The Politics of Loyalty

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In an
earlier essay
, I discussed the decline of loyalty in the West.
In this one, I discuss its price and the political implications
of its rising price.

In a world
of declining loyalty, individuals are more and more “on their own.”
This problem manifests itself in times of crisis, especially that
familiar crisis, old age. Yet our perceptions of the world around
us are still heavily based on a social order that has slowly ebbed
away, right under our noses. We plan for the future in terms of
assumptions that are no longer accurate.

In this essay
and the previous one, I am doing my best to warn you about the new
reality, encouraging you to make plans in terms of it. If you fail
to see what has happened, you may find yourself vulnerable at some
point, but without the social safety nets that existed for your
parents. You are (or were) your parents’ final safety net. Who will
be yours? And how much safety will they be able to provide?

TANSTAAFL

One of the
foundational rules of economic reasoning is this one: You can’t
get something for nothing. This is encapsulated by the libertarian
acronym, TANSTAAFL: “There ain’t no such thing as a free lunch.”
The science of economics is mainly the application of this law to
every area of life.

I am planning
to write a high school course on economics for a home school curriculum
that I want to produce over the next three years. In this course,
there will be two phrases that govern every chapter. Master them,
I will tell the students, and you can master the basics of economics.
One is familiar: “supply and demand.” The other one is less familiar.
It is the governing principle of exchange: “high bid wins.” I will
tell the students that they can get through the course if, every
time they are introduced to a new topic, they mentally picture a
pair of parrots, one on each shoulder. Each is squawking into one
ear. One says “supply and demand.” The other says “high bid wins.”

“High bid
wins” is a liberating principle. Men who are productive can accumulate
wealth. They can create a world that did not exist before. In the
older era, the social world would have been closed to them before
capitalism appeared. This transition was described over a century
ago by Sir Henry Maine: from status to contract. Economically speaking,
this transition involves the substitution of the imputation of economic
value by consumers for the imputation of social value by a self-screened
elite. It is the difference between a landed aristocracy and a capitalist
democracy.

Nevertheless,
there are hidden costs of this liberation, and not everyone perceives
them during the transition. Especially unperceiving are the beneficiaries.
When contract is your main weapon against status barriers, you are
not inclined to see what collateral damage your weapon is producing.

A corollary
of the axiom of TANSTAAFL is this: “When the price of anything increases,
less of it will be demanded, other things remaining equal.” I argue
here that the price of loyalty keeps rising. So, less of it is demanded.
This is placing all of us at greater risk. Yet this is not perceived
by the vast majority of citizens.

REAL
DECISIONS, REAL COSTS

There are
times when we make an exchange, thinking of it as condition A vs.
condition B. But we fail to think through the details of each condition.
We exchange some things for others that we are not consciously aware
of. This can backfire when the true costs of our decisions become
apparent. This may take years. It may take until a person is on
his deathbed. When we marry, we must give up some things that we
did not suspect that we would have to give up. If we don’t let loose,
there will be expensive consequences that we did not factor into
the equation, which of course isn’t an equation at all. For example,
a new husband will have problems at home if he continues to go out
with the boys as often as he did before he married.

There is something
else. As individuals, we make specific decisions. These are micro
decisions. We buy this rather than that. But when we do this, we
sometimes cannot reverse course at any price that we are willing
to pay. Surely, in marriage we cannot go back on a cost-free basis.
But when a hundred million people make the same kind of decision,
society will not go back. Again and again, we do not think through
the implications and real costs of these individual transactions.
They are too complex for most people to comprehend, so we ignore
them. This does not eliminate them.

Sociologists
speak of price competition as destructive of traditional social
relationships. The sociologists are correct. Economists tend to
ignore this process of erosion because they see all of life as a
series of self-interested individual decisions made by rational
people. But part of economic rationality involves ignoring implications
of decisions that are too complex to understand or that are incapable
of being solved at a price that individuals are willing to pay.

Think of the
lowly light switch. It changed everything. The day that a woman
could flick a switch and light a room, the relationship between
the sexes changed. No man had to chop wood to light the room. Electricity,
not the feminist movement, gave equality to women. Think “horsepower.”
An electric motor offers horsepower to both sexes. So does the internal
combustion engine. Yet no consumer thought through the enormous
social implications of electricity. One by one, they hooked up to
the local power plant. They made self-interested individual decisions
that had complex social implications. One of them was to make women
vastly less dependent on men. Horsepower has replaced manpower.
Women benefited.

The front
porch was a place of American community in 1940. It ceased to be
this by 1955. The main reason was television. A secondary reason
was the low-cost tract house, which had no porch. Nobody warned
consumers. The couch potato was not yet born. He is alive and well
today.

