State and Market

 Franz Oppenheimer's classic book, The State (1908)—half-sociological treatise and half-polemic—is a deeply sympathetic work. Every page of it breathes heartfelt protest against human cruelty and exploitation. I can easily understand why it made such a big impact on the first generation that read it, therefore. The question, however, is whether the book's admirers took the right lessons from it—and whether, if they did, these lessons hold up in the light of subsequent experience. 

As I understand it, the book went on to have a large influence among American libertarians. The edition of the book I read this week, meanwhile, came to me under the imprint of an anarchist press, so it seems to have found favor with that school of thought as well. And it's not surprising that both libertarians and anarchists would find themselves drawn to it. The book is, after all, a great exercise in demystifying and denouncing the state—revealing the institution to be founded, at its core, on robbery and extortion. 

I don't disagree with Oppenheimer's fundamental thesis about the origins of state institutions. At root, governments may indeed be little more than "organized violence," as Weber put it. But to recognize that the state is organized violence is not the same thing as saying that it is necessarily the sort of organized violence that we can entirely live without. To the contrary, Weber thought the state's "monopoly" on violence was essential to preventing social chaos—disorganized violence, if you will. 

Oppenheimer seems to acknowledge the same, observing in one passage—in the book's final chapter—that it may not be "possible for many people [to] live together without some coercive force vested in government[.]" In the same passage, he expressly rejects the conclusions of the anarchists. And his evident sympathies for social democracy would seem to exclude any real affinity with American libertarians as well. Indeed, Oppenheimer's chief gripe against the state is that it enables capitalist exploitation. 

But if Oppenheimer does not actually reject the validity or necessity of the state in all its forms—or of some other "coercive" instrument that we would be justified in calling a state, if it exercised its powers over a large enough territorial unit—then wherein does his political theory differ from that of liberalism or social democracy—both of which likewise regard the state as a necessary evil, and therefore one that should be tightly circumscribed within strict limits of legality, but which may be deployed for pro-social ends? 

This is what I'm still not sure of. Oppenheimer begins his polemic by rejecting the classical liberal theory of the origins of the state as a "fairy tale." Yet his own account is not quite so different from that of the original social contractarians as one might suppose from this. 

In essence, Oppenheimer believes that states originate from a primal confrontation between "peasants" and "herders." These two primordial groups subsist on contrasting economic bases, which confer upon them quite different military capacities. Peasants, who "grub" in the soil, can rarely produce enough food from the sweat of their brow to grow large families or obtain military strength. Herders, by contrast, with their access to abundant animal milk, can attain a higher stature and a much greater population—while also having a built-in cavalry. 

This leads to a dynamic recorded everywhere in Eurasian history, whereby nomadic herders from the Central Asian steppes are periodically able to ravage agricultural settlements and carry off the peasant's meagre produce—usually by killing or enslaving the villages' inhabitants. After a certain point, however—Oppenheimer hypothesizes—these same nomads would realize that razing and massacring these settlements entirely was self-defeating—because it deprived them of a potential future source of wealth. 

This discovery, in Oppenheimer's telling, leads to the first primitive state formations. The militarily-dominant nomads eventually realize that they are better served not by destroying the peasants and their villages—which will mean that they will have no more harvest to pillage the next year—but rather by demanding tribute from them. Sometimes, they would offer to "protect" the peasants, in exchange for this tribute—either from rival bands of nomadic warriors, or, implicitly, from themselves. 

There it is, then. The State as the original "protection racket." And, observing the practices of organized crime in places in the Global South where state institutions and the government's monopoly on violence have broken down today, one can easily see how a gang, arrogating to itself a given territory, begins to operate as a quasi-state. Everywhere in Central America or Haiti, for instance, where the gangs have displaced the central government, they demand tribute—often calling it "rent," just like the feudal barons of old. 

Of course, it is possible that the peasants in such circumstances actually submit willingly to the "protection" of the nomads or gangs. Maybe they really do need protection at their hands from rival bandits—in which case the "tribute" is more than a mere uncompensated expropriation; it becomes more like a payment for services rendered. 

Oppenheimer considers this possibility. And indeed, he imagines that in the peasants' gratitude for the protection the nomad conquerers offered from rival brigands, they would begin to feel a real sense of kinship. This, he suggests, is the origin of all "national feeling"—the reason we still identify ourselves with the interests of the state, especially in wartime or of some other perceived collective threat, even as it robs it. The peasants might even come to regard their nomad overlords as "protectors and saviors," he writes. 

