Between State and Anarchy:
A Model of Governance
by Fred E. Foldvary
School of Management
John F. Kennedy University
Anarchy & Liberty Seminar
Université du Québec à Hull
1. The moral basis for just governance
2. Communitarian democracy
4. Public finance
5. Geo-archism between anarchism and minarchism
1. The moral basis for just governance
The relationship between anarchy, liberty, and governance first requires an ethical basis from which to draw political and economic policy conclusions. John Locke provided the basic framework for an objective universal ethic. However, Locke did not provide a derivation. I will first provide a derivation for the universal ethic, based on my book The Soul of Liberty (1980), and then apply it to the question of proper governance.
In his Second Treatise (1947, p. 123), Locke stated:
"The state of nature has a law of nature to govern it which obliges every one; and reason, which is that law, teaches all mankind who will but consult it that, being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions...."
This pithy statement summarizes the premises and contents of the Locke's natural law, which is the universal ethic that will be derived here. I define "morality" as "the assignment of moral values by an ethic." This concept can be expressed as:
V 7 e(A)
where A is an act performed by a person, e is some ethic, and V is one of the four moral values good, evil, neutral, and undetermined. The value V is assigned by the ethic e applied to act A. The issue at hand is whether there exists some universal ethic "u" which is independent of cultural and personal values despite the premise of subjective values, that all values only originate in individual interests and the culture of individuals.
Locke states, "and reason, which is that law". The universal ethic is derived using reason, and reason implies that it is a non-arbitrary, hence rational, ethic. But in order to derive such an ethic, we must be able to recognize it once we have concluded its rules. How will we know that we have achieved a rational, universal ethic? We need criteria.
Locke, in the statement quoted above, stated that "reason ... teaches all mankind" and that persons are "all equal and independent". The key word here is "all". The domain of the universal ethic (the "A" in the argument) must include all persons; it is universal in applying to all persons in all cultures and all times and places. This is the first criterion.
The universal ethic must also be "comprehensive," which means that all the acts of a person are included in its domain. Clearly, it would lose universality if any acts were excluded. Hence, all acts are included, and this forms the second criterion regarding the domain of the ethic.
There are also two criteria regarding the ethic itself. As Locke wrote, it is reason which teaches it to mankind; hence the ethic must be logically derived, its conclusion consistent with its premises.
Reason also requires that the premises themselves be non-arbitrary, not based on any personal or cultural views or values, or any authorities. This is the second criterion for the ethic itself, making four criteria in total: 1) universality regarding persons, 2) comprehensiveness regarding acts, 3) logical consistency, 4) non-arbitrary premises.
The ontological basis for the universal ethic, the basis for its existence, is that it uniquely fits the criteria. The acceptance of the criteria imply that if one can present an ethic that uniquely fits them, then that ethic is indeed the universal ethic. These criteria imply that, if it exists, the universal ethic must be unique. A second universal ethic must either have different and conflicting premises, or else its rules would be compatible with the first, enabling the two to be merged into one ethic. Hence, there can only be one set of consistent and universal moral rules.
The Premises of the Universal Ethic
Where, then, shall we obtain our premises for the derivation? I turn once again to Locke: "The state of nature has a law of nature". The "law of nature" is the "universal ethic". It is an "ethic of nature" existing in "the state of nature". What is this "nature"? Clearly, it is not the nature of the stars or the atoms, but the nature of what the ethic applies to: persons. The nature of human beings (and whichever other species may be "persons") is such that it contains or implies an ethic. The premises from which the universal ethic can be derived therefore regard human nature (leaving aside in this paper the question of whether other species are also persons). These premises do not attempt to define what is a human being, but are intended to be empirical propositions about human beings.
Two of the premises are found in Locke's statement, "being all equal and independent". What does it mean for persons to be "independent"? Human beings are social creatures, to be sure, and dependent on others. The premise of independence is not economic or social, but biological. Each person is a self-directing biological unit; thinking and feeling occur individually.
