I was working with Nic Tideman on editing a forthcoming book by Martin Bailey. I had referred Bailey to your 1994 book which he refers to here as a "remarkable and provocative plan" which he then qualifies in several respects. I thought I should pass it along.

Excerpt from Bailey, Constitution for a Future Country (fortthcoming, Macmillan, 2000), pages 158-61

4.3 IS THERE A BETTER WAY?

Among those scholars who dislike current forms of government enough to propose radical changes, only one or two have proposed anything like what we propose here. As noted in Chapter 2, see Mueller (1996) and Auster and Silver (1979). Although I shall not attempt to survey alternative views, it is appropriate to mention a few.

A point of view that we have totally ignored up to this point is the view that favors anarchy. An engaging example is Benson (1990, pp. 312-21). He points out that along much of the frontier areas of the U.S. in the 19th century people got along peaceably without organized government. Then he uses selected examples of government by hoodlums and of successful vigilante justice in support of the suggestion that all justice should be by private police or vigilantes. Even as presented, these examples scarcely make the case, however. In his vigilante examples, there was an organized government, and the vigilantes executed a few criminal officials, among other persons, and then allowed organized government to resume its functions. He did not establish that a city can successfully operate without an organized government, or that rural areas can do so either if they have enough wealth to have something worth stealing. (He also did not mention the costs and dangers of purely private means of protecting livestock herds against rustling.) As Benson points out, bandits in frontier areas did rob stagecoaches and trains, which was where most of the money was. His conclusion was that law enforcement can and should be left to voluntary private associations.

This strikes me as a mixture of wishful thinking and a counsel of despair. Benson’s impression that existing governments abuse their powers and may particularly attract criminals and unprincipled people to the ranks of their officials is certainly credible. To propose abolishing government’s monopoly of force, and its monopoly of anything else, is undoubtedly a move in the right direction, but overshoots the mark.

Our draft constitution does eliminate as much government monopoly as seems practicable, and expressly protects private law enforcement as part of the system. It provides only for such publicly supplied courts as can survive by their fees, unless voters almost unanimously vote to provide them with subsidies from the public budget. Within this framework, there can be as little or as much organized government as voters approve with their votes in units of willingness-to-pay. If perhaps there is a society here and there so civil and so isolated from the threat of invasion that it could prosper indefinitely without organized government, I wish it the best of everything. Our interest here centers on a middle ground of societies that are mostly civil and law-abiding, and not so torn by ethnic or class hatreds as to make them ungovernable. Such countries have enough lawlessness, enough disputes, and enough external threats that they can gain benefits, too great to brush aside, from sound government. Given that perspective, we want the best conceivable plan for government that one can devise, to have it ready in case the opportunity to use it should arise.

A related alternative that has a more carefully reasoned structure is the concept of government as a confederation of local and higher level governments developed by Foldvary (1994, esp. Chs 6, 7 and 15), where each level is like a profitable developer town, a condominium, or an association of property owners. Our proposed constitution expressly provides in Article III Subsection 9(c) for local governments of this kind, in addition to other provisions that implicitly encourage them. Foldvary argues, however, that government at every level could be arrived at by contract, working from the bottom up, relying on covenants placed in deed restrictions by private land developers to overcome free rider problems. He does not explain who establishes and enforces the contract law that governs these arrangements as they work their way from small localities and towns upward to the formation of higher levels of government. That is one difficulty with his concept, but there are others, which together place Foldvary’s concept in the same category as Benson’s advocacy of anarchy.

Foldvary supports his remarkable and provocative plan with two spurious claims, without which his whole argument for higher-than-local levels fails. First, he claims that free rider problems at higher levels can be solved, when there are public goods like national defense whose benefits are not excludable within the national territory, by finding other exclud-able goods and/or peer-group pressures to oblige holdouts to pay their shares of the costs (Foldvary, 1994, p. 209). Second, he claims (pp. 26-30, 200-201, and 211-12) that all differences in public services, at all levels of government, are capitalized into land values. Neither claim can survive close examination.

The first of his claims is simply wishful thinking. Without prior covenants in local deeds to create a property tax obligation for regional and national public goods, which it would not be in a developer-proprietor’s interest to insert, the consequent free rider problems would correspond to the standard analysis of these problems. In almost every country, peer-group pressures within each small locality, favoring rivalry and mistrust toward other localities, would outweigh the claimed favorable pressures from other towns, and would aggravate rather than ameliorate the free-rider problem.

The second of his claims is a major technical error. Capitalization of the benefits of local or regional amenities and public goods occurs only to the extent that people, like capital, are perfectly and costlessly mobile. For a full explanation of the conditions for full capitalization and of the effects of local public goods on the incomes of persons other than landowners when these conditions are not met, see Tideman (1993), pp. 137-44. In a framework of approximate Lindahl taxes, Tideman pro-posed using the VCG mechanism to determine the supply of local public goods, similarly to what we propose here but without most of our proposed framework. In cases like Disneyland, Florida and Reston, Virginia, this assumption is a good enough approximation that one can properly say that it is ‘true.’ For whole counties or parishes it is a questionable approximation, and for a jurisdiction as large as a state in the United States, it is unquestionably false and misleading. But to see the point more clearly, consider the national level. To apply the mobility assumption to nations one would have to assume that all or several nations have absolutely unlimited immigration and emigration at zero cost. Then, when real wages and other real personal service incomes in a rich country like the U.S. were driven down to the same level as in Mexico or Bangladesh, the benefits of living in the U.S. would be fully capitalized into land values.

The differences between his viewpoint and mine may at first glance appear to be small but in fact are substantial. They appear to be small because the constitution proposed here, including its ratification procedures in Article VI, resembles a contract, and because it emphasizes the use of contracts, both private and public, throughout. The disagree-ments are large, however, for three reasons. First, the proposed constitution recognizes that the process does not begin in a vacuum, but in the presence of an already established order whose national defense, laws, and contracts will continue in force except as otherwise provided in the new constitution and new law. Second, many persons have considerable wealth in the form of their ability to earn and enjoy personal service incomes, reflecting benefits from state and national government that are not capitalized into land values. The mechanisms of this constitution give these benefits the same policy influence as that accorded to benefits to land and to other kinds of property, whereas Foldvary’s approach fails to provide that. Third, although this constitution provides strong incentives for legislatures to fashion proposals that command unanimous consent, it has a means for resolving difficult issues where unanimity is impossible. A nation’s people may agree almost unanimously at the start that having this means is in their mutual interest, and if so the constitution comes into force without meeting the full technical requirements of a contract. My philosophy on this matter is that the perfect is the enemy of the good.