Chapter 55: Bureaucracy and Taxation
Update: 4/13/20
When he sits on the throne of his kingdom, he must write for himself in a scroll a copy of this law, from the law that is before the priests, who are Levites. The scroll must be with him, and he must read in it all the days of his life, so that he may learn to honor the Lord his God, so as to keep all the words of this law and these statutes, to observe them. He must do this so that his heart is not lifted up above his brothers, and so that he does not turn away from the commandments, to the right hand or to the left; for the purpose that he may prolong his days in his kingdom, he and his children, among Israel (Deuteronomy 17:18–20).So Samuel told all the words of the Lord to the people who were asking for a king. He said, “This will be the practice of the king who will reign over you. He will take your sons and appoint them to his chariots and to be his horsemen, and to run before his chariots. He will appoint for himself captains of thousands and captains of fifties. He will make some plow his ground, some reap his harvest, and some make his weapons of war and the equipment for his chariots. He will also take your daughters to be perfumers, cooks, and bakers. He will take the very best of your fields, your vineyards, and your olive orchards, and give them to his servants. He will take a tenth of your grain and of your vineyards and give to his officers and his servants” (I Samuel 8:10–15).
Kingship was a second-best option for Mosaic Israel. For the first four centuries, there was no king in Israel, other than God. Tribal rulers governed civil affairs. They were advised by Levites and priests. This decentralized system was God’s preference. But God knew that the Israelites would rebel against Him. He knew that in their hearts they were power-seekers. So, He established laws associated with kingship. “When you have come to the land that the Lord your God gives you, and when you take possession of it and begin to live in it, and then you say, ‘I will set a king over myself, like all the nations that are round about me,’ then you must surely set as king over yourself someone whom the Lord your God will choose. You must set as king over yourself someone from among your brothers. You may not put a foreigner, who is not your brother, over yourself. But he must not multiply horses for himself, nor cause the people to return to Egypt so that he may multiply horses, for the Lord had said to you, ‘You will never return that way again.’ He must not take many wives for himself, so that his heart does not turn away. He must not accumulate large amounts of silver and gold” (Deuteronomy 17:14–17). The king had to be a covenant-keeper. He could not be a foreigner. He was not to amass horses, which were associated with cavalry and chariots. These were weapons of offense. He was not to multiply wives. If he did, they would lure him into idolatry. Finally, he was not to accumulate large amounts of gold and silver. These were capital assets that could be used to fund wars. They could also be used to expand the power of the central government over the nation. The king was to preside over a legal system based on the written laws of God. [North, Deuteronomy, ch. 42]
1. The Rule of Law
The Mosaic law was condensed. It was to be read publicly before the assembled nation at the end of the seventh year, meaning the sabbatical year. “Assemble the people, the men, the women, and the little ones, and your foreigner who is within your city gates, so that they may hear and learn, and so that they may honor the Lord your God and keep all the words of this law” (Deuteronomy 31:12). This is why the laws were short. They had to be capable of being read by the leaders of Israel at a festival. The basic principles of law had to be understood by everybody in the society, including resident aliens. Children had to listen. [North, Deuteronomy, ch. 75]
Some laws announced general principles. Others were also case laws that applied these principles. The whole nation was to learn how to apply the general laws in the case laws to specific circumstances. This meant that the people would be able to recognize deviations from the law by civil and ecclesiastical leaders. Even if they were not literate, they would understand the general principles of the law. This was a restraining factor in the lives of the people, but it was also a restraining factor in the lives of the rulers. The people were to govern themselves, and so were the rulers. The basis of freedom and civil justice in Mosaic Israel was self-government under God’s written law. The king was not to amass horses, wives, gold, and silver. He was to live the way that other men lived. The mark of tyranny would be a king who deviated from these restrictions.
That mark came in the kingship of Solomon. In the initial phase of his kingship, he was a righteous judge. He showed great wisdom. He was legendary for his wisdom. But then he multiplied wives for himself (I Kings 11). They led him astray theologically. His son inherited a powerful central government. He surrounded himself with power-seekers. He imposed high taxes on the people. This led to a revolt (I Kings 12). Jeroboam led the ten northern tribes out of the nation of Israel. [North, Historical Books, ch. 14] The northern tribes became known as Israel, and the two southern tribes became known as Judah. The nation was never again unified under an Israelite monarch. It was unified only after the Assyrian and Babylonian captivities, and the unity was provided by religiously pluralistic foreign empires.
