The institutional determinants of self-governance: a comment on Edward Stringham’s Private Governance

Abstract

Many pages would be require to discuss Private Governance’s important contributions, so I focus on a relatively minor flaw: chapter 9 on moral beliefs is inconsistent with Stringham’s general treatment of private governance institutions as endogenous. Moral beliefs are essentially depicted as unchanging, but they actually are endogenous too. Individuals can pursue wealth through cooperative interaction, which requires trust, creating incentives to develop beliefs that encourage ethical and benevolent behavior. Alternatively wealth can be taken from others through force and/or guile. Beliefs to facilitate involuntary transfers also are institutionalized. For instance, in order to benefit from coercive wealth transfers “in good conscience,” recipients have incentives to see their victims as enemies to justify a moral “right” to transfers. Changing moral beliefs is costly, however, so they tend to be fixed in the short term. Once it becomes apparent that existing beliefs significantly conflict with an individual’s interests, she is forced to question those beliefs. The impetus for rationalizing new beliefs arises. The direction of evolution can be predicted with a rational decision-making model. To illustrate the endogeneity of moral beliefs, three institutional settings are examined: “dignity culture,” “honor culture,” and “victimhood culture”.

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Notes

  1. 1.

    The contention that preferences, including moral beliefs, are endogenous is not new to economics. It goes back at least to Smith (1776). It is also one of the cornerstones of the “Austrian School” which traces to Menger (1883) who emphasized that the origin and evolution process of many social institutions, including systems of rules, is the same as the spontaneous order Smith (1776) describes for markets. The endogeneity of morality is becoming increasingly explicit in other literatures (e.g., Ellickson 1991; Cooter 1998; Voight and Kiwit 1998; Ridley 1996; Vanberg and Congleton 1992; Nee 1998, and Benson 2007; Benson 2015a, 2015b).

  2. 2.

    Such objectives are much broader than “profit” or material wealth maximization. They includes a wide array of other factors that are important to particular individuals, such as friendships, prestige, power, the well-being of family or members of a community, security, good health, and so on, depending on each individual’s subjective preferences.

  3. 3.

    The first two terms have been used in sociology for some time (e.g., Berger (1970), Ayers (1984), Cooney 1998) and continue to be important (e.g., Leung and Cohen (2011), Aslani et al. (2011), Campbell and Manning (2014)). The third has also been used but it appears to be a more recent development. For instance, see Andrighetto et al. (2012), Brewer and Hayes (2011), Ley (2014), Noor et al. (2012), and Sullivan et al. (2012) and Campbell and Manning (2014).

  4. 4.

    One reason is that sociologists differentiate between these systems by emphasizing the nature/method of “social control” in each. Social control refers to methods of dealing with conflicts ((Black 1998: 4), and Campbell and Manning (2014: 693) state that “Conflict occurs when someone defines another’s behavior as deviant – as immoral or otherwise objectionable.” Here the emphasis is on the allocation of the property rights and the institutional arrangements that underlie different property rights allocations. This reflects the fact that the primary source of conflict is scarcity, and as Hume (1751) emphasizes, scarcity inevitably results in competition to influence the allocation of scarce property.

  5. 5.

    The characterization of a dignity culture here appears to be somewhat different than the way sociologists use the term. For instance, Campbell and Manning (2014: 711) suggest that the “moral evolution of modern Western society can be understood as a transition between these two cultures” moving from an honor culture to a dignity culture. While this is at least partially correct, they then go on to characterize the method of social control in a dignity culture to be one of public provided policing and control. The contention that public courts, police and other legal institutions are a characteristic of dignity cultures is contested here. Reciprocity essential turns the community as a whole into the “third party”. While policing and adjudication are required, they do not have to be coercively backed and specialized public police and courts. This is briefly explained below, where it also is suggested that an honor culture actually develops specialized policing backed by coercion. Public police are an outcome of an honor culture, so when a dignity culture develops after an honor culture has been in place, as in the case cited in Campbell and Manning, the dignity culture must try to adapt that institution to another purpose. It turns out that doing so is very difficult (Benson 2011), and as a result both honor and dignity cultures apply within a geographically defined political community. The dignity culture described here evolves before an honor culture exists, however, and its institutions are quite different. Indeed, if a dignity culture is characterized as one relying on public policing, then the culture described here must be labeled something else; e.g., a reciprocity culture. Rather than doing so, however, the sociological concept of a dignity culture is expanded somewhat. The contention here is that the honor culture evolved from a reciprocity-based dignity culture (see below), and while not going into details, it could also be contended that the modern developments they refer to also were supported by the reemergence of reciprocity based communities, including those that developed as commercial society developed (e.g., see Benson (1989), Stringham (2015)), and as constitutional constraints limiting the power of the state were imposed. See additional discussion below.

