The Funding of Public Works In A Free Society

This idea just struck me.  It’s so obvious that it probably flies right over most people’s heads.

Lotteries.

Lotteries in a free society would not be run by a state monopoly.  Anyone could start up a lottery.  Right now, the state takes a massive chunk of lottery proceeds for itself.  That money could be going into private hands to fund public works and start-up companies.  Given the massive wealth thrown around, the creation of lotteries by private citizens could have an enormous effect on resource allocation in a free society.

Hospitals could run lotteries to fund free indigent care clinics.  Homeless shelters could run lotteries to fund their operations, and so on and so forth.  Imagine if there were thousands of lotteries run by all sorts of people.  Assuming you occasionally play the lotto, which lotteries would you play in this environment?  Wouldn’t you chose to play only those lotteries that were run by the organizations you wanted to donate your money to?  Wouldn’t you only play those lotteries that were run by organizations that were publicly audited and held in high regard?

From now on, if people ask you how the poor will be taken care of in a free society, tell them to go play the lotto.

Wiki leaves us some tantalizing commentary:

England, 1566–1826 

Although the English probably first experimented with raffles and similar games of chance, the first recorded official lottery was chartered by Queen Elizabeth I, in the year 1566, and was drawn in 1569. This lottery was designed to raise money for the “reparation of the havens and strength of the Realme, and towardes such other publique good workes.” Each ticket holder won a prize, and the total value of the prizes equalled the money raised. Prizes were in the form of silver plate and other valuable commodities. The lottery was promoted by scrolls posted throughout the country showing sketches of the prizes.

Thus, the lottery money received was an interest free loan to the government during the three years that the tickets (‘without any Blankes’) were sold. In later years, the government sold the lottery ticket rights to brokers, who in turn hired agents and runners to sell them. These brokers eventually became the modern day stockbrokers for various commercial ventures. Most people could not afford the entire cost of a lottery ticket, so the brokers would sell shares in a ticket; this resulted in tickets being issued with a notation such as “Sixteenth” or “Third Class.”

Many private lotteries were held, including raising money for The Virginia Company of London to support its settlement in America at Jamestown. The English State Lottery ran from 1694 until 1826. Thus, the English lotteries ran for over 250 years, until the government, under constant pressure from the opposition in parliament, declared a final lottery in 1826. This lottery was held up to ridicule by contemporary commentators as “the last struggle of the speculators on public credulity for popularity to their last dying lottery.”

It looks like the English state shutdown the private lotteries because they were too effective at funding public works.  Lotteries undermine state power by empowering private citizens.  If all public works could be funded by lottery, that would leave the state without a purpose.  Heaven forbid that happens.

Early America, 1612–1900

An English lottery, authorized by King James I in 1612, granted the Virginia Company of London the right to raise money to help establish settlers in the first permanent English colony at Jamestown, Virginia.

Lotteries in colonial America played a significant part in the financing of both private and public ventures. It has been recorded that more than 200 lotteries were sanctioned between 1744 and 1776, and played a major role in financing roads, libraries, churches, colleges, canals, bridges, etc. In the 1740s, the foundation of Princeton and Columbia Universities was financed by lotteries, as was the University of Pennsylvania by the Academy Lottery in 1755.

During the French and Indian Wars, several colonies used lotteries to help finance fortifications and their local militia. In May 1758, the State of Massachusetts raised money with a lottery for the “Expedition against Canada.”

Benjamin Franklin organized a lottery to raise money to purchase cannon for the defense of Philadelphia. Several of these lotteries offered prizes in the form of “Pieces of Eight.” George Washington’s Mountain Road Lottery in 1768 was unsuccessful, but these rare lottery tickets bearing Washington’s signature became collectors’ items; one example sold for about $15,000 in 2007. Washington was also a manager for Col. Bernard Moore’s “Slave Lottery” in 1769, which advertised land and slaves as prizes in the Virginia Gazette.

At the outset of the Revolutionary War, the Continental Congress used lotteries to raise money to support the Colonial Army. Alexander Hamilton wrote that lotteries should be kept simple, and that “Everybody … will be willing to hazard a trifling sum for the chance of considerable gain … and would prefer a small chance of winning a great deal to a great chance of winning little.” Taxes had never been accepted as a way to raise public funding for projects, and this led to the popular belief that lotteries were a form of hidden tax.

At the end of the Revolutionary War the various states had to resort to lotteries to raise funds for numerous public projects.

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  • http://twitter.com/PissedOffYank Angry American

    Hospitals do run lotteries already as do every other charity.
    You just thought about this now?

    • http://www.libertariannews.org/ Michael Suede

      yeah, never occurred to me.

      I was unaware that hospitals run lotteries. I’ve never heard of that before. I haven’t seen hospital lotto cards at a gas station, have you?

      • http://twitter.com/PissedOffYank Angry American

        Yeah it’s a great idea. I would think the crux of the issue it to have a prize worth buying tickets for AND to pay to advertise.
        Can’t say I have ever seen hospital lotteries advertised in gas stations. Seen them on TV though.

      • Wade

        Here is one that I see pop up every year in my area. It gets quite a bit of press.

        http://www.healthwealthraffle.org

        • http://www.libertariannews.org/ Michael Suede

          Yeah, that’s a raffle, not a lottery. They are different in the sense that a lottery payout comes from the collection of earnings themselves, and they can roll over if there is no winner.

          Raffle payouts are announced ahead of time, and are funded ahead of time.

          • Wade

            A raffle is a lottery in which a number of persons buy chances to win a prize. While the source of the payout can differ, I see the end results being synonymous. I felt it was in line with what you stated above. A great idea nonetheless.

