The State as an Organization: Part III

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Frank Chodorov wrote: "The miracle of the twentieth century is … the identifying of freedom with subservience to the State. The explanation of this miracle will engage the best brains of the future." Leonard Read thought it was because "we have forgotten the real source of our rights." It seems he meant Jefferson’s reference to the Creator. This is one possibility and not without some merit. People do worship false idols. One of the American idols is equality, by which I mean socioeconomic equality, not equality of authority. The state has suppressed freedom in the name of equality and argued that freedom is equality.

But this explanation does not suffice. Why has ideology changed? The question is really this: Under what conditions do people worship false idols? When is there more idol worship and when is there less? What factors influence the observed degree of idol worship? I argue in this section that the state influences the amount of idol worship by its very existence and by actions it takes to encourage worship of false idols. I argue that states lower the cost of immorality, and people respond by demanding more of it. Citizens do resist, but they face a long-lived and implacable foe that will not go away, that owns the law-making apparatus, and that has it in its power to lower the price of immorality. The state’s existence lowers the price of immoral behavior. Since demand curves are not vertical, people then engage in more immoral behavior as they move along and down the demand curve. In this view, ideology may still have an independent influence on behavior. It may cause a shift outwards in the demand curve. But whether or not it does, I would expect that ideology will change to become consistent with the behaviors that people engage in. They will rationalize their greater demand for immorality with new theories of what is right and wrong. They will come to worship authority, equality, the use of force, power, etc. and they will turn away from self-reliance, responsibility, obligation to their elders and the poor and weak, etc. Being human, their emotions will become involved to support their new ideas. They will accept, like, even love, their new situation. The state corrupts morals and human beings. This in short is an explanation for Chodorov’s puzzle that I now elaborate upon.

States weaken society

The presence of the state in a society logically has to weaken that society. How? A few important paths are as follows.

(1) The state’s power is unique. Power is desirable to many in and of itself and for what it can do. It is a focal point for any group within society that wishes to gain at the expense of others using the state’s power. Taking from others is not a productive activity for society since it adds nothing to society’s product. The state’s existence ignites a political competition for the levers of power that diverts resources from productive activity to theft from others.

(2) The state’s existence provides an incentive for the expansion of the state’s powers since the latter are desirable and can be used to achieve one man’s gain at the expense of another man’s loss.

(3) The state is an endorsement of immoral behavior (theft) that is declared legal. This encourages similar behavior within society.

(4) A state’s monopoly over law and justice in and of itself critically weakens society. When there is an injustice, individuals must use the state for many crimes and disputes. To this extent, they lose the remedy of private institutions to mediate justice. They lose pathways of communication and consort with each other that can work more efficiently and effectively. They lose access to all sorts of cooperative behavior and other remedies that provide justice. They cannot even forgive a criminal or one who has trespassed against them. The state prosecutes cases.

(5) State-made law replaces deeper and more permanent sources of natural law. State-made law is erratic and changeable. Since law is fundamental to society, being able to make and change law is a lever to move society in any direction rulers want. Control over this fundamental part of society is a wedge to control other parts of society.

(6) Once there is a state, any state, that is not rigidly controlled by society, there are opportunities for gain available to members of the state. At the same time, states have an incentive to increase their domination of society so that lawmakers can impose their own visions and whims. The result? Over time, the gain opportunities will be exploited. The state’s power will grow, and new opportunities for gain may arise.

(7) The state levers its power by exploiting the natural weaknesses of mankind. Any state wishes to increase its domination. One way is to encourage societal deviation from the paths of righteousness, for example, by encouraging forced income equality via wealth redistribution or by instituting forced exactions from workers to support the elderly. The state lowers the cost of immoral behavior by making it officially legal. It fosters immorality by making it a group action in which the individual is no longer held responsible for his acts. With the price of immorality having been lowered, society then partakes or demands more of such immoral behavior.

States, being long-lived, can afford to lie in wait, watching, probing, ready to exacerbate and amplify any lack of virtue or weakness in society. Such weaknesses include failing to take responsibility for one’s own life, shifting burdens to others, extracting unwarranted benefits from others, excessive fear, excessive greed, ignorance or incapacity, desires for revenge or domination, prejudices, and so on. States exploit humanity’s natural weaknesses and divisions. Tyranny fosters the realization of greater immorality.

