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The Transfer Society

R&L: You’ve written extensively on the development of the American economic system and in particular the growth of what you call the “transfer society.” Would you briefly define what a “transfer society” is?

Hill: The idea of the transfer society is a society where property rights are up for grabs. Very few defined rules exist, or the rules are always subject to re-definition, particularly by constitutional interpretation. The book that I wrote with Terry Anderson, The Birth of a Transfer Society, is an analysis of these changes in the U. S. Constitution.

We’ve become a society in which the rules are in flux, thereby prodding people to spend a large amount of their time and resources trying to change the rules to their benefit. Our book argues that in the beginning the Constitution was a set of rules for a few areas that pretty much encouraged the entrepreneurial type of person to go out and make better mousetraps, to create wealth. Somewhere around the 1870s the constitutional climate started changing dramatically, not by amendment but by interpretation. The Constitution became interpreted in a more casual way. There was a rise in what we call “reasonable regulations;” the Supreme Court said the state legislatures could pass any sort of regulations they wanted about economic affairs so long as they were “reasonable.”

That meant, of course, that people spent a lot of time trying to get regulations written to their advantage or to the disadvantage of their competitors, because there was no clear-cut standard. And today almost nothing in the economic arena is unconstitutional.

R&L: What caused the constitutional economic interpretation turnabout of the 1870s? Advances in technology or increased population or some combination of factors?

Hill: All of those sorts of things. I would also say out of an earlier era came the idea of the perfectibility of man, and with this idea not as much fear of the power of government or the need to limit government. So in the Progressive Era we have the idea that the government can be a force of good, and you don’t have to worry very much about it being a force of evil. If there are good people, then basically government can carry out its programs.

It was a scientific era of government where the idea was, “All we have to do is decide what we’re going to do, set our goals, and then do it.” If you believe that, then you are basically advocating unrestrained government. Philosophically that move is toward less fear of government and a belief that we have to turn government loose to do all these good sorts of things. Because of this kind of thinking, we have permitted the erosion of very important constitutional protections for property, economic activity and individual rights. The erosion hasn’t occurred evenly–sometimes people have been able to go to government and get a particular set of regulations passed in their favor and sometime they haven’t.

Today, much of the economic game is in the political arena. It is played by getting rules on your side, or making sure that somebody else doesn’t get the rules on their side against you. The action is in Washington, D. C.

It’s interesting to look at the statistics of many large companies and see how much of their time goes into lobbying, where their business headquarters are, who the big players are, etc. It turns out that it’s just as important to try to make sure that the rules favor you as it is to produce better products. Any society in which the rules are not clearly defined, whatever they are, is at risk. You need a society of stable, legitimate and just rules in order to have people productively engaged.

I would put it this way: Theft is expensive. In a society where theft is prevalent people will put a lot of their efforts into protecting themselves–into locks and police guards, etc.

Government can prevent theft, but can also be an agency of theft. If this is the case, then people will look to government to use its coercive arm to take from other citizens. In such a world of “legal theft” people will devote resources to protecting themselves and to getting government on their side.

What this means today is that we spend a tremendous amount of resources in litigation and lobbying. It is very important that you make sure you have all you can on your side. The birth of a transfer society is really the birth of privilege-seeking through government.

R&L: So you see the transfer society as starting with the federal government as a states’ rights issue?

Hill: It started out with the states passing regulations that for a period of time, the Supreme Court, particularly under Chief Justice Marshall, would say were unconstitutional: you can’t hand out those favors, you cannot give a monopoly to a steamship company or give this particular economic group a special advantage, for example. There were some very clear restrictions, and in fact the Commerce Clause was viewed for many years as a restriction upon the states’ ability to legislate. It has now come to be a justification for the federal government to do just about anything it wants. So the Commerce Clause has been completely turned on its ear from its original interpretation.

There has always been the desire of legislatures to use majority rule to override individual rights, and for a long time either the state or the federal constitutions served as protection against that. That protection is still there somewhat, but has been dramatically diminished over time.

We find evidence in things like political action committees. Why do political action committees raise so much money to try to influence government? Because government has huge favors to hand out. If it didn’t have tremendous things to give to us at the expense of others, we wouldn’t spend so much time trying to influence it.

R&L: It is more cost-efficient to put your resources into lobbying government rather than manufacturing or sales.

Hill: Right. The problem with putting your resources into government is that it is what I would call a zero-sum activity, whereas putting one’s resources into producing goods and services is positive-sum. In fact you could even call lobbying negative-sum, because we spend a lot of time taking, or trying to take, things from somebody else.

R&L: If government were severely restricted in its ability to distribute economic favors, as you propose, what would happen to the lobbyists, lawyers, bureaucrats and others who have made their living from the system as it has come to be?

Hill: We’re facing that question in Eastern Europe. There will be adjustment time, but they’re generally productive people who can find alternatives.

I think one of the tragedies of the transfer society is that we sometimes attract our best minds to the privilege-seeking arena, because that’s where the action is. They are people who are employable, and the economy could take care of them. I have a lot of faith in the entrepreneurial economy and the ability of people to find new and better ways of doing things if their energy is unleashed.

