A pro Obama poster on this blog argues that Barack Obama is ethical because he didn't spend more than George Bush on his frivolous inauguration. According to the "Common Dreams" website:
"Official statistics show that 12.7 percent (or 37 million) of the population in the U.S. lived in poverty in 2004, while 15.7 percent (45.8 million) lacked health-insurance coverage; 11.9 percent of households (comprising 38.2 million people, including 13.9 million children) experienced food insecurity."
The urban legends website from which the anonymous poster seems to have derived his comment states:
"There's no final tally yet for the Obama inauguration, but given that at least five times as many people attended, security and clean-up costs were surely higher than for the 2005 event. Press estimates currently range around $150 million total, including both private and government expenditures."
Let's see. A hamburger and a glass of juice costs about $1.50. At $1.50, Mr. Obama could have purchased 100 million lunches. So with 13.9 million hungry school children, Mr. Obama could have ended hunger for more than a week. Instead, he chose to starve the children and spend it on a self-serving inauguration party.
Mr. Obama's starvation of children is an outrage. The media, including Fox News, lies and fails to hold the child-starving American president to account.
Wednesday, January 28, 2009
Jim Crum Meets Hans Sennholz: A Link Between Banking Panic and the New World Order
I just read Hans Sennholz's excellent 1985 essay Money and Freedom, which is available from the Ludwig von Mises Institute for $7.00. Sennholz gives an overview of the case for a free market monetary system and a spontaneous, market-evolved gold standard. In doing so he reviews alternative views. It is a good introduction to free market money. Given the recent failure of the Keynesian ideology and its creature, the unfettered Federal Reserve Bank, to manage the money supply and the banking system competently, and the simultaneous inability of the pissant propagandists, also known as the "mainstream media", to conceptualize alternative solutions, this book is must reading.
Sennholz discusses alternative views to the Austrian free market ones, to include the monetarist ideas of Milton Friedman and the supply-siders such as Robert Mundell, Jude Wanniski and Arthur Laffer. The Austrian theory is by far the most elegant of all economic theories, and it is a tragedy that the pissant propagandists insist on ignoring the Austrian viewpoint and instead publicize failed Keynesian ideas ad nauseum.
Two points in the essay caught my attention. First, Sennholz notes that by the 1970s foreign governments had been receiving dollops of new money from the Fed via commercial bank loans (p.4):
"The dollar standard invited massive credit expansion in both the US and the Eurodollar market, and made foreign governments in less developed countries its primary beneficiaries. Foreign central bank reserves, consisting mostly of dollars, expanded from $92 billion to more than $800 billion in 1981. The Eurodollar market recycled the flood of dollars from the United States to the Organizational of Petroleum Exporting Countries (OPEC) and from there to commercial banks in Euope and the United States, and to debtors all over the globe; it grew from some $100 billion in 1970 to nearly $2 trillion in 1984. The debt of non-OPEC developing countries alone, consisting of commercial bank loans,multinational organization loans and government loans, soared from $75 billion in 1971 to an estimated $520 billion in 1982. The exposure of commercial banks to these countries, consisting of outstanding loans minus deposits, rose from practically none to more than $200 billion worth in 1984."
The Latin American debt crisis, like today's sub-prime crisis, threatened the commercial banking system in the 1980s. The banking system has done these things over and over. It is time to rethink the money-creation privilege that has been granted to the federal government, the Federal Reserve Bank and the banking system. The system has failed, and it is no longer fair to ask Americans to subsidize massive, recidivist incompetence. Free market banking is far superior the Federal Reserve Bank, which proceeded to quintuple overseas dollar holdings in the 1990s to over ten trillion dollars.
The second point that grabbed me (besides the discussion of Hayek's "Denationalization of Money") is Sennholz's discussion of Mundell. The evolution of the international gold standard to an international dollar standard and the rejection of gold have led to current instability in world financial markets. Banks are not capable of managing their money creation privileges. But if there is a failure of the dollar standard, which seems increasingly likely to occur in our lifetime, the alternative may be not a renewal of the gold standard or free market money which would be a return to sanity, but an international unit of money standard, i.e., a new world order based on a global monetary unit.
