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Against the IFP

Centralizing control over a currency’s infrastructure is a seemingly obvious mistake.

One would think any Austro-libertarian worth their salt would be able to see thru such a charade. Yet here we are, again. Face to face with economic illiteracy. Not garden variety lefist economic illiteracy, but one far more stinging and painful - one which comes from within our own community, rather than from without. 

First, Bitcoiners faced the economic illiteracy of maximalism and small blockers. Attempts to masquerade money’s primary function as value storage (Ammous) or rejecting Menger’s Regression Theorem altogether (Szabo) are luckily demonstrably false. Nevertheless, the shock of our fellow Bitcoiners illiteracy was like an unexpected slap in the face. Suddenly, we were forced to confront the fact that the ignorance of our allies in the fight for sound money, had led them astray. Yet, thru BCH we were thankfully able to keep Satoshi’s dream of peer to peer cash intact. 
Well, crypto anarch…

Hoppe on the Problems with Democracy and the Monopoly of Force

This article was republished from the MisesRevived blog with permission from the author, Stefan Kløvning.

An important reason for why possibly a majority today justify or at least put up with having a monopoly of force with the power to tax them and restrict their freedoms is the perception that "the State is us", so to speak. We all have the possibility to try to convince a majority of the population that we will better their lives and move the country in a positive direction, and therefore the distinction between "the people" and "the state" is blurred or non-existent in the eyes of many. Until about a hundred years ago, the distinction was a lot more clear, given that most countries were monarchies where power was inherited and, therefore, that conflicts of interests between the monarchical "class" and "the people" were a lot more obvious.

Most people will say that substituting a democratic electoral system for a monarchical one was a positive development and it's possibly one of the most important trends for the Pinker-Fukuyama-style vision of history as continually progressing. Few would call themselves monarchists today, and even many libertarians and Anarchists would say that democracy is preferable to monarchy, but why is this the case, and is it consistent with libertarian principles?

To answer this, let's first look at some central critiques by Anarchists against having a monopoly of violence able to tax its subjects in general. Just applying economic monopoly theory can tell us a lot about the problems with the government. Having the monopoly on some good or service means that there is only one business or other entity offering it to the market. Given the lack of competition, the monopolist can thus raise prices above and lower quality below what would be the case if the good or service was provided at a competitive marketplace, which will benefit the monopolist to the degree the demand won't reduce enough to severely impact his profits, depending on the elasticity [1] of the good or service. In contrast to "market monopolies", so to speak, however, the monopoly on force can threaten with violence if its subjects don't pay the costs of their services (taxation), whether or not the subjects may want those services. The State will additionally continually try to find new things to tax and new things to regulate in order to maximize its revenue and power.

If one derives from this that the State as a concept (i.e. a monopoly on force able to tax) is itself illegitimate, how should that impact one's perspective in comparing democracy and monarchy as mechanisms for deciding who should get control of this monopoly of force? In his work Democracy: The God That Failed, the economist and political scientist Hans-Hermann Hoppe argues that the essential difference between them is that monarchism implies "private ownership" of the government, so to speak, while democracy means "public ownership". This means that a king to a far greater degree has control of the affairs and property of the government and the country than a president or representative elected democratically. Applying the Misesian theory of property and the "theory of the commons" problem with public goods, Hoppe claims that the king will have much more of an incentive to take into consideration the long term consequences of his decisions, as well as generally taking better care of his property than the democratically elected "caretaker" of the government will. Additionally, given the clear line between the people and the State under a monarchy, high taxes and strict regulations would generally be perceived far more negatively at that time given the "the State is us"-justification of government activity under democracy, and that therefore people would be much more eager to rebel against such overreach under monarchy.

Another central argument Hoppe presents against substituting democracy for monarchy is that it leads to higher time preference. This means that the population in question will to a large degree generally prefer consuming and benefiting now rather than saving and putting it off in order to get a larger reward in the future. As investing and accumulating capital (and savings are generally lent to investors by banks) has a central role in economic growth and increasing real wages given that it makes workers more productive, an increased time preference would then have a negative impact on future economic growth.

