One of the most important sociological laws is the "Iron Law of Oligarchy": every field of human endeavor, every kind of organization, will always be led by a relatively small elite. This condition will hold sway everywhere, whether it be a business firm, a trade union, a government, a charitable organization, or a chess club. In every area, the persons most interested and able, those most adaptable to or suited for the activity, will constitute the leading elite. Time and again, utopian attempts to form institutions or societies exempt from the Iron Law have fallen prey to that law: whether it be utopian communities, the kibbutz in Israel, "participatory democracy" during the New Left era of the late 1960s, or the vast "laboratory experiment" (as it used to be called) that constituted the Soviet Union. What we should try to achieve is not the absurd and anti-natural goal of eradicating such elites, but, in Pareto's term, for the elites to "circulate." Do these elites circulate or do they become entrenched?

I. The Market vs. Government

The free market economy provides an unparalleled example of a continuing healthy circulation of elites. In this dynamic economy, failure to keep up with competitors, failure to satisfy the demands of consumers in the best possible way, will topple elites quickly and establish new ones who do the job better. Ludwig von Mises wrote frequently of the inappropriateness of leftists referring to so-and-so as the "Steel King" or the "Automobile King"; for consumers frequently uncrown these alleged monarchs. Dethroning of financial monarchs on Wall Street is a frequent phenomenon. There are innumerable striking examples of big businesses failing to grasp the importance of a new product or new development, and of losing out to newer upstarts. I will refer to only two glaring cases experienced in my lifetime: the cry of leftists to "break up A&P" in the 1930s because of its alleged "monopoly" of the retail grocery business; and the failure of the old-time photography "monopolist" Eastman-Kodak to grasp the enormous significance, after World War II, of either instant photography or xerography, thereby leaving the field to newer, and more alert competitors.

By its nature, government is not subject to the profit-and-loss test, to the domination by the consumers, of the free market. Even voluntary non-profit organizations, while not seeking maximum profit, at least have to be efficient enough to avoid severe losses or bankruptcy. Furthermore, such voluntary organizations at least must satisfy the values and demands of their donors, if not the users of the good or service as in the profit-making market. But government is unique among organizations in attaining its revenue via the coercion of taxpayers. Hence, government suffers no worries about losses or bankruptcy; it need serve no one except itself. The only limit on government is the enormously wide one of people rising up to refuse to obey its orders (including taxes); short of such revolution, however, there is little to limit government or to check the entrenchment or burgeoning of its elite.[1]

Government, in short, is particularly subject to the well-known evils of an arrogant, hidebound, inefficient, red-tape-ridden, ever-expanding "bureaucracy." Socialists, even during the seeming heyday of the Soviet Union, were often worried about the problem of bureaucracy, and have tried vainly to detach government from its bureaucratic aspect. But Mises trenchantly pointed out in his classic Bureaucracy that all such hopes are in vain. Bureaucracy, with all its evident evils, goes hand-in-hand with government. A profit-making firm saves and invests its money, attempting to make profits and avoid losses; its use of funds is flexible, dependent on its profit-seeking decisions. But bureaucratic agencies have their allocated funds from the government budget. And strict, precise, quibbling, rule-keeping is vital so that each bureaucrat and sub-bureaucrat can demonstrate that he has used the funds in the manner designated by the legislature or Chief Executive, and has not put them into his own pocket or spent them in some other, non-authorized way.[2]

Mises points out a crucial difference between bureaucratic and profit management. Business expenditures and products are gauged by the valuations of consumers, whose judgments "are congealed into an impersonal phenomenon, the market price." Moreover, consumer judgments are levied on the goods and services, not on the producers themselves. "The seller-buyer nexus as well as the employer-employee relation in profit-seeking business," Mises declares, "is a deal from which both parties derive an advantage." But in government, in bureaucratic organization, on the other hand, what the nation "gets for the expenditure, the service rendered, cannot be appraised in terms of money, however important and valuable this 'output' may be." Instead, Mises points out, "its appraisal depends on the discretion of the government" — that is, on arbitrary, personal decisions. Mises adds that "the nexus between superior and subordinate is personal. The subordinate depends on the superior's judgment of his personality, not of his work." In short, in government bureaucracy, there is no reality check.[3]