Free markets, it should be obvious, foster the opposite. Freedom raises the cost of immoral action, since the individual is responsible for all of his actions. Less immoral action against one’s fellow man is therefore engaged in or exhibited. Free markets encourage strength of character and rightness of belief and action. It encourages institutions that support such behavior. These institutions, such as family, church, science, tradition, associations, professional codes of ethics, etc., simultaneously reflect the existence of free markets and support them.

To states, these institutions of society are competing sources of order. The state wars against society. It has the incentive to undermine society’s institutions so as to maintain and extend its own power. Much of what states do can be understood as attempts to undermine society. While inefficient from the viewpoint of citizens, the state is highly effective at warring against society. The welfare state has been very successful in interposing itself between members of society and breaking up the cooperation that accompanies free markets.

Aims of the state

The federal state in the U.S. is like a close corporation, which is a nonpublic corporation with about 30 shareholders that operates like a partnership. My guess is that the state’s top management group is perhaps of this size, within a factor of two, that is, somewhere between 15 and 60. It’s interesting that the members of this group in the executive branch do not hold office for very long, yet the state is reasonably stable in its policies. There are a number of possible explanations. One is the Eastern Establishment hypothesis, namely, that our leaders are drawn from a larger group of individuals who are credentialed, homogenized, selected, and indoctrinated in certain ways that assure continuity. Second, the group has to reach consensus in its decisions. This encourages groupthink. Third is staff conservatism. Leaders need staffs, and once they choose a few hundred key persons, the ideas regress to the mean thinking of a college-educated lawyer, political science major, or political operative as many are. We do not expect radical changes in policy from people who have worked to reach the pinnacle of power, and we don’t get it. The organization maintains continuity. Fourth is the cultural foundation. Leaders either appeal to the deepest beliefs of the electorate or themselves believe in the same myths. There is kind of an American political religion and mythology that most politicians carry around inside their heads and spout. It influences their actions. Most people can be swept along by political leadership, and the leaders sense what appeals to use to sweep them along. It’s a symbiotic relationship, two-sided. Fifth, the top members of the state know that they hold the levers of power for a limited time. They know they must work with others in government whose views may differ. They do not have time or the capacity to effect radical changes in what government does. They focus on changes at the margin, and these are usually a deepening or an extension of existing policies and programs. As radical as the current actions of the Bush administration may appear on many fronts, it is very likely that their roots can be traced back to earlier administrations and to Congressional policies and sentiments.

A few dozen people control the vast state bureaucracies. The state’s power comes from its ability to hold the loyalty and obedience of these career employees beneath them in the hierarchy. This is not difficult since people’s livelihoods depend on these jobs.

Power is of no account if it cannot be used. We expect leaders of different states to gratify their whims. We expect a certain amount of idiosyncratic behavior. If the rulers want vengeance, that’s what they’ll go after. If they fear attack, they’ll arm. If they hate property, they’ll try to abolish it. If they are pugnacious, they’ll pick fights. If they have an engineering mentality, they’ll tinker and regiment society. If they like uniformity, they’ll put out standards. If they feel guilt and wish to feed the poor, they will. If they are avaricious, they’ll sell favors. If it’s money they want, they’ll open secret Swiss accounts. The rulers seek to fulfill their whims, and their whims are unpredictable. Different rulers have different whims. Yet states succeed and they do not usually fall apart because of battles over what projects to adopt. The groups that run states typically work out their differences.

There is good reason why intra-state conflicts do not usually undermine states. Most importantly, the state can’t accomplish anything without maintaining power. This is its primary, agreed upon, overriding objective and necessary condition before any other goals can be fulfilled. Then too the group running the state is small. Many techniques exist to homogenize the rulers and iron out differences. One group or ruler can kill or purge the opposition. It can smear or blackmail them to weaken them. It can share gains, make side payments and do favors. One side can help another stay in office. Single-party rule or rule by one person with purges of dissidents solves the problem of conflict. Another way is by several party rule, with each party taking over the state for a period. The state can recruit people with allegiance to particular aims. It can indoctrinate. It can employ a loyal bureaucracy and a loyal military that take orders no matter what the rulers decide to do. To keep them loyal, it can make them fearful of the consequences of disloyalty.

