US Declaration Of Independence

What a social order needs to be

Humans imagine that people have rights and obligations or are part of social classes. There has been a wide variety of social orders throughout history.1 A social order describes the rules of a society. The ruling class usually invents the social order and benefits the most from it. A social order needs a justification to convince everyone to accept the rules. You can compare the Code of Hammurabi, a Babylonian law from 1750 BC, with the United States Declaration of Independence from 1776 AD.

The Code of Hammurabi declares that the Babylonian social order is based on universal and eternal principles of justice dictated by the gods. It divides people into three classes, nobility, ordinary people and slaves. The code then sets out all kinds of laws and punishments for transgressions. The United States Declaration of Independence begins with the following sentence:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness.”

On closer inspection 3,500 years didn’t make a lot of difference. The eternal principles are replaced by self-evident truths but the order still needed divine support. There is no mentioning of classes. All men are created equal. But the devil is in the detail. Women and slaves did not have these unalienable rights when the constitution was written. Only nobility was done away with as businesspeople had become the ruling class. In the 200 years that followed slavery was abolished and women received equal rights before the law.

Saying that people are equal and have equal rights is problematic. People are not equal in their abilities as well as their opportunities. For example, we can imagine the right to live but we all die. Some people die young and some live very long. Many people are poor and have no access to good education. Some people are rich and can go to the best universities. Still, we imagine that people have equal rights, just like the Babylonians imagined that people are divided into classes.

Social orders are the result of historical and political processes. Ideas are at the basis of them. Equality is a revolutionary and modern idea that has gained ground during the last centuries. It has affected political orders on every corner of the globe. Even the worst dictators now say in public that all people are equal.

A social order is a collective imagination. It doesn’t exist in reality as such, but only in the minds of groups of people. If people agree on a social order, whether it is a division into classes or the notion that everyone is created equal, it can be a stable order. Social orders bring peace and stability. If people agree on a social order they can cooperate more easily as the order settles many matters that would have to be negotiated otherwise. Therefore social orders do not only benefit the ruling class.

Featured image: United States Declaration of Indepence

1. Sapiens: A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.

Origins of Political Order cover

The state of human nature

Social animals

Humans are social animals who live and cooperate in groups. Social animals like humans cooperate on the basis of kin selection and reciprocal altruism. Kin selection means that sexually reproducing animals are more likely to help one another if they share more genes. Reciprocal altruism is an exchange of favours or resources between unrelated individuals. These behaviours aren’t learned but are natural to the species. Chimpanzees are our closest relatives and in many ways behave like we do.

Chimps live in groups of a few dozen individuals. They learn to cooperate with reliable congeners and to avoid those who aren’t reliable. In a chimpanzee band a leader may emerge if he or she proves to be impartial when resolving differences. Chimps have enough memory and communication skills to guess how others will behave. They have some social rules too. Chimpanzees can cheat and betray and probably experience feelings comparable to guilt when they break them.

Chimpanzees can be violent like humans. Chimpanzee males cooperate to go outside their own territory to attack and kill males from neighbouring groups. Humans in primitive tribes and gangs sometimes do the same. Chimpanzees do not have families but they have separate female and male hierarchies. Chimpanzee politics looks a lot like human politics. The alpha female or male earns her or his status from building coalitions and gaining support. Once a female or male has become dominant, she or he has some authority to set rules and settle conflicts.

Typically human

But chimpanzees can’t achieve the high level of social organisation like humans can because they don’t use language. Language enables humans to exchange information about who is reliable and who is not with the help of gossip. A chimpanzee has to experience first-hand whether or not a congener is reliable and it can’t share this experience with others. This limits the number of others a chimp can cooperate with. Language enables humans to cooperate on a larger scale.

Language also helps humans to make abstractions and to invent theories. Words can refer to concrete objects but also to abstract classes of objects like dogs and trees and even invisible forces like gravity and gods. This allows us to produce mental models like it is warm because the sun shines. People see correlating events and imagine causal relationships. The ability to theorise helps us in the struggle to survive. For instance, if someone dies after eating from a certain plant, it can be useful to see a causal relationship between those events.

Religion

The ability to create mental models and to connect causality to invisible abstractions is also the basis for religion. Religion made people cooperate on a larger scale than would otherwise have been possible. If the size of a group increases then its ability act collectively diminishes. In large groups it is difficult to distinguish between the contributions of individual members so cheating and other forms of opportunistic behaviour are common. Religion can help to solve this issue by promising rewards in the afterlife for those who cooperate and punishments for those who don’t.