When was the
last time you wrote a four-page letter? I can tell you: no later
than the week after you started using e-mail. Yet long letters were
basic to the social bond of the upper classes for at least three
hundred years. Historians rely on copies to reconstruct the past.
Nobody issued a decree: “You will write no more long letters.” But
we stopped. The price of getting email was the demise of the long
letter. Yet nobody warned us of this in 1995. Nobody paid any attention.

There is no
doubt that when a Wal-Mart opens, some local businesses will fail.
They cannot compete on the basis of price. There are social implications.
Let me give an example that we all know is true. The concept of
“place” changes dramatically. There is one main street in my town.
As you drive down this main street, it looks like any other main
drag in any American city larger than 10,000 people. There are the
same businesses: WalMart, Office Depot, Office Max, McDonald’s,
Burger King, Lowe’s, Home Depot, and so forth. Each main street
has its unique sequence of national chains, but the same chains
are represented. Basically, you cannot detect a region today by
its main street. In business affairs, regional walk-in space is
disappearing.

There is not
much regional loyalty, either. Accents are fading as populations
move. Television has established the Ohio accent as universal. There
may be regional loyalty to a taxfunded state university’s football
and basketball teams, at least if they have winning seasons occasionally.
But this regional loyalty is hardly what prevailed in, say, 1863.

PRICE
COMPETITION AND BRAND LOYALTY

A friend of
mine, Van Simmons, sells rare coins (David Hall Coins). Decades
ago, he ran a service station. He made his living by selling gasoline
and auto repairs. In those days, the oil-retailing firms would sometimes
launch a gasoline price war. They would push down prices, which
cut into the retailers’ profit margins. Van decided to stay out
of these battles. The former owner of the station warned him: His
customers would leave. Van was convinced that if he offered good
service, his customers would stay. As soon as the next gas war began,
he followed his original plan. He stayed out of it.

His customers
disappeared. They drove down the street to save a penny a gallon.
He knew from that day forth that there is no loyalty among gasoline
buyers. They are price-motivated.

There is a
great scene in “Back to the Future” (1985) where the movie’s main
character arrives in small-town USA in 1955. He sees a Texaco station.
Someone drives in. (Was he driving a DeSoto? I forget.) Just as
in the mid-50s Texaco ads, guys in uniforms come out to service
the car. All of us who grew up in the 1950s had a moment of recognition.
That world is gone. Of course, it never really existed. We remember
the ad. But at least one guy did come out. He was immortalized for
my generation by a Chuck Berry lyric.

Workin’ in
the filling station. Too many tasks. Wipe the windows, check the
tires, check the oil — A dollar gas! Too much monkey business.
Too much monkey business. Too much monkey business for me to be
involved in. In those days, a dollar bought three gallons of gas.
Yet we understood Chuck’s lament.

There are
few gas stations today that make their money by selling repair services.
They have convenience stores attached. Their profits come from high-profit
margin impulse items: candy, packaged fast food, and a few trip-related
or auto maintenance products, such as oil. You buy the can of oil,
unscrew the lid, and pour it into your car’s engine. You get dirty.
That is the price of buying oil at a convenience store. The only
service is at the check-out counter.

Now that we
can pay by credit card at the pump, I don’t go into the store to
pay any more. I wonder how the stations make their money. It isn’t
from repairing cars. It isn’t from service. No one is loyal to a
service that no longer exists.

Then there
is Oregon. The gasoline dealers in Oregon have persuaded legislators
to make it illegal for a customer to pump his own gas. The gas guy
comes out and does it for you. As a result, gasoline costs more
in Oregon. Oregon is the last bastion of the 1950s-era service station
that doesn’t make its profit by a customer who comes into the convenience
store to pay, sees some impulse-purchase item, and buys it. But
it takes the threat of civil government coercion to preserve this
world. I would rather pump my own gas and save five cents a gallon.

I have zero
brand loyalty in gasoline. I never did. Price competition has always
governed my decision-making in the automotive world. I take my car
to a local repair shop. I do trust this shop. I get good service.
I get reasonably priced service. I just don’t get fast service.
I have factored this into the purchase. As consumers, we don’t care
about service stations. We don’t sign up for gasoline-company-specific
credit cards, which were the earliest credit cards that I can remember.
They were invented to reinforce brand loyalty. But Visa and MasterCard
undermined that marketing ploy, beginning in the late 1960s.