The issue that split the kingdom was the issue of taxation. The issues of taxation, limited government, and personal liberty are always linked.
2. Taxation
It may come as a surprise to some readers, or perhaps even most readers, that the Bible never specifies the nature of legitimate taxation. It does not affirm the legitimacy of a property tax, a sales tax, or an income tax. In I Samuel 8, however, it does identify the level of taxation that God used in a doomed attempt to frighten the Israelites away from their plan to establish a king. He instructed Samuel to announce the king would impose a 10% income tax on them. This should have been sufficient to persuade them not to pursue their plans. But it did not. “But the people refused to listen to Samuel; they said, ‘No! There must be a king over us so that we might be like all the other nations, and so that our king may judge us and go out before us and fight our battles’” (I Samuel 8:19–20).
There is another reference to an income tax in the Bible. In the seven fat years, Joseph collected the grain of Egypt. We are not told what percentage of the grain he collected. The text says all of it (Genesis 41:48), but that obviously is not literal. Egypt did not starve to death. At the end of the first year of the famine, the people of Egypt had sold all of their money and their livestock to Pharaoh into buy grain. They ran out of food (probably seed for the next year’s planting). They asked Joseph to buy their land in exchange for grain. He did so in the name of Pharaoh. “Then Joseph said to the people, ‘See, I have bought you and your land today for Pharaoh. Now here is seed for you, and you will plant the land. At the harvest, you must give a fifth to Pharaoh, and four parts will be your own, for seed of the field and for food for your households and your children’” (Genesis 47:23–24). This was a flat rate 20% income tax. This was twice as high as the tax rate with which Samuel attempted to frighten the men of Israel. Egypt was a gigantic bureaucracy. It was the most bureaucratized nation in ancient history. It had enslaved the Israelites. It became in retrospect the model of tyranny from which God had delivered the people of Israel. The mark of that tyranny was an income tax rate of 20%. [North, Genesis, ch. 35]
Joseph set an example to be followed by God’s people. He gave his best advice to the ruler. He administered the program that he had recommended. He saved the nation of Egypt. But this came at a price: the nation’s permanent subordination to a system of sharecropping, which did not differ from income taxation. This was a form of punishment. God placed them under negative sanctions because they worshipped a false god: Pharaoh. The case of Joseph in Egypt is not a legitimate model for taxation in the modern world, except as a warning. Joseph placed covenant-breakers more firmly under a pagan king. Joseph taught them a lesson. “This is what it means to worship a false god. You will be brought under tyranny.” The Egyptians did not accept the message. They consented to a later Pharaoh who made slaves of the Hebrews. They paid a heavy price prior to the exodus. The sharecropping burden of the Egyptians was twice as great a burden as that which a future Israelite king would impose on God’s people.
The Mosaic law provided the foundation for civil liberty. This involved low taxes, although we are not told who collected them and what the rate of taxation was. We do know how Israel lost its unity. It began with the call for a king to represent them in warfare. They called for the creation of a military state. Under King Rehoboam, the central government imposed high taxes. That led to a revolt at the end of the kingdom. The nation drifted away from the laws governing kingship, and that led to the destruction of the kingdom.
I begin with the consideration of law. This is connected to the issue of taxation. It is connected in this way: the greater the level of taxation, the greater the extension of bureaucratic rule into the lives of the people being taxed. The state is able to fund an ever-growing bureaucracy, and this bureaucracy will ultimately thwart the fundamental biblical principle of the rule of law. Essential to the principle of the rule of law is the issue of legal predictability.
In order to restrain the expansion of centralized civil government, God mandated the training of the entire nation in the principles of His law. Law was to be read publicly to all residents of Israel, even including resident aliens who did not share the theological confession of the nation. All people were required by God to govern themselves in terms of His law. They were also to make certain that their rulers did the same. This enhanced the crucial legal principle of the Mosaic law: equality before the law.