Religion is a mental model of reality where causality is attributed to forces that can’t be observed by the senses. This can lead to theories like the harvest is failing because the gods are angry so it is a good idea to sacrifice a goat to please them. In this way rituals emerge, for instance sacrificing a goat in the planting season. Rituals have another role too. They bond communities so ritualas can outlive the theory that created them and lose their meaning. Humans endow rituals with intrinsic value and they can become a goal in itself. For instance, many atheists still celebrate Christmas.

Norms and values

Humans are conformist normative creatures, which means that we invent rules and norms and tend to adhere to them. Norms differ per culture but the ability to conform to norms is part of human nature. Adhering to rules is not a rational process but it is based on emotions that control our social behaviour like anger, shame and pride. The ability to use rules greatly reduces the required negotiations needed of social interaction and permits more efficient collective action. That’s why evolution has programmed us in this way.

Rules limit our individual freedom of choice. Traffic rules, for instance, make us drive on the right side of the road. Institutions are rules too. Institutions are stable, valued, recurring patterns of behaviour. Humans can become attached to rules and institutions, for instance, a constitution or a religion. Societies are inherently conservative with regard to norms and values. This can make societies stable but it can turn into a problem once rules have outlived their usefulness and become an obstacle to change.
The struggle for recognition

One person can recognise the status of another, including the value of his or her gods, beliefs and customs. Humans organise themselves in social hierarchies so the struggle for recognition differs from the struggle for material goods. Material goods are absolute so in an economic transaction win-win is possible. Recognition is relative so recognising one person tends to be at the expense of others.

It is part of human biology. Chimpanzees compete for the status of alpha female and alpha male. Humans not only desire recognition for themselves but also for their beliefs and groups. A lot of human struggle is about recognition of groups, for example women, minorities and homosexuals. There may be an economic aspect to it like equal pay for women, but it is primarily about recognition. This is called identity politics.

Recognition can’t be enforced. Leadership comes from recognition that a specific person a person has exceptional courage, wisdom or is impartial in conflicts and a desire from a community to have a leader and submit itself to him or her. Once a society develops, recognition is often transferred to political institutions. In both cases the political order is based on legitimacy and the fact that people adhere to rules.

Social change and political development

These features are the basis of the evolution of more complex forms of organisation. The natural form of human organisation is a small group of family and friends. Our inclination to favour family and friends can be overcome by rules and incentives, for instance the requirement to hire a qualified person or the business profit that comes from doing so. Higher forms of organisation like institutions aren’t natural, and if they fail, humans revert to lower forms of organisation in small groups like gangs.

The ability to theorise enabled humans to create large societies. Most notably, ideas about ancestors, gods and other invisible forces created new rules and strong incentives to adhere to them. Our inclination to attach intrinsic value to mental models and theories promotes social stability. It also makes societies conservative with regard to ideas and rules. Rules and institutions often emerged to meet a specific challenge and become a burden once they have outlived their usefulness. Social change is often not a process of small incremental steps but of long periods of standstill alternated with sudden dramatic and often catastrophic changes.

That explains why violence has been important for political development. The fear of a violent death motivates people to do things they wouldn’t do out of mere self-interest. Stakeholders in a society tend to hold off the necessary changes so that violence or the threat of violence is sometimes required to end the stalemate. The human desire for recognition means that politics is seldom about mere self-interest. People make judgements about meaning and the value of people and political institutions.

Political institutions are the underlying rules by which societies organise themselves. These come in three basic categories: the state, the rule of law and accountability. The state is a hierarchical, centralised organisation that exercises a monopoly on legitimate force over a defined territory. The rule of law is a set of rules of behaviour reflecting a broad consensus in society that is binding to everyone, including the elites. It includes human rights., law and order, property rights, and contract enforcement. Accountability means that the government is responsive to the interests of society.

Human nature itself can’t be changed for the most part. The diversity in political developments has largely been the consequence of differences in living conditions. Groups split up and then developed their own ideas and norms. Groups also had contact with each other. This was another important incentive for change. Still, societies that were far apart, found remarkably similar solutions for their political orders. Nearly every society had been organised along kinship at first. As rules became more complex, most societies developed states based on impersonal forms of governance like centralised bureaucracies.

Feature image: cover of The Origins of Political Order

What you can read here is derived from The Origins of Political Order: From Prehuman Times to the French Revolution of Francis Fukuyama.