As Mises analyzes the difference for a branch agency: In a government bureau,

It is not because of punctiliousness that the administrative regulations fix how much can be spent by each local office for cleaning the premises, for furniture repairs, and for lighting and heating. Within a business concern such things can be left without hesitation to the discretion of the responsible local manager. He will not spend more than is necessary because it is, as it were, his money; if he wastes the concern's money, he jeopardizes the branch's profit and thereby indirectly hurts his own interests. But it is another matter with the local chief of a government agency. In spending more money he can, very often at least, improve the result of his conduct of affairs. Thrift must be imposed on him by regimentation.[4]

In a business firm on the market, the desires and goals of the managers are yoked to the profit-making goals of the owners. As Mises says, the manager of a branch must make sure that his branch contributes to the profit of the firm. But, shorn of the regiment of profit-and-loss, the desires and goals of the managers, limited only by the prescriptions and budget of the central legislature or planning board, necessarily take control. And that goal, guided only by the vague rubric of the "public interest," amounts to increasing the income and prestige of the manager. In a rule-bound bureaucracy, that income and status inevitably depend on how many sub-bureaucrats report to that manager. Hence, each agency and department of government engage in fierce turf wars, each attempting to add to its functions and the number of its employees, and to grab functions from other agencies. So that while the natural tendency of firms or institutions on the free market is to be as efficient as possible in serving the demands of consumers, the natural tendency of government bureaucracy is to grow, and grow, and grow, at the expense of the fleeced and benighted tax-payers.

If the watchword of the market economy is profit, the watchword of bureaucracy is growth. How are these respective objectives to be achieved? The way to attain profit in a market economy is to beat the competitors in the dynamic, ever-changing process of satisfying consumer demands in the best possible way: to create a self-service supermarket instead of the older grocery store (even a chain store), or to create a Polaroid or a Xerox process. In other words, to produce concrete goods or services that consumers will be willing to pay for. But to attain growth, the bureaucratic manager must convince the legislature or planning board that his service will, in some vague way, aid the "public interest" or the "general welfare." Since the taxpayer is forced to pay, there is not only no incentive or reason for the bureaucrat to be efficient; there is no way that a bureaucrat, even with the most eager will in the world, can find out what the consumers want and how to meet their demands. Users pay little or nothing for the service, and even if they do, investors are not allowed to experience profit or loss from investing in producing that service. Therefore, the consumers will simply have to allow the bureaucrats to bestow their services upon them, whether the consumers like it or not. In building and operating a dam, for example, the government is bound to be inefficient, to subsidize some citizens at the expense of others, to misallocate resources, and generally to be at sea without a rudder in supplying the service. Moreover, for some citizens, the dam may not be a service at all; in the jargon of economists, for some people, the dam may be a "bad" not a "good". Thus, for environmentalists who are philosophically opposed to dams, or to farmers and homeowners whose property may be confiscated and flooded by the Dam Authority, this "service" is clearly a negative one. What is to happen to their rights and properties? Thus, government action is not only bound to be inefficient, and coercive against taxpayers; it is also bound to be redistributive for some groups at the expense of others.

The major group the bureaucrats benefit is, of course, themselves. Their entire income is extracted at the expense of taxpayers. As John C. Calhoun pointed out in his brilliant Disquisition on Government, bureaucrats pay no taxes; their alleged tax payments are a mere accounting fiction. The existence of government bureaucracy, Calhoun pointed out, creates two great conflicting classes in society: the net taxpayers, and the net tax-consumers. The greater the scope of taxes and of government, then, the greater the inevitable class conflict created in society. For, as Calhoun states:

The necessary result, then, of the unequal fiscal action of the government is to divide the community into two great classes: one consisting of those who, in reality, pay the taxes and, of course, bear exclusively the burden of supporting the government; and the other, of those who are the recipients of their proceeds through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax payers and tax-consumers.