The American economist and social philosopher Henry George (1879, p. 334) also based "the right of a man to himself" on "the fact that each particular pair of hands obey a particular brain ... that each man is a definite, coherent, independent whole." The independence premise is also foundational for methodological individualism, a cornerstone of economics. As stated by Buchanan and Tullock in The Calculus of Consent (1965, p. 315), "all theorizing, all analysis, is resolved finally into considerations faced by the individual person as decision maker." The independence premise is implied by and implies the subjectivism discussed above, and therefore, since independence is a premise, the logical derivation of the universal ethic is consistent with such subjective values.
What could Locke have meant in saying that persons are "all equal"? Again, the premise cannot be economic or social, but is biological. Human beings are biologically endowed with the capacity for self-awareness and reason. This is an attribute of the human species, as a capacity, whether or not actualized in practice. Such a capacity is not the same as intelligence, which is a matter of degree. It is the capacity to have conscious control over one's acts, be aware of one's being, imagine the consequences of one's and others' acts, and be able to make conscious choices on the basis of such imagined consequences. Choice, so central to economic thought, is a common attribute of persons, and therefore an attribute equally possessed by all persons. It is in having this choice capacity, in purposeful and rational action, that persons are equal. As James Buchanan (1975, p. 11) put it, "each person counts for one, and for as much as any other."
Henry George (1879, p. 335) also held that nature endows humanity with equality: "She makes no discriminations among men, but is to all absolutely impartial. She knows no distinction between master and slave, king and subject, saint and sinner. All men to her stand upon an equal footing, and have equal rights."
Friedrich Hayek in The Constitution of Liberty (1960, p. 85) emphasized the difference of this type of equality from other types, such as equal social or economic outcomes. "The great aim of the struggle for liberty has been equality before the law..."
The equality premise implies that the subjective values of persons have an equal moral standing. This is a factual, not normative, proposition. If each person has an equal genetic capacity for conscious choice and control over one's acts, there is no a priori factual reason to assign the values and acts of one set of persons a status superior to that of some other set.
There is a third premise regarding human nature which Locke did not include. This premise is that each person has a "personal ethic" by which any act that one directly experiences or which directly affects oneself, or is well enough described so that he can imagine its possible effects, has a determined value. Hence, any such act can be assigned a moral value of good, evil, or neutral, by any person. A neutral value is defined as one which is neither good nor evil.
For such personal ethics, the moral values will be termed "personal good", "personal evil", and "personal neutral". The moral values are determined by their net effect, since some acts have both good and evil effects. If someone chooses to do an act or welcomes the act, it has a net value of personal good. The moral value of an act is determined at the moment it is performed. An act can have consequences, intended and unintended, far into the future, but the judgement of the act takes place the very moment it is committed, or for those who are affected, at the moment that they perceive the effect.
The Derivation of the Universal Ethic
First, consider an act which only has beneficial external effects. A "benefit" is defined here as an act which makes another better off from the subjective viewpoint of the recipient. That person's sentiment is that the act is a personal good. The person performing the benefit, presuming it is done of his own free will, also regards the act as a personal good, or at least not a personal evil, since he chose to do it. Since all values originate with individuals, the moral values assigned by the universal ethic originate with personal goods, evils, or neutrals. Hence, the universal ethic (u.e.), by the third premise, can only have one of three values, designated here as u.e.-good, u.e.-evil, or u.e.-neutral. Of these three possible values, the only one which makes sense for benefits is u.e.-good; to the recipient it is a personal good, and to the doer it is either good or neutral.
If a value of u.e.-evil were assigned to a benefit, it would not be consistent with the premise of independence, since there would be no logical origin for such an assignment. Moreover, an assignment of neutral would be inconsistent with the recipient's assignment of personal good; by definition, an act is neutral only if it has no assignments of good or evil. Only an assignment of u.e.-good contains no contradictions with the premises and definitions, as required by the criterion for logical consistency.
Note that the universal ethic has not created the value u.e.-good. It only retains the existing personal value. The ethical function inputs the personal value and outputs a u.e. value; it creates no value of itself. This assignment of u.e.-good is consistent with the principles of normative individualism. As Viktor Vanberg (1986, p. 115) put it, "From the perspective of normative individualism social states are judged to be 'good' to the extent that the individuals concerned judge them to be good." The u.e.-good assignment is also consistent with the principle of Pareto optimality, that a situation is an improvement if at least one person is made better off and no one is made worse off. This Pareto principle implies the existence of a rational ethical rule.
