De Jouvenal on the Public Loss Function

The notion of a loss function is the basis of total quality management. Quality losses appear when the realization of an output deviates from its target qualities. For instance, if a nail is supposed to be 6 inches long, and it comes off the conveyer belt measuring 6.0000001 inches, the .0000001 is a loss. Total quality management is a process of reducing the loss by investigating deviations that are more than three standard deviations from the target.

De Jouvenal argues that Power, the governing elite, derives historically from conquest. In European history this took the form of the conquest of the Roman territories and Rome itself by the Franks, Goths, Angles, and other Barbarians. In China this took the form of the unification of China by the Duke of Zhou and Qin Shi Huang's reunification following the warring states period. Qin, by the way, buried China's scholars alive, a fate I have dreaded after seeing the movie The Vanishing.

The monarch or leader of the conquering tribe exploits the conquered population rather than kill them. The invention of slavery reduced the amount of killing because the conquerers learned to make use of the conquered economically. The king realizes that the nobility, the leaders of his army, pose a threat to his power. Over time, perhaps multi-generationally, the king realizes that by taking the side of the conquered against the nobility he can reduce the power of the nobility and enhance his own power. This happened in England in the 1500s. The establishment of the Chinese Civil Service was within roughly two centuries of the Qin Shi Huang's reunification of China. In America, the Progressives, representatives of big business, realized that they could work with populist and socialist movements by saying that they were against the trusts, and in doing so bring regulations that attacked the rising entrepreneurs and benefited big business to bear. Thus, the king creates a bureaucracy or civil service that aims to provide social benefits in order to unite the people against the nobility. This occurred in modified form in the United States. Abraham Lincoln had enhanced federal power in the 1860s, and Progressivism appeared within 40 years.

Ultimately the people realize that the king can be replaced with the popular sovereignty or national will, which of course are non-existent imaginings. The king is deposed and democracy replaces the monarchy. The unlimited definition of democracy, in turn, leads to tyranny. Thus, the French Revolution led to killings by Jacobins, Robespierre and the Committee of Public Safety; the democratic revolution of Sun Yat Sen led to the tyranny of Mao Tse Tung; and the overthrow of the Czar led to the Bolshevik Revolution.

In America De Jouvenal's model does not apply exactly because there was no monarch. Also, Rousseau's unlimited theory of democracy did not take hold. Rather, Lockean liberalism limits the power of democracy. Hence, the tyrannies and suffocating power of government that took hold in backward Europe and Asia did not occur here. However, America's elite, jealous of the wonderful triumphs in Europe, aimed to introduce Rousseauean unlimited democracy here. Just two decades before the ascension of both Hitler and Stalin, Herbert Croly, Walter Weyl and Theodore Roosevelt argued for Progressivism. Croly's book glorifies the state and is very much in the tradition of German historicism, as was Progressivism in general.

The notion of a loss function is that the action of a producer can be improved by reducing losses. Many will argue with the claim that unlimited democracy leads to tyranny. However, whether you believe that unlimited democracy leads to social justice and benefits society, or whether you believe that limited government is better at achieving those ends, the question needs to be asked what the method of achieving each citizen's best interests can be. In other words, even if unlimited democracy and the state apparatus can advantage society, the question needs to be asked what method of execution or production will work best. It is unlikely that the centralized state by which Progressives hoped to emulate European Christian Socialism and social democracy (and itself was but an extension of monarchy, according to De Juvenal) is best at meeting public needs even if the state is better at meeting public needs than are private firms. The reason is bounded rationality.

Bounded rationality was discussed by March and Simon with respect to organizations in their book Organizations. Walter Lippmann discussed the idea with respect to public opinion in his book Public Opinion. Ludwig von Mises discussed it with respect to centralized economic planning. And De Jouvenal discusses it with respect to the ability of the state to achieve the objective of the common good.

Naturally, he mocks the idea that Power (as he defines it, the elite that governs society) has the common good in mind. This is the assumption of all advocates of big government, socialism, Progressivism, social democracy and the like. The notion that people seek power out of altruistic ends is laughable. We see this today with the naive news broadcasters, like CNN's Jack Cafferty, who offer prayers to Saint Barack Obama and his colleague, Lou Dobbs, whose head touches the floor seven times whenever Saint Barack's name is mentioned. But De Jouvenal grants this assumption.

He notes:

"But as soon Power is conceived as being exclusively the agent of the common good, it must form a clear picture for itself of what this common good is. While Power was eogist, the vital necessity under which it lay of reaching every day a daily accommodation with society, itself sufficed to form in it pictures of public requirements which, though confused, were born of actual contacts. But as soon as Power, under the spur of altruism, has a vision of the entire community and what medicine it needs, the inadequacy of human intelligence to such a task appears in its fullness. What the judgment pronounces then shows itself a blinder guide than what the senses indicate--to put it another way, touch is superior to vision.

"It is a noteworthy fact that all the greatest political mistakes stem from defective appraisals of the common good--mistakes from which egoism, had it been called into consultation, would have warned Power off." (On Power, p. 137).

In organizational theory, it is well established that one of the cures for cognitive limits on rationality is decentralization or divisionalization of organizations. Thus, one way to address the problem of the social loss function that government creates is to reduce the scope of governance. In other words, to download responsibility to the states.

American government anticipated this idea in the form of Federalism. However, the tendency over the past two centuries has been to reduce the power of the states and increase the monarchical power of the federal government. The reason for this is, as De Jouvenal points out, the economic, political and egoistic interests of the ruling elite--the politicians in Washington, the Justices of the Supreme Court, the academics who cater to them and receive significant jobs and consulting contracts, and the military industrial complex.

The monarchical process thus results in one rather odd effect: that a key finding of the social sciences, that information is difficult to procure; that rationality is limited; and that experimentation is the best way to learn; is scoffed at by judges, economists and academicians, whose economic interests take precedence over their interest in pursuing justice or the truth.