This is a sort of Seven Samurai theory of state formation, we might say. The peasants form a pact with the traveling warriors to protect them from similar groups of armed brigands. They seek out their protection in voluntary exchange for a percentage of their annual harvest, and thereby the two groups form a sort of rudimentary social contract. 

Oppenheimer accepts this, but encourages us not to sentimentalize it. The exchange of grain for protection always carries with it the implied threat—on the warriors' part—that they may play the part of the brigands themselves if the peasants fail to pay up. The "protection" the state offers, then, may in all sincerity be protection from other states, but it is always impliedly from itself as well. Oppenheimer cites here—and it is quite apt—"the fable of the sheep which made a bear their king in order to be protected against the wolf." 

All of this account of state origins more or less checks out in the light of subsequent historical research. As eccentric as Oppenheimer's emphasis on things like "animal milk," etc. might seem, the historical record does in fact indicate that state formations first emerged in those parts of the world where large agricultural communities encountered nomadic grazers—as Oppenheimer puts it, they "arise in rich peasant lands adjoining a wide prairie." Modern writers on this subject such as Francis Fukuyama would not disagree. 

But if states did in fact emerge through the peasants' need to buy peace—at the price of freedom and their agricultural surplus—from the threat of external strife—wherein does this differ from Hobbes's account of the social contract as an attempt to escape from the "war of all against all" that otherwise obtains in the state of nature? 

If we read Hobbes to be saying that, in the true condition of nature, every individual is at the throat of every other, then Hobbes was certainly wrong as a matter of anthropology. The record of humanity nowhere discloses evidence of such a complete free-for-all combat between individuals. Even at the most basic level of society, human beings already organize themselves into kin groups at least. But these kin groups are often themselves at war with each other—or with external nomads. And perhaps it is that "state of nature" from which people sought to escape by establishing a social contract. 

Interpreted in that light, Hobbes's theory is then not so different from Oppenheimer's. The latter, too, offers an image of a primordial contract, with the exchange of valuable consideration on both sides—protection for grain. And even if this contract was entered into under duress—whether express or implied—it is by no means clear that the peasants always got a raw deal from it. It is surely better to part with a percentage of the year's agricultural surplus that to be slaughtered and despoiled by rival brigands. 

The state, then—while admittedly founded in bloodshed, and retaining the moral taint of its origins, as Weber also recognized (he characterized the government as resting on "satanic forces," after all)—it nonetheless appears even in its earliest forms to be necessary. As much as the peasants rightfully resented the state as a burden, then, it was already—from its first traces—an inescapable burden to bear. The alternative was to leave oneself open to the threat of random attack. 

Lest we be misunderstood, let us point out that the state is not necessary because all human cooperation depends upon violence. Oppenheimer is certainly not saying that. As he and modern historical and anthropological writers have recognized, communities can organize themselves and cooperate in small groups with a minimum of coercion. But the force of sheer voluntary cooperation and altruism becomes attenuated as these collectives grow beyond small groups of genetically-related individuals who all know one another personally.

In larger aggregates of people, therefore, it often becomes necessary to resort to other levers of motivation to incentivize cooperation. Here, Oppenheimer points to a division between "economic means" and "political means" of encouraging such cooperation. "Economic means" are those of the marketplace—exchange of goods and labor. "Political means," by contrast, are always uncompensated. They are the unilateral expropriation of the property and labor of the weaker by the stronger. In short: coercion. 

The essence of the state, in Oppenheimer's telling, is to deploy "political means" of persuasion to force the populace to cooperate—in short, to rob, threaten, imprison, enslave, and kill people—or threaten them with these same things—until they participate in the collective goals of the social organization. 

In contrast to these methods, then, the means of the marketplace sound downright humane. As we evolve as societies from relying on force, we increasingly turn instead to systems of exchange that are mutually beneficial. And this, we should all agree, is surely a good thing!

This emphasis on the higher morality of the marketplace is no doubt the part of Oppenheimer's theory that endeared him to American libertarians. But it is important that he not be misunderstood on this point. Oppenheimer saw the concentration of wealth under capitalist production in a small number of hands—and the enforcement of these "property rights" by the violence of the state—as the quintessential form of "political means" of persuasion—even if it was coercion by the force of want, rather than force of arms (and indeed, since the state enforces the current division of property, it is also by force of arms). 

