From Self-Interest to the Long-Term Horizon of Government: A Hypothesis for Explaining the Findings

So far, our work has dealt primarily with data. We examined fourteen indicators from different angles, and in all fourteen cases, the overall direction of the evidence favored monarchies. But even if we fully accept this pattern, a more important question remains unanswered: why?

Statistics can show us that two groups differ; they can also measure the size of that difference, its dispersion, and the likelihood that it arose by chance. But observing a difference does not allow us to move directly to its cause. What follows, therefore, is not a conclusion established by the statistical tests in this book, but rather an explanatory hypothesis arising from the findings—one that could become the subject of independent future research.

Seeing Human Beings as They Are

From one perspective, the history of political and economic thought can be seen as the history of attempts to answer a simple question: What should we do with human beings’ individual motivations?

Human beings are not purely altruistic or idealistic creatures. Self-interest, the desire to own property, the effort to improve one’s own position and that of one’s family, competition, and the desire to preserve and increase wealth are also parts of human behavior. Of course, the strength of these motivations varies across individuals and cultures, and human beings cannot be reduced to purely self-interested creatures. But ignoring such motivations when designing social institutions can have important consequences.

One of the problems raised in critiques of communist and centrally planned economic systems concerns precisely this issue of incentives. These systems did not face only the problems of economic calculation or the concentration of power; restricting private property and weakening the connection between individual effort, risk-taking, innovation, and economic reward could also alter people’s incentives.

The market economy took a different path. Rather than expecting people to abandon their self-interest, it sought, within a framework of property, contracts, competition, and law, to channel that motivation into a productive force. In a competitive market, someone who wants to become wealthy generally has to produce something that someone else is willing to pay for. To earn greater profits, a producer tries to offer a better, cheaper, or different product; competitors do the same in their efforts to win customers, and consumers can benefit from this competition.

This mechanism is certainly not perfect. Without law, competition, and limits on economic power, it can also lead to monopoly, exploitation, and rent-seeking. The central point, however, is different: an institutional system can, instead of denying a human motivation, channel it in a direction in which, under appropriate conditions, private interest and the public interest become at least partly aligned.

This brings us to a question about political systems.

Does the “Time Horizon” of Rulers Matter?

By the nature of the office, a president occupies the highest position in government for a limited period. The president knows that the office does not belong to him or her and that, at a specified point, it must be handed over to someone else. This temporary nature of power is one of the republic’s most important mechanisms for preventing the permanent concentration of authority, and it can offer major advantages.

Yet every institutional mechanism may also create particular incentives alongside its benefits.

A politician whose horizon of power is four or eight years may be more influenced by the short-term consequences of decisions than a ruler with a longer time horizon. A policy that generates popularity today but imposes costs ten years later creates a different incentive structure for someone who knows that ten years from now he or she will no longer be in power. Elections, despite their fundamental benefits for government accountability, may also encourage politicians to focus more heavily on the electoral cycle.

This does not mean that presidents necessarily think in the short term. Many do not, and strong republican institutions can ensure continuity in long-term policy regardless of the individuals holding office. The point concerns a potential incentive embedded in the structure of the office, not a judgment about the character of the people who occupy it.

Now consider the same issue from the other side.

The Country as Intergenerational Capital

A hereditary monarch faces a different time horizon. Under normal circumstances, the monarch is not appointed for a four- or eight-year term, and the end of an electoral cycle does not end the royal family’s relationship with the institution of government. The position held today may one day pass to a child or to a later generation of the same family.

Here, however, we must avoid a tempting but inaccurate formulation: in a modern constitutional monarchy, the monarch is not the legal owner of the country. The country is not the monarch’s private property, to be sold or treated like a personal estate.

There may nevertheless be an institutional relationship that, in certain respects, produces consequences similar to a person’s relationship with a long-term asset.

If the future of the royal family is tied to the stability, prestige, and success of the country, the monarch’s horizon of interest may extend beyond his or her own political lifetime. The country passed on to the next generation is the same country upon which the status, prestige, and perhaps even the survival of the monarchy for that next generation will depend.

From this perspective, a difference may emerge between viewing political office as a temporary position and viewing it as part of an institution expected to pass from one generation to the next.

To understand this difference intuitively, we might use the analogy of an owner and a tenant, provided that we do not confuse the analogy with the legal reality of a country. Someone who expects a property to remain in his or her possession—and eventually in the possession of his or her children—for a long time will generally have different incentives to preserve its long-term value than someone who knows that he or she will leave it after a few years. This is not true of every owner or every tenant; it merely illustrates how a time horizon can influence behavior.

Perhaps a similar mechanism, though far more complex, exists in politics.

The “Time Horizon and Intergenerational Capital” Hypothesis

On this basis, we can formulate a testable hypothesis, which I will call the “Time Horizon and Intergenerational Capital Hypothesis.”