The second case to be examined is an act which has no external effects. Consider Robinson Crusoe alone on an island. Can he commit an act which is personally evil to him? Robinson has chosen to do it - there is no one there to coerce him. He will, according to utility theory, choose to perform that act which, at that moment, offers him the greatest net utility. At the moment of choice, then, the act cannot meaningfully be assigned a value of personal evil, even if it is an unpleasant task. A freely-chosen unpleasant task is one which has a short-term disutility but a long-term utility which is a good, and which logically must outweigh the disutility, otherwise it would not be done. It may be the least of possible evils, but better than alternatives at the time. Hence, it is not meaningful to designate an act which only affects oneself as a personal evil.
Since no one else is affected by such an act, the act is neither good nor evil to external persons, hence by definition it is personal neutral to them. The universal ethic therefore cannot assign to the act a value of evil. Moreover, one cannot know a priori whether such an act will be a personal good or neutral. Just as it is not meaningful to assign the act a value of personal evil, it may not be meaningful for it to be a personal good, since a person always does what he or she deems to be the best alternative at the time. It is least arbitrary to assign the value of personal neutral to an act with no negative externalities, an act which only affects oneself.
By extension, if there are two persons and they both choose to perform an act with no external effect beyond the two, it is neutral with respect to the others, and good or neutral between the two. Generalizing, acts which are performed among consenting persons and with no external effects on others are either u.e.-good or u.e.-neutral. If the acts are perceived as mutually beneficial among the group, or by at least one recipient of another's acts as a benefit, then the acts are u.e.-good, otherwise they are neutral.
The remaining, and most difficult, case is that which has negative externalities, which one or more persons regard as personally evil. Let an "injury" be defined as an act with a negative externality, or one which some person perceives as a personal evil. Such acts will be separated into two subsets. One, "offenses," are injuries whose personal-evil values depend entirely on the subjective values of the recipient, i.e. on his beliefs, biases, interests, attitudes, and culture or world view. The other subset, called "harms," are injuries that do not depend entirely on personal values.
Regarding offenses, if the u.e. assigned such acts a value of evil, then u.e.-evils would depend on personal views, and the u.e. would depend on personal and cultural values. But this would contradict the criterion that the u.e. must be non-arbitrary, and independent of any personal or cultural values. In order to be logically consistent with this criterion, the u.e. must assign to offenses a value of u.e.-neutral. They enter the moral production function as personal-evils (the u.e. moral function being a function of a function, i.e. the function of a personal-ethic function of some act). But the output of the u.e. moral production function for offenses is the moral value u.e.-neutral; the personal evils are neutralized in order for the u.e. rules to remain independent of purely subjective values and rules.
How can harms be independent of personal values? If the personal-evil does not originate entirely within a person's mind, then it must have some origin external to the recipient's domain. The act consists of a penetration or intrusion from the outside into the domain of the recipient. Such an act will be called an "invasion".
Note that a benefit is also an entering into the domain of the recipient, but in the case of benefits, the entering is welcomed. An invasion is not welcomed, and therefore coercive, where "coercive" means done against the will of the recipient. Since an invasion consists of a harm which is coercive, it will be called a "coercive harm". It is possible to do physical harm to someone with the person's consent, in which case it is not a coercive harm. Physical harm done to oneself is, by definition, not coercive. The only acts eligible for the value u.e.-evil are acts of coercive harm, i.e. invasions. Note that, as with u.e.-good, the value of evil is not created by the u.e., but with the personal evil valuation. The u.e. simply inputs this value and passes it through its functional process, equivalent to this derivation, to output a u.e. value.
Examples will help clarify the difference between offenses and coercive harms. Suppose that a person of religion A detests the practice of religion B, and he knows that his neighbor is practicing B, even if the practice is not visible or audible. He feels emotionally injured, and this injury is entirely dependent on his subjective views regarding B. There is no invasion into his domain. He suffers a personal evil, but it is u.e.-neutral.
In contrast, suppose that B sticks a knife into the body of A, and A does not welcome this intrusion. Regardless of the beliefs and values held by A, the act involves an entering from outside of A into A, and is therefore classified as an invasion. These two examples are deliberately stark in order to demonstrate the principle involved; in life there are often cases where it is not so easy to judge acts, but the principles are still the same.
