties of the 100 transactions, scrape together another 50 for the elder (who has agreed to do transactions for 0 livres, aside from his salary of 50), and throw in another livre - paying the king 1001 livres. The judge is now out of a job, and the villagers have now paid just 1051⁄100, or 10.5 livres per transaction, or a district-wide savings of 350 livres (1400 − 1051).

So the judge can’t charge more than the neighboring judges, more than the expected value, more than the cost of alternative legal systems, or more than would make it profitable for the villagers to collectively buy his position.

That’s quite a few limitations.


Sovereign Abuses

One might point out that there is a different incentive for the sovereign - to constantly permute government offices & dispossess those who hold office at its pleasure (such as the town example). The Ottoman Empire engaged in this sort of ‘planned obsolescence’, if you will:

“[Turkey in Europe, by ‘Odysseus’] says (p. 86) that so far back as the eleventh century a Vizier (Nizami-‘l-Mulk) wrote a work called ’The Science of Government’, in which he ‘recommended that provincial governors and agents should be often moved, and not allowed to become too powerful’. Speaking of the period of Turkish history when the Phanariots had risen to positions of importance, he says (p. 309): ‘Hospodars, dragomans, and patriarchs alike bought their offices for enormous sums… The Porte changed them all as often as possible, in order to increase the number of sales, but left them a free hand in the matter of filling their own pockets.’”5

The counter-measure on the part of office holders is to prefer offices with fixed terms, or to lower their bids to reflect their expected tenure. From the judge example, if the son expects to be a judge for only 6 months, then he will only bid half the yearly sum. If he loses the position to someone else, so be it: the winner will suffer from winner’s remorse and not he. He can find better investments for his 500 livres. The king may be able to exploit a few suckers, but he will run out sooner or later and be forced to accept a lower & fairer bid. (Or if there really are that many gullible wealthy office-buyers, then the king has hit upon a highly progressive taxation scheme!)

Or the king could create swarms of offices. Selling many offices a few times is as good as selling few offices many times.

But if the offices are empty, who will purchase them? In our day, few people seek to purchase or marry into honorable yet worthless titles, and the only titles respected are the ones either extremely high (Americans scoff at anything less than royalty), or are well-merited (England’s knighthoods).

And if the offices are not empty, if they come with remunerative opportunities or power, then where could those powers or opportunities come from, but another office? It is a zero-sum game.

If the sovereign is regularly expanding his domain and has new positions to fill, some office-holder is losing out on opportunity to gain by selling or filling the office himself. Suppose a district grows and now requires 2 judges to handle all cases; the King may sell a new judgeship, but by doing so, hasn’t he deprived the attorney-general of the opportunity? As the economists will tell you, a loss of a gain is as bad as a gain of a loss.

Thus, traffickers in barratry can be expected to oppose such abuses by the King, or indeed any change from the status quo:

“…[France and Spain] both had close personal and political ties to the Curia. Thus, it seems very likely that they were following the lead of the papacy in selling offices as a financial expedient to pay for their military ventures. Alas, venality was a Rubicon of sorts. Once created, venal offices were virtually impossible to destroy; for venal officeholders became powerful veto holders, who would oppose reform tooth and claw, something that the great French ministers of state from Richelieu on would learn to their chagrin.”6

Official Abuse

Perhaps the sovereign has no incentive to monkey around if there is an efficient market for offices. But the sovereign is just one piece of the puzzle. What about the officials themselves? What stops them from being the sponsored creature of some private interest, such as corporations? Regulatory capture is an issue with salaried civil services despite many laws and regulations; doesn’t a system of barratry make regulatory capture universal? There are many businesses which would like to legally buy an official.

But what one business buys today, another can tomorrow. If there are 2 companies competing over land usage - a railroad & an airline - and 1 judgeship would decide the issue, then the resolution is simple: whichever is more profitable will be able to outbid the other, leading to a more efficient outcome (just an application of the general capitalistic principle that the high bidder is more worthy of resources than the unprofitable losers). As with this instance, so with them all. In the end, all offices will end up being controlled by whomever they are most valuable to; this is the Coase theorem in action.

Who Watches the Salarymen?