If the state cannot solve the problem of reconciling diverse aims of its members, it can fail to gain strength, or it can fail after it gains strength. Some members may interfere with the actions of other members, weakening the state. States do not have a guaranty of success.

Limits of the state

Since wants are unlimited, the state always prefers more power to less power (other things equal), so that its members can satisfy more of their wants. However, there are costs to extending power over society. The optimal size of the state, from the standpoint of the state, therefore depends on the intersection of its demand curve for the fruits of power with the cost curve of extending power. If the costs of obtaining and extending power were low or near zero, we would see totalitarian states everywhere. Among other things, the costs to the state of controlling society depend critically on how willing and able the subjects are to resist the state. To break down the resistance of citizens, the state will continually invest in projects to lower the willingness and capacity of its subjects to resist. For example, it will try to disarm citizens. It will try to turn their loyalties toward the state by encouraging patriotism to the state, not just the country. Many other techniques are outlined below. Many actions of the state can be understood as designed to reduce citizen resistance and foster citizen compliance and support of the state.

The U.S. government, for example, is against the export of strong encryption and would strangle it at home if it could. That is because encryption raises the cost of the state’s obtaining power. The U.S. now limits political speech before elections. This lowers the cost of extending power. The Soviet Union produced plenty of vodka and encouraged drunkenness. This facilitated its control. Other things equal, the state allows society to control those areas where the cost of state control is high, such as personal matters. It enters those areas where the cost of state control is low, such as the monetary system. Other things are not always equal. The state can’t control drugs but it pretends to anyway because it gets many side benefits from doing so and a substantial part of the population is against drugs.

If the rulers value control for its own sake, as Orwell thought, they’ll attempt to extend control for that reason only. That means their demand curve for power shifts to the right, other things equal. Orwellian rulers will be willing to pay a higher price for the power to suppress society.

How the state maintains power

The state’s overriding aim is to maintain its power over potential forces that could put it out of business. These forces can be anywhere, within its own population, within specific institutions, and outside the country. Therefore, in a sense the state is always running scared against competition.

Companies run scared too. If a corporation strives to increase the wealth of its shareholders, it does so by increasing the satisfaction of its customers. When a state strives to increase its power or the satisfaction of its owners, it decreases the satisfaction of its subjects. They then have a larger incentive to resist or rebel. The state must then incur costs to dominate them or maintain power. The more successful the state is for itself, the more it stimulates the forces against it. This tells us two things. For given costs and benefits, there is an optimum size of the state at which the marginal cost of extending power equals the marginal benefit from extending power. Second, the rulers, acting like entrepreneurs, constantly try to lower their costs of dominating society. Removing constitutional checks and balances does this. Subverting the Bill of Rights does this. Secret police do this. Spying on citizens and national identification cards do this. Withholding taxes do this. Maintaining power is a very different imperative than maintaining profits. They entail very different agendas.

Consider the situation from the state’s point of view. Imagine that we are members of the state. We enact laws (or fail to) and we undertake projects (or fail to) to increase our own benefits or arrive at our own aims. A major aim is to dominate society. In doing so, we must harm society economically. The fact that we aggress upon them and do not operate in markets means that what we do is economically unproductive. The citizens resist this. Therefore, we must control the general population’s resistance to our laws. A lot of what we do can be explained by this one objective. There is an incentive to fool the people, who outnumber us greatly, in order to control them so that we can use power for our own ends. There are incentives, just noted, to improve the technology of domination and raise the costs of resistance.