R&L: Many conservatives are concerned about our present immigration policies and would like to see stiffer laws. What direction do you think we should take with regard to immigration policies? What are the economic and moral consequences of such policies compared with current ones?

Hill: I think that a society needs to maintain a moral and cultural heritage to survive. If a society doesn’t have a strong sense of tradition and from that tradition a moral framework, it will find it very difficult to be a free society, and almost impossible to have a free market economy. In that sense having large scale immigration could be dangerous.

However, I’d like to see us move more in the direction of freedom of movement. One reason is that my Christian responsibility to my brother doesn’t end at the borders; it extends to people all over the world. One way of helping them (and helping our economy) is to allow free immigration. I would, however, put a couple of caveats on that.

One caveat is that in a society like ours, where we have a substantial number of social welfare programs, a free immigration policy could be costly. Nevertheless, I have been convinced by the work of Julian Simon that one of the great resources is the human mind, and allowing more people in will probably solve more problems than it creates. So I come down on the side of more freedom of movement, although with a certain amount of nervousness because of the present construction of our society.

R&L: What were your reactions to John Paul II’s recent social encyclical, Centesimus Annus? Can it help the ongoing dialogue between labor and management? How did you, as an evangelical, react to its condemnation of the “social assistance state,” which is, more or less, a synonym for a transfer society?

Hill: In general among the laity there is a real openness to market economies and, I think, a basic understanding of how they work. Much of the intellectual leadership in evangelical Christianity has had the same sort of infatuation with collective solutions as the Catholic church.

I think a strong biblical imperative exists for people who are wealthy to share their wealth. In no way can I read Scripture and not be impressed with that. But, the jump from charity to coercive redistribution, i.e. welfare, is not so obvious.

We as a Christian community should be actively involved in taking care of the poor. That is not to say, as many of our social ethicists have assumed, that because we have a moral responsibility to the poor the poor should be the responsibility of the state. This mentality persists even though we have plenty of evidence that the state is not being particularly effective in this regard, and we might be even better off with a lower level of aid administered at the local level.

R&L: Much writing in the area of Christian social thought has been decidedly anti-market. What do you envision as Christianity’s role in a morally sound business economy?

Hill: Christian social thought or Christian morality is absolutely crucial to the American economy, and I would place it in two different arenas.

First, it gives us the basis for our personal relationships. When I talk about a free market economy I mean an economy that we coordinate with prices and property rights for certain goods and certain commodities. By no stretch of the imagination would I want everything built on prices and property rights. I don’t think we should be buying friendship; we don’t run families on the basis of prices. We should enter into a variety of human relationships– our community, our church, of other personal relationships – grounded in Christian teaching, not markets.

There is a set of principles by which we can organize life other than the market principles. That doesn’t mean we want to ignore the market or take it out of life, but we also don’t want to organize all of life around it. The family, the church and the community are all crucial mediating institutions in life.

Second, within the business community, if you don’t have a moral basis for entering into economic transactions it’s going to be very difficult to carry them on. You need trust; you need a sense of the dignity of the individual–that all people made in God’s image are worthwhile, and that applies to the president of the company as well as the workers of the company. Without a basic moral foundation it is almost impossible to think of how we could have normal economic exchange.

In our country that is at least a residual of our religious heritage. Without strong Judeo-Christian influences I’m not sure we can keep it. One of the issues that the Soviet Union and Eastern Europe is facing is how they rebuild their moral and ethical basis for actions so that they can have market economies. Simply going to those economies and saying, “All you need is freedom; private property rights and prices” is not enough. You have to have a moral basis for a society to function.

R&L: What role can economists play in the controversial battle over environmental policy? What contributions do you see free-market economists making to this discussion?

Hill: The basic thing to realize there is that the government is not in and of itself the solution to environmental problems. It can help, however, by better defining and enforcing property rights. Environmental problems are basically property rights problems; ill-defined property rights allow one person to impose costs on another person without their willing consent.

There used to be a great deal of common property in the American West that became an environmental problem because people overgrazed it; they overused it. When something belongs to everyone, no one takes care of it. The whole idea of free-market environmentalism is trying to take market structures–prices and property rights–and apply them to the environment. Scientific and technological developments are helping to advance free-market environmentalism in many seemingly novel ways.

Let me give you an example. It is now technologically feasible to “brand” a lot of effluent that is disposed of by public and private entities. You can put a radioactive isotope in smoke stacks or a particular non-harmful chemical in fluid discharges to track polluters and then allow tort law, liability law, to enforce rights. If people can show harm, they can take the now-identifiable polluting party to court. That is a move in the direction of enforcing more responsibility, which I think is desirable. It’s a lot better than the command and control environmental approach where the government dictates, “you shall or you shall not” do certain things and mandates a particular technology for an entire industry, thereby imposing costs on the innocent as well as the guilty.

Most of our environmental solutions so far in the U. S. have been very centralized, very government-oriented rather than in terms of prices and property rights. What we need to do is simply define and enforce property rights better. Once you go to a command and control system, mandating certain technological solutions, you’re very much back in the political arena where the ones with the money will make sure that the rules turn to their advantage.