Not all coercively harmful acts are u.e.-evil; there are three more stages to go through. First, the harm must be significant in order for it to be evil. For example, if a person is talking to someone in the street, the noise enters others' ears nearby without their permission. If all noise and other such minor negative externalities were prohibited, it would unduly restrict and thus harm normal life activity.
Secondly, the harm must be direct. An indirect harm, or "incidental injury," is defined as an injury that may not be the result of the recipient's personal views, but are caused as a consequence of someone's pursuit of his or her own ends, and that are not the result of either negligence or the intent to commit harm. An example of indirect harm is a financial loss that occurs as a result of competition. These incidental injuries or indirect harms are treated as offenses and assigned the value of neutral by the universal ethic.
Finally, direct harms can be divided into two types, actual and hypothetical. A hypothetical harm is one which could take place, but has not in fact taken place. If a thief reads a crime novel, he could get ideas about theft and the novel might induce him to steal. But others will read the book and not steal. No actual harm is committed just in reading the book, and therefore that act is assigned a value of u.e.-neutral. However, an act which is committed in the present but whose effects are in the future has its moral value assigned at the moment the act takes place, so setting off a ticking bomb is an actual rather than a hypothetical harm, as is causing environmental damage whose main effect is in the future.
Only significant, direct, and actual invasions are assigned the value u.e.-evil. Note that the refusal to perform a benefit is not evil, since no invasion takes place if one chooses not to do u.e.-good. Benevolent acts are morally good, but not obligatory.
All categories of acts have now been assigned moral values by the universal ethic. (The application of the u.e. to children involves special considerations beyond the scope of this paper; see Foldvary, 1980.) The derivation above is also the "production function" for assigning the values. The universal ethic can be summarized by four rules:
1. An act is good if and only if it benefits others.
2. An act is evil if and only if it coercively harms others by initiating a significant, direct, actual invasion.
3. All other acts are neutral.
4. If an act contains a mixture of good and evil effects, the good does not offset the evil.
Rule #2 is similar to Locke's statement of the "law of nature" that "no one ought to harm another in his life, health, liberty, or possessions." His usage of "ought" is replaced here with the assignment of the value u.e.-evil. There is no "ought" in the above formulation of the u.e. The derivation avoids the "is- ought" problem, since all "oughts", i.e. all values, originate with personal ethics. The u.e. has not created any good or evil values, and therefore has not derived such values from facts. The assignment of u.e.-neutral to some acts is also not an "ought", since there is no "ought" in a neutral value.
Liberty and Rights
The existence of the universal ethic also gives meaning to the concepts of liberty, moral rights, and justice. Liberty is the legal absence of restrictions other than the prohibition of coercive harm. This freedom from legal restrictions applies to the constitutional level of government, which leaves people free to voluntarily restrict their acts at the sub-constitutional level. For example, a marriage is a voluntary constitutional union under which the couple agrees to live under certain rules in the future.
A moral "right" is merely a different way of expressing an ethic. The moral right to do X is equivalent to the statement that the negation of X is assigned the value of evil by an ethic. For example, the right to speak is equivalent to the statement that the negation of the speech, i.e. the prohibition or restriction of speech, is evil. Moral rights are therefore a function of an ethic. What have been called "natural rights" in ethical and political philosophy are equivalent to moral rights. Moral rights can be formulated as follows:
R(A) = [u(-A)7E]
where A is an act, R is a right, u is the universal ethic, and E stands for evil. Thus, if the negation of act A, denoted as (-A), is assigned the value of evil by the u.e., then a person has a right to do or have "A". For example, since the theft of property is evil, one has the right to own property. The right to liberty means that it is evil for others to forcefully restrict one's peaceful and honest actions.
Anarchy or minarchy?
What type of governance is implied by the universal ethic? The premise of equality precludes any person from having any inherent authority over others, except for parents and guardians over children as dependent and immature persons. Moral equality thus precludes any imposed governance, government forced on people without their consent, no matter what utilitarian benefits may come of it, with one possible exception. If some agent perfectly enforced the universal ethic, then no person's rights would be violated, since the governing agent would only be protecting people against invasions. But any actual human government would not be perfect and would be subject to corruption and interests contrary to the natural rights of the public. Hence, given the human propensity to error and cupidity, the universal ethic implies an anarchist society, one with voluntary governance or association.