I am getting science fictiony here, but a global monetary system would seem consistent with an evolution toward an internationalist political system much as the Euro was associated with European political unification.
Sennholz describes Robert Mundell, the original supply sider whose ideas influenced Ronald Reagan and the leadership of the Republican Party since the 1980s as advocating an international monetary structure based on international cooperation and coordination. Mundell would base a global monetary system on gold, but would allow a global banking system to stabilize the price of gold between $300 and $650. Governments would be required to coordinate interest rates, balance of payments, exchange rates and excessive money creation and, as well, participate in "general budgetary policies and, if necessary incomes policies."
After finishing the Sennholz essay I checked my e-mail and noticed this message from Jim Crum concerning Cliff Kincaid of Accuracy in Media's essay concerning Barack Obama's support for global taxation:
>Mitchell, I hope this note finds you well.
>Below is interesting information. If half of it is true, there is reason for concern. I do know Mr. Obama was a champion of the $87 Billion international tax on US Citizens for international development.
>The other problem is that once it starts, once that camel's nose is under our financial tent, we are in serious trouble with absolutely no end in sight, and no accountability. Just look at how the UN handles money, put them in charge of collecting taxes from us and forget it. I say burn the damned UN to the ground before that happens. Talk about taxation without representation, this would be it on steroids.
>As far as a global TV channel, that could really be a source of humor or disgust. There may be truth to the allegory of the tower of babel, and such distinctions that keep us separate may actually be a source of protection- for our own good.
Global Taxes and Global TV Now on the Agenda
By Cliff Kincaid
>President Obama’s pick for Treasury Secretary, Timothy Geithner, is being urged to lay the foundation for “global governance” by considering “international taxation” measures to loot more money from U.S. taxpayers.
>The recommendation is included in the report, “The Global Agenda 2009,” which is being considered by the World Economic Forum (WEF), meeting in Davos, Switzerland, January 28 - February 1. The WEF is not an official government group but does include dozens of government, corporate and labor leaders at its annual m eetings.
>Media companies such as News Corporation (parent of Fox News, the Fox Business Network, and the Wall Street Journal), CNBC, and Forbes are official sponsors of the WEF meeting. News Corporation is listed as one of about 100 “strategic partners” of the World Economic Forum.
“Look for live coverage on CNBC, all day every day,” reports CNBC “Squawk Box” co-anchor Becky Quick. “We kick things off at 6 a.m. Eastern time Wednesday on Squawk, with serious interviews from the headliners.” Her report, however, fails to disclose that CNBC is an “industry partner” of the World Economic Forum this week...
The event’s corporate sponsors, which pay about half a million dollars each to participate, include several failing institutions that have received tens of billions of dollars from U.S. taxpayers. They include Bank of America, Citi, Goldman Sachs, JPMorgan Chase & Co., and Morgan Stanley. These entities are termed “Strategic Partners” of the World Economic Forum...
In a major embarrassment, the WEF has released a report, “The Future of the Global Financial System,” which acknowledges “intellectual stewardship and guidance” provided by a steering committee co-chaired by John Thain, the former Merrill Lynch & Co. chief executive officer who was recently ousted from Bank of America in a scandal. Thain oversaw the disastrous sale of Merrill Lynch to Bank of America and was criticized for lavish spending on office decorations, including a $1,405 waste basket and $87,784 rug.
The other co-chair of the committee was David Rubenstein, co-founder and managing director of The Carlyle Group, who has been quoted as saying that China holds the key to the world economy’s future. One report notes that Rubenstein says Carlyle “was an early investor in the Chinese marketplace,” that its China office “has hired many native-born Chinese, and the company is seeking to build its buyout and growth-capital businesses there.”
“The Global Agenda 2009” report says that “sovereign states do not adequately address problems reaching across borders” and that “international taxation” may be needed to generate the “additional resources” for “global governance.”
Could this become a source of new bailout money here and abroad?
Read Kincaid's whole article here.