But the effect of this is to place them in antagonistic relations in reference to the fiscal action of the government and the entire course of policy therewith connected. For the greater the taxes and disbursements, the greater the gain of the one and the loss of the other, and vice versa; and consequently, the more the policy of the government is calculated to increase taxes and disbursements, the more it will be favored by the one and opposed by the other.

The effect, then, of every increase is to enrich and strengthen the one [the net tax-consumers], and to impoverish and weaken the other [the net tax-payers].[5]

How, then, can the bureaucrats achieve their overriding goal of adding to the number of their employees and therefore of their income? Only by persuading the legislature or the planning board, or the mass of public opinion as a whole, that their particular government agency is worthy of an increase in its budget. But how can it do that, since it cannot sell services on the market, and since, moreover, its activities are necessarily redistributive and injure instead of benefit many of the consumers? What it must do is to "engineer consent," that is, it must falsely persuade the public or the legislature that its activities are a shining benefit instead of a bane to the consumers and the taxpayers. To engineer consent, it must use or employ intellectuals, the opinion-molding class in society, to persuade the public or the legislature of its function as a source of universal blessing. And when those intellectuals, or propagandists, are employed by the agency itself, this adds insult to the injury inflicted upon the taxpayers: for the taxpayers are forced to pay for their own deliberate miseducation.

It is intriguing that left-liberals invariably castigate advertising on the market for being shrill, for being misleading, and for artificially "creating" consumer demand. And yet, advertising is the indispensable method by which vital information is conveyed to the consumer — about the nature and quality of the product, and about its price and where it is offered. Oddly enough, liberals never level their critiques on the one area where they do strongly apply: the propaganda, the public relations, the hokum, put out by government. The difference is that all market advertising is soon put to a direct test: does this radio or TV work? But with government, there is no such direct consumer test: there is no way in which the citizen or voter can figure out rapidly how a specific policy worked. Furthermore, in elections, the voter is not presented with a specific program to consider: he must choose between a package deal of a legislator or chief executive for X number of years, and he is stuck for that period of time. And since there is no direct policy test, we arrive at the commonly deplored failure of the modern democratic process to discuss issues or policy, but instead to concentrate on television demagogy.[6]

II. The Structure and Goals of Bureaucracy

Bureaucracy is necessarily hierarchical, first because of the Iron Law of Oligarchy, and secondly because bureaucracy grows by adding more subordinate layers. Since, lacking a market, there is no genuine test of "merit" in government's service to consumers, in a rule-bound bureaucracy seniority is often blithely adopted as a proxy for merit. Increasing seniority, then, leads to promotion to higher ranks, while expanding budgets take the form of multiplying the levels of ranks under you, and expanding your income and power. Bureaucratic growth occurs, then, by multiplying levels of bureaucracy.

The theory of hierarchical government bureaucracy is that information is collected in the lowest ranks of the organization, and that at each successive higher rank, the manager culls the most important information from his subordinates, separates the wheat from the chaff, and passes the culled information higher up, so that, in the end, the President, for example, dealing with intelligence operations, receives a two-page memo distilling the most important information gathered and culled from hundreds of thousands of intelligence agents. The President, then, knows more than anyone else, say, about foreign affairs. One problem with this rosy model, as Professor Gordon Tullock points out in his illuminating book, The Politics of Bureaucracy,[7] is that the model doesn't ask whether or not each bureaucrat has the incentive to pass the best distillate of truth on to his superiors. The problem is that bureaucratic favor, especially at the higher levels, depends on pleasing one's superiors, and pleasing them largely rests on telling the President and the higher bureaucrats what they want to hear. One of the great truths of human history is that one tends to shoot, or at least react badly, to the bearer of bad news. "Sire, your policy is working badly in Croatia," is not the sort of message that the President, say, wants to hear from his envoy, and, while the outcome in Croatia remains in doubt, the President and his aides want to continue to believe that their policy is doing well. Hence, the dissident is set down as a trouble-maker if not a subversive, and his career in the hierarchy is side-tracked, often permanently. In the meanwhile, the envoys or foreign service people who assure the President "things are going very well in Croatia," are hailed as perceptive fellows and their careers are advanced. And then, if years later, the dissident is proved correct, and the Croatian policy lies in shambles, is the president or any other ruler likely to turn in warm gratitude to the former dissident? Not hardly. Instead, he will still remember the dissident as a troublemaker, and he will not blame his aides, who, along with himself, have been proved wrong. For after all, didn't the great mainstream of experts make the same error? How common is sincere soul-searching and repentance for past errors among Presidents or other rulers?