Liberal democracy

A definition

Democracies are often called liberal democracies. So what is a liberal democracy and why might it be the best way of government? There are no easy answers to these questions nor is there agreement on these matters. Liberalism emphasises the value of individuals while democracy is rule by majority. These two principles can be at odds.

Liberal democracies have elections between multiple political parties, a separation of powers into different branches of government, the rule of law in everyday life, an open society, a market economy with private property, the protection of human rights, civil rights, civil liberties and political freedoms for everyone.1

Liberals believe that individuals and social groups have conflicts of interest. The social order must deal with these conflicts and resolve them in a peaceful manner. To achieve such a feat, all parties must be reasonable and there should be a balance of powers. No party should be able to force its will upon others.2 It is an important reason why liberals stress the importance of individual rights.

Democracy means that government decisions require the consent of the majority of the citizens. In most cases the citizens elect a parliament that does the decision making for them. Sometimes citizens can vote for individual proposals in referendums. In reality many democratic countries aren’t fully democratic because not all government decisions are supported by a majority of the citizens.

Principles

Liberal democracy is based on a social contract, which is an agreement amongst the members of society to cooperate for mutual benefits. For instance, labourers may accept capitalism if they get a share of prosperity. That deal turned out to be more attractive than state ownership of the means of production.

Liberalism has two principles that can be at odds, namely non-interference with people’s lives and realising everyone’s potential. In this vein there are two branches of liberalism:

  • Economic liberalism promotes freedom of the markets as well as free trade and claims that the state should be of minimal size and not interfere with people’s lives.
  • Social liberalism claims that the state should help to realise the potential of people by promoting their freedom to make choices, which includes ending poverty.

Each liberal democracy more or less embraces these values. Liberal democracies come with a market economy and respect for the rights of individual citizens. Governments interfere with the lives of people and try to promote their happiness and to realise their potential. The conflicting nature of both principles makes liberal democracies differ with regard to freedom of markets and government interference.

In the United States liberalism has a different meaning. There it is another word for social liberalism or democratic socialism. In Europe the definition of liberalism is broader and this is also the definition used here. In the 17th century liberal ideas began to emerge in what is called the European Enlightenment. Around the year 1700 the philosopher John Locke came up with the following basic principles for a liberal state:

  • a social contract in which citizens accept the authority of the state in exchange for the protection of their rights and property and maintaining the social order;
  • consent of the governed, which means that state power is only justified when the people agree;
  • separation of church and state, which means that the state doesn’t favour a specific religion and does not require a religious justification.3

Is it the best form of government?

Liberal democracy is part of the European cultural heritage. Proponents claim that it is the best form of government. These universalist claims are sometimes contested on the ground that they are a form of western cultural imperialism. Another argument is that there is no guarantee that liberal democracy leads to better decisions. From a religious perspective people argue that our Creator may prefer a different kind of social order and government, possibly even a theocracy.

The argument in favour of the universalist claims is that liberal democracy emerged out of a historical process that took centuries in which rational arguments played a decisive role. The European Enlightenment challenged existing practices in government on the basis of reason. Ideas that emerged out of the European Enlightenment were tried out in different ways and refined further. Europeans also invested heavily in educating their citizens. This produced a culture of reason and compromise as well as a massive body of practical experience and best practises.

There is also no guarantee that other forms of government lead to better decisions. In an open society better information can be available so well-educated citizens in a culture of reason and compromise may make better decisions. There are a few democracies that live up to these expectations so it can work out that way. And we may not be able to determine what kind of order God desires. If our Creator is all-powerful then the emergence and spread of liberal democracy may not be a mere coincidence. It may be God’s plan.

One of the biggest problems facing liberal democracy is high expectations. Liberal democracy itself does not guarantee a reliable government that is both efficient and effective nor does it ensure a flourishing economy. This has led to disappointments. A failed and corrupt government can’t simply be turned into a success by allowing elections. Liberal democracy works best with a well-educated population in a culture of reason and compromise that doesn’t allow for corruption and abuse of power.

On the moral front there are a few issues too. Liberal democracy promises equal treatment for all people. In reality people aren’t treated equal nor do they have equal opportunities. There is discrimination based on ethnicity, gender or sexual preferences. And poor people have fewer opportunities than rich people. Still, the goal of equal treatment and equal opportunities can be something to strive for. It may be better to aim for such goals and fail from time than not having these goals at all.