The law had to be simple enough for the average citizen to understand. This was crucial to the maintenance of freedom in Israel. The Levites served as teachers. The priests were a small percentage of the Levites. The Levites lived in every tribe. They did not own their own rural land on a tribal basis. They were decentralized across the nation. They were to teach the laws of the nation to the people in the years in between the reading of the law at a central location. These men had to be literate. They were specialists in the law, and they were to serve as advisers to civil magistrates. “If a matter arises that is too hard for you to judge—perhaps a question of murder or accidental death, of one person's right and another person's right, or a question of one kind of harm done, or another kind of matter, matters of controversy within your city gates—then you must go up to the place that the Lord your God will choose as his sanctuary. You must go to the priests, the descendants of Levi, and to the judge who will be serving at that time; you will seek their advice, and they will give you the verdict. You must follow the law given to you at the place Yahweh will choose as his sanctuary. You will be careful to do everything that they direct you to do. Follow the law they teach you, and do according to the decisions they give you. Do not turn aside from what they tell you, to the right hand or to the left” (Deuteronomy 17:8–11). [North, Deuteronomy, ch. 41] It was assumed that most civil magistrates could make coherent legal decisions in cases that came before them. Only in special situations were they to seek advice from a Levite.
This is civil government by the book. But the book was one book. It was not a closed book. It was not a specialists book. It was a book that is available to the masses of the population by way of the Levites. Even though most people could not read, they could become specialists in those areas of the law that affected their businesses and activities. They had free access to a tribe of experts in the law. Levites were the lawyers of Israel. But they did not take sides. They were not hired by citizens to plead their cases. That practice came from Athenian law, not biblical law.
The predictability of the law is vital for the maintenance of freedom. Israelites knew what God required of them, and they knew what their neighbors required of them. They knew what civil judges required of them. They knew because they were trained in the law. They were not allowed to claim ignorance of the law as justification for their breaking of the law. “If anyone sins and does anything that the Lord has commanded not to be done, even if he was unaware of it, he is still guilty and must carry his own guilt” (Leviticus 5:17). [North, Leviticus, ch. 6] This was a strong motivation to learn the principles of the law and the case law applications of these principles. People did not want to be lawbreakers.
The law was tied to a book. The book possessed authority. The book was supposed to be the basis of court decisions. Inherently, a legal system is always past-oriented. It is based on past decisions and past written laws. This is in contrast to entrepreneurship in a profit-seeking market. Entrepreneurship must be future-oriented. Entrepreneurs try to guess what consumers will be willing and able to pay in the future. They must adjust to their assessments of what consumers will want to buy. This is completely different from what a civil judge is supposed to do. He is not to become creative in trying new things for the law to achieve. He is to become predictable, so that people will be able to judge their own liability. The more predictable his interpretation of the law becomes, the fewer the number of trials he will have to oversee. People will know in advance what the outcome of a legal confrontation is likely to be, and if they think they are going to lose in court, they will not pursue the matter. This reduces the number of cases that must be adjudicated.
In contrast to the decentralized social and political order of Mosaic Israel is the modern administrative state. Here, extensive regulations are written by highly specialized government agencies. The employees of these departments are usually immune from being fired. They are protected by legislation. They do not respond to market forces. Their success or failure is not based on competition in which there is open entry. They are not governed by the market’s principle of high bid wins. They do not face the threat of profit and loss. That is because their salaries are guaranteed by the government.
They write detailed regulations that apply to specialized industries and businesses. There may be a dozen different bureaucracies that regulate a particular industry. There may be several dozen agencies that have this responsibility. There is no communication among them. There is no systematic resolution of conflicts in the regulations. This is rule by administrative law. The agencies are not governed directly by the separate court system that governs the rest of society. They have their own courts and procedures. They impose negative economic sanctions: fines. Around the world, administrative law is spreading. That is because the regulatory state is growing. It is a top-down system of law. It leads to a top-down system of economic planning.
This system of administrative law slowly encroaches on the decision-making of businesses. Business managers must take into consideration the detailed regulations imposed by various layers of civil government. There are national, state, and regional administrative agencies that claim jurisdiction. There are also international regulatory agencies that claim jurisdiction over foreign trade. Violations of minute regulations threaten the profitability of businesses. The threat of negative sanctions imposed by an administrative agency becomes as great a threat as the negative sanctions of consumers in refusing to purchase the output of the business. This fear of negative sanctions imposed by regulatory agencies reshapes the business process. Business managers become less responsive to consumer demand.