  6. 6.

    The “hue and cry” is the Anglo-Saxon term for calling upon such community policing, but other reciprocally based communities have similar arrangements (Benson 1991, 2011).

  7. 7.

    See notes 4 and 6.

  8. 8.

    The potlatch system of the Southern Kwakiutl Indians provides an insightful example. Johnsen (1986: 42) explains that “In order to provide the incentives of would-be encroachers to recognize exclusive property rights, and thus to prevent violence, those Kwakiutl kinship groups whose fishing seasons were relatively successful transferred wealth through the potlatch system to those groups whose seasons were not successful.... Although potlatching thereby served as a form of insurance, the relevant constraint in its adoption and survival was the cost of enforcing exclusive property rights rather than simple risk aversion.” The potlatch is much more complicated than the discussion here suggests. Ridley (1996: 115–124) discusses the process as one of immediate exchange, for instance, in which an individual exchanges a material gift for “prestige”, while the recipient also often has an obligation to reciprocate with an even more generous gift.

  9. 9.

    Campbell and Manning (2014: 214) suggest that “cultural dignity existed in perhaps the purest form among respectable people in homogenous towns of mid-twentieth century America, where the presence of a stable and powerful legal system discouraged the aggressiveness and hostility toward settlement seen honor cultures, while social closeness – ties of culture and intimacy – encourage an ethics of toleration or peaceful confrontation.” Having grown up in such a town, I can say that the legal system was pretty much irrelevant. Most people never even thought about what was “legal” according to positive law. Reciprocities (“ties of culture and intimacy”) were the underpinnings of moral beliefs, and law was generally not needed. See Ellickson’s (1991) description of Shasta County cattlemen, for instance.

  10. 10.

    It is widely recognized that cooperation can be a rational choice that arises through repeated interactions [and others discussed by Ridley (1996: 53–84)]. There also are conditions that can produce a cooperative solution even in a one-period game (Skaperdas 1992; Rider 1993).

  11. 11.

    Religion is often seen as the source of moral rules. However, as Hazlitt (1964: 358) explains, morality “and the nature of our duties and obligations, have no necessary dependence on any theological doctrine or religious belief.” Rather, they reflect the universal objective of wealth enhancement. This does not mean that religious institutions are irrelevant, of course, since they too can reduce transactions costs within a community. As Mises (1957: 240) notes, “Where people did not know how to seek the relation of cause and effect, they looked for a teleological interpretation. They invented deities and devils to whose purposeful action certain phenomena were ascribed.”

  12. 12.

    Changing a norm that applies to everyone in a community can be costly since others may not recognize the benefits of doing so. If individuals are risk averse they also will be reluctant to adopt new norms, suggesting that the evolution process for community wide norms tends to be quite “conservative,” guarding against mistakes.

  13. 13.

    Krebs and Denton (1997) explain that humans quickly classify individuals as members or non-members of their own group, and that all non-members tend to be viewed as being alike. They are often perceived as enemies, or at least, threats.

  14. 14.

    Many migratory animal populations were hunted into extinction by primitive groups (Ridley 1996: 227–247), for instance, because ownership could not be established until an animal was killed. As wild game resources were depleted a nomadic hunter-gather group’s members might find themselves in frequent danger of failed hunts and physical distress, or at least, unable to accumulate wealth compared to members of another group claiming relatively fertile land and settling into agricultural production. However, because the members of the group relying on hunting develop skills using weapons, as well as new weapons or other inputs to hunting (e.g., horses, ships) that can also be superior technology for warfare, they develop a comparative advantage in violence.