If liberalism promotes tolerance then how to deal to intolerant people? Should their intolerance be tolerated? If people do not accept liberal values, should they be educated or should these values be imposed? And are free markets the best way of organising the economy or is government involvement advised? If the economy is served by stability, should dissent that causes instability be suppressed? An excessive or unnecessary use of force can undermine the foundation of liberal democracy as liberal democracy is based on reason and convincing people by argument. And indeed it is possible that liberal democracy can be overturned.

History

The preconditions for liberalism had already emerged in Western Europe during the Middle Ages. There was a larger degree of individualism than elsewhere. Liberalism itself emerged during the sixteenth century. At the time Europe was ravaged by devastating religious wars. After several decades of warfare Europeans grew tired of the conflict and began to tolerate religious differences. Some catholic countries accepted protestant minorities while many protestant countries accepted catholic minorities. Germany was almost equally divided. At the time Germany consisted of small states that had either protestant or catholic rulers.

This religious tolerance was at first more or less an uneasy truce. No party had been able to gain the upper hand. Religious minorities at first didn’t receive equal rights. They were only tolerated. Over time the case for religious tolerance became more widely accepted. It was based on two major arguments.

  • The argument of ignorance which states that only God knows who is on the right path and who is doomed so humans shouldn’t judge others.
  • The argument of perversity which states that cruelty is at odds with Christian values and that religious persecution strengthens the resolve of the persecuted.1

The concept of tolerance expanded into a general concern for the rights of individual citizens. In the 17th century liberal ideas were spreading. The Glorious Revolution of 1688 in England limited the power of the king. The rights of individuals were written down in the Bill of Rights. Parliament became the most powerful political institution based on the principle of consent of the governed. The 1776 Declaration of Independence of the United States was based on liberal principles too. It states that all men are created equal and have certain unalienable rights like life, liberty, and the pursuit of happiness.2

The founding fathers of the United States were also early liberals. The United States Constitution reflects this view. The aim of the United States Constitution is, amongst others, to safeguard the rights of individuals against the state. A large group of Americans believe that individual rights should prevail against democratically elected governments. The widespread support for gun ownership in the United States comes from a distrust of the state as a protector of life, liberty and possessions.

Democracy had not been a seriously considered since classical antiquity. It was believed that democracies are inherently unstable and chaotic due to the changing whims of the people.1 The violence during the French Revolution supported these views. It began as a popular uprising incited by liberal ideas but it soon turned into chaos and bloodshed. Order was restored by a despot ruler named Napoleon Bonaparte who did much to spread liberal reforms throughout Europe by ending the feudal system, emancipating religious minorities and imposing a liberal code of law. The spread of liberal ideas proved to be lasting and democracy was to follow a century later.

The Industrial Revolution started a period of accelerated and constant change that was disastrous for many who found themselves on the losing side. The ruling class changed. Nobility was replaced by a new elite of business people. The position of craftsmen was undermined by factories. And workers in factories laboured under miserable conditions for low wages. There were three major ways of confronting these changes:

  • Conservatives tried to hold on the old order of community, religion and nobility.
  • Socialists tried to overturn the elite of business people by giving power to workers.
  • Liberals tried to manage the change, thereby implicitly supporting the order in which business people were the ruling class.

Liberalism often coincides with the interests of business people. They have possessions and some are rich. They feared that the poor might vote for handing over their possessions to the poor. Socialism became the embodiment of this fear. Liberals were at first inclined to limit the right to vote to people who pay taxes because this excluded poor people from voting. When the threat of socialism became subdued and socialists were willing to compromise, liberals came to accept democracy based on the principle of one person one vote.

In the 19th century European countries held vast colonial empires. These colonies were kept for profit. It was generally believed that the people in these colonies had to be educated before they would be able to govern themselves. The colonial era helped to modernise these countries and most Europeans at the time believed that the oppression and the economic exploitation were justified on these grounds. There were only a few dissenters, for instance the Dutch writer Multatuli.

Liberal democracy faced a few major crises like World War I, the Great Depression and World War II. World War I demonstrated that liberal democracy and free trade weren’t a guarantee for peace and stability. The Great Depression once again challenged liberal democracy as the Soviet Union remained unaffected while Nazi Germany was able to recover and achieve full employment while other countries were still struggling. And during World War II Nazi Germany overran most democratic countries in Europe.

After World War II the European colonies became independent. The Soviet Union came to dominate Eastern Europe and China became a communist country. The United States became the protector of liberal democracy but also a number of dictatorships. This era is called the Cold War and it lasted until the Soviet Union dismantled itself after allowing the peoples of Eastern Europe to make their own choices. Major challengers of liberal democracy nowadays are the one-party system in China and political Islam.