When was the
last time you saw a TV ad for a brand of gasoline based on a specific
benefit for buying its gasoline? Thirty years ago, there was the
ad series for Shell. Each ad featured cars that ran out of gasoline
on a few ounces of gasoline. The Shell-powered car always drove
farther.

I did see
a Citgo ad recently, but Citgo is owned by the government of Venezuela.
It was a government-funded feel-good ad. It was a “we care about
the environment” ad. I sometimes buy at Citgo. It’s cheaper, and
it’s on the street where I drive home. It delivers price and convenience.
I am loyal to these, not to Citgo.

BP (British
Petroleum) has a weird series of ads with cartoon characters. It
barely mentions gasoline, and only in the last few seconds. It sings:
“Say, hey. Make the world a little better.” How? At the end, it
substitutes “Beyond Petroleum” for British Petroleum. (It was the
Anglo-Iranian Oil Company — AIOC — until 1954.)

Brand loyalty
today to BP? None. Say, hey.

I am loyal
to price and convenience. I always have been. I have only rarely
been a brand-loyal buyer. I am trying to think of anything that
I buy based on brand loyalty. I can think of only one product. I
buy used Chrysler/Dodge minivans. I like minivans because of their
non-bucket seats. I buy used ones, preferably under $5,000, and
always under $10,000. Chrysler and Dodge minivans sell for less
than the Japanese brands. I buy them from individuals, not from
Chrysler dealers. For all other products, I go on the Web to read
reviews. I shop at Wal-Mart or Dollar General to buy standard items.

For me, the
buyer’s motto prevails: “Low bid wins.” That can be viewed as a
high bid for my money: the best offer. My decision to buy this way
has implications beyond my immediate circumstances. I put pressure
on all the excluded sellers. My decision is irrelevant to them,
but the same decision by half the local population puts enormous
pressure on them.

I am not bewailing
capitalism’s destruction of local businesses. Most businesses fail.
This is not a bad thing. It conserves scarce resources. But it creates
problems. Some people cannot compete effectively. This calls for
voluntarism. The big problem comes when politicians identify these
problems and then propose legislation to deal with them. Voluntarism
is de-funded.

Societies
in our era have substituted politics for loyalty because they have
feared the consequences of the substitution of the cash nexus for
older forms of loyalty. But this substitutes the bureaucratic nexus
for the cash nexus. The old institutional loyalties were doomed
in either case.

Most people
used to die in their beds at home. Now they die in a hospital bed.
The economic question has always been: “Who pays for the bed?” This
question will not go away soon. The answer changed in the second
half of the twentieth century. Therefore, institutional loyalty
has changed.

THE
SEQUENCES OF LOYALTY

Here is my
assumption. The social sequence is this: faith, trust, dependence,
loyalty. It begins with faith in God. It moves to trust in God’s
delegated institutions, which leads to dependence on their continuing
performance, and finally loyalty based on past performance. This
system of loyalty is religious. It begins with an assumption that
God has created society and can be trusted. Trust is imputed by
citizens to institutions based on their faith in God. Atheists do
not think this way, but most people are not atheists. The modern
welfare State attempts to substitute a political sequence: dependence,
trust, loyalty, faith. It begins with the offer of free lunches
for the incapacitated. It then moves on to bread and circuses. Repeat
payments establish trust. The promise of more payments establishes
loyalty. Faith in the State is the goal. It is a messianic goal.
As voters’ faith in God weakened, the messianic State appeared.
The classic example is the French Revolution, 1789—94.

The free market
has its own sequence: trust, loyalty, faith, dependence. Sellers
offer deals to buyers: “Trust me.” They offer money-back guarantees
and testimonials to establish trust. The first sale is the hard
one to make. Repeat business establishes loyalty. The buyer then
gains faith in the seller. Finally, the buyer becomes dependent.
But there must be repeat performance. The system is voluntary. The
dependence is impermanent. It is always conditional: “What have
you done for me lately?”

The weakness
of the free market is this: Loyalty extends to sellers, but it does
not extend to the market itself. This is why defenders of the free
market — mostly economists — have not had much success
in persuading readers of the reliability of the market process.
The complexity of the process is too great for most people to understand.
It takes great faith to trust the free market unconditionally. Murray
Rothbard did, but he was unique. Most people believe in the need
for intervention into the market process. The politicians therefore
have an opening to promote the mixed economy, i.e., State-directed
economy.

The reason
why I have spent over 40 years working on Christian economics is
to develop cogent reasons for Christians to maintain the old sequence
— faith, trust, dependence, loyalty — but to impute to
the free market the trust that it deserves, both morally and operationally.
This, atheistic and agnostic free market economists cannot do.