  15. 15.

    It is often contended that Native Americans such as the Apache did not believe in private property. This is false. Hunter-gather group (tribes, clans) ownership of things like hunting territories (Bailey 1992) was common, of course, although these groups did try to exclude outsiders. Demsetz (1967) explains that property rights develop as the benefits of establishing them exceed the costs. Hunters owned hunting tools, for example, and with domestication of animals for hunting (dogs, horses), individual private property rights were recognized for them as well (Benson 1991). With advances in agricultural technology, individualized private property rights to land also evolved (Ellickson 1993; Bailey 1992). Agricultural development was not necessary for widespread private property in land to develop, however, as Goldsmidt (1951: 56) reports that property was universally held in private ownership among the Yurok, Hupa, and other Northern California Indians before European influence. Fishing access cites along rivers were private property, for instance, as was beach front. He also concludes that these Indians had “a culture which reflects in surprising degree certain structural and ethical characteristics of emergent capitalistic Europe” (Goldsmidt 1951: 506), and as a consequence, they were “a busy and creative people . . . [and] poverty was not found here” (Goldsmidt 1951: 513–514).

  16. 16.

    Cooperative arrangements can and often do evolve between members of different groups, perhaps even leading them to voluntarily combine, but groups need not formally “merge” and accept an entirely common set of rules. Individuals only have to expect each other to recognize a common set of rules pertaining to the types of interactions (e.g., trade) that evolve. Indeed, a “jurisdictional hierarchy” often arises wherein each localized group has its own norms for intra-group relationships, with a separate, more narrowly focused and possibly different, set of rules applying for those who engage in specific intergroup relations (Brown 1991: 136; Pospisil 1971; Benson 1991).

  17. 17.

    Carneiro (1970) adds that successful creation of relatively permanent extortion arrangement of this type occurs where exit by those being subjugated is very difficult due to the surrounding hostile environment (e.g., desserts, mountains, other hostile communities). Indeed, a vital institutional objective of an entrepreneurial extortionist must be to erect barriers to exit from the extortionist game [i.e., establish a “monopoly in violence” over the subjugated population]: “For the real tyrant, hardly any measure of security is more pressing than to raise barriers, psychological and political, to fence in his realm” (Wesson 1978: 190).

  18. 18.

    Ridley (1996: 123) notes, for instance, lavish gift giving was widely practiced among European monarchs, and similarly, Gambetta (1993: 47) explains that “acts of generosity are among the preferred means of advertising” for mafia leaders. The purpose of such gifts is to create “an unspecified debt whose settlement is postponed” (Gambetta 1993: 47), but the nature of the debt is well understood. It is one of loyalty to the giver - a debt of “honor.” Gambetta (1993: 54) explains that “creating lasting bonds” constitutes the usual organizational method of the mafia. Essentially, some of the extorted wealth is transferred to potentially powerful individuals in exchange for an agreement to recognize (“honor”) the extortionist’s jurisdictional claims (i.e., not to oppose his extortion efforts directed at others). Such attitudes and arrangements also characterize the aristocracy of feudal European monarchies. Kings and other elites were, in their own minds, morally superior to commoners. Early Confucianism in the semi-feudal age in China, and the Zen philosophy in feudal Japan both involved strong norms of this type (Reischauer 1956: 42–43). The same holds in other forms of government, however, as for instance, presidents and elected representatives are often held in high esteem, as they trade privileges and other benefits to supporters in exchange for recognition, honor and future gifts (e.g, campaign contributions).

  19. 19.

    In the mafia, for instance, a potentially “powerful customer is always treated with respect” (Gambetta 1993: 165). Gambetta (1993: 21) quotes a Mafioso describing such a relationship:

    With regard to the nature of these relationships, I must stress that they cannot be explained as the result of coercion. Those who cooperate expect certain advantages. True, one cannot expect these relationships to be on an equal footing, as it is always clear that one of the parties is a man of honor; yet the other party makes himself available.

  20. 20.