This development is taking place all over the world. It is hostile to the Western legal tradition. Harold Berman was a historian of Western law at Harvard University. In 1983, Harvard University Press published his book, Law and Revolution: The Formation of the Western Legal Tradition. It was a specialized monograph on the origin of this tradition, which he dated with the papal legal revolution that began in 1076. In the “Introduction,” he presented an analysis of the conflict between the rise of administrative law and the Western legal tradition. I regard this as one of the most important academic analyses that I have ever read.
He used strong rhetoric, which is not common to academic monographs. He wrote this: “That the Western legal tradition, like Western civilization as a whole, is undergoing in the twentieth century a crisis greater than it has ever known before is not something that can be proved scientifically. It is something that is known, ultimately, by intuition” (p. 33). Here is the problem. “The law is becoming more fragmented, more subjective, geared more to expediency and less to morality, concerned more with immediate consequences and less with consistency or continuity. Thus the historical soil of the Western legal tradition is being washed away in the twentieth century, and the tradition itself is threatened with collapse” (p. 39). He went on.
The breakdown of the Western legal tradition springs only in part from the socialist revolutions that were inaugurated in Russia in October 1917 and that have gradually spread throughout the West (and throughout other parts of the world as well), albeit often in relatively mild forms. It springs only in part from massive state intervention in the economy of the nation (the welfare state), and only in part from the massive bureaucratization of social and economic life through a huge centralized corporate entities (the corporate state). It springs much more from the crisis of Western civilization itself, commencing in 1914 with the outbreak of World War I. This was more than an economic and technological revolution, more even than a political revolution. . . . But the disintegration of the very foundation of that tradition cannot be accommodated; and the greatest challenge to those foundations is the massive loss of confidence in the West itself, as a civilization, a community, and in the legal tradition which for nine centuries has helped to sustain it (pp. 39–40).
This analysis leads to the issue of bureaucracy and bureaucratization.
Bureaucracy is one form of management. It is associated with civil government. The other form of management is profit management. It is associated with business. The two systems are not the same. They are not the same because the funding of the two systems is different. The bureaucrat is guaranteed his funding by the state. Nothing guarantees the income of the businessman.
1. Mises on Bureaucracy
There is an inherent conflict between bureaucratic management and profit management. This was the insight of Ludwig von Mises in his short book, Bureaucracy (1944). Bureaucratic management is appropriate to the management of state agencies. Profit management is appropriate for business. They are structured differently. The key to understanding these differences is the source of the funding.
Bureaucratic management is funded by the state. Politicians write laws. They create agency jurisdictions. Then agency bureaucrats enforce the written laws, as they interpret these laws. Their jurisdiction is delegated by politicians. They are required by law to stay within these jurisdictions. To enable them to do this, administrative agencies write complex rules governing these operations. The government then funds these operations. Budgets are written in advance. The agencies are required by law to stay within their budgets. They are allowed to spend only what has been authorized by politicians. In this way politicians attempt to make sure that the government’s budget does not suffer unpredicted overruns. Without detailed laws, the agencies would become more arbitrary than they already are. Thus, bureaucratic management is past-oriented. It is geared to the original legislation. It follows administrative rule books. It must stay within a budget passed by politicians in the previous fiscal year.
In contrast is profit management. The immediate source of the funding is financial reserves accumulated by the business through after-tax profits, or borrowed, or gained through the sale of shares of ownership. These expenditures must be validated by the decisions of customers to buy the output of the firm at the prices set by senior managers. If customers fail to do this, the company suffers losses. If this continues, it will go out of business. To make profits, the companies must cover costs of operations, plus gain a residual. The residual is entrepreneurial profit. It comes from paying less to deliver the goods than customers pay. The firms “buy low and sell high.” How do they do this? By spotting opportunities that their competitors did not spot. They bought production goods at a low price because their competitors did not bid up the prices. This process rests on forecasting. Thus, profit-management is future-oriented.
The mindset that produces entrepreneurial success is different from the mindset that produces bureaucratic success. The first is future-oriented. The second is past-oriented. The first thrives on uncertainty. The second thrives on predictability. The first deals with the constantly changing world of customer demand. The second deals with the relatively unchanging world of legal precedents. The first management system is governed by this rule: “make a profit.” The second is governed by this rule: “don’t make a mistake.” The first requires only general rules. The second requires detailed descriptions of violations that can be in the thousands of pages.