But Oppenheimer's simultaneous rejection of currently-prevailing property rights and of "political means" of persuasion raises some logical difficulties that his work never fully resolves. For instance, if exchange is based—as he admits—on the principle of diminishing returns—on one person having more of something than he needs—then it depends on some institution of property rights in order to function. If people have no personal property, what exactly are they "exchanging" through "economic means"?

We therefore have a fundamental "chicken-and-egg" problem with the distinction between political and economic means. Oppenheimer, in his account of the origins of the state, says outright that economic means preceded political ones. The peasants were out there producing agricultural goods before the nomads rode in to try to steal them for their horde. Yet, as we have just seen, economic means depend upon property rights—and these in turn only exist so long as they are enforced by the state. 

The state must have preceded the market therefore, not the other way around. If the state really did emerge through "robbery," as Oppenheimer contends, then there must first have been property to rob. Yet, there can be no property—nor any agricultural surplus worth stealing—where there is not first a state to enforce people's title to that property. It would seem, then, that Oppenheimer is unable to fully escape the same "fairy tale" thinking of which he accuses the classical liberals in the book's opening chapter. 

Rather than one preceding the other, therefore, or one being "good" and the other one being "bad," it would seem that the market and the state always grow up in tandem, and with a necessary interdependence. They have always been inseparable from one another. And I suspect it remains true today that any organized society, in order to function, will need to draw upon both economic and political means of persuasion in order to function (plus the third means as well—the moral altruistic ones—as I've argued in a previous post). 

I'm not sure Oppenheimer would disagree with any of this, by the way—he too traces the growth of the market and the state alongside one another. But, if this is an accurate account of his work, it is once again unclear to me wherein he differs so profoundly from prior liberal theorists of the origin of the state. He faults them, after all, for tracing the origins of social inequality to pre-political economic activities—and rightly so. But he falls into the same trap at times of speaking as if the economy could predate the polity. 

But if Oppenheimer does not actually reject the necessity and validity of the state, as I say—even after tracing it to its admittedly repugnant origins—then what exactly is his political vision for the future? 

It is plainly not an anarchist one, as I pointed out above—both because he accepts the state as inevitable and expressly rejects anarchism in a passage in the final chapter. It is also not a "libertarian" one, because he loathes the capitalist distribution of wealth as the ultimate manifestation of unjust state power.

So what is he? What kind of society does he wish us to build? 

He hints at it in both the first and last chapters that bookend his study. It appears to be a paradise of small producers that might be described as a form of decentralized guild socialism, or perhaps as the "distributism" of thinkers like Belloc. He finds paragons of it in the New Zealand agricultural communities of his day, as well as in the society the Mormon pioneers first built when they came to Utah. 

As in distributist theory, Oppenheimer would not banish market exchange or individual property ownership utterly from his ideal community. He also, as we have seen above, does not believe that "some coercive force" can be dispensed with entirely, even in the most well-organized society. 

But he thinks that, in a small community of producers, where people were roughly equal in wealth and status, then market exchange could finally be real. "Economic means" of persuasion could finally predominate over "political" ones—because people would actually be making mutually-beneficial trades with one another, rather than effectively being coerced into selling their labor by the grossly-unequal bargaining power that conditions of social inequality generate. 

Now, this political ideal is certainly appealing to me as well. But—as I observed with respect to Belloc's book on distributism as well—I do seem to immediately confront a contradiction when I imagine trying to realize it. 

Suppose we agree with Oppenheimer, after all, that mutual exchange on the open market is a social good—but that it must take place under conditions of relative social equality and equal bargaining power in order to avoid devolving into another form of government-backed exploitation. How, we might then ask, is that equal footing of economic means to be obtained and preserved? 

Won't we need a highly-interventionist, coercive state structure to ensure that no one manages to accumulate more wealth than anyone else? And if the state is able to constantly expropriate the property of every citizen, in order to periodically equalize their holdings, in what sense does anyone actually "own" any of the things they are exchanging? In what sense have we preserved individual property after all? And why would anyone exchange anything in the first place, if no one has more of one good than anyone else has? 

Oppenheimer's vision, therefore, would seem to put us on a path toward realizing exactly the type of state-centered absolutism that he despised. It would also seem to be a recipe for economic stagnation. It asks for exchange, while eliminating the incentives that lead people to exchange in the first place. 

Oppenheimer does think through some of these problems. But his answers have some dark implications from the standpoint of contemporary liberalism. 