The citizens of Hong Kong and Taiwan don’t like to loose their freedoms. Chinese too probably prefer freedom if they have a choice. And the Islamic State has shown Muslims all around the globe that political Islam can easily turn into a reign of terror. The foundations of liberal democracy may be strong, but a collapse of the global economy may turn be a more serious threat to liberal democracy than the alternatives. Reason can easily disappear once people become fearful of the future.

Reasons for success and limitations

The success of liberal democracy is therefore not a historical necessity. Liberal democracy might never have been invented or dictatorships could have gained the upper hand. That didn’t happen. Communist and fascist dictatorships came and went. Perhaps liberal democracy is a temporary phenomenon but we can’t know that now. Only the future can tell. There are a number of causes that might explain the strength of liberal democracy.

  • Liberal democracy is based on the consent of the governed so it is has the consent of the governed by default while other forms of government do not.
  • Science greatly contributes to the success of states and science is best served with an open debate that liberal democracy provides.
  • The economy greatly contributes to the success of states and the economy is best served with individual rights that liberal democracy provides.

A despot ruler or a ruling party in a one-party system might have the consent of its subjects, but if not, only force remains for the ruler or the party to maintain power. Liberal democracies usually resolve such issues peacefully through elections, making liberal democracy more stable by default. Intellectual freedom is helpful to science while economic freedom is helpful for the economy, so liberal democracy can be a potent force. Only when leadership is required, liberal democracy might not always be adequate.

Liberalism has no higher moral value than the individual, which is peculiar because the individual human is an insignificant part of this universe. And individualism may be at odds with human nature as humans are social animals. Humans are not atomic beings that choose to cooperate for mutual benefit like liberalism supposes. Cooperation is part of human nature and not a choice individuals deliberately make.

It is the success in cooperation that makes a society win out. Liberalism gives a framework for living together in peace as long as all major parties are reasonable and willing to compromise. This makes larger scale cooperation possible and that can make a society successful. For instance, the United States integrated people from different cultural backgrounds, which contributed to the success of the United States as a nation.

It is said that history is written by the victors. Strength may be the reason why liberal democracy prevailed. Liberal philosophers have tried to provide a moral justification for liberal democracy or they may have opposed it or they may have tried to improve it. Liberal democracy emerged out of thought and action, experiment and failure, and it was a process that took centuries. Philosophers like Locke contributed to its success as they set out the goals people could strife for.

Apart from individualism, liberal societies lack a higher purpose. From a scientific viewpoint there is no higher purpose to this universe. The moral codes humans live by are not more than an agreement. Only when this universe is created for a purpose there is a reason for our existence. But moral individualism can be dangerous. The challenges humanity is currently facing, most notably living within the limits of this planet, most likely requires making individuals subject to a higher causes like the survival of humanity and caring for the planet.

1. Liberal democracy. Wikipedia.
2. Liberalism: The Life of an Idea. Edmund Fawcett (2015). Princeton University Press.
3. History of liberalism. Wikipedia.

Currency

Self determination

To most people currency means government issued money used within a nation or a group of nations. US dollars, Chinese yuan, Korean won and Brazilian real are all currencies. Currency is important for political and economic self-determination. A national currency allows nations to pursue their own economic policies, although the options are constrained by global economic forces.

Local or regional currencies can supplement national currencies, most notably when communities or regions want to achieve a higher degree economic independence. Supranational currencies like the euro reduce can economic independence. To maintain some political and economic independence in an increasingly integrated world, currency is key. For that reason currency is more of a political subject than an economic one.

Reserve currency

Reserve currencies facilitate international trade. In the past decades the US dollar was the most used reserve currency. This arrangement allowed the United States to enjoy a higher standard of living and have a large military paid for by foreign nations. That is because the United States can print US dollars and other countries accept them as payment.

This arrangement gave foreign nations a competitive advantage. By buying US dollars for their currency reserves, competitors of the United States were able to suppress the exchange rate of their own currency and sell their products cheaper. This harmed US exports and it allowed other countries like China and Japan to build up their industries.

The reserve status of the US Dollar made the FED responsible for the international financial system. The FED had to rescue foreign banks during the financial crisis of 2008 so that US taxpayers ended up backing foreign banks. The FED probably had no other choice because if the FED hadn’t acted, the global financial system might have collapsed.