By extending their control over entrepreneurs, lawyers in government agencies threaten entrepreneurs with the negative sanctions of the law. Entrepreneurs must pay attention to these negative sanctions. They shift their focus from satisfying future customers to satisfying future government lawyers. State regulation pressures entrepreneurs to become more bureaucratic and less entrepreneurial. This reduces the economic authority of customers and increases the economic authority of lawyers who work for the government, or who work for businesses to protect them from lawyers who work for the government.
Here is an example from American government practice that is universal. I was on Congressman Ron Paul’s staff in the second half of 1976: his first term. I read this story in the Washington Star. It went out of business in 1981. I may have read this sometime between July 1976 to August 1978, when I moved to North Carolina. An editor sent a reporter to interview a woman who was retiring. She had worked for the same agency for at least four decades. She was thought to be the bureaucrat with the longest tenure in Washington, D.C., so she was considered newsworthy. The reporter asked her what the secret of her career success was. She was candid. She told him that she always said “no” to any request by a member of the public. The reporter asked her why. I paraphrase: “When I said ‘no,’ I could later retreat to ‘yes,’ and the person was happy. If I said ‘yes,’ and I have to retreat to ‘no,’ the person was unhappy. He might cause trouble. He might complain to my superior.”
In business, a commissioned salesman profits only when there is a sale. His initial impulse therefore is to say “yes” in order to get the order. If the customer asks, “Can I get this in blue?” the salesman asks: “Do you want it in blue?” If the shopper says “yes,” the salesman assures him that he can get it in blue. He gets him to sign the contract. Then he calls the home office to make sure there are blue units in stock. The company may not be able to deliver what was promised on schedule, but the salesman will take time to persuade the buyer to wait a little longer or else accept the item in yellow. His attitude is different from the attitude of a bureaucrat. He wants to cooperate with the public. This difference stems from the difference in institutional funding: the state or the market.
Bureaucratic management is inherently top-down management. It is management done by the book. It is past-oriented because the authoritative law book and the bureaucratic rule book were written in the past. The system is supposed to be predictable. When the state is small, and when its regulatory apparatus is minimal, bureaucratic management is reasonably predictable. But with the rise of the administrative state, and with the expansion of civil government into most areas of life, the complexity of the rule books and the thickness of the rule books destroy the predictability of the system. Tenured bureaucrats within a particular administrative agency have great authority that is expensive to challenge. A negative sanction must first be challenged by the citizen in the agency’s independent administrative law court. Only after this court has affirmed the decision of the agency, which is almost automatic, is the penalized business allowed to appeal to the nation’s independent judiciary with its own system of courts. By that time, the business may have been bankrupted by the decision of the administrative law court.
Mises was not opposed to bureaucracy. He said that bureaucratic management is basic to the state. In order to control the state, politicians must place limits on bureaucrats. This is why there must be rule books. Bureaucrats must be predictable. If they were not predictable, they would be arbitrary. The problem is this, which Mises did not mention: the bureaucrats write the rule books. Then they interpret the rule books in their own system of independent courts. Then they apply negative sanctions on their own authority. That is the problem with the administrative state.
Mises wrote this about bureaucracy.
. . . bureaucracy in itself is neither good nor bad. It is a method of management which can be applied in different spheres of human activity. There is a field, namely, the handling of the apparatus of government, in which bureaucratic methods are required by necessity. What many people nowadays consider an evil is not bureaucracy as such, but the expansion of the sphere in which bureaucratic management is applied. This expansion is the unavoidable consequence of the progressive restriction of the individual citizen's freedom, of the inherent trend of present-day economic and social policies toward the substitution of government control for private initiative. People blame bureaucracy, but what they really have in mind are the endeavors to make the state socialist and totalitarian. . . . What characterizes our time is the expansion of the sphere of government interference with business and with many other items of the citizenry's affairs. And this results in a substitution of bureaucratic management for profit management (p. 44).
Mises believed in the legitimacy of the state. Society needs the state. “Remove the law, and society will be destroyed by anarchy. The State is the only institution entitled to apply coercion and compulsion and to inflict harm upon individuals. This tremendous power cannot be abandoned to the discretion of some men, however competent and clever they may deem themselves. It is necessary to restrict its application. This is the task of the laws” (p. 76).
