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Source link: http://archive.mises.org/11579/political-economy-of-monarchy-and-democracy/

Political Economy of Monarchy and Democracy

February 1, 2010 by

The conduct of government and the effects of government policy on civil society can be expected to be systematically different, depending on whether the government apparatus is owned privately or publicly. FULL ARTICLE by Hans-Hermann Hoppe

{ 12 comments }

Edmund O'Sullivan February 1, 2010 at 9:01 am

This critique of the state can be applied almost identically to business corporations producing intangibles (education, health, financial advice etc).
They assert ownership over intangible assets which include brands and other forms of intellectual property rights. But these “assets” are valueless without supporting human talent which generates the future income streams that those corporations harvest.
Would the Manchester United brand, for example, have any value without talented soccer players?
Imagine a business corporation called Good Schools Inc. It employs teachers. It owns no assets other than the Good Schools brand which it reports in its balance sheet as having a value independent of the people it owns that can be bought and sold like a tangible asset.
In reality, the value of that brand is nothing more than the discounted value of the future income streams that will be generated by its employees. Through employment contracts and intellectual property laws, the company can force its employees to give up part of the full value they will generate in the same way as the coercive state can force citizens to pay tax.
Employees of many business corporations producing intangibles are like indentured servants. They are being forced to pay off debts and other financial obligations incurred by others for the benefit of others.
The problem is made more intense when the intangible business corporation leverages its intangible asset to borrow money either from banks or shareholders. Their employees are in the position of someone who is made to pay for someone to rob them.
This could be ended by making it impossible for any business corporation to record a brand, goodwill or any other form of intangible as a balance sheet asset.
Business corporations producing intangibles experiences the problem of economic calculation that the state suffers. That is perhaps why banks are in such a mess and a growing number of business corporations depend on government protection and support.
In an economy where tangibles dominate, the most viable form of business organisation are associations of self-financing employees. Since most producers of intangible services (teachers, doctors, lawyers, management consultants) only need capital to finance their initial training and require very little working capital (their operational cash flows tend to be high), the role of debt and equity should be extremely small, but it is often not. Deloittes, which works on this basis, has no long-term debt or non-employee shareholders. There are many other examples among professional service providers.

Edmund O'Sullivan February 1, 2010 at 9:05 am

Correction to above:

…having a value independent of the people it owns that can be bought and sold like a tangible asset..

should be:

…having a value independent of the people it employs that can be bought and sold like a tangible asset…

Guard February 1, 2010 at 11:30 am

Another negative effect of the tendency toward short term gains, both in government and corporations, is the tendency toward extraction rather than production. Extraction pays off immediately, like robbery, and requires very little capital investment. Destruction of the environment is an inevitable effect.
One of the most interesting methods of extraction is the “boy who cried wolf” scenario. The boy may get an immediate response from the villagers until he has extracted all the value of the social relationships he has with the villagers, at which point they will no longer respond to him.
Politicians extract value that has been built up for centuries in the language of a culture. Redefining terms, inventing misleading euphemisms, and outright lying like the boy who cried wolf, get immediate political payoffs. I wonder what is going to happen as the meaning of language is bankrupted and the villagers no longer respond to the politicians.

snargles February 1, 2010 at 1:47 pm

Hey guys,

Where is the obligation of the employee to payoff debts of corporations, and how does that compare with the obligation of citizens to pay tax?

Just wonderin’…

Anthony February 1, 2010 at 8:23 pm

@ Edmund

In a free market employees are not “forced” to do anything by their employer. If they disagree with the policies of their employer or they feel that they would be better off working for someone else (or going into business for themselves) they are free to do so.

The difference between the businesses you mentioned above and the state is that you can’t opt out of participation in the state, but you can quit your job.

Gil February 2, 2010 at 12:17 am

Why does Triple H use birthrates as a measure of wealth?

Inquisitor February 2, 2010 at 8:14 am

“Where is the obligation of the employee to payoff debts of corporations, and how does that compare with the obligation of citizens to pay tax?”

There isn’t.