BONDS
OF LOYALTY

We must be
self-conscious in our efforts to re-establish the bonds of loyalty
in our lives. There is not much we can do as individuals to reverse
the drift into messianic politics. But never forget: We have government
bureaucrats working on this project daily. They are creating the
policies and structures that will disabuse the voters of their misplaced
trust, let alone faith, in the government. We have seen political
faith recede over the last 15 years. Loss of trust will follow the
inflated currency unit. Default is inevitable. Some groups are going
to get stiffed.

Your problem
is this: You may be in a group that is going to get stiffed. I think
I am a member of such a group. The baby boomers who are four or
more years behind me surely are.

Before you
are pushed into Medicare by the health insurance industry’s regulations,
you had better develop a good personal relationship with a physician.
You may someday want him to spend more than 12 minutes with you
after you go onto Medicare’s rolls. He may do this because of your
relationship. He will not do it for the fixed payment that he will
receive from Medicare — months later — to pay for your
visit.

This indicates
the nature of the problem: impersonalism. The cash nexus is impersonal.
So is the bureaucratic nexus. Each system is run by the numbers.
But there may come a time the thing you really need is not covered
by the numbers. At that point, you will be dependent on others to
supply you with services on the basis of a personal relationship.

Loyalty is
personal. It is extended upward to people who are stronger and downward
to people who are weaker. The essence of the relationship is hierarchical.

If you are
in a relationship where you are in the stronger position, rejoice.
You can develop bonds of loyalty within a particular institution.
Then, should you find yourself incapacitated, you will likely be
helped.

I am not recommending
a social insurance program. The Amish are not members because they
want social insurance. The system of mutual aid grows out of a prior
relationship based on trust in the institution’s members. Trust
precedes dependence.

This is not
true of families. There, dependence precedes trust. Children are
dependent on their parents. This creates trust, which in turn creates
loyalty. Then children grow up. At that point, there is a transition
era that may last 40 years. But the process reverses the trust relationship.
For a time, it is mutual. Then it becomes parental. Loyalty must
be exercised by children. The exercise of trust shifts from the
children to the oldsters. Everyone in the family is supposed to
understand this reversal of dependence and trust.

Americans
generally assume that this transition will take care of itself,
that trust is necessary, that a new relationship of dependence may
follow. Money is involved. Children who will be asked to bear economic
and personal burdens as the parents age assume that parents will
conserve resources today, so that parents can pay for services rendered.
The issue of inheritance is tightly bound to the costs of caregiving.
Loyalty is mutual. Trust is also mutual. The trust centers on money
(parents to children) and services (children to parents).

This is a
loyalty nexus. But cash is also involved. There are no free lunches.

Because Americans
don’t like to talk about money, they find ways around this. They
drive cars that reflect money. They buy houses that reflect money.
Of course, they may indebt themselves mercilessly to achieve the
trappings of past successes. They fear exposure as debtors living
on the ragged edge of insolvency.

Another way
that they find to avoid talking about money is to assume that their
children know what to expect. But children don’t know what to expect.
That is why parents should lay out the mutual obligations early.
Everyone should plan for the transition.

Geography
is important here. Parents who expect to be cared for by one child’s
family should move close to that family before infirmity makes its
appearance. This has to do with the grandparent function, but it
has most to do with loyalty. Parents should be there to offer moral
support, but not unwanted advice. Parents should pitch in on joint
family projects.

As for those
other institutions that offer mutual aid and loyalty, it is a good
idea to get involved now, while you are still in a position to be
a supplier of aid. I am thinking of churches, community service
organizations, and non-profit organizations. It would be a good
idea to get involved with organizations that serve the aged. If
they know your face when it’s time to serve others, they will remember
your face when you’re one of the others.

Insurance
is one of the great inventions of all time, right up there with
double-entry bookkeeping. But insurance is run by the numbers. It
is a supplement to mutual aid. It is not a replacement. As for government
insurance, it is not a supplement for either insurance or mutual
aid. It is an attempted replacement. Its goal is the establishment
of dependence, then trust, then loyalty, then faith. It is best
to avoid this sort of dependence right from the beginning. But,
in some areas, government has driven out competitors. In these areas,
you must self-consciously establish relationships based on loyalty.
Don’t count on that government check.

CONCLUSION

Make
specific plans now to revitalize loyalty in those organizations
that will affect you most in your old age. This takes planning.
It will not take care if itself. It may require major changes in
your life, especially geographical.

This is not
the sort of topic that families discuss. It’s time to begin discussing
them.

November
28, 2007

Gary
North [send him mail]
is the author of Mises
on Money
. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible
.

Gary
North Archives

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