Thought Experiment 2 – What if the Islands develop States?
Updated: Oct 28, 2020
What happens in the world of Thought Experiment 1 when one or both of the hypothetical islands of ‘Britain’ or ‘Latin America’ create a state?
What happens in the world of Thought Experiment 1 when one or both of the hypothetical islands of ‘Britain’ or ‘Latin America’ create a state? Why would they do such an unwise thing? Why would they confer a monopoly of judgement and enforcement on anyone, which is the basic definition of the state.
One is reminded of the prophet Samuel’s response in the Bible to his fellow Israelites when they asked him to nominate their first ever king – i.e. to establish a state. They had been sensibly living without one under a system of judges. Samuel explained that a king would help himself to their possessions and probably women and be an all-round bad thing. And yet they insisted and Saul was installed. Well maybe they thought the Ammonites could only be defeated by a King? Perhaps they thought the appointment might be temporary, maybe more like a Roman style temporary war leader dictator? In which case they probably discovered like so many others that despotism is easier to install than to dismiss.
Anyway, I will be posting on the central libertarian topic of the state and war in due course. Meanwhile fellow players of the strategy game Civilisation IV may recall Leonard Nimoy intoning:
‘Those who would sacrifice a little liberty for a little security will lose both and deserve neither.’
Quite right. But we should return to our two-island thought experiment. We left them prospering in stateless societies happily sharing the benefits of international trade. But unhappily the peoples of the two islands mysteriously fall for the blandishments of the state - possibly due to an excess of arrack consumption, or paying too much attention to football.
Firstly, we should note that the Latin American islanders in their original situation cannot have a state at all because there are no surplus coconuts at all for it to live on. However, trade with Britain is then established on the basis of British savings/financial capital (i.e. unconsumed dried fish) and British investment (feeding the fish to boat builders) in the corresponding productive ‘physical capital – i.e. the boat. This boat carries fish and coconuts, and booze distilled from coconuts, between the islands. As a result of trade we saw that the ‘Latin Americans’ suddenly gained one hour daily available for leisure (football), or extra coconut collection (working to create savings) available in their society for the first time. The accumulated produce of that hour of labour could of course be reinvested in labour-saving physical capital in Latin America, or leisure. Or it could be stolen by a newly formed state. As an aside, if the British savers also invested in physical capital locally they would raise local production and living standards in Latin America. This investment too can be stolen by local states. And it often has been. However the politicos’ looting of British physical assets on the island of Latin America only lasts as long as the British persist in saving and investing there – so not long then, plus the time it takes for stolen British assets to rot away. Without fresh savings to fund their maintenance they won’t last either. Once the wealth is consumed, you get steady decline. An example would be Argentina which, like Venezuela, used to be in the top tier of nations in standard of living terms and is now far from it. It may be worth noting that Britain had 40% of worldwide shipping as late as 1939 and a similar share of Latin American trade. The trade was really benefitting both places until Democratic and Totalitarian Socialists messed up on both sides of the Atlantic.
Let us assume that the ‘Latin American’ islanders began by using the one hour per day of leisure created by trade in ‘Thought Experiment 1’ for a mixture of playing football and some modest savings and investment. But then the state seizes produce of the whole hour of daily work earlier freed up by the benefits of trade with Britain. There will be no more domestically sourced savings and investment because there are no spare labour hours left to collect and save coconuts. With no financial capital to fund maintenance, still less expansion, of productive physical capital, society loses whatever gains local investment may have created Nor is there likely to be British investment to fill the gap.
Whoa there, boy! Hold on to your horses, you may say. Why would Democratic Socialist governments, in particular tend to expand until they consume all the available surplus labour capacity in a society? Without wishing to repeat the whole corpus of Austro- libertarian analysis here, the following points may help explain the matter:
1) If some people can steal from you with no recourse for you in law, they will.
2) Vote buying schemes cost more than expected as people adapt to them.
3) Democratic elections give you no hold on the spendthrifts.
4) Monopolistic state services operate inefficiently on a cost-plus basis and consume more and more.
5) Intervention creates bad unintended consequences ’justifying’ more theft.
Now back briefly to the island of ‘Latin America’. Ironically the island’s government owes its very existence to the continuing coconut for dried fish trade with Britain. This is carried by the boat built by the reviled ‘oppressor’ islander savers and capitalists on Britain. If that boat is not replaced – for example because of state crowding out of savings in Britain - then the ‘Latin Americans’ will be forced back to their hard lives before trade. They will lose their fish and arrack imports. Worse, they must again work all available hours collecting coconuts just to achieve a mere subsistence. No daily hour of working for the state will be possible. The new state will therefore be dissolved regardless of however many people it shoots.
Creating a big state on the fortunate, if fishy, island of Britain is obviously all too possible. We saw that if the population decides to work more it can produce enough fish to keep up to half the population engaged in other activities. In a free, non-state (but I repeat myself) society these activities could include watching football, or accumulating dried fish savings to feed boat builders or workers on other physical capital projects at home or abroad. But with a new state making its presence felt, potential extra dried fish output (potential savings) will be forcibly redirected to state employment and consumption. The corresponding investment in maintaining physical capital must necessarily fall in line with diminished savings. Eventually the state consumes the produce of the whole 50% of potential output (see above for why) which was previously available to the inhabitants. As a result, physical capital assets simply cannot be maintained or replaced. The boat rots away and inter-island trade ends. Trade’s benefits for both islands vanish along with it. No more coconuts or booze for the Brits. As we have seen, the state itself on Latin America island also vanishes, but not unfortunately on Britain island. Not being schooled in economics, neither population will have the foggiest notion about why life suddenly just got a lot harder, and their diets duller, courtesy of the revered British state’s inexorably growing demands. The productive and fortunate if deluded British islanders are thus also reduced in due course by the demands of the state to the same condition as the Latin Americans. They must also work all day, pay-cheque to pay-cheque, just to get by, often living next to the wreckage of defunct physical capital which used to make life easier. Sound familiar? It should. The state on the island of Britain won’t be liquidated, unfortunately, until it eventually completely trashes its currency, credibility and tax base. At that point people notice they are working half the time for nothing. The fishermen could all decline to work the half day that they spend fishing to feed the state. In any case the liquidation of the British state, or at least its radical downsizing, becomes inevitable. As that point approaches free fishing libertarians should speak up. The idea that the state just may not be essential, or even any use at all, could be an idea of interest to many others. One might note that having a population working all labour hours God gives on both islands implies that all women as well as men work full time. This work effort could be a positive mobilisation allowing all to engage in voluntary savings and investment, and/or in leisure and sport. Or it could just be forced state servitude. Has labour force participation of women been pumped up just to meet the demands of the proliferating tax system? I’m betting many women (and not just women) in the real world at home during this lockdown may be reappraising the delights of full time, taxable employment. I’m just saying is all ….