Edmund O'Sullivan February 2, 2010 at 12:01 pm

There is no obligation, but pressures that create serious obstacles to a service worker leaving the employ of a service corporation.
Service corporations use a range of methods to discourage employees leaving: these include undue influence that amounts to effective control over training and professional qualifications in banking etc; non-compete clauses; pressure on existing customers to avoid using departing employees; long-term contracts with customers that discourage using former employees and intellectual property laws that can be used to prevent a former employee using the knowledge and contacts acquired while working at a corporation despite the fact it exists exclusively in his or her head.
Then there are the propaganda methods: creating the impression that the individual will be lost and might be crushed outside the corporation and the bragging claims practically every corporation makes about its virtues and merits. There is fear: someone leaving the welfare state many corporations create has to be brave and well-financed to take the risk (particularly if a family’s livelihood is at stake). And aspiration: stay with the corporation and you might one day rise to a position of fame and fortune.
These pressures are similar (though not identical) to those confronting anyone wishing to challenge the state.
The power of the service corporation over the individual , however, is essentially derived from its legal right to be able to record an intangible as a legitimate balance sheet asset. This gives the corporation crushing financial power over the individual service provider.
The individual, unlike the corporation, does not have the legal right to define knowledge and relationships that exist in his or her mind as a financial asset and then use that to borrow, at a multiple of at least eight, from banks. The individual usually, and unlike most service corporations, has to save up real assets like money or houses.
The individual taking on the service corporation under current accounting regulations is defeated from the start by the rules of the game.
The test of whether a business corporation producing intangibles is the natural expression of individual freedom would be if the FASB and other accounting bodies were to end the contentious practice of allowing corporations to count goodwill, brands and other forms of intangibles as assets.
If you check out the balance sheets of most service corporations you will see that — if that were to happen — most would be declared to be non-viable.
Business corporation accounting should return to a tangible asset-backed methodology and this argument is as compelling as the case for the state to return to the gold standard. The abandonment of the latter has led to inflationary monetary policy. The abandonment of the former has allowed top managers to eviscerate the true value of the corporations they manage for their own ends whilst discouraging individual initiative and enterprise.
This is a theoretical argument.
Perhaps a better indicator of the true nature of many service corporations is the number that work for them who feel that they are like indentured servants and, in extreme circumstances, prisoners with no more freedom than slaves.

Caley McKibbin February 2, 2010 at 8:05 pm

You are seriously comparing “discouragement” to the privilege of maximum penalty employable by a state?

Edmund O'Sullivan February 3, 2010 at 4:22 am

Defying the state — like dodging the draft in the 1960s and avoiding tax now — is difficult, risky and potentially disastrous. But it is not impossible. The state possesses the power to punish you for transgressions, but it has to catch you first and it sometimes doesn’t.
An individual employee can defy the giant service corporations that dominate the US. That too is difficult, risky and potentially disastrous. Service workers make a living from what they have learned and know. But copyright and other intellectual property law can attribute that knowledge and learning as being owned exclusively by someone else, not you. “Infringing” IPR can leave you poor and unfree or both. Of course, they have to catch you first, but they usually do.
The American business corporation has mimicked the state and deploys a wide range of measures to control and manage individual behaviour. The state tends to be more crude. People still sing anthems to their state (viz national anthem). Practically no US corporation expects employees to sing the company song anymore but that doesn’t mean they don’t act to promote devotion to the corporation and the superiority of the collective over the individual at work.
The state in turn has mimicked the corporation. That is why the individual often feels like he or she is caught between the government rock and the corporate hard place.
Libertarian ideas are compelling. But they should take into account the ways business corporations can, and do, reduce individual freedom and destroy civilisation.

Mandeno Musings February 3, 2010 at 4:42 am

This article is an excellent treatment of the subject.

Hoppe says “In particular, a caretaker — as distinct from a government’s private owner — has no interest in not ruining his country”.

Obama’s creation of trillions of national debt is an excellent example of this: http://mandenomusings.wordpress.com/2010/02/02/barack-obamas-budget-deficit-leaving-a-nasty-mess/

Olle Benner May 24, 2010 at 3:39 am

Do anybody know of any assessment of the brand value of “monarchy”.
Sweden is a constitutional monarchy, where the king has no political power.
He acts as a symbol. I’m active in the republican association which promotes that Sweden be converted to a Republic.
Monarchists often claim that the King (monarchy) has a brand value of $100 – 500 million, but have no proof. Do you know of any similar assesment?
Thankful for all your support!

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