Answer to Arnold

Arnold asks for comments on his theory of government.

His basic point is that government is the entity which can enforce arbitration between private parties. For this to work, we must turn over power to the arbiter. Once we have done this there is no stopping the arbiter.

I generally agree although my story goes a little bit like this:

You and I could come to various agreements about how we are going to live in peace.

However, in the absence of government we face a prisoners dilemma. No matter what you do it will always be better for me to sneak into your house in the middle of the night and kill you. Once I kill you there is nothing more you can possibly do to me. The permanence of death prevents us from getting out of this prisoners dilemma through repeated interaction. In any period even if I don't gain that much from killing you, I might do it just to prevent you from killing me later.

Now this is balanced against the fact that most of us don't like to kill and we want to have friends, etc. However, the incentive is always there underneath the surface and it will result in rent dissipating activity.

I might install some sort of early warning system, or I might expend energy appearing tough or macho so that you believe your efforts to kill me will be unsuccessful, or I might just live farther away and only trust my relatives or people I have grown up with.

This rent dissipation brings the opportunity for profit and profit seeking firms will take advantage.

This ives rise to the first evolution in government - Small For Profit Government.

In reality this takes the form of a group hero or leader, somone who mediates disputes and in return receives respect, admiration and likely a higher share of resources.

However, there are increasing returns in the production of violence. Small For Profit Government eventually gives way to Large For Profit Government often in the form of franchises. We call this feudalism.

The human story is that heroes from different tribes get together and either agree to work together or go to war. If they work together they themselves select a hero who will mitigate their disputes and so on up the chain until there is a king, a nobility below him, and knights below them. If they go to war then the winners simply institute the previous scheme among themselves.

Because this process reduces rent dissipation there are enormous social returns. Unfortunately, the government is in a position to capture all of the returns. After all, without them there would be no society.

Unsatisfied with this government people have looked to Not For Profit Government. This is where some subset of the populace revolts and creates a corporate governance structure where everyone who meets a basic criteria (male, land-owning, adult) is a shareholder.

This is where we are in the western world today. Yes, government has the golden scepter as Arnold puts it, but its not because we go along with it to make the system work. It is because the market abhors unclaimed rents, and if there is no Not For Profit Government in place the for profit ones will form.

Arnold's example of the heroin dealer is poignant because For Profit Governments (the Mafia and after their demise street gangs) dominate the illicit drug trade.

Government is inevitable because murder prevents us from escaping the prisoners dilemma through repeated action. Without government there is a huge profit to be made in deincentivizing murder.