What evidence is there that the implementation of democracy instead of monarchy leads to increased time preference? The growth in the scope of government control is an important indicator, according to Hoppe. In a democracy in a small geographical area, such as that of Ancient Athens, its subjects would, for the most part, be familiar with one  another and thus be hesitant in taking advantage of the State to benefit oneself at the expense of another, but in a larger region where those who are taken from and have their freedoms restricted are as an aggregate perceived a lot more abstractly, which makes it far easier to villanize people like "the rich" to justify expropriating them for one's own advantage than it would in a smaller region. For that reason, pretty much all of the American founders viewed the democratic system with nothing but contempt, according to Hoppe, and even the philosopher Jean-Jacques Rousseau, who argued in favor of a democratic system in The Social Contract, thought it would only work in a smaller region (p. 104, note 21). In a letter to Thomas Jefferson, John Adams asserted that "democracy will envy all, contend with all, endeavor to pull down all, and when by chance it happens to get the upper hand for a short time, it will be revengeful, bloody and cruel."

The essence of the argument is that, in a large region with a democratic system, politicians seeking for office will exploit citizens' desire for free stuff by giving promises that they'll implement programs which would provide them with such, and the economic consequences by the newly instituted taxes to afford those programs would negatively impact the economy by punishing those providing value to the economy and "re-distributing" that money to the non-producers. Hoppe argues that an incentive structure encouraging such a trend will lead to "de-civilization", as production is discouraged and consumption is subsidized. Democracy sets up a competition of sorts where those who offer the largest degree of such "re-distribution" will generally have an advantage (though that will naturally depend on the culture and history of the democratic nation at hand), while in a monarchy, the king will to a larger degree look at the long-term consequences of such programs of de-civilization of "his" populace, and abstain more or less from implementing them. That's an important reason, argues Hoppe, that the majority of the budget under monarchies went to the military and State administration, while under democracy, there's much more of a tendency to increase the scope of the government in economic activity, and to a larger degree tolerate the larger pressures by taxes and regulations due to the "the State is us"-perception. The satirist Anarchist H.L. Mencken put it quite succinctly when he stated that "Every election is a sort of advance auction sale of stolen goods." (For more on how the democratic principle of "voting for a living", i.e. living at expense of others through the medium of the State, see here.)

This is also the reason, claims Hoppe, to the transition from the gold standard to a fractional-reserve fiat system where the State can lend new money created "out of nothing" from the printing press controlled by the central banks, leading to a degree of inflation that would be unheard of under a golden standard (more on this here). Naturally, this is for the most part done in order to finance whatever programs the nominees promise the voters without having to rely on increasing the tax pressure on them (thus decreasing the pushback from his/her political opponents). Under a gold standard, a king or an aristocratic elite would not have any comparable way to benefit themselves by decreasing the purchasing power of the else of the population. The only way they could do that was through so-called "coin-clipping", where they cut out the outer layer of the coin, melted it down and created new coins, thus expanding the money supply. An example of such debasement is illustrated with the ancient Roman silver coin Siliqua below. Though this had a negative impact on the economy, it was still far smaller than that entailed by the printing press the last hundred years or so, as well as being much less subject to backlash.


With all this made clear, could one conclude that a monarchic system of government is "better" than a democratic one? When one makes such normative judgments in comparative analyses, it's important to note that there must be some standard the judgement is made in accordance with. For instance, a fishing rod is "better" (or more useful/efficient) than a knife if the standard is the ability to acquire fish, while if it was the ability to cut things, the knife would naturally be deemed superior. In the comparison between monarchies and democracies, one can make a similar assessment. If the goal or standard is that the government should be open and available for most citizens to participate in, a democratic system can surely be deemed "better" than a monarchic one. If it is instead to be judged in accordance with the incentive structure regulating the scope of the government, a monarchic system would tend to, as Hoppe describes in depth, be much less eager to expand its activities compared to that of a democracy, and those seeking a limited or nonexistent government would thus be a lot more consistent if they deemed a monarchical one as preferable.

This is not to say that Hoppe wants to convince libertarians to become monarchists. As an Anarchist, he instead tries to persuade them in that direction, but makes his reasoning clear regarding why a monarchic system should be judged in a higher order of preference than that of democracy if one holds liberty as one's highest goal, and that an Anarchic system should again be judged higher than a monarchic one.


  1. Elasticity means how much the quantity demanded of the good or service changes depending on changes in price. A very inelastic good would not see much of a difference in the quantity demanded even with a large price increase. Inelastic goods and services are thus ideal for those who want to set up a monopoly, but this is unnecessary for the government as it can outlaw competition on law and security and all other services it wants control over.


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