Those bureaucrats who are shrewd analysts of human nature, then, and who understand the way rulers operate, will, if they see that the cherished policy of their President is in grave error, tend to keep their mouths shut, and let some other sucker be the messenger of bad news and get shot down.

Every human activity and institution will tend to reward those who are most able to adapt to the best route to success in that activity. Successful market entrepreneurs will be those who can best anticipate, and satisfy, consumer demands. Success in the bureaucracy on the contrary, will go to those who are most apt at (a) employing propaganda to persuade their superiors, the legislators, or the public about their great merits; and therefore (b) at understanding that the way to rise is to tell the President and the top bureaucrats what they want to hear. Hence, the higher the ranks of the bureaucracy, the more yes-men and time-servers there will tend to be. The President will often know less about what is going on than those in the lower ranks.

Hence, for example, the phenomenon of President Nixon, thinking he knew more than anyone else about the Vietnam War and yet actually knowing less than the astute reader of the New York Times. For the CIA and other intelligence warnings of what was going on, developed by many of the lower officers, were screened out by the higher-ups, for being contrary to the President's preferred line, i.e., that all was going well.[8]

The standard explanation of why government grows is that, as time goes on, there is more work for government to do, and that therefore the public's "demand for government" rises. Far more accurate is the view that there is a case of an inverted Say's Law, where supply — or rather the suppliers of government "services," the bureaucracy — themselves constitute the "demand" for their own services, and that they engineer the consent of their superiors, or of the legislature, to provide the wherewithal in the form of increased taxation. Contrast the hilariously satirical, but all too perceptive account of "Parkinson's Law" of bureaucracy. Thus, Professor Parkinson asserted that, in a government bureaucracy, "there need be little or no relationship between the work to be done and the size of the staff to which it may be assigned."[9] The continuing rise in the total of government employees "would be much the same whether the volume of the work were to increase, diminish, or even disappear."[10] Parkinson identifies two "axiomatic" underlying forces responsible for this growth: (1) "An official wants to multiply subordinates, not rivals"; and (2) "Officials make work for each other."

Parkinson begins his "model" with an official who feels himself overworked. The official could resign, but that is unthinkable; besides, he would lose his pension rights. To ask to divide his work in half with a new colleague on his own level is equally unthinkable; for his status would be cut, and he would bring in a dangerous rival for the job of his own boss when the latter retires. He could ask for one assistant under him; but that would be dangerous, because the new man might achieve something like equal status with himself. No, his preferred route is to ask for two assistants, who could then compete with each other for his favor; pretty soon, each of these new assistants will complain of overwork, and each one of these will get two assistants. The original bureaucrat now has the satisfaction of having six men under him, and he is now ready for a promotion and a substantial raise in pay.