International Currency Unit

For that reason it may be better to have an international reserve currency that is not a national currency. The future International Currency Unit (ICU) can be a weighted average of national currencies. It may require an international central bank to guarantee stability in the international financial system. As long as central banks make decisions that have significant consequences, an international central bank will be a troublesome construct.

Only when central banks do not set interest rates and do not print currency, it might be feasible to introduce an International Central Bank (ICB). For that the ICU as well as the underlying national currencies may need to be a Natural Money currencies. Natural Money currencies require little or no central bank oversight as financial instability is the result of usury. Furthermore, with Natural Money central banks do not set interest rates.

50 euro
50 euro

The euro

The euro is an interesting experiment because it is a currency shared by a group of nation. The nations of the euro zone are sovereign but have given up their national currencies. Initially it was thought that the European Union would become a federation like the United States with a strong centralised government bureaucracy. But history took a different turn, and the European nations remained sovereign while the size of the centralised European institutions remained small compared to the United States.

The euro produced political and economic tensions. Previously, when every nation had its own currency, the differences in competitiveness between countries could be dealt with via exchange rates of their national currencies. If a country could not compete and exports were outstripping imports, the exchange rate of its currency could be lowered so that exports would become cheaper while imports would become more expensive. In this way the country could remain competitive in international markets.

Apart from the economic issues, there are also political concerns. People in Northern Europe feel that they pay for the debts of Southern Europe while people in Southern Europe feel that they are faced with austerity dictated by Northern European countries. The available options appear making the eurozone a federation like the United States or reverting back to national currencies. The benefit of a larger currency like the euro more efficient financial markets and lower interest rates.

If their government budgets are sustainable then Southern European countries can benefit from these low interest rates. Returning to national currencies doesn’t have to be the end of the euro either. National currencies can be introduced alongside the euro. Existing balances in euro will then remain in euro. The euro can be a weighted average of the national currencies making up the euro zone. This would make the euro look like the proposed ICU. It could be a step towards introducing an ICU and the ICB.

Private currencies and cryptocurrencies

Private currencies are not issued by a government or central bank. Proponents of private currencies like cryptocurrencies promise that they can provide an alternative payment system independent from governments and banks as well as an alternative way to issue stock. They believe that private currencies like cryptocurrencies can supplement or even replace existing currencies issued by governments and central banks.

Currency is important for political self-determination. For that reason governments have usurped the prerogative to issue currencies. Private currencies can undermine the power of governments, hence nations. Cryptocurrencies can facilitate crime, scams and tax evasion, so they their use is likely to become regulated or even banned in the future. Governments may also start to issue cryptocurrencies themselves.

Until now cryptocurrencies have not been stable. Payments in these currencies are cumbersome and only attractive when there is no regular payment system. Financial markets in these currencies are non-existing. A currency most allow for debts denominated in this currency. It must be easy to lend or borrow money in financial markets. And if the interest rate in the market is negative, then the currency must facilitate this, otherwise the economy may be disrupted.

Local currencies

During the Great Depression in the 1930s the Austrian town of Wörgl issued a local currency with a holding fee, which worked like a negative interest rate. The ‘miracle of Wörgl’ suggests that negative interest rates could have prevented or ended the Great Depression. The miracle also revealed something else. It was not possible to use the local currency outside Wörgl and because of the holding fee people spent it so the economy of Wörgl improved while the Great Depression intensified elsewhere.

The local currency allowed Wörgl to achieve a degree of economic independence. In the midst of a worsening depression the local economy improved so that unemployment dropped. It demonstrates that currency can be important for local, regional and national self-determination. If international markets fail to help a municipality, region or nation, it may be able to help itself with the use of a currency.

The Wörgl money was an complementary currency that circulated alongside the Austrian currency. It has been tried to copy the idea but only a few times it has been a great success. If the economy is doing well then a complementary currency often makes little sense. And complementary currencies often depend on a the commitment of the local people to the well-being of their municipality or region to the point that they prefer local or regional products simply for the reason that this promotes the local or regional economy.

Disconnecting from international markets can allow a municipality, region or nation to build its own economy but local products may provide less value for money than products from international markets. When the disadvantages of free trade outstrip the benefits then that is justifiable. Many successful national development stories include shielding national markets from international competition in order to build up a national industry. Once a country becomes developed and wealthy, the justification for trade barriers disappears, as they deny people the benefits of better or cheaper products from abroad.

Featured image: 50 pula bank note. Bank of Botswana.