However, anarchism does not imply atomism, a society of independently functioning individuals and families, nor does it preclude a rather uniform rule of law. There can be federations of contractual communities over a large area providing the public services typically provided by governments. The question is then how such federations can be structured to best maintain the anarchist and libertarian foundation.
2. Communitarian democracy
The structure of elected governments today is mass democracy:
the election of agents by a large mass of voters. A large number of voters elect representatives whom they do not personally know, and whose characteristics (actual or created) are transmitted to the voters by mass media. This informational method implies that substantial funds be raised to pay for the media exposure. The high cost of the media, rational ignorance of voters (the typical voter not receiving a financial benefit from an investment in information), and large volume of competing advertisers, implies that the message presented in the media be simple and compelling. Hence the messages tend to portray issues and images the voter already has sympathy for, so that this sympathy be transferred to the candidate as well. Negative advertisements are part of this strategy, inducing antipathy against other candidates and parties.
A principle of public choice theory is that concentrated benefits induces organizing for "rent seeking," or the seeking of transfers such as subsidies, legal protection, and other favorable legislation (Olson, 1971). In mass democracy, the voters in a district are numerous, hence the costs imposed by transfer seeking are spread thin among voters and consumers, and often the knowledge of such costs is opaque, not clearly evident to the taxpayer or voter. Special interests thus have the incentive to fund the media campaigns and provide subsequent favors in return for transfers (which may of course include the prevention of negative transfers). As Charles Rowley (1993, p. 1) puts it, "majoritarian democracy generates a mercantilist economy." Rent or transfer seeking is thus the malady of democracy long recognized in public choice theory. As stated by Richard Wagner (1988, p. 438), Knut Wicksell long ago recognized "that a constitutional order grounded in parliamentary majorities was inconsistent with the liberal or consensual value premise."
However, since the alternative is deemed to be dictatorship, the typical sentiment, as noted above, is that dysfunctional mass democracy is the best political alternative, since with dictatorship, a tyrant may extract even more rent and distribute it much less equally. (Empirical studies of mass democracy versus dictatorship have not, however, determined clear economic outcomes; cf. e.g. Nalin and Torstensson, 1995).
This "least worst" proposition ignores the possibility of forms of social choice other than mass democracy. The alterative examined in this paper is termed "communitarian democracy." This analysis is in the domain of "constitutional economics." As defined by James Buchanan (1990, p. 3), "Constitutional economics directs analytical attention to the choice among constraints" (emphasis in original). This analysis is thus a constitutional comparative study of two alternative models of democracy. As Buchanan (1980) has noted, "rent seeking" itself creates barriers to reform, and so its reform requires constitutional change.
Democracy does not exist in isolation from other governmental structures. Structural supplements to mass democracy such as federalism and restrictive constitutions were adopted to constrain opportunism. John Arthur (1989, p. 12) notes that the Federalists recognized that "majoritarian government (which the framers refer to as 'democratic') is unable to protect liberty or to promote the general welfare." These structures constrain but have not prevented the growth of large transfers and the shifting of political and fiscal power to the federal government. Communitarian democracy incorporates additional constitutional constraints as well as a multiple-governance federal structure in an integrated system. The proposition of this paper is that the very structure of communitarian democracy is a constraint on the exercise of power by special interests, more so than mass democracy.
In what I call "communitarian democracy," a jurisdiction such as a state or province is divided into neighborhood districts. The lowest level of community in society is the individual (or household). The next highest level is the neighborhood, the immediate geographic vicinity. In some communities, the neighborhood boundary is clear from the institutional structure, such as a village, township, large condominium, or residential association. In most cities, neighborhoods do not have official governance or established boundaries, but there are voting precincts and informal neighborhood names.
In an anarchist society, the neighborhood council would typically be a contractual association, such as a condominium, cooperative, civic or residential association, or land trust. Large contractual communities would be subdivided into such neighborhood associations.
Communitarian democracy sets boundaries for neighborhoods of some 500 persons, or about 100 to 200 households. The population size is somewhat arbitrary, but the principle is that the size be small enough that candidates can be personally known and accessible to the resident voters at low cost.