I want to make something clear at this point. Mises taught that the free market is not an autonomous institution. It is under civil law. The civil government is not bound by the principle of the free market, namely, high monetary bid wins. Civil government has a legitimate monopoly of violence. He was opposed to anarcho-capitalism. Specifically, he was opposed to the views of the state held by his disciple, Murray Rothbard. He wrote in the third edition of Human Action: “The maintenance of a government apparatus of courts, police officers, prisons, and of armed forces requires considerable expenditure. To levy taxes for these purposes is fully compatible with the freedom the individual enjoys in a free market economy” (Section 6).
2. Weber on Bureaucracy
Max Weber and Mises were friends. Weber published Mises’ famous 1920 article, “Economic Calculation in the Socialist Commonwealth,” in the scholarly journal he edited. He died before the article was published, but he read it, and he approved of it.
Weber was convinced that bureaucratization is the wave of the future. He did not make the distinction between profit management and bureaucratic management. He lumped them together as a comprehensive social process. Analytically, this was a mistake. He wrote this in 1909. “Take as the tip of the pyramid the authoritarian powers of the state or the municipality within a monarchical state system. That will remind you vividly of the system of the old Egyptians in antiquity, which was saturated, from top to bottom, by the spirit of the ‘little job.’ To this day, there has never been a bureaucracy that could have come even close to Egyptian bureaucracy. This is absolutely clear to anyone familiar with Egyptian administrative history and it is just as utterly clear that today we are rushing inexorably towards a development that follows precisely this model, albeit on a different basis: on a technically refined, more rationalized, i.e., on a far more mechanized basis.”
This march towards bureaucratization is in the private sector as well as the public sector. “Imagine the consequences of the kind of extensive bureaucratization and nationalization that we can already see looming ahead. Already today in the private companies of big industry as well as each and every economic enterprise organized along modern lines, the submission to computation—that sort of rational calculation—is extending all the way down to the lowest level. It turns every single worker into a small cog in this machine and increasingly prepares him or her to feel that way psychologically and to only ask whether it is possible to go from being a small cog to a bigger one.” He could have used the assembly line production techniques of the Ford Motor Company as an example.
He dreaded the advent of a bureaucratic society that is run like a great machine: a bureaucratic cage. I wrote about this in a graduate school paper for Robert Nisbet in 1969. I published it in 1976 in the book I edited, Foundations of Christian Scholarship (1976). Weber was a Kantian. He recognized the dualism between Kant’s scientific phenomenal realm of impersonal cause and effect and his irrational/nonrational noumenal realm of freedom. He saw the extension of modern bureaucracy as the march of Kant’s phenomenal realm. Weber believed that bureaucracy would eventually overcome the liberty associated with capitalism. I quoted this from his posthumously published Economy and Society. “It is very likely that the bureaucratization of society will one day subdue capitalism just as it did in antiquity. Then the ‘anarchy of production’ will be replaced by that ‘order’ which, in a very singular way, characterized in the late Roman Empire and, even more, the new Kingdom and the rule of the Ptolemies in Egypt” (cited by Guenther Roth, “Preface,” p. LII).
His analysis of bureaucracy applies well to mass production factory techniques, but it does not apply well to service industries. Service industries are the source of most of the Western world’s wealth today. In advanced economies, manufacturing accounts for a declining percentage of the total productivity. Profitability comes from innovation, and innovation is not bureaucratic. It is not generated predictably according to administrative rules. Whenever the state is kept small, and regulatory agencies are sparsely funded, bureaucratization is not the wave of the future. Human creativity has always been the basis of innovation and profitability. To make a profit, it requires creativity, insight, and the ability to look into the future accurately. The free market is not predictable for a reason: consumers have the right to change their minds. They are free to choose.
The key difference between the two models is the difference of finance. The question that we must always ask in assigning a task to either is this: “How does it receive its operating funds?” If this is not asked in advance, there will inevitably be a system which will not do its job efficiently.
The profit management system operates on an open market that permits the entrance of competitive forms. Whatever profits a firm makes or losses it sustains will be determined by its ability to satisfy consumer demand. Assuming that it stays within the framework of law established by the state, the only question that it must ask is whether or not its income exceeds its expenditures. The free market permits profit-seeking firms to fail if they do not meet the demands of the buying public. Thus, the top level of any bureaucracy has a guide to the performance of the lower levels, especially those levels connected with sales. Are they producing profits or losses? Every management system must be hierarchical. The crucial differentiating factor is the set of guidelines used by top level managers to evaluate the performance of lower-level managers.