The current "crisis" involving the banking system has a funny smell. It is a crisis whose basis is not clearly identified. I looked up house sales on the census bureau. This is what I found
Existing Home Sales 7,076,000 (2005) 6,478,000 (2006) 5,652,000 (2007) 4,912,000 (2008)
New Home Sales 1,283,000 (2005) 1,051,000 (2006) 776,000 (2007)
Total 8,359,000 (2005) 6,478,000 (2006) 6,428,000 (2007)
The new home number for December 2008 is coming out this week. Taking the 8.4 million home sales in '05, the 6.5 million in '06 and the 6.4 million in '07 and multiplying by a price of $250,000 gives $5,325,000,000,000, $5.3 trillion. Just as a thought experiment double it, to ten trillion to give the last six years. If ten percent of the owners give the houses back to banks, the losses would be $10 trillion x 10% = $1 trillion. The one trillion would be reduced by the re-sale value of the houses, which would presumably be about $1 trillion. I just heard a commentator on Bloomberg Radio say that the losses facing financial institutions are $1.8 trillion. How is that possible?
In March 2008 the New York Times reported that the number of loans past due was 7.9 percent. That's not in default, that's past due. On January 27, 2009, CNN reported that defaults in California, which I think is one of the wilder sub-prime states, had fallen by 7.7 percent since a year ago. Thus, the ten percent figure is overstated.
So why the hysteria concerning banks? It would be nice if the pissant propagandists could explain this without scare language, hysteria, or incompetent and uninformed usage of buzz words. But they have not been able to do so. They are as incompetent as bankers. Are the defaults merely hypothetical? Is the problem a fear of a greater real estate market crash?
In any case, one of the outcomes of this banking panic could well be globalization of the monetary system, much as Mundell advocated. It would seem globalization of the monetary system (rather than the much better and more intelligent adoption of a free money system or a voluntary gold standard) would be potentially consistent with political globalization as well. This would fit Jim Crum's concerns.
Sennholz discusses alternative views to the Austrian free market ones, to include the monetarist ideas of Milton Friedman and the supply-siders such as Robert Mundell, Jude Wanniski and Arthur Laffer. The Austrian theory is by far the most elegant of all economic theories, and it is a tragedy that the pissant propagandists insist on ignoring the Austrian viewpoint and instead publicize failed Keynesian ideas ad nauseum.
Two points in the essay caught my attention. First, Sennholz notes that by the 1970s foreign governments had been receiving dollops of new money from the Fed via commercial bank loans (p.4):
"The dollar standard invited massive credit expansion in both the US and the Eurodollar market, and made foreign governments in less developed countries its primary beneficiaries. Foreign central bank reserves, consisting mostly of dollars, expanded from $92 billion to more than $800 billion in 1981. The Eurodollar market recycled the flood of dollars from the United States to the Organizational of Petroleum Exporting Countries (OPEC) and from there to commercial banks in Euope and the United States, and to debtors all over the globe; it grew from some $100 billion in 1970 to nearly $2 trillion in 1984. The debt of non-OPEC developing countries alone, consisting of commercial bank loans,multinational organization loans and government loans, soared from $75 billion in 1971 to an estimated $520 billion in 1982. The exposure of commercial banks to these countries, consisting of outstanding loans minus deposits, rose from practically none to more than $200 billion worth in 1984."
The Latin American debt crisis, like today's sub-prime crisis, threatened the commercial banking system in the 1980s. The banking system has done these things over and over. It is time to rethink the money-creation privilege that has been granted to the federal government, the Federal Reserve Bank and the banking system. The system has failed, and it is no longer fair to ask Americans to subsidize massive, recidivist incompetence. Free market banking is far superior the Federal Reserve Bank, which proceeded to quintuple overseas dollar holdings in the 1990s to over ten trillion dollars.
The second point that grabbed me (besides the discussion of Hayek's "Denationalization of Money") is Sennholz's discussion of Mundell. The evolution of the international gold standard to an international dollar standard and the rejection of gold have led to current instability in world financial markets. Banks are not capable of managing their money creation privileges. But if there is a failure of the dollar standard, which seems increasingly likely to occur in our lifetime, the alternative may be not a renewal of the gold standard or free market money which would be a return to sanity, but an international unit of money standard, i.e., a new world order based on a global monetary unit.
I am getting science fictiony here, but a global monetary system would seem consistent with an evolution toward an internationalist political system much as the Euro was associated with European political unification.