Each neighborhood community elects representatives and one alternate to a council. The neighborhood shall be designated as the level-1 community, level zero being the individual voter. The council members may be removed whenever the voters desire. The small size of the neighborhoods makes it feasible to circulate a petition to recall a council member and then hold an election to replace the representative.
A region containing about ten to twenty neighborhoods would then have the level-2 council. Each level-1 council elects a regular representative and an alternate to the level-2 council from its own regular membership; the alternate may participate in the council but does not vote unless the regular representative is absent. The alternate at the level-1 council would then replace the regular member now representing level-1 at the level-2 council. The representative to the level-2 council may also be recalled at will by the level-1 council and replaced by another member.
Several level-2 districts would then belong to the next higher-level (regional) council. The council of level 3 is elected by the level-2 district councils, each level-2 council again electing a regular and an alternate representative to level 3. The level-2 representative elected to the regional council is then replaced at level 2 by his alternate from the level-1 neighborhood. By electing alternates, each lower level council thus retains representation at the next higher level council when its member is elected to a higher level council.
Ever higher-level councils are elected up to the highest level council for that jurisdiction, designated as level h. (Such a multi-level governance structure extending to a continent or the world was envisioned by Spencer Heath (1957) for proprietary communities, although he did not present any details.) The level-h council elects from its membership an executive and other officers. Alternate representatives replace the executive and possibly other officers. The level-h council members have all been successively elected by lower-member councils down to level 1, and are in effect on leave from the lower-level councils. Hence, if any lower-level council removes its higher-level representative, he is then removed from his higher-level council. A level-h representative could thus be removed from level h by the level-1 council.
Such multi-level governance has been implemented in part by various organizations. In the U.S., the Republican and Democratic parties have such a bottom-up multi-level structure; the county central committees or officers select the state-level committees. There are many governmental agencies whose boards are elected by lower-level governments; regional transportation agencies are a typical example. International organizations such as NATO and the UN have representatives from their constituent country members. The Union of Soviet Socialist Republics was conceived as having power centered in the local councils, or Soviets, with the slogan, "All power to the Soviets!" In practice, we know that the Communist Party controlled the government with top-down authority.
Bryan and McClaughry (1989) proposed an electoral reform for Vermont, where many small towns still exist, which would partially implement this structure. In their system, much of state governance would devolve to a "shire" (derived from the old English shire) one level above the small town or city neighborhood. They emphasize that genuine representative democracy depends on having a vital direct democracy at its base. In their plan, however, the citizens still directly elect the state legislature, whereas with communitarian democracy described here, the state legislature would be elected by the next-lowest governance lever.
Russell Hardin (1993, p. 130) notes that "The real magic of liberal democracy often lies in its tendency - sometimes overcome - to decentralize decisions." Mass democracy, however, has tended to centralize power due to the lack of individual political power by the lowest unit, the voter. Communitarian democracy offers the structural incentives to maintain decentralist governance. Such a result is consistent with public-choice analysis, going back to the conclusion by Buchanan and Tullock (1965, p. 114-5) that "where possible, collective activity should be organized in small rather than large political units."
Such multi-level bottom-up governance would prevent transfer seeking and better preserve liberty than the mass democracy practiced today, but the universal ethic also requires individual sovereignty. That can be achieved by both contractual community governance and a secession option with the federation.
Transfer or privilege seeking is lower with communitarian democracy than with mass democracy, and it is even further reduced with secession and service substitution, i.e. when the lower-level council can withdraw in whole or in part from a jurisdiction or policy of the higher-level council, with a simultaneous withdrawal of the relevant fees and taxes. For example, if the level-i council provides for schooling and the council at level i-1 may substitute its own schooling and associated funding, then a service exit or secession option is added to the voting power to reduce the scope at level i for extracting benefits from the level i-1 jurisdiction. Such decentralization down to the neighborhood level can be efficient for many services. For example, in St. Louis, many services are provided by small local jurisdictions, including privately owned streets (Foldvary, 1994). In some cases, local jurisdictions jointly contract for some service. Gordon Tullock (1994) extends the neighborhood to non-geographic associations as well.