We use many means. In no particular order: (1) We use violence. (2) We stress abiding by laws. (3) We make examples out of lawbreakers with long sentences. (4) We imprison the innocent so that people know our power and become afraid. We do not rehabilitate. (5) We impose violence randomly so that everyone is kept afraid. (6) We spread propaganda, lies, and censorship. (7) We conceal what our true aims are, what are actions are and what they produce. (8) We blame others or other factors when things go wrong. (9) We control education. (10) We break up families. (11) We spy on dissidents. (12) We inculcate values like obedience. (13) We raise fears that we pretend to calm. (14) We identify state with country and patriotism. (15) We appeal to popular values like equality. (16) We make side payments to key individuals or to broad segments of the population who think they are getting a free lunch. (17) We spread the belief that the subjects control the state, own it, or are the state, or that the president or leader is hired by the voters. (18) We take over or control popular or necessary goods and services. These entrench the state in delivering or playing a role in essential services. (19) We rely on the tyranny of the status quo to maintain our laws. (20) We use blandishments and rhetoric as tools. (21) We scapegoat dissidents. We scapegoat the successful and the well-off. We scapegoat drug addicts. We divert attention from our own deeds. (22) We play up the satisfaction of needs. (23) We disarm the population. (24) We try to increase the ignorance and gullibility of the population. (25) We portray ourselves as crucial to the society and order. (26) We conceal the costs of our actions, so that the population will underestimate them. (27) We portray ourselves as saviors of the masses and the downtrodden, as uplifters of all mankind. (28) We spread the belief that we speak and act for the people. (29) We spread the belief that the people have hired us to do a job. (30) We try to absorb or co-opt any power center in society. (31) We divide and conquer. (32) We use payoffs and favors of all sorts to keep people quiet, to create obligations, to blackmail. (33) We inculcate that it’s good to accept our dictates even when you disagree, that majority rules, that we’re all in this together. Sometimes you get your way, sometimes the other guy gets his way, but we’re all one country. (34) We suppress speech and communication. (35) We enlist the press on our behalf and corrupt them wherever possible.

This is no doubt a partial list of what states do in order to lower the resistance of society to their rule.

The totalitarian state

The totalitarian or total state is an extreme predatory state. Its owners highly value control over the personal lives of its prey, not just their wealth. By educating them, feeding them, giving them welfare, it turns them into compliant serfs and cannon fodder. It obtains a ready supply of bodies for its war-making or other aims. If the state can hook the masses on state-manipulated or controlled health, education and welfare, then it is quite far along to controlling them totally. It might then like to control employment, entertainment, art, expression, and speech to become even more totalitarian.

Any state is inefficient from society’s point of view, and each step along the way toward totalitarianism introduces new inefficiencies. As each step proceeds, the predation increases. Competing power centers like religion, science, the family, regional governments, and certain intellectuals have to be controlled or eliminated the further the state moves toward total control. When the predations of states go too far through the errors of rulers, they raise their own costs of maintaining their power. At the same time, they raise the potential gains of getting rid of their predations. At some point, they may find it optimal to scale back their control or else the populace will seek to overcome the state’s control. In addition, states that weaken society too much weaken their own ability to defend themselves against other predatory states since society is the productive element in the country. They make themselves more vulnerable to conquest, subservience, or takeover.

A number of twentieth century totalitarian states went too far in trying to accomplish the aims of the states and met with destruction or large alteration. Hitler went too far with his personal aims. Mao went too far. Mussolini went too far. Stalin went too far. They or their successors couldn’t hold their power. My guess is that the welfare states including the U.S. have gone or are in the process of going too far. They are raising their own costs of control while providing higher incentives for their subjects to find ways around regulations and/or rebel. Inefficient laws produce lawlessness and black markets, since laws are costly to enforce. They encourage political voices offering better or at least alternative bargains to the people.

The totalitarian state helps us understand all states because its extremes are easy to observe. The state is an organization that always competes with society over the choices of the subjects versus the choices of the rulers. The state always seeks to suppress freedom and spontaneous order. The state always seeks control and domination. Rulers always seek to fulfill their values and must in doing so suppress society’s values. State is always opposed to society. States are always characterized by those institutions that society has in place to control its agent, so as not to have to bear large agency costs. The power to tax is clearly the very opposite of such an institution. Given enough power to tax and spend, the rulers become literally giant monsters. They are able to express their personal values in a magnified way, and these values cannot replicate those of society except by remote chance. References to rulers such as Stalin, Mao, Hitler, and even George Bush as monsters are easy to find.

