On Negative Sums

– Guest Post by Eli Harman – November 22nd, at 7:04am

[T]he allegation is often made (by libertarian anarchists) that what states do is fundamentally incalculable, but that it is always negative sum. In other words, we cannot know the absolute value of any state or state policy, but we can be certain about its sign.

Voluntary trades in the marketplace – as the argument goes – are always mutually beneficial (else they wouldn’t occur) and positive sum.

State policies differ in requiring coercion. If they did not require coercion, they could occur in the marketplace. But if they do, then someone is losing out, so there is no way to be sure they represent a net gain. Without the mechanism of voluntary exchange, the information transmitted by prices in a marketplace are absent and no calculation is possible. In all likelihood they represent a net loss, certainly a loss relative to the opportunity cost of the purely voluntary marketplace foregone.

But is doesn’t seem that states ever would have become ubiquitous or persistent if this were true. Empirically, state-ridden peoples have proven competitive against stateless ones. If error and parasitism were the whole story, they would not be. States, after all, are in constant conflict and competition with one another and with alternatives (or at least they were at one time.)
However, the argument is incomplete and therefore incorrect.

We can reasonably expect voluntary, fully-informed, exchanges – free of externality – to be Pareto improvements. (They make someone better off and no one worse off.)

But in the first place, market transactions don’t always live up to this standard, because they are not necessarily fully informed nor free of externality.

And in the second place, some of the things states do might; because they are of the nature of voluntary exchanges.
An individual exchanges the sum total of costs a state imposes (on them) for the sum total of benefits it offers (to them) every time they voluntarily choose not to move to the jurisdiction of another state. (And these exchanges can be made more precisely calculable by reducing the exit costs and increasing the number and variety of states on offer.)

Furthermore, all states require the voluntary consent of at least enough individuals and groups to successfully compel the submission of the remainder. And the coalition that arises to perform this function arises by a process of reciprocal exchange (You want such and such a boon to participate in our coalition? Well we want this concession and that from you in exchange.)
In brokering these exchanges, a Monarchy offers several advantages over a democratically elected government.

A democracy will be inherently and irreparably susceptible to negative-sum corruption because of the problem of concentrated benefits and dispersed costs. A policy which benefits 1,000 people $10,000 each may be politically profitable even if it costs a million people $100 each. The concentrated interest will be relatively less hampered by information costs and coordination problems. So it will be able to muster more votes and resources in defense of the policy than those harmed will be able to muster against it, though the harm be much greater.

Nothing would stop anyone from proposing such a policy to a king. And a king could get away with implementing it. But a king, who owns his realm and title, as well as its capital value, would not benefit from doing so. The future revenue he could expect to derive from his realm and subjects would decline as a result. And so his incentive would be to veto such proposals.

Furthermore, in a majority democracy, if your ruling coalition encompasses more than 51 percent of voters, it’s leaving rents on the table. If you’re getting, say, 70 percent of the vote, that simply means you’re delivering more value than you need to and failing to extract as much as you could. You could take a little more and give a little less without losing the election. So in a democracy, we can expect the ruling coalition at any given time to consist of about 51% of voters (and those the worst 51%) and that does indeed seem to be what we see.

But conflict and compulsion, though inevitable and irresolvable under democracy, are costly and actually largely unnecessary. So we can expect a wise monarch to start building his coalition of supporters with the best and keep working his way down the list until the only people that remain in need of compulsion are those who have nothing to offer which is worth what they demand in exchange for voluntary cooperation: in short, people who probably should be coerced.