But how about the work to be done? Won't the original quantity of work be divided into seven parts, and won't each man now be absurdly and manifestly idle and underworked? No — and here is one of Parkinson's scintillating insights into the theory of bureaucracy — for one aspect of Parkinson's Law is that "work expands so as to fill the time available for its completion." Or, as Parkinson also puts it: "The thing to be done swells in importance and complexity in direct ratio with the time to be spent."[11] Here enters the second aspect of Parkinson's Law of Growth: that "officials make work for each other." For, says Parkinson, "these seven make so much work for each other that all are fully occupied," and the original man "is actually working harder than ever." Documents have to be sent to each man in turn, each has to comment on the document and send the comments to everyone else, they all have to confer on the document and the various amendments proposed, and the original man is now also wrapped up in problems of inter-personal relations between himself and his staff, and of each of his staff amongst the others. Finally, after a lengthy process of interaction, writes Parkinson, the original official produces the same reply to the document that he would have written if all his subordinates "had never been born." "Far more people," Parkinson concludes, "have taken far longer to produce the same result. No one has been idle. All have done their best."[12]

Parkinson then illustrates his law with delightful examples from the British Royal Navy. From 1914 to 1928, the number of ships in the Navy fell by 68 percent; the number of officers and men fell by 32 percent. And yet, during the same period, the number of dockyard officials and clerks in the Navy increased by 40 percent, while, even more outrageously, the number of Admiralty officials increased by over 78 percent. The annual rate of increase in the number of Admiralty officials, with little variation, was 5.6 percent. Parkinson takes another example from the British Colonial Office, from 1935 to 1954. In that period, the area and population of colonial territories remained about the same from 1935 to 1939, fell during the war until 1943, rose again until 1947, and then steadily decreased as Britain shed its Empire. And yet, in each of these two decades, the Colonial Office bureaucracy rose steadily in number by about 5.9 percent per year, regardless of what was happening in the scope of the alleged work to be done. Considering then the rate of increase each year in the Admiralty, and averaging the rates of increase of Admiralty and colonial officials, which is not, after all, more outlandish than many other statistical procedures, Parkinson triumphantly concludes that the number of officials will increase by an average of 5.75 percent per year, "irrespective of any variation in the amount of work (if any) to be done."[13]

A similar analysis was set forth earlier, in 1950, in a grievously neglected book by Connecticut attorney and farmer Thomas H. Barber, based on years of inquiry into government and on his observations of Washington bureaucracy during World War II. Barber writes that "there are two requisites for a bureaucrat's promotion, the first, the ability to get and hold votes, the second, the number of subordinates he is able to keep busy." Barber goes on:

… in the Federal Government the pay of a bureaucrat executive is proportioned by Civil Service law to the number of his subordinates. This leads to the rivalry in Washington as each bureaucratic chief tries to increase his "empire." Generally, in order to keep his subordinates busy the boss assumes an air of great importance and affects to be very hurried and under great pressure. He is very punctual at the office and insists that everyone else be. He then deliberately begins to multiply paperwork, calling for reports on any subject connected with his job. He issues enormously complicated orders and memoranda for the organization of his office, requiring that all papers be so routed round that almost every scrap has to be read by everyone in the office and discussed by a number of interlocking committees before it is acted upon. He requires that no paper be thrown away, but all shall be cross-indexed and filed. He has anybody who can be tagged, interviewed, a stenographic report made of the interview and typed (often he has them mimeographed), and circulated to be read and initialed. By these methods it is quite easy to take an amount of work that could be done easily and efficiently by three men and two stenographers, and blow it up so that it can keep from fifty to two hundred people extremely busy, and yet fall far behind in its execution. Thus the uncompleted work gives him an apparently sound excuse for more clerks, who increase his prestige and his pay.[14]

Barber then goes on to relate a delightful example of bureaucracy in action that he had observed during World War II. He notes that there existed a department whose work, "supposing it was worth doing, which is doubtful," could have been done competently by about twenty people. It was run, as he puts it, "by a man with a bureaucratic soul." This man asked for written opinions from everyone on all sorts of subjects and had every one read and initial them:

He was always intensely busy himself, even at night; and he kept constantly increasing his department till he got it up to two hundred men and women. This made him very important. All the two hundred were so busy carrying out his regulations that they were in a constant sweat and confusion, had no time to think, and the essential work in support of the war effort — supposing it was essential — suffered dreadfully. He was rewarded and translated to a more important job.