All states, like totalitarian states, have predatory characteristics. Truly the leaders may be stupid, venal, greedy, fearful, ignorant, stupid, puritanical, utopian, or many other things, but they are no more so than the rest of us although they are more power-hungry. What they do necessarily seems crazy, dumb, or harmful to the rest of us. It might well be crazy if the rulers are crazed. But leadership personality is not a general explanation of the behavior of states. We have agency explanations. The institutions to control agency costs of the state are never strong enough and they can’t work because the losses or agency costs incurred by the state are shifted onto taxpayers.

Totalitarian states are obviously "negative net present value" projects. This is finance jargon for investments that destroy wealth and utility. States per se are negative net present value projects. States by their nature imply unexploited opportunities for the citizens to gain. Just as financial arbitrageurs can create wealth by halting bad investments inside some companies, we the people can create wealth and greater happiness simply by halting the state’s policies.

Reducing the state

The potential gains from cutting back states provide a pervasive and long-run incentive for states to be shrunk and eliminated. In one way or another, either by internal citizen action or by the actions of competing more successful societies in other countries, the overblown states face pressure to be cut back. Just as the Communist states fell in competition with the Western states, so may the Western states fall in competition with more capitalistic states that come on the world scene. One scenario that may prevent this is world rule by a cartel of strong states. In that situation, the entire peoples of the world would have to shake off such domination. A world state is not a likely possibility inasmuch as the greatest world power cannot even control Baghdad or its own prisons. But it is a possibility. Even a weak world state would seriously diminish the capacity of the world’s people to improve their conditions of life, and every step along the path to world government should be resisted strenuously.

If states were business firms, they’d long ago have been taken over, sold off, spun off, restructured, cut back, merged, liquidated, or dismantled. We the people haven’t yet accomplished these actions for a variety of reasons. One of these is that the states have used every means to enmesh themselves in the life of society. This introduces cost barriers to change. One of these costs is the cost of renegotiation of agreements or supposed agreements in the form of promises. This difficulty also arises in the bankruptcy of companies. When one-third of American seniors receive all their income from social security and when two-thirds of all seniors receive 50—100 percent from social security, they resist shrinking the state until their income is secured. Others resist for similar reasons because they do not know what will happen to their income if the state disappears. The state’s programs inherently erect obstacles that discourage the equivalent of takeover and restructuring. Because the state involves a zero-sum game that imposes large losses on society as a whole, the pressures to diminish or reform the state can only persist and grow so as to remove these losses and allow gains that are currently not being realized.


Natural and inherent human weaknesses present an opportunity for the state to exploit. If society wants free medical care or free old age care, or a guarantee of these, the state will calculate its benefit and try to accommodate the demand. Strong rulers try to exploit weaknesses in society, and they plot to make society weak. In the name of justice, they introduce social programs that involve theft and injustice, programs that undermine the right functioning of society.

In this endeavor, they are aided by new philosophies and ideologies, which either justify the state’s acts or encourage society that such actions are legitimate or both. Many modern anti-rationalistic philosophies have abetted the state. At this time, many Americans have lost the ability and will to support natural right as against natural wrong or even right against wrong. They have found rationales for unethical and immoral behavior. The doctrine of equality is a convenient way to justify the state; for if justice is defined as equality and if the state dispenses justice, then the state’s aggressions become valid. Unlawfulness in furtherance of equality becomes right and praiseworthy. Wrong becomes right.

In our day and age, to rescue society from tyranny requires attention to two fronts. One is an attack on the state on basic grounds of its immorality and the large losses it imposes on society. This has to be accompanied by the proposition that free markets are both moral and essential to material and spiritual betterment. Second is an attack on the state-supporting economic, philosophical, and ethical ideologies that allow society to feel comfortable with the state’s tyranny. This has to be accompanied by support of philosophies that stress rights, reason, and rationalism. In basic terms, what we need in part is a recovery of common sense, or that part of it which is the ability to understand and distinguish right from wrong. We need a higher level of commitment to support right. We need an understanding that the state as an organization is an instrument for cultivating and spreading wrong. We need an understanding that right behavior is the wellspring of human peace, prosperity and happiness. A society whose members cooperate to insure each other against rights violations or injustice stands the best chance of holding on to freedom and thus the benefits of freedom.

Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.

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