Sennholz describes Robert Mundell, the original supply sider whose ideas influenced Ronald Reagan and the leadership of the Republican Party since the 1980s as advocating an international monetary structure based on international cooperation and coordination. Mundell would base a global monetary system on gold, but would allow a global banking system to stabilize the price of gold between $300 and $650. Governments would be required to coordinate interest rates, balance of payments, exchange rates and excessive money creation and, as well, participate in "general budgetary policies and, if necessary incomes policies."
After finishing the Sennholz essay I checked my e-mail and noticed this message from Jim Crum concerning Cliff Kincaid of Accuracy in Media's essay concerning Barack Obama's support for global taxation:
>Mitchell, I hope this note finds you well.
>Below is interesting information. If half of it is true, there is reason for concern. I do know Mr. Obama was a champion of the $87 Billion international tax on US Citizens for international development.
>The other problem is that once it starts, once that camel's nose is under our financial tent, we are in serious trouble with absolutely no end in sight, and no accountability. Just look at how the UN handles money, put them in charge of collecting taxes from us and forget it. I say burn the damned UN to the ground before that happens. Talk about taxation without representation, this would be it on steroids.
>As far as a global TV channel, that could really be a source of humor or disgust. There may be truth to the allegory of the tower of babel, and such distinctions that keep us separate may actually be a source of protection- for our own good.
Global Taxes and Global TV Now on the Agenda
By Cliff Kincaid
>President Obama’s pick for Treasury Secretary, Timothy Geithner, is being urged to lay the foundation for “global governance” by considering “international taxation” measures to loot more money from U.S. taxpayers.
>The recommendation is included in the report, “The Global Agenda 2009,” which is being considered by the World Economic Forum (WEF), meeting in Davos, Switzerland, January 28 - February 1. The WEF is not an official government group but does include dozens of government, corporate and labor leaders at its annual m eetings.
>Media companies such as News Corporation (parent of Fox News, the Fox Business Network, and the Wall Street Journal), CNBC, and Forbes are official sponsors of the WEF meeting. News Corporation is listed as one of about 100 “strategic partners” of the World Economic Forum.
“Look for live coverage on CNBC, all day every day,” reports CNBC “Squawk Box” co-anchor Becky Quick. “We kick things off at 6 a.m. Eastern time Wednesday on Squawk, with serious interviews from the headliners.” Her report, however, fails to disclose that CNBC is an “industry partner” of the World Economic Forum this week...
The event’s corporate sponsors, which pay about half a million dollars each to participate, include several failing institutions that have received tens of billions of dollars from U.S. taxpayers. They include Bank of America, Citi, Goldman Sachs, JPMorgan Chase & Co., and Morgan Stanley. These entities are termed “Strategic Partners” of the World Economic Forum...
In a major embarrassment, the WEF has released a report, “The Future of the Global Financial System,” which acknowledges “intellectual stewardship and guidance” provided by a steering committee co-chaired by John Thain, the former Merrill Lynch & Co. chief executive officer who was recently ousted from Bank of America in a scandal. Thain oversaw the disastrous sale of Merrill Lynch to Bank of America and was criticized for lavish spending on office decorations, including a $1,405 waste basket and $87,784 rug.
The other co-chair of the committee was David Rubenstein, co-founder and managing director of The Carlyle Group, who has been quoted as saying that China holds the key to the world economy’s future. One report notes that Rubenstein says Carlyle “was an early investor in the Chinese marketplace,” that its China office “has hired many native-born Chinese, and the company is seeking to build its buyout and growth-capital businesses there.”
“The Global Agenda 2009” report says that “sovereign states do not adequately address problems reaching across borders” and that “international taxation” may be needed to generate the “additional resources” for “global governance.”
Could this become a source of new bailout money here and abroad?
Read Kincaid's whole article here.