Communitarian democracy with selective secession or service substitution thus provides greater scope for competition among communities, a theory set forth by Charles Tiebout (1956) and a subsequent large body of literature (Zodrow, 1983). Excessive inefficiency and transfers at higher levels induce secession. With the reduced opacity, if not near clarity, of communitarian democracy due to the access at level zero and the monitoring at level i-1, residents have greater ability to judge the mix of fees and services in local communities. Competitive effects reinforce secession effects and voice effects.
The secession option makes this geo-archic system compatible with anarchism, since all governance becomes voluntary, but the advantages of federating would keep most communities within the confederation so long as the higher-level associations are efficient and just. The secession option helps keep them that way.
4. Public Finance
Contractual communities may have whatever methods of revenue their members wish, but the economics of competition will reduce the likelihood of charges that can be avoided by moving to areas without such taxes. In the United States, for example, state income taxes were not feasible until the federal income tax was adopted. Now the states piggy-back on the federal income tax. If a bottom-up multi-level confederation based on communitarian democracy adopts an income tax for all members, then some associations would have a comparative advantage by seceding and becoming tax havens. Also, an income tax requires stiff enforcement, which would lead to further secession.
Similarly, sales and value-added taxes raise the price of goods and would encourage both evasion and secession. Real estate taxes would be the most suitable, since these can be collected locally and be passed up to higher-level associations. But even with real estate, the buildings and other improvements are mobile over the long run. High taxes on improvements would shift construction and industry to those areas without such taxes.
Thus, with competitive governance, public finance would center on property that is immobile and not possible to evade. The main property with those properties is land. Assessments based on land rent do not increase the land rent, because the supply of land is fixed by nature, so there is no negative impact on the economy when rent is used for public revenue. Land cannot be hidden or moved. The economic impact is to lower the price of land while leaving the rent unchanged, and there is therefore no incentive to move away after the system of collecting the rent is in place. The only parties that suffers losses are those who own land at the time of the shift from taxes to charges on the rent. Usually, these parties also have income from capital and labor, so the net effect is to reduce their taxes.
A shift from taxing labor and enterprise to obtaining revenues from land rent would eliminate the excess burden of taxation, which in the United States has been estimated at $1.5 trillion per year (Tideman and Plassman, 1998). The increase in productivity and wealth, along with higher future growth, would offset much of the impact even on the larger landholdings, and a gradual shift would further reduce the impact of lower land prices.
In actual practice, contractual communities base their revenues on user fees and property-based assessments. Condominiums obtain their funds from assessments that are rent in effect, and land-trust communities do so explicitly. Many residential associations also have fees that in effect do not penalize improvements (Foldvary, 1994). Users fees and assessments based on land rent or land value would therefore be the most likely sources of public revenue in geo-archic governance.
5. Geo-archism between anarchism and minarchism
The key feature of anarchism is individual sovereignty, with governance by individual consent. Geo-archism is based on this principle, since an individual voluntarily joins a contractual community which then chooses to associate with other communities for mutual benefits, and may withdraw when those benefits are no longer obtained. An individual has the option of remaining outside any community, contracting for services as an individual.
In practice, most people would remain in some type of contractual community because historically human beings have wanted to live in communities and economically it is efficient for one geographic agency to provide for a mix of local related territorial services and to associate with others for services provided efficiently to larger areas. With most people in a confederation that spans a continent or even the entire earth, society would obtain the key benefit of minarchism or limited government: a uniform rule of law (Hospers, 1976).
Geo-archy, a multi-level confederation of consensual communities is therefore between anarchism and minarchism, providing the best features of both. Its rent-based public finances provides the confederation with revenue without invading the privacy of the members and without imposing any economic burden. The secession option and the ability to recall representatives at any time both reduce the likelihood the higher-level associations from becoming inefficient and corrupt, and preserves the voluntary nature of the system. Small-group voting makes it infeasible for special interests and rent seekers to capture the government to obtain privileges and subsidies.
Geo-archy provides the structure that can preserve liberty while providing the benefits of governance and public services. It is a workable anarchy, while also being a minarchy not in limiting the services available from governance but by limiting the power of government beyond that which is voluntarily agreed to. Federated contractual communities can implement the universal ethic by both preserving and protecting the equal sovereignty of each person.
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