    In this same vein, Tullock (1965: 31) contends that because someone who conforms strictly to a cooperative moral code in a political environment has fewer options available in competing for the attention of those with power to grant privileges: “the man who is a success in most political systems has had to cut corners, to lie, or at least to distort the truth, and to engage in some back stabbing.” Thus, Tullock (1965: 26) proposes that understanding the behavior of successful political actors requires understanding the “behavior of an intelligent, ambitious, and somewhat unscrupulous man in an organizational hierarchy.” The unscrupulous behavior can be rationalized as the “right thing to do” under the circumstances.

  21. 21.

    If the relevant group member’s wealth is mobile so they can interact across the jurisdictions of different authorities, inter-jurisdictional competition to attract their wealth production is likely. Thus, for instance, under the most successful imperial dynasties in China, a large portion of the Chinese merchant community became involved in Indian Ocean trade as “one of the most advanced entrepreneurial groups in Asia was forced to operate outside the reach of the state system and to create its own self-protection” (Chaudhuri 1985: 208).

  22. 22.

    The primary function of bureaucratic institutions is to enforce rules that take from some groups and give wealth to others, for instance, and in order to do so “in good conscience” the members of the bureaucracies are likely to develop beliefs that justify their actions. As an example, Rosenberg and Birdzell (1986: 88) note that in the “bureaucratic feudalism” that developed in China, “A class of scholar-bureaucrats held classical learning in high esteem and, at the same time, cultivated a contempt for material goals or acquisition” through productive and commercial means, but the authors follow that observation with the parenthetic: “Not that these values dictated an ascetic life-style to the mandarins themselves.” By developing beliefs that the pursuit of “private interests” or “profit” is contemptuous, the bureaucrats can easily rationalize their expropriation of the wealth created by such pursuits, and their consumption of substantial benefits purchased with that wealth. They also probably rationalize the activities of their bureaucracy as serving some “public good,” of course, making such takings even more justifiable. As Breton and Wintrobe (1982: 152) explain, “One need not assume Machiavellian behavior, deceit, or dishonesty on the part of bureaucrats, because in all likelihood the pursuit of their own interest will be, as it is for everyone else, veiled in a self-perception of dedication and altruism.” See Benson (2007) for additional discussion of bureaucratic moral beliefs.

  23. 23.

    For instance, rulers often have taken advantage of religious beliefs by claiming to be a god or to rule through “divine right.” And “When rulers are viewed as gods, or ordained to be legitimate by gods, it is difficult for mortals to question their legitimacy” (Holcombe 1994: 160). Another tactic for rulers is to create the belief that only he can organize the production of and provide, vital “services” to everyone in the jurisdiction. One obvious “public good” is defense against outside threats. The ruler will have to defend his jurisdiction against outside threats in order to maintain power and protect the source of his income, of course, but if the ruler can convince the populous that these outside threats will treat them much more harshly than his organization does, he may be able to legitimize some transfer payments to “purchase” defense (Holcombe 1994: 160). In addition, “Discontents may be diverted to a foreign [or internal domestic] cause, internal divisions may be overridden, and the common emergency justifies extraordinary discipline and demands” (Wesson 1978: 187). Indeed, the ruler actually has incentives to manufacture and maintain threats to legitimize protection money or reduce domestic opposition (Fox 1971: 52, Levi 1988: 43). If successful, such legitimization creates widespread norms like “nationalism” and “patriotism” that tend to increase quasi-voluntary compliance. Rulers are likely to rationalize their actions in their own minds, however, believing that such threats are serious even if manufactured, and that their misrepresentations are warranted in order to convince the population that these threats are serious. Fox (1971: 31) points out, for instance, that “Even the Kings seem to have seen themselves largely as defenders of order.” See Benson (2007) for more detailed discussion.

  24. 24.

    Thus, the political process further undermines the security of property rights which are increasingly subject to change as the ruler reacts to changing political conditions. That is, wealth is increasingly treated as a common pool, subject to rent-seeking competition, rather than as private property.

  25. 25.

    See note 3.

  26. 26.

