The iron law of liberalism

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The right-wing critique can be disposed of fairly quickly. It has origin in nineteenth-century liberalism. The story that emerged in the middle-class circles in Europe in the wake of the French revolution was experiencing a gradual, uneven, but inevitable transformation away from the rule of warrior elites, with their authoritarian governments, their priestly dogmas, and their caste-like stratification, to one of liberty, equality, and enlightened commercial self-interest. The mercantile classes in the Middle Ages undermined the old feudal order like termites munching from below—termites, yes, but the good kind. The pomp and splendor of the absolutist states that were being overthrown were, according to the liberal version of the story, the last gasps of the old order, which would end as states gave way to markets, religious faith to scientific understanding, and fixed order and statuses of Marquis and Baronesses and the like to free contracts between individuals.

The emergence of modern bureaucracies was always something of a problem for this story because it didn't really fit. In principle, all these stuffy functionaries in their offices, with their elaborate chains of command, should have been mere feudal handovers, soon to go the way of the armies and officer corps that everyone was expecting to gradually become unnecessary as well. One need only to flip open a Russian novel from the late nineteenth-century: all the scions of aristocratic families —in fact, almost everyone in those books—had been transformed into either military officers or civil servants (no one of any notice seems to do anything else), and the military and civil hierarchies seemed to have nearly identical ranks, titles, and sensibilities. But there was an obvious problem. If bureaucrats were just holdovers, why was it that everywhere—not just in backwaters like russia but in booming industrial societies like England and Germany—every year seemed to bring more and more of them?

There followed stage two of the argument, which was, in its essence, that bureaucracy represents an inherent flaw in the democratic project. Its greatest exponent was Ludwig von Mises, an exiled Austrian aristocrat, whose 1944 book Bureaucracy argued that by definition, systems of government could never organize information with anything like the efficiency of the market pricing mechanisms. However, extending the vote to the losers of the economic game would inevitably lead to calls for governmental intervention, framed as high-minded schemes for trying to solve social problems through administrative means. Von Mises was willing to admit that many of those who embraced such solutions were entirely well-meaning; however, their effort could only make matters worse. In fact, he felt they would ultimately end up destroying the political basis for democracy itself, sincethe administrators of social programs would form powerblocs far more influential than the politicians elected to run the government, and support ever-more radical reforms. Von Mises argued that as a result, the social welfare states emerging in places like France or England, let alone Denmark or Sweden, would, in a generation or two, inevitably lead to fascism.

In this view, the rise of the bureaucracy was the ultimate example of good intentions run amok. Ronald Reagan probably made the most effective popular deployment of this line of thought with his famous claim that, "the nine most terrifying words in the English language are, 'I'm from government and I'm here to help.'"

The problem with all this is that it bears very little relation to what actually happened. First of all, historically, markets simply did not emerge as some autonomous domain of freedom independent of, and opposed to, state authorities. Exactly the opposite is the case. Historically, markets are generally either a side effect of government operations, especially military operations, or were directly created by government policy. This has been true at least since the invention of coinage, which was first created and promulgated as a means of provisioning soldiers; for most of Eurasian history, ordinary people used informal credit arrangements and physical money, gold, silver, bronze, and the kind of impersonal markets they made possible remained mainly an adjunct to the mobilization of legions, sacking of cities, extraction of tribute, and disposing of loot. Modern central banking systems were likewise created to finance wars. So there's one initial problem with the conventional history. There's another even more dramatic one. While the idea that the market is somehow opposed to and independent of government has been used at least since the nineteenth century to justify laissez faire economic policies designed to lessen the role of government, they never actually have that effect. English liberalism, for instance, did not lead to a reduction of state bureaucracy, but the exact opposite: an endless ballooning array of legal clerks, registrars, inspectors, notaries, and police officials who made the liberal dream of a world of free contract between autonomous individuals impossible. It turned out that maintaining a free market economy required a thousand times more paperwork than a Louis XIV-style absolutist monarchy.

This apparent paradox—that government policies intending to reduce government interference in the economy actually end up producing more regulations, more bureaucrats, and more police—can be observed so regularly that I think we are justified in treating it as a general sociological law. I propose to call it "the iron law of liberalism":

The Iron Law of Liberalism states that any market reform, any government initiative intended to reduce red tape and promote market forces will have the ultimate effect of increasing the total number of regulations, the total amount of paperwork, and the total number of bureaucrats the government employs.