The current "crisis" involving the banking system has a funny smell. It is a crisis whose basis is not clearly identified. I looked up house sales on the census bureau. This is what I found
Existing Home Sales 7,076,000 (2005) 6,478,000 (2006) 5,652,000 (2007) 4,912,000 (2008)
New Home Sales 1,283,000 (2005) 1,051,000 (2006) 776,000 (2007)
Total 8,359,000 (2005) 6,478,000 (2006) 6,428,000 (2007)
The new home number for December 2008 is coming out this week. Taking the 8.4 million home sales in '05, the 6.5 million in '06 and the 6.4 million in '07 and multiplying by a price of $250,000 gives $5,325,000,000,000, $5.3 trillion. Just as a thought experiment double it, to ten trillion to give the last six years. If ten percent of the owners give the houses back to banks, the losses would be $10 trillion x 10% = $1 trillion. The one trillion would be reduced by the re-sale value of the houses, which would presumably be about $1 trillion. I just heard a commentator on Bloomberg Radio say that the losses facing financial institutions are $1.8 trillion. How is that possible?
In March 2008 the New York Times reported that the number of loans past due was 7.9 percent. That's not in default, that's past due. On January 27, 2009, CNN reported that defaults in California, which I think is one of the wilder sub-prime states, had fallen by 7.7 percent since a year ago. Thus, the ten percent figure is overstated.
So why the hysteria concerning banks? It would be nice if the pissant propagandists could explain this without scare language, hysteria, or incompetent and uninformed usage of buzz words. But they have not been able to do so. They are as incompetent as bankers. Are the defaults merely hypothetical? Is the problem a fear of a greater real estate market crash?
In any case, one of the outcomes of this banking panic could well be globalization of the monetary system, much as Mundell advocated. It would seem globalization of the monetary system (rather than the much better and more intelligent adoption of a free money system or a voluntary gold standard) would be potentially consistent with political globalization as well. This would fit Jim Crum's concerns.
Monday, January 26, 2009
America Knows No Journalism
I just received this forwarded e-mail from Phil Orenstein. A perfect example. America's pissant propaganda sources are so disturbed, so biased. I avoid them all:
Headlines On This Date 4 Years Ago:
"Republicans spending $42 million on inauguration while troops Die in unarmored Humvees"
"Bush extravagance exceeds any reason during tough economic times"
"Fat cats get their $42 million inauguration party, Ordinary Americans get the shaft"
Headlines Today:
"Historic Obama Inauguration will cost only $120 million"
"Obama Spends $120 million on inauguration;AmericaNeeds A Big Party"
"Everyman Obama showsAmericahow to celebrate"
"Citibank executives contribute $8 million to Obama Inauguration" (Stay tune.....more bailouts to come!!)
Headlines On This Date 4 Years Ago:
"Republicans spending $42 million on inauguration while troops Die in unarmored Humvees"
"Bush extravagance exceeds any reason during tough economic times"
"Fat cats get their $42 million inauguration party, Ordinary Americans get the shaft"
Headlines Today:
"Historic Obama Inauguration will cost only $120 million"
"Obama Spends $120 million on inauguration;AmericaNeeds A Big Party"
"Everyman Obama showsAmericahow to celebrate"
"Citibank executives contribute $8 million to Obama Inauguration" (Stay tune.....more bailouts to come!!)
Rationality and Decentralization in Montesquieu's Spirit of Laws
In his famous article "The Nature of the Firm", Ronald Coase claimed that firms exist because they are cost minimizing. It is cheaper to coordinate a set of economic processes using methods available to business concerns than on the market. Coase thus suggests that marginal costs of organization will tend to be equated to the returns from organization. In general, the larger the firm the greater the costs of organization. Transactions involved in maintaining complex or large organizations are more costly than transactions involved in maintaining smaller ones. Firms grow to an optimal size given the costs and benefits to scale. Economies of scale refer to declining unit costs because of increasing sized firms' increasing ability to spread overhead over a large number of units. But increasing organization costs, also due to increasing size, may outweigh the costs per unit.