Senior management delegates to the lower levels considerable responsibility and therefore extensive flexibility. The lower levels are expected to know the conditions of local supply and demand—the particular markets—far better than bureaucrats at the top level can possibly know them. Thus, there is an integration of knowledge. The top level assigns the general goals: products needed, aggregate estimates of expenditures and possible profits, the prospective operation of the company as a whole. Lower levels try to fulfill their basic responsibility, namely, to turn a profit. If they do turn a profit, they are left alone by the upper levels. If they fail, they must inform the upper levels of any corrections needed at the top. Otherwise, they may be replaced. The profit-management system possesses greater flexibility than the statist form because it is subject to the possibility of losses. Its revenues are dependent upon its success or failure on the market.
The statist bureaucracy operates under a totally different system of financing. Its expenses are met by the state. Therefore, the responsibility of the managers of this bureaucracy is to see to it that all the income received is spent only on those items budgeted in advance when the operating budget was originally drawn up and approved by the state. The statist bureaucracy has fixed budgets and is not subjected to the competition of an open market. Thus, we find the top level of the hierarchy concerned with the disbursal of the appropriated funds. Is the money going to the proper subordinate level? Is it being spent as previously approved? Is all of the money accounted for on the proper forms? By the very nature of the structure, there can be very little flexibility permitted to the lower levels. Upper levels must see that all goes according to the previously approved plan: “the book.” The task of the upper level is supervisory, not in the sense of evaluating profit and loss, but supervisory in the sense of control. The premium is placed on accurate reporting of control data; the goal is total predictability. This is inherent in the very nature of the statist bureaucracy. It has to be, as Mises pointed out. The politicians want to be certain that their appropriations are being spent as legislated. The bureaucrat should not be free to choose. The bureaucrat should administer the law according to the written rules and court precedents. If the bureaucrat is free to choose, then he possesses arbitrary power. Here is the problem: the more complex the rules are, the greater the autonomy of a bureaucrat to interpret them. He becomes arbitrary. When he does, those under his jurisdiction are at risk of losing their freedom. Here is the rule: the more that a bureaucrat is free to choose, the less that citizens are free to choose.
There is only one way to reform a bureaucracy that is out of control. Politicians must reduce the funding of the bureaucracy. Politicians cannot expect to be able to monitor every bureaucracy’s actual performance. There are too many bureaucracies to manage. So, there can only be general guidelines. If politicians, because of pressure from voters, decide to reform a bureaucracy, this can only be done by a dramatic reduction of its funding.
This raises the issue of taxation. If the state cannot collect enough money from taxpayers to fund a growing number of bureaucratic agencies, this will assist politicians in the reform of specific bureaucracies. In fact, there is no way for the politicians to achieve this goal other than dramatic tax cutting. Politicians who continue to spend increasing amounts of money through taxation and borrowing are inescapably and inevitably expanding the domain of the administrative law state. They are reducing freedom.
I argue that, from the beginning, the Mosaic law so restricted the power of the central government, especially the King, that only by violating biblical law could a king become so powerful that he could imitate Egypt in the creation of top-down bureaucratic agencies.
I have said that there is no explicit statement of the Bible about what constitutes legitimate taxation. There is a statement of what constitutes illegitimate taxation: a tax on income as high as 10%. Why is this the standard question? Because God is entitled to 10%. To argue that the state is entitled to 10% is to argue that the state has a greater claim on ownership than God does. It is, in short, to claim that the state is divine.
In the modern world, no major nation-state collects less than 10% of the total productivity of the nation. This has come about since the beginning of World War I in 1914. Prior to this time, no state had the right to collect taxes as high as 10% of income. Samuel warned the Israelites that the king would collect 10% of their output. Today, that would not be a warning. That would be a near-utopian political campaign slogan for the establishment of limited government.
The principle of the tithe establishes a moral principle. The rich should not pay a higher rate of taxation than the poor. No member of any church would consent to a compulsory program of donation that required him to pay a higher percentage than some other member of the congregation. The church would immediately lose members with high incomes. They would transfer their membership to churches that did not demand that they pay a higher percentage of their income. This is an aspect of the biblical principle of the rule of law. Here is that rule as it applies to civil government. “Do not cause judgment to be false. You must not show favoritism to someone because he is poor, and you must not show favoritism to someone because he is important. Instead, judge your neighbor righteously” (Leviticus 19:15). [North, Leviticus, ch. 14] The modern welfare state is a violation of this principle. This is why the modern welfare state is anti-biblical. It is popular throughout the world, but this is a testimony of the rebellion of the modern world against the God of the Bible and the moral principles that this God has set forth in the Bible.