    Claims of victimhood status will not have much effect if there is no coercive authority in a position to deal with the resulting conflicts: “individuals are likely to express grievances about opposition, and aggrieved individuals are likely to depend on the aid of third parties, to cast a wide net in their attempt to find supporters, and to campaign for support by emphasizing their own need against a bullying adversary” (Campbell and Manning 2014: 25). In the absence of such coercive authority claiming victimhood due to minor perceived insults or insensitivities would have little effect.

  27. 27.

    As an example, Ley (2014) points out that “men criticized as sexist for challenging radical feminism defend themselves as victims of reverse sexism.”

  28. 28.

    While college campuses appear to be sources of the victimhood culture, there are other sources as well. For instance, Horwitz (2015) points out that in American people are increasingly turning to third-party coercion to deal with disputes that were, in earlier times, considered minor conflicts. He contends that one reason for this is that children are not learning “the skills necessary to solve conflicts cooperatively” in part because many children are no longer allowed to engage in unsupervised and unstructured play that would teach them private, noncoercive ways to resolve conflicts and generate cooperation. Supervised play, he contends, trains children to expect others (adults, police) to intercede and adjudicate disputes with rulings backed by coercion. Horowitz argues that the growing numbers of conflicts over sexual consent on campus may arise in part because many college age students never acquired the social skills developed through unstructured play. Moore (2015) quotes a college recruiter who contended that those applying to college: “need their hands held, they demand affirmation, they are forever whining about their feelings.” Moore goes on to suggest that fault lies with “parents who caved in to every instant-gratification demand, showered them daily with nothing but positive affirmation,” with schools that label students and award “them towering trophies for finishing in 6th place to protect their self-esteem,” and college professors “who corrupt their minds with hate-America ideology and now the administrators who cave in to their every petty demand.” Vance (2016) notes that there are many factors leading to the “hillbilly culture” that he witnessed, but that the most important is “learned helplessness”. He suggests that “teachers didn’t tell us that we were too stupid or poor to make it. Nonetheless, it was all around us, like the air we breathed”; and that “Students don’t expect very much from themselves because the people around them don’t do very much.” Reddinger (2016), in his review of Vance, ties the hillbilly culture into the victimhood culture when he notes that “In a state of learned helplessness, people who are suffering consistently feel like something has been done to them, rather than seeing how their economic difficulties can stem from not having done enough for themselves. They may not want to confront the possibility that their vices prevent them having better lots in life. Vance argues, bluntly, ‘You can walk through a town where 30% of the young men work fewer than twenty hours a week and find not a single person aware of his own laziness.’” These observations clearly go beyond the “hillbilly” environment, to include the inner-city poor and others.

  29. 29.

    The rents from these regulatory actions have been capitalized into the value of medallions or licenses, just as in many other regulated industries where regulations benefit existing suppliers in the market rather than the consumers. As Barro (2014) explains, in discussing the New York taxi market, “Medallions are capped in number; they derive their value from fixed supply in the face of rising demand. In the 10 years leading up to 2013, medallion prices had approximately quadrupled.” The price of a medallion was $840,000 in November 2014 (Barro 2014). Interestingly, this is 20% lower than the June 2013 price of $1,045,000, because “competition from car-service apps like Uber and Lyft has pushed down medallion prices nationally” (Barro 2014).

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Correspondence to Bruce Benson.

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This paper expands on comments I made in two panel discussions on Edward Stringham’s book, one at the Mercatus Institute at George Mason University and the other at the Free Market Institute (FMI) at Texas Tech University. I want to thank Pete Boettke and Ben Powell for inviting me to participate in these panels. In addition, substantial parts of this paper are drawn directly from a paper on “Institutional Determinants of Moral Beliefs: The Relationships between Property Rights and Morality,” production of which was supported by FMI’s research program on the Origins of Economic Freedom and Prosperity supported by the John Templeton Foundation. Therefore, I thank Ben and FMI for providing me with financial support to write, and giving me permission to publish that work.

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Benson, B. The institutional determinants of self-governance: a comment on Edward Stringham’s Private Governance . Rev Austrian Econ 31, 209–230 (2018). https://doi.org/10.1007/s11138-017-0382-3

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Keywords

  • Moral beliefs
  • Property rights
  • Dignity culture
  • Honor culture
  • Victimhood culture

JEL classification

  • B52
  • P48
  • P51