 

Morality clause

Legal is not always fair

What is legal isn’t always fair. The role of morality in law may be too small. People have different views about what is right and what is wrong so the prevailing liberal view in many Western societies is that people should be free to do as they please unless their actions harm others. Even that view can justify a greater role of ethics in law as humanity is on suicidal path. If moral views converge in the future the role for ethics in law can grow.

For now we need to focus on what is most important as we could easily get trapped in issues of secondary importance. Moral issues can be contentious and people reason according to their beliefs and political views. The following arguments people with different political views use against each other illustrate that:

  • Leftists might be concerned with the rights of criminals in jail but not of the rights of unborn children who are innocent of any crime.
  • Conservatives might be concerned with the fate of unborn children but as soon as they are born in misery their compassion suddenly vanishes.

It is easy to simplify matters in this way. This is how issues are framed. And as soon as you are dragged into a dispute it is hard to stay moderate. Moral issues are often complicated. Euthanasia can be an act of compassion but it can be turned into a way of getting rid of undesired people. Perhaps criminals have had a poor life and never realised that they had a choice but making them suffer can give victims a sense of justice.

Leftists and conservatives have different moral views and can be passionate about them. This is difference of opinion rather than an absence of morals from one or both sides. Rational debates might help to clarify these matters and balance the laws on these issues.

In some areas ethics are needed urgently. Research has shown that CEO is the job with the highest rate of psychopaths while lawyer comes in second,1 possibly because traders in financial markets were not included in the survey. Media came in third because it was a British research. Salespeople make a rather unsurprising fourth position.

Vulture capitalism

Rural areas in the United States are turning into an economic wasteland. Closed down factories and empty malls dominate the landscape. Communities are ravaged and drug abuse is on the rise. One reason for this to happen is that jobs are shipped overseas. Several factors contributed to this situation, but a major cause is CEOs not caring for people and communities. In many cases other solutions were possible.

Paul Singer is wealthy hedge fund owner. He made a fortune by buying up sovereign debt of countries in trouble such as Argentina and Peru at bargain prices and starting lawsuits and public relation campaigns against those countries to make a profit on these debts at the expense of the taxpayers of these countries.2

In the United States Singer bought up stakes of corporations in distress. He then fired workers so that the price of his shares rose. In the case of Delphi Automotive he and other hedge fund managers took out government bailouts, moved jobs overseas, and cut the retirement packages of employees so they could make a huge profit.2

Vulture capitalists prey on patients too. They buy patents on old drugs that are the standard treatment for rare life-threatening diseases, then raise the price because there is no alternative. Martin Shkreli was responsible for a 6,250% price hike for the anti-retroviral drug Daraprim. Many people died because of his actions.3 Perhaps he should be in jail for being a mass murderer but he is not because what he did is legal.

Profiteering at the expense of the public

In the years preceding the financial crisis of 2008 there was a widespread mortgage fraud going on in the United States. Few people have gone to jail because much of what happened was morally reprehensible but legal. Financial executives and quite a few academics share this view.4 And so nothing was done. Perhaps fraud can be proven some day but that may take years if it ever succeeds.

Healthcare is another domain for fraudsters and unscrupulous corporations. Patients are often not in a position to bargain. Perhaps that is why privatised healthcare performs poorly compared to government organised healthcare. In 2015 the Dutch government introduced the Social Support Act, making municipalities responsible for assisting people who are unable to arrange the care and support they need themselves.5

The municipalities were ill-prepared so fraudsters took advantage of the situation. Most businesses are legitimate but several private contractors enrich themselves at the expense of taxpayers and people in need. The Dutch prosecution is overwhelmed by fraud cases and it is not always possible to get a conviction because of loopholes in the law. Until these loopholes are fixed, several schemes remain legal.6

In the United States hospital bills are feared. A routine doctor visit for a sore throat can result in a $ 28,000 medical bill.7 And so many people in the US go without healthcare because they can’t afford it. Efforts to reform healthcare in the US haven’t succeeded, perhaps because those who send $ 28,000 bills for sore throats have plenty of money to bribe politicians into keeping the US healthcare system as it is.

Attributes of the law

First we have to recognise why it is so hard to prevent these things from happening. On the political front it is because once politicians are elected, they can do as they please until the next election. Lobbyists prey on them. Citizens have few means of correcting politicians, except in Switzerland. The Swiss have direct democracy. Swiss citizens can intervene in the political process when they see fit and fix laws if they think that is needed. Direct democracy might help to fix many of these issues.