Anticipating Coase by more than two centuries and relying on comparative historical analysis, Charles de Secondat, Baron de Montestquieu, makes a parallel claim about the benefits of scale in the design of republics. Montesquieu writes that the optimal size of republics is small, because large scale republics permit large fortunes, which in turn create immoderate demands by interest groups. The competition of special interests leads to an overemphasis on private concerns and an underemphasis on the public good:
"In an extensive republic the public good is sacrificed to a thousand private views; it is subordinate to exceptions, and depends on accidents. In a small one, the interest of the public is more obvious, better understood, and more within the reach of every citizen; abuses have less extent, and of course are less protected."*
Montesquieu gives as an example the Greek republics, which were small city states. Montesquieu also notes that there are advantages to great as opposed to petty states. Thus, he is arguing for a balance, or optimization, of benefits as opposed to costs. In Book IX Montesquieu notes that small republics may be destroyed by foreign invasions and large repulics are destroyed by "internal imperfections". But, argues Montesquieu "confederate republics" have the advantages of a republic together with the external force of a monarchical government. "Hence it proceeds that Holland, Germany and the Swiss cantons are considered in Europe as perpetual republics." The many states balance power. Insurrections in one state can be quelled by others. But confederacies must consist entirely of republics (this was integrated into the Constitution). I would add that confederacies permit intelligent management of information while permitting economies of scale with respect to defense and economic markets.
Of course, there are many other factors relevant to the nature of government. In writing about the geographical differences between Europe and Asia**, Montesquieu notes that geographical differences facilitate the "slavery" of Asia and identifies large scale with despotism:
"In Asia they have always had great empires; in Europe these could never subsist. Asia has larger plains; it is cut out into much more extensive divisions by mountains and seas; and as it lies more to the south, its springs are more easily dried up...Power in Asia ought, then, to be always despotic: for if their slavery was not severe they would make a division inconsistent with the nature of the country."
In the 1960s and 1970s, Mancur Olson and George Stigler argued that ease of organization of interest groups and the economic benefit per participant due to successful lobbying lead to success or failure of specific groups in economic competition. For a long time physicians formed a successful lobby because they shared common training, common values and attended conferences of the American Medical Association. Geographic advantages would certainly be among the kinds of advantages different interests might enjoy. Geography, argued Montesquieu in 1748, contributes to the nature of political organization, and large geographic scope is most consistent with despotism.
A school of historians, to include William Appleman Williams, Gabriel Kolko, Martin Sklar and James Weinstein, has identified Progressivism, which appeared following the advance of big business and the closing of the American frontier, as a pro-big business ideology; that Progressivism was the ideology of big business even though it was packaged as "liberal" and served to preempt socialism (and end laissez-faire capitalism). Montesquieu did not anticipate Progressivism, but he did anticipate that as nations grow in scope they are more likely to be dominated by economic special interests and that the domination is likely to be authoritarian in nature, which is the claim that Kolko-Williams school makes about Progressivism.
Montesequieu also anticipated the ideas of David Riesmann in his famous book The Lonely Crowd. In Book XIX Montesquieu discusses "Laws in relation to the principles which form the general spirit, the morals and customs of a nation".*** He notes that factors like climate, attitudes toward tyranny, religion, laws, morals and other factors influence "the spirit of mankind". He argues that nations ought to pass laws that fit their temperaments. In a puritanical nation with good character "no one ought to restrain their manners by laws, unless he would lay a constraint on their virtues." For instance, laws that reduce luxury or restrain women might cause the nation to "lose that peculiar taste which would be the source of the wealth of the nation, and that politeness which would render the country frequented by strangers." Thus, it is difficult to be rational with respect to law, and it is easiest to fit the temperament of the populace in designing law. Law should be avoided:
"Let them but leave us as we are, said a gentleman of a nation which had a very great resemblance to that we have been describing, and nature will repair whatever is amiss..our indiscretions joined to our good nature would make the laws which should constrain our sociability not at all proper for us."
If laws are necessary, they should build on existing patterns
One of the key attributes (Book XIX, section 8) is "effects of a sociable temper". This is analogous to Riesmann's other-directedness. Montesequieu writes:
"The more communicative a people are the more easily they change their habits, because each is in a greater degree a spectacle to the other, and the singularities of individuals are better observed. The climate which influences one nation to take pleasure in being communicative, makes it also delight in change, and that which makes it delight in change forms its taste.
"...the desire of pleasing others more than ourselves gives rise to fashions. This fashion is a subject of importance; by encouraging a trifling turn of mind, it continually increases the branches of its commerce."