His successor, Barber related, was a different kind of person; an old gentleman with little ambition and little regard for the taxpayer, but whose objective was to do the essential work, and keep himself and everyone else at the workplace contented. In contrast to the twelve hours a day spent in the office by his predecessor, this man spent only one half-hour at work each morning. The rest of the day, he walked around the office, talking and joking with the employees, and played golf in the late afternoon. At the end of the first week, says Barber, "he fired about fifty of the two hundred people, apparently at random." As a result, "the work lessened considerably for the remaining ones." There was naturally a lot of discussion of this action, and "it was generally decided that he had fired the fifty he was sure he did not like." "Not a very scientific way of eliminating surplus help," adds Barber, "but it did lighten the work."

The following week, the new boss fired fifty more people, this time apparently dismissing those "he thought he did not like." In consequence, "the work for the remainder lightened enormously, though some of the essential work of those dismissed was apportioned around silently by those that remained." A few days later, another fifty people were dismissed, these being the people "he was not sure he did like." Barber notes: "With three-quarters of the force eliminated there was practically nothing left but the 'essential work', such as it was, to do." This work was done effectively in about half of each day by the fifty people remaining, "far more efficiently than it had been done by the original two hundred. The fifty did their stuff and devoted the time remaining — about half of it — to their own concerns."

Barber concludes that "the old gentleman, being now surrounded only by those he knew he liked, felt he had done enough." He was in the office about an hour a day, and then he evaporated. "The 'work' was far better done than it had been, people had time to think and were not in each other's way." Barber adds that the work probably could have been done by half again of those remaining, but that then the half would "have had to work about as hard as the original two hundred had worked and there would have been no benefit to anyone but the taxpayers."[15]

In addition to this keen treatment of bureaucracy, Thomas Barber was perhaps the first person to arrive at the essence of what is now called "public choice" analysis in the economics profession. Barber notes the "constant tendency for all governments to grow both in size and in authority." Why? Barber answers:

because the advantage of a big, powerful government, from the point of view of the bureaucrats, is personal, clear and ever-present to their eyes; and because the cost of it, not only in money but in freedom, which is lost by giving authority to officials, is vague and nebulous in the minds of the citizens whose attention is not focused on the government at all…. Therefore, since the bureaucrats know exactly what they want and are working for their own immediate interest, and since the other citizens do not realize what they are giving up, and, in fact, have not their attention on the matter at all, it is obvious which group will prevail.[16]

What public choicer has put it better?

[1] The remarkable August Days in Moscow and elsewhere in the Soviet Union in 1991 was a glorious example of just such a limit to tyranny being reached.

[2] Ludwig von Mises, Bureaucracy (New Haven: Yale University Press, 1944).

[3] Ibid., p. 53.

[5] John C. Calhoun, A Disquisition on Government (New York: The Liberal Arts Press, 1953), pp. 17-18. Also see Murray N. Rothbard, "The Myth of Neutral Taxation," Cato Journal, I (Fall 1981), pp. 555-58.

[6] See Murray N. Rothbard, Man, Economy and State: A Treatise on Economic Principles (Auburn, AL: Ludwig von Mises Institute, 1993), II, 774–76, 843–47.

[8] This insight into the best success route in government underlies the celebrated Chapter 10, "Why the Worst Get on Top," in F. A. Hayek's The Road to Serfdom (Chicago: University of Chicago Press, 1944).

[9] C. Northcote Parkinson, Parkinson's Law (Cambridge, MA: Houghton Mifflin, 1957), p. 2.

[10] Ibid., p. 4.

[12] Ibid., p. 6.

[13] Ibid., p. 12.

[14] Thomas H. Barber, Where We Are At (New York: Charles Scribner's Sons,1950), p. 103.

[15] Ibid., pp. 103–04.

[16] Ibid., p. 100.

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