Laws are often made with the best intentions but it is not possible to test them in a simulation to see how they will work out in practice. So once laws are enacted, unexpected problems pop up. The process of law-making is slow and it can take years before issues are fixed, at least if they are fixed at all because law-making is often political process, and that can make it rather complicated.

Even more importantly, the underlying principles of law benefit the savvy. The system of law is the way it is for good reasons. No-one should be above the law and people as well as businesses should not be subject to arbitrariness. The rule of law implies that every person is subject to the law, including lawmakers, law enforcement officials, and judges. It is agreed that the law must be prospective, well-known, general, treat everyone equal, and provide certainty. Only, in reality not everyone is treated equally.

Laws being prospective means that you can only be convicted for violation of laws in force at the time the act was committed. Legal certainty means that the law must provide you with the ability to behave properly. The law must be precise enough to allow you to foresee the possible consequences of an action. Businesses prefer laws to stable and clear. Corporations invest for longer periods of time. If laws change they may face losses. If laws are not clear, investments won’t be made, and a country may end up poorer.

With the rise of neo-liberalism came the era of shareholder capitalism. Making profits became a goal in itself. Greed was considered good. Wall Street traders and CEOs were seen as heroes even when they were just psychopaths outsourcing jobs for profit. There was little consideration for the planet, people and communities. Consumers preferred the best service at the lowest price so businesses were pressed into cutting costs and moving jobs to low-wage countries. Ethics in business were a marginal issue at best.

A bigger role for ethics

More and more people believe that ethics should play a bigger role in business. Activists pressure corporations. That may not be enough. Corporations must be competitive and can’t make real changes if that increases their costs. Levelling the playing field with regulations is an option but that may not be sufficient. The law needs a morality clause, making unethical behaviour unlawful, even though the action itself is not explicitly stated as forbidden in the law. That increases the cost of unethical behaviour.

A randomly selected jury of laypeople could make verdicts in these issues. Perhaps it is better that the legal profession stays out of these matters because it is not a legal matter in the first place. There are a few issues that come with a morality clause. Ethics in business can be a political issue. People may differ on what kind of behaviour is ethical and people may differ on what kind of unethical behaviour should be punished.

Introducing a morality clause to enforce ethical behaviour in business affects legal certainty. It will be harder for businesses to predict whether or not a specific action is legal. Business owners may incorrectly guess moral sentiment and believe they did nothing wrong. The uncertainty that comes from that might reduce the available investment capital for questionable activities. But that may not be so bad. And if immoral profits and bonuses from the past are to be confiscated, it affects the prospectiveness of the law.

International treaties like the Transatlantic Trade and Investment Partnership (TTIP) have been set up to accommodate the unethical practises of corporations and to protect those corporations from making those unethical practises unlawful. Because that is often what reducing the regulatory barriers to trade like food safety laws, environmental legislations and banking regulations often amounts to in practice.

In most cases it can be known on beforehand what actions are unethical. For instance, investors in corporations that extract fossil fuels should know that burning fossil fuels causes climate change. They are gambling with the future humanity. So if some countries decide to outlaw the use of fossil fuels then these investors should not be compensated.

Perhaps you have serious doubts about this proposal as it upsets the very foundations of the current system of law. And I can imagine that you think: “Where does this end?” But there is something very wrong with the current system of law. Business interests often take precedence. So do you want the law to protect the psychopaths who maximise their profits at the expense of people and the planet? And do you really think that the law can be made without failures so that corporations and savvy people can’t exploit them?

Featured image: Of course the laws are always functional. Loesje. Loesje.org.

1. The Wisdom of Psychopaths: What Saints, Spies, and Serial Killers Can Teach Us About Success. Kevin Dutton (2012).
2. The death of Sidney, Nebraska: How a hedge fund destroyed ‘a good American town’. Charles Couger, Alex Pfeiffer (3 December 2019). Fox News. [link]
3. Vulture capitalists prey on patients. The Sacramento Bee (22 September 2015). [link]
4. How Mortgage Fraud Made the Financial Crisis Worse. Binyamin Appelbaum (12 February 2015). New York Times. [link]
5. Social Support Act (Wmo 2015). Government of the Netherlands. [link]
6. Gemeenten starten onderzoek naar Albero Zorggroep. Eelke van Ark (31 October 2019). Follow The Money. [link]
7. How a routine doctor visit for a sore throat resulted in a $28,000 medical bill. CBS News (31 December 2019) [link]