Riesmann notes that the commercial centers are characterized by other-directedness while rural America is still inner- and tradition-directed. Likewise, David McClelland finds in his book Achieving Society that high achievers couple other-directedness with need for achievement. But McClelland was writing after America's greatest achievements were complete. The inner-directeds' achievements were in building a great nation, the other-directedness in consumption and mass communication. Other-directedness, as in Athens and likely Rome, are associated with decline after the inner-directeds have built their vision.
Montesquieu anticipated 20th century arguments such as Walter Lippmann's claim that the public is incapable of rational democratic decision; Mancur Olson's and George Stigler's claim that in a democracy special interest groups tend to organize along economic contours and extract rents from the public; and James March and Herbert Simon's claim that boundaries on rationality inhibit firms from thinking strategically or clearly.
Montesquieu notes the link between commerce and communication.++ It is likely that other-directedness is most advantageous where coordination is more important, i.e., in large firms and in interpersonally driven-tasks involving diplomacy or sales.
He adds:
"The effects of commerce is riches; the consequences of riches, luxury; and that of luxury the perfection of the arts. We find that the arts were carried to great perfection in the time of Semiramis; which is a sufficient indication that a considerable commerce
This is seen in his claim that the necessities of state and those of the taxpayers need to be balanced in assaying taxes, but that few politicians have "the wisdom and prudence" to limit tax levels.+ The wisdom required in a very large state is greater than the wisdom required in a small one. Much as Coase argued that there are limits to economies of scale, so Montesquieu argued, 220 years before Coase, that there are limits to the advantages of the scale of nations.
*Montesquieu, The Spirit of Laws. New York Prometheus Books, 2002. Translation originally published in New York by the Colonial Press, 1900, p. 120.
**Ibid., Book XVII, section 6, p. 269.
***Ibid., p. 292
+Ibid., p. 207
++Ibid., p. 334.
Anticipating Coase by more than two centuries and relying on comparative historical analysis, Charles de Secondat, Baron de Montestquieu, makes a parallel claim about the benefits of scale in the design of republics. Montesquieu writes that the optimal size of republics is small, because large scale republics permit large fortunes, which in turn create immoderate demands by interest groups. The competition of special interests leads to an overemphasis on private concerns and an underemphasis on the public good:
"In an extensive republic the public good is sacrificed to a thousand private views; it is subordinate to exceptions, and depends on accidents. In a small one, the interest of the public is more obvious, better understood, and more within the reach of every citizen; abuses have less extent, and of course are less protected."*
Montesquieu gives as an example the Greek republics, which were small city states. Montesquieu also notes that there are advantages to great as opposed to petty states. Thus, he is arguing for a balance, or optimization, of benefits as opposed to costs. In Book IX Montesquieu notes that small republics may be destroyed by foreign invasions and large repulics are destroyed by "internal imperfections". But, argues Montesquieu "confederate republics" have the advantages of a republic together with the external force of a monarchical government. "Hence it proceeds that Holland, Germany and the Swiss cantons are considered in Europe as perpetual republics." The many states balance power. Insurrections in one state can be quelled by others. But confederacies must consist entirely of republics (this was integrated into the Constitution). I would add that confederacies permit intelligent management of information while permitting economies of scale with respect to defense and economic markets.
Of course, there are many other factors relevant to the nature of government. In writing about the geographical differences between Europe and Asia**, Montesquieu notes that geographical differences facilitate the "slavery" of Asia and identifies large scale with despotism:
"In Asia they have always had great empires; in Europe these could never subsist. Asia has larger plains; it is cut out into much more extensive divisions by mountains and seas; and as it lies more to the south, its springs are more easily dried up...Power in Asia ought, then, to be always despotic: for if their slavery was not severe they would make a division inconsistent with the nature of the country."
In the 1960s and 1970s, Mancur Olson and George Stigler argued that ease of organization of interest groups and the economic benefit per participant due to successful lobbying lead to success or failure of specific groups in economic competition. For a long time physicians formed a successful lobby because they shared common training, common values and attended conferences of the American Medical Association. Geographic advantages would certainly be among the kinds of advantages different interests might enjoy. Geography, argued Montesquieu in 1748, contributes to the nature of political organization, and large geographic scope is most consistent with despotism.