According to this hypothesis, one possible difference between hereditary monarchy and the presidency lies in the time horizon of the incentives created by the two institutions. The more the survival of a ruler’s position—and that of his or her successors—is tied to the country’s long-term stability and success, the stronger the incentive may be to preserve the value of institutions, political stability, international standing, and the country’s economic and social capital.

If such a mechanism actually exists, we do not need to assume that monarchs are more benevolent, wiser, or more ethical than presidents. In fact, the strength of this hypothesis lies precisely in the fact that it does not depend on the personal virtue of the ruler. The argument is not that a monarch takes care of the country out of altruism. Rather, the argument is that the institutional structure may align part of the monarch’s personal and family interests with the preservation of the country’s long-term success.

This is where the analogy with economic incentives becomes meaningful: just as an economic system can channel self-interest toward production and exchange without expecting human nature itself to change, political structures might also be examined in terms of the incentives they create and the extent to which they lengthen the time horizon of those who hold power.

But the same mechanism can also be dangerous.

If the argument ended here, the hypothesis would be one-sided.

The same hereditary connection that might create an incentive to preserve a country’s long-term capital could, under different institutional conditions, produce exactly the opposite result. A ruler might view the country not as something whose interests should be aligned with those of the ruling family, but as a resource for enriching that family. Hereditary power can reduce accountability, generate rent-seeking, and, in the absence of effective legal constraints, even open the way to autocracy.

Likewise, the temporary nature of a presidency is not merely a possible source of short-term thinking. That same temporariness can remove an ineffective ruler from power, facilitate the circulation of elites, and increase the political cost of poor performance.

The scientific question, therefore, is not “Is an owner better than a tenant?” or “Is a monarch better than a president?” The more precise question is:

Under what institutional conditions does a long-term horizon of power create incentives to preserve and develop a country, and under what conditions does it lead to rent-seeking and the entrenchment of the ruling family’s interests?

The answer probably lies in the interaction between the form of government and such factors as the rule of law, constraints on power, property rights, freedom of information, institutional independence, and mechanisms of accountability.

At this point, we need to return to the findings of this book.

These fourteen indicators should be regarded not as the end of the discussion, but as the beginning of a new question.

If monarchies repeatedly perform better across a broad range of indicators, what mechanisms have produced this pattern?

The Time Horizon and Intergenerational Capital Hypothesis is one possible answer—not the only answer, and not one that this study has been able to prove.

A Hypothesis That Can Be Tested

The advantage of formulating the argument in this way is that it moves beyond philosophical speculation and becomes an empirical hypothesis.

If the time-horizon hypothesis is correct, its predictions should be testable against data.

We can even look within monarchies themselves. If heredity alone is not sufficient, and what matters is the combination of a long-term horizon with legal constraints and effective institutions, then we should expect different patterns to emerge among different types of monarchy.

A Test Conducted Within This Very Book

The hypothesis of time horizon and intergenerational capital should not be regarded merely as a suggestion for future research. In fact, part of the test that can help evaluate this hypothesis has already been conducted within this very book.

In examining all fourteen indicators, monarchies were not compared with republics only as a single group. Constitutional monarchies and non-constitutional monarchies were also separated from one another, and the performance of both groups was examined. This distinction is particularly important for the argument presented in this chapter.

If the superior performance of monarchies were mainly the result of the severe limitation of monarchical power, the existence of parliamentary institutions, and the close resemblance of constitutional monarchies to democratic republics in their governing structures, then it would be reasonable to expect that moving from constitutional monarchies toward monarchies with broader royal authority would reduce a significant part of the observed advantage—or even reverse it.

However, the findings of this book do not show such a simple pattern. Across the majority of the indicators examined, non-constitutional monarchies also maintained their advantage over republics, and in some indicators their performance was even better than that of constitutional monarchies. Therefore, the observed advantage of monarchies in this dataset cannot be reduced simply to the explanation that “monarchies succeed because the monarch has no real power and government is actually carried out by laws and parliaments.”

This finding is important for the hypothesis proposed in this chapter. The common feature that remains when moving from constitutional to non-constitutional monarchies is the hereditary nature of the institution of monarchy, its continuity over time, and the connection between the fate of the ruling family and the future of the country. By contrast, the degree of legal restriction and political power of the monarch differs substantially between these two types of systems.

Therefore, the continued advantage of non-constitutional monarchies—and their superior performance over constitutional monarchies in some indicators—is at least consistent with the possibility that part of the observed difference may be related to characteristics shared by different types of monarchies, rather than solely to the limitation of royal power.