On the gripping hand, salaried bureaucracy has its own abuses:

  • when large enough, the bureaucracy can literally vote in candidates who promise it money or increased funding7

  • it inherently seeks to aggrandize itself; see Parkinson’s Law

  • disconnected from the market-place, it has all the vices of capitalism (corruption) and none of its virtues (an inherent pressure towards competence) The low salaries which at first seem to be more economically efficient also mean that officials can be corrupted for trivial sums - federal senators and representatives will scurry to do the bidding of donors who gave a few thousand dollars.

  • Institutional inertia can mean the administrative tail wags the elected dog. (Here we have the reverse of offices churning faster than kings!)

  • The civil service exams do not assure competence

  • In the case of China, the stress on ossified academic qualifications has been cited as having been a malign influence on the wider culture

Does selling offices remedy all of those ills? As we have seen, there is competition from official peers, so tenure is never assured & greed is punished by customer counter-measures. Individual officials are like a salesman working on commission, have an incentive to handle as many duties as possible: useless subordinates are just soaking up bribe-money the official could pocket. And as a whole, office-holders seek not an expansion of government bureaucracy, but a diminishment. Certainly they would not vote for a Napoleon III who will add millions to the civil service & dilute their dearly-bought prerogatives.

Does it fall prey to abuses of its own? Might it be a cure worse than the disease? Well, it is somewhat notable that most Western industrialized democracies do not sell any but the highest offices, and they generally are at the very top in various measures of governmental & economic efficiency. But it’s also worth noting that some governments like Singapore pay officials astronomical salaries to elicit performance, sums likely surpassing what they could earn via bribes. Further, many countries (particularly in Africa) with civil services and bureaucracies modeled after the Western exemplars wind up with administration worse than they had before, as rife with corruption & incompetence, though focused at simple nepotism or minimal personal exertion - suggesting that the superior Western performance may simply be a reflection of other factors such as being wealthy industrialized Western nations or culture, and not due to superior bureaucracy. I’ve not heard that the US federal government signally improved when patronage was officially ended in the late 1800s, for example, and Britain during the height of empire continued to sell off military and foreign positions.

  1. “How ridiculous it is that a few hundred Englishmen should dominate India, a continent as big as Europe!” –Josef Stalin, to Joachim von Ribbentrop (quoted pg 2 of Looking back on India by Hubert Evans, and pg 176 of India’s Bismarck, Sardar Vallabhbhai Patel by B. Krishna; cf. the review of David Gilmour’s The Ruling Caste: Imperial Lives in the Victorian Raj)↩︎

  2. Alexis de Tocqueville, Book 2, chapter 3 of The Old Regime and the Revolution (translated by Alan S. Kahn; ISBN0-226-80529-8)↩︎

  3. Edward Gibbon, Decline and Fall, c. xvii↩︎

  4. See also “History of the Law Merchant”↩︎

  5. Lord Cromer, Ancient and Modern Imperialism (Google Books copy)↩︎

  6. pg 187, “The Little Divergence: The Protestant Reformation and Economic Hegemony in Early Modern Europe”, Philip S. Gorski, chapter 7 of The Protestant Ethic Turns 100: Essays on the Centenary of the Weber Thesis (2005), ed. William H. Swatos Junior & Lutz Kaelber, ISBN 1-59451-098-9↩︎

  7. See, for example, Philip Greenspun’s review of a study of public-sector unions, While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis:

    Once a sufficiently high percentage of voters are unionized public employees, there is essentially no limit to the obligations imposed on the state. Because it would cause too much backlash from non-union non-government employed voters, most of the money extracted from taxpayers will be taken in the form of long-term health care and pension promises. A voter working at Wal-mart gets upset hearing that a bus driver is earning $182992.66$1300002009 per year. If instead the bus driver is paid $98534.51$700002009 per year and able to retire at age 41 (MBTA here in Boston), it is tougher for a voter to figure out how much is being spent..

    Karl Marx’s The Eighteenth Brumaire of Louis Napoleon (Chapter 2) also comes to mind:

    On the other side is the President, with all the attributes of royal power, with authority to appoint and dismiss his ministers independently of the National Assembly, with all the resources of the executive power in his hands, bestowing all posts and disposing thereby in France of the livelihoods of at least a million and a half people, for so many depend on the five hundred thousand officials and officers of every rank….