A school of historians, to include William Appleman Williams, Gabriel Kolko, Martin Sklar and James Weinstein, has identified Progressivism, which appeared following the advance of big business and the closing of the American frontier, as a pro-big business ideology; that Progressivism was the ideology of big business even though it was packaged as "liberal" and served to preempt socialism (and end laissez-faire capitalism). Montesquieu did not anticipate Progressivism, but he did anticipate that as nations grow in scope they are more likely to be dominated by economic special interests and that the domination is likely to be authoritarian in nature, which is the claim that Kolko-Williams school makes about Progressivism.
Montesequieu also anticipated the ideas of David Riesmann in his famous book The Lonely Crowd. In Book XIX Montesquieu discusses "Laws in relation to the principles which form the general spirit, the morals and customs of a nation".*** He notes that factors like climate, attitudes toward tyranny, religion, laws, morals and other factors influence "the spirit of mankind". He argues that nations ought to pass laws that fit their temperaments. In a puritanical nation with good character "no one ought to restrain their manners by laws, unless he would lay a constraint on their virtues." For instance, laws that reduce luxury or restrain women might cause the nation to "lose that peculiar taste which would be the source of the wealth of the nation, and that politeness which would render the country frequented by strangers." Thus, it is difficult to be rational with respect to law, and it is easiest to fit the temperament of the populace in designing law. Law should be avoided:
"Let them but leave us as we are, said a gentleman of a nation which had a very great resemblance to that we have been describing, and nature will repair whatever is amiss..our indiscretions joined to our good nature would make the laws which should constrain our sociability not at all proper for us."
If laws are necessary, they should build on existing patterns
One of the key attributes (Book XIX, section 8) is "effects of a sociable temper". This is analogous to Riesmann's other-directedness. Montesequieu writes:
"The more communicative a people are the more easily they change their habits, because each is in a greater degree a spectacle to the other, and the singularities of individuals are better observed. The climate which influences one nation to take pleasure in being communicative, makes it also delight in change, and that which makes it delight in change forms its taste.
"...the desire of pleasing others more than ourselves gives rise to fashions. This fashion is a subject of importance; by encouraging a trifling turn of mind, it continually increases the branches of its commerce."
Riesmann notes that the commercial centers are characterized by other-directedness while rural America is still inner- and tradition-directed. Likewise, David McClelland finds in his book Achieving Society that high achievers couple other-directedness with need for achievement. But McClelland was writing after America's greatest achievements were complete. The inner-directeds' achievements were in building a great nation, the other-directedness in consumption and mass communication. Other-directedness, as in Athens and likely Rome, are associated with decline after the inner-directeds have built their vision.
Montesquieu anticipated 20th century arguments such as Walter Lippmann's claim that the public is incapable of rational democratic decision; Mancur Olson's and George Stigler's claim that in a democracy special interest groups tend to organize along economic contours and extract rents from the public; and James March and Herbert Simon's claim that boundaries on rationality inhibit firms from thinking strategically or clearly.
Montesquieu notes the link between commerce and communication.++ It is likely that other-directedness is most advantageous where coordination is more important, i.e., in large firms and in interpersonally driven-tasks involving diplomacy or sales.
He adds:
"The effects of commerce is riches; the consequences of riches, luxury; and that of luxury the perfection of the arts. We find that the arts were carried to great perfection in the time of Semiramis; which is a sufficient indication that a considerable commerce
This is seen in his claim that the necessities of state and those of the taxpayers need to be balanced in assaying taxes, but that few politicians have "the wisdom and prudence" to limit tax levels.+ The wisdom required in a very large state is greater than the wisdom required in a small one. Much as Coase argued that there are limits to economies of scale, so Montesquieu argued, 220 years before Coase, that there are limits to the advantages of the scale of nations.
*Montesquieu, The Spirit of Laws. New York Prometheus Books, 2002. Translation originally published in New York by the Colonial Press, 1900, p. 120.
**Ibid., Book XVII, section 6, p. 269.
***Ibid., p. 292
+Ibid., p. 207
++Ibid., p. 334.
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