He suggests, for instance, that the key to maintaining the relative bargaining power on an equal basis of all members of the society could be accomplished—not through some heavy-handed Bolshevik-style collectivist state—but simply through limiting the population. When the labor supply dwindles, after all—he argues—then the bargaining power of laborers and serfs increases vis-a-vis their industrial bosses or feudal masters. Instead of "two laborers running after one master," he says, "two masters will run after one laborer and will raise the price on themselves." 

Thus, he argues, a condition of relatively equal bargaining power—and thus, higher standards of living for laborers and greater social equality overall—could come about naturally—through forces of supply and demand. All one would have to do is to restrict the supply of workers—to gut the "surplus army of labor," in Marxist terminology. 

But how is one to do that? Oppenheimer declares: through restricting immigration. Displaced proletarians from the Old World who have immigrated to the New, he argues, are what enables the U.S. system of capitalist exploitation to thrive. By providing an army of surplus workers, they ensure that all laborers are forced to sell their strength at the cheapest possible rate, thereby increasing the bargaining power of the owners of capital. 

By contrast, Oppenheimer argues, in places "[w]here [...] immigration is very limited [...] we perceive an approximation to the final end of the development of the State [... I]t is no longer a 'State of Classes.' It rather resembles a condition which appears to have come about through a 'social contract.'"

Swallowing for a moment my bias—and the bias of most liberals today—toward favoring more open immigration—let us assess Oppenheimer's views on their merits and try to see if there could be any truth to them. 

It does indeed seem possible to imagine some societies attaining to a social democratic ideal while limiting entry from outsiders. Some Western European nations in previous decades took this path. And they thereby did attain a greater degree of material equality than we currently enjoy in the U.S.—though the causal relation between this and their immigration policies at the time is not clear. 

But Oppenheimer seems to give insufficient weight to two major potential drawbacks with his vision (quite apart from any humanitarian problems with limiting immigration, which are quite significant, but which I will leave aside for the moment). First, there is the danger that we already discussed above, of a diminished incentive to investment that can come about from equalizing the bargaining power of all market participants. 

This concern, though, we can quickly dispense with. The importance of that motive in contemporary America has surely been exaggerated—people with billions of dollars in the bank already have "incentive" enough. We could therefore make enormous strides in this society toward greater social equality without undercutting the profit motive. 

In other words, we could stand to move much further in the direction of Oppenheimer's ideal society without losing out on economic growth. Given the present state of income and wealth inequality in the United States today, I am certainly not worried that we are about to go too far in the direction of Oppenheimer's egalitarian vision.

The bigger concern with Oppenheimer's strategy of limiting the labor supply, it seems to me, is one we are all too familiar with right now in this society: namely, inflation. 

It may be true, after all, that driving down the labor supply will increase wages, all else being equal. We had a bit of a natural experiment with that approach during the pandemic. The COVID-19 crisis shut down immigration almost entirely, and anti-asylum policies that persisted long after the worst of the outbreak continued to cut down on the number of people who could arrive in the U.S. The result was certainly a restriction of the labor supply, and wages did indeed rise. But so too, quick on their heels, did prices. As a result, real wages and standards of living actually fell, even as their nominal dollar value rose. 

This trend has since reversed—with inflation now cooling and real wages rising—but this is likely due to the fact that immigration resumed dramatically and has added to the labor pool. From the standpoint of price stability, therefore, Oppenheimer's proscriptions can be judged a failure. 

It's not clear, then, that Oppenheimer's ideal community of small producers—with new entrants denied admittance in order to preserve the current equilibrium of bargaining power—would be able to escape either economic stagnation or an inflation of prices that would render the increased wages the laborers were able to secure essentially valueless. 

And so, even though Oppenheimer is right to denounce the evils of both the state and the current capitalist distribution of wealth that it backstops—I'm not sure he has shown us a way to escape from either. Perhaps there is none. Perhaps the best we can do with both is to approach them fundamentally with mitigation rather than elimination in mind. Both, we might say, are necessary evils—but even necessary evils can be rendered less evil, if we work at it. 

To the extent he is saying no more than this—and ultimately propounding a form of liberal welfare state or social democracy as the "final end of the development of the state," Oppenheimer and I are certainly on the same side. But I also don't think such an attempt at mitigating the evils and excesses of both state power and market power is all that different from run-of-the-mill contemporary liberalism. It is certainly not a "libertarian"—still less an "anarchist"—vision. 

I would therefore take issue with anyone trying to appropriate Oppenheimer for the service of either ideology. I hail him instead as a prophet of liberalism and social democracy—and I welcome his company among fellow liberals and social democrats; for The State is truly a masterwork of political thought.