Thursday, December 17, 2009

The Law and the Profits (Part 1)

Earlier this year, I read The Law and the Profits, by C. Northcote Parkinson (of Parkinson's Law fame). This book was first published in 1960, and though the subject of the analysis is Great Britain and the supporting figures are many decades old, the theme is still true and relevant today in the United States.

(My 1960 first edition American printing was recently shredded and eaten by my two dogs, so I have since acquired--for around fifteen dollars--a replacement 1960 first edition London printing from Alibris. The drawings within are different, but the text appears to be the same. This survey of the book is based on the first edition.)

I have not found (by Google search) any material about this book, save a brief mention in this Wikipedia article concerning Parkinson's Law, and then only to call it a corollary to the first law. It is in fact Parkinson's Second Law--claimed so by the author himself in Chapter 1.

Chapter 1 is titled "Parkinson's Second Law" and opens thus:
Expenditure rises to meet income. Parkinson's Second Law, like the first, is a matter of everyday experience, manifest as soon as it is stated, as obvious as it is simple.
The first example is of a family implicitly obeying this law. However, the subject of the book is government, and to that he moves in the second paragraph and rarely leaves this subject again for the remainder of the book.
It is less widely recognized that what is true of individuals is also true of governments. Whatever the revenue may be, there will always be the pressing need to spend it. But between governments and individuals there is this vital difference, that the government rarely pauses even to consider what its income is.
("What its income is" does not refer merely to accounting, although the early 20th-century British government appears to have had a problem even with this. Rather, this phrase, as we will see in later installments, refers particularly to the nature of the income and not merely its quantity.)

It is arguable that governments that annually rely on deficit spending are described perfectly by this statement. I will need to return to this topic later.

With this simple understanding of Parkinson's Second Law, let me quote now from the "Preface:"
The first purpose of this book is to show that there are limits to the collection of revenue and that evils multiply when these limits are ignored. However, the tendency to cross these limits appears to be universal, eternal and all but irresistable: the growth of taxation is clearly subject to a law.

The second purpose of this book is to show that a greatly reduced revenue would bring about an improvement, not decline, in the public services. It is the paradox of administration that fewer people have less to do and more time, therefore, in which to think about what they are doing. When funds are limitless, the only economy made is in thinking. The worst inefficiencies do not stem from a lack of funds, but from an initial failure to decide exactly what the object is. It is this muddled thinking that leads to waste, and often to waste on a colossal scale. Towards eliminating public waste an essential step is to reduce the total revenue. Officials are less inclined to squander what is not there. A knowledge of the law which governs expenditure should ensure that the profits from taxation are rarely thrown away.
I believe that Professor Parkinson succeeded completely in this book achieving his first purpose. I will determine through this survey whether I think he succeeded in the second.

I have observed in recent decades in the United States that the reduction in revenue was tried in the 1980's, but because a reduction in spending was politically impossible and that seemingly limitless borrowings were available to fund the annual deficit, that the government-reducing scheme was a failure. I do not think that this disproves Parkinson's second purpose, because I do not think he imagined a government with a fiat currency. The second purpose would hold if government were somehow constrained to spend within its means.

This quote leaps out at me: "When funds are limitless, the only economy made is in thinking. The worst inefficiencies do not stem from a lack of funds, but from an initial failure to decide exactly what the object is. It is this muddled thinking that leads to waste, and often to waste on a colossal scale." If you substitute the concept of "family" or "small business" or "association" or "church" in place of "government" in the preface, the raw and personal truth of these statements becomes clear. If it were my own money and my own decision, I would be inclined to be thrifty and clear on what I spend it.

Next in the series, I will continue with Chapter 1 concerning the rise in taxation over time.

1 comment:

  1. This book should be read after Parkinson's Law which studies civil service in the Admiralty during and after WWII. Parkinson gives an algebraic formula for the increase in employees.

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