There can be other taxes. A sales tax is a flat tax that is imposed on the retail price of an item. So is a value-added tax. In principle, so is a property tax. But there are lots of exemptions on these taxes. The exemptions favor certain individuals or certain businesses. Exemptions are a violation of the principle of the rule of law.
The expansion of the modern state which began in August 1914 has led to the modern welfare state. The promises made by politicians to voters regarding government-funded retirement programs and government-funded old age healthcare programs have created unfunded liabilities for the modern welfare state that are beyond the capability of these welfare states to fulfill. Voters have believed the promises. They have adjusted their lifestyles to these promises. They have become emotionally dependent on the fulfillment of these promises. As they reach retirement age, most of them become heavily dependent on the income provided by the nation-state. Statistically, the promises cannot be fulfilled. This will create a crisis for every welfare state. This will be a crisis of legitimacy. This will be the judgment of God against the universal violation of His fundamental judicial principle: the rule of law. The modern welfare state is built on a revision of the eighth commandment: “You shall not steal, except by majority vote.”
A fundamental biblical principle of law is this: it must be predictable. This means that the public should know what to expect from the legal order. The legal order should not be so complex that a typical citizen is unable to understand the limits which he must place on himself, and also the limits which society should place on the state and its agents. The growing complexity of modern law is such that the law is not predictable, especially administrative law, which is written, interpreted, and enforced by the agencies, not by independent courts. This system of law exists throughout the West. Administrative law is inherently a violation of biblical principle. It is leading to the erosion of personal freedom around the world.
Bureaucracy is inescapable. This was the conclusion of Mises in 1944. Bureaucracy is supposed to be limited. It is supposed to be limited by minimal funding from the government, and it is supposed to be limited by the specific terms of the laws that are enforced by executive bureaucracies. But the multiplication of laws has led to a multiplication of administrative procedures. Today, no one understands what is required of him. There are too many bureaucratic agencies producing written regulations, and these regulations can be interpreted only by skilled lawyers. The average citizen cannot afford to hire a skilled lawyer. Neither can the average business. So, the bureaucrats are restrained only by the budgets of their agencies. There is no serious monitoring by the parliaments and legislatures of what the agencies do with this money. Legislatures have abandoned their responsibility to make certain that all of the money they allocate to administrative agencies is spent as the legislature intended.
Administrative agencies must be funded by taxes. Taxes are much higher than what the prophet Samuel identified as tyrannical taxation by future kings of Israel. Furthermore, governments can borrow money when tax revenues do not equal government expenditures. This increases the amount of money available to administrative agencies to enforce their regulations.
The level of political promises with respect to old age retirement benefits is so great today that there is no way that the promises can be fulfilled. When the governments begin to enact legislative loopholes for the government, thereby cutting off income to retired citizens, this will create a political crisis. The issue here is the maintenance of legitimacy. If the government defaults on its promises, it will not be able to maintain its legitimacy. This is a threat to every national government in the West.
To restore biblical civil government, citizens must restore the limits of the Mosaic law placed on civil government. The laws must be easily understood. They must be enforced uniformly on all citizens. The multiplication of laws has led to the multiplication of regulations, and these must be eliminated. If they are maintained, we will not see the restoration of biblical civil government.
The only sure way to change bureaucracies is to cut their funding. This should be done as a matter of principle. This will require that the civil governments of the world not have the authority to raise taxes above the threshold of the tithe: 10% of net income. When civil governments impose taxes greater than the tithe, they are implicitly announcing that they have greater authority than God. This is inherently satanic. Thus, the restoration of biblical civil government must begin with a drastic reduction in taxes. Until this is done, covenant-keepers will live in a world governed by covenant-breakers. If covenant-keepers vote on the side of covenant-breakers to maintain the existing tyrannical level of taxation, they will be as the residents of Egypt during the pharaohs of the oppression. The difference is this: they will not cry out to God for deliverance (Exodus 3:9).
_________________________
The full manuscript is posted here: https://www.garynorth.com/public/department196.cfm