In terms of the hypothesis discussed in this chapter, it is possible that an intergenerational time horizon and the long-term alignment of the royal family’s interests with the country’s future may have effects independent of the degree to which royal authority is legally restricted. It may even be suggested that, under certain conditions, when the long-term interests of a monarch are aligned with the preservation and development of the country, greater actual authority may allow this mechanism to operate more strongly.

However, here it is essential to distinguish between a pattern consistent with a hypothesis and proof of that hypothesis. The data in this book do not directly measure “a sense of ownership,” “concern for the country,” or the psychological time horizon of rulers. Nor do constitutional and non-constitutional monarchies differ only in the amount of power held by the monarch. Geography, natural resources, economic structures, population size, political history, and many other factors also differ among these countries.

Therefore, one cannot conclude from the stronger performance of some non-constitutional monarchies that reducing legal constraints on power, by itself, improves governance.

This distinction is crucial. The conclusion of this book is not that “less law is better.”

However, when evaluating this risk, another methodological distinction is also necessary. The risk of a political system cannot be assessed only by imagining its best-case scenario; both the probability of failure and the consequences of failure must be considered. In simple terms:

Risk of a political system = Probability of failure × Severity of the consequences of failure

Estimating the probability of failure for each political system requires an independent historical study: How many constitutional monarchies throughout history have moved toward concentrated power and non-constitutional monarchy? How many electoral republics have transformed into authoritarian governments? This book does not attempt to answer these questions.

However, the second component of this equation—the severity of the consequences of failure—can be examined to some extent through the data presented in this study.

If the main concern is that a constitutional monarchy might, under certain circumstances, move away from constitutionalism, the relevant question is: Compared with the outcome of the failure of a democratic republic, how has the resulting situation actually performed in practice?

The findings of this book show that non-constitutional monarchies, at least across the set of indicators examined, have not performed worse than republics; rather, in many cases they have shown higher average values.

Therefore, the empirical evidence in this study does not support the assumption that merely moving from a constitutional monarchy to a non-constitutional monarchy necessarily leads to worse governance outcomes than those observed in republics.

This conclusion does not mean recommending fewer restrictions on power or ignoring the danger of authoritarian rule. It simply emphasizes that risk assessment must be balanced. If a failure scenario is considered for one political system, the failure scenarios of competing systems should be evaluated according to the same criteria.

The rule of law, the prevention of abuse of power, and the existence of accountable institutions are themselves fundamental elements of good governance. The more limited conclusion that can be drawn from the internal comparison among monarchies is that the legal restriction of royal power alone does not appear sufficient to explain the observed advantage of monarchies over republics.

This point makes the time-horizon hypothesis even more interesting. If the advantage had been observed only among constitutional monarchies, a simple explanation would have been available: perhaps what succeeds is not monarchy itself, but parliamentary democracy, rule of law, and limited government power.

However, when monarchies with greater executive authority also demonstrate favorable patterns across most indicators, other mechanisms must also be considered.

One such possible mechanism is what may be called the “intergenerational capital effect.”

Under this hypothesis, the key issue is not legal ownership of the country—for even a powerful monarch does not legally own the country as private property—but rather the nature of the ruler’s relationship with the future of the state.

A president knows that his or her position will end after a defined period of time. A royal family, by contrast, may perceive the success or failure of the country as directly connected to the reputation, security, and status of future generations of the dynasty.

From this perspective, the comparison between constitutional and non-constitutional monarchies conducted across the fourteen indicators in this book provides a kind of initial within-group test for this argument. The results do not show that increasing royal authority systematically eliminates the advantage of monarchies. In some cases, the opposite pattern is observed.

This finding does not prove the time-horizon hypothesis. However, it weakens a simple alternative explanation: the claim that the better performance of monarchies exists only because constitutional monarchs lack real power, or that the success of monarchies can easily be attributed to the merely “ceremonial” nature of the monarchy.

Perhaps We Have Been Asking the Wrong Question

Much of modern political thought has framed the debate between monarchy and republic around the question: Who has the right to rule? That remains a fundamental question. But perhaps another question deserves equal attention:

What incentives does a system of government create for the person who holds power?

Perhaps the best political system is not merely one in which an ideal human being would govern well. Perhaps it must also work with human beings as they actually are—with ambition, self-interest, attachment to family, desire for prestige, fear of loss, and the wish to leave a legacy—and, as far as possible, channel these motivations toward the public good.

Modern economics owes an important part of its success to the insight that building an effective system does not require us first to create a different kind of human being. Institutions can be designed to channel some existing human motivations toward productive outcomes.

Perhaps the same question is worth taking seriously in the design of government.

If so, one of the questions that the findings of this book leave for future research is:

Can modern monarchy, alongside its other institutional features, align part of the self-interest of those who hold power with the country’s long-term success by creating an intergenerational time horizon?

This book has not provided a definitive answer to that question.

But the fourteen indicators examined in the preceding pages provide, at the very least, a reason to take the question seriously