          • http://www.libertariannews.org/ Michael Suede

            Similar, but not the same. Lotteries tend to induce larger incentives to play than raffles given their structure.

          • Wade

            I believe the example I posted has larger incentives than the state lottery. First, the lump payout of the raffle’s grand prize is one million in cash. The lump payout of the state lottery is currently seven hundred thousand, half of whatever amount is posted as attainable. I believe that most people opt for the lump.

            Second, the odds of winning are greatly in favor of the raffle. While a chance at winning starts around 1:40 for both, the grand prize odds are 1:80,000 for the raffle and 1:7,059,052 for the state lottery.

            Third, prizes retain their full value in the raffle, they can’t be diminished by duplicate winners.

            Fourth, the raffle has a total prize value of two million every time it is run. The state amount is less than that.

            I hope I can persuade you to look past the name “raffle.” It is just another type of lottery. How it is structured is dependent upon those organizing it, not so much the title.

          • http://www.libertariannews.org/ Michael Suede

            A raffle is not a lottery. Lotteries pool money and payout from the accumulated funds. I’m not sure how much more clear I can make it. The odds vary depending on the structure of the game, so picking and choosing to make a point isn’t going to tell us much about anything. The last powerball was over half a billion dollars for the grand prize.

          • Wade

            raf•fle1 (ˈræf əl)

            n., v. -fled, -fling. n.
            1. a form of lottery in which a number of persons buy one or more chances to win a prize.

            You are correct about the Powerball. However, seeing as 43 states are involved in that pooling, it is much more appropriate to use an example of similar size and reach. I chose to use the AZ state lottery seeing as it has the same exposure as the listed raffle.

            The odds of the Powerball grand prize are even greater at 1:175,223,510. I prefer the other odds.

            I’m curious as to why you’re so resistant to the example I posted. It fits the criteria in your post. It is local and non coercive, it benefits those that get involved. It is a model that has proven itself year after year. I believe I have given sufficient examples that it is an effective lottery. Why such a restrictive view on the matter?

          • http://www.libertariannews.org/ Michael Suede

            I’m not resistant to it at all. I think private lotteries should be expanded, deregulated and utilized by charities the world over.

            My problem is that raffles are not real lotteries. As far as I know, the state prohibits charities from running real lotteries.

          • Wade

            Agreed, it is wrong that the state holds a monopoly on real lotteries. In spite of this, I see several improvements that the hospital utilizes over a state run lottery that help the idea of funding public works in a free society. First is the emphasis on donating voluntarily to a cause with the secondary benefit of walking away a prize. I like the idea of charity first. State lotteries focus on the individual walking away with huge amounts of money with a secondary emphasis on public funding.

            Second, the hospital doesn’t limit the sources of the pooling. If anyone wants to help the cause by donating giveaways without a chance at payout, more power to them. Again, I find this to be in the spirit of a voluntary society.

            Third, in looking to move away from state run monopolies, I would rather use private entities as examples than those run by the state. Though the large payouts can be tempting, they are huge due to the monopoly in force. Competing lotteries would likely deflate those bubbles or would force a decrease in odds to keep the bubble propped up.

            What are your thoughts on this?

  • Martin David

    This is an interesting idea, but not a new one. There are several problems with it in practice. The first is that in a free society, anybody is free to set up a lottery and to do so free of intrusive regulation. This leads inevitably to a proliferation of lotteries, some of them run by unscrupulous individuals who profiteer, defraud and use underhand tactics to ensnare those who are problem gamblers. In case you think I’m exaggerating, we’ve been here before: unregulated lotteries were a major cause of poverty, debt and violence in 17th-century England, and became such a menace to society that a statute of 1698 banned them entirely.

    The other problem, which is market-related, is that several studies have shown that it is not the chances of winning that attract gamblers, but the size of the top prize. A few lotteries offering huge jackpots will achieve higher revenue than a very large number of lotteries offering more modest prizes. Unfortunately, one State-sanctioned lottery will inevitably put more money towards good causes than a thousand privately-owned lotteries.

    • http://www.libertariannews.org/ Michael Suede

      “In case you think I’m exaggerating, we’ve been here before: unregulated lotteries were a major cause of poverty, debt and violence in 17th-century England, and became such a menace to society that a statute of 1698 banned them entirely.”

      I’d love to see some references for this. I find it hard to believe a lottery can become a “menace to society” – more like a menace to the state if you ask me.

      As I point out in my article, a proliferation of lotteries means people would become much more discerning about what lotteries they play. When people know that the lotteries are not regulated, they will do their own due diligence. And if they don’t, then they get what is coming to them. The use of violence shouldn’t be used preemptively by the state to shut down a private lottery.

      And while it is true that a state run lottery, that functions under a monopoly privilege, will generate larger winnings and attract more players, the notion that these earnings will go towards good causes is misguided. Bureaucracies never spend money wisely. I’d take a thousand privately run lotteries over a state monopoly any day of the week.

      At least with the private lotteries you know the money isn’t going to be used to fund the drug war, foreign wars of aggression, bailout banks, or bloat the pockets of government contractors.

      • Martin David

        The 1698 statute itself can be found here: http://www.british-history.ac.uk/report.aspx?compid=46956

        There are plenty of references in 17th-century literature and historical sources, although I haven’t any of them to hand. The problems caused by unregulated lotteries were legion and there were many campaigns to close them down. “Menace to society”, at that date, is definitely the right phrase: we’re talking about a period when poverty was the problem of the individual, not the state, and when there was no police force.

        “A proliferation of lotteries means people would become much more discerning about what lotteries they play.”

        Possibly. But recent evidence from here in the UK is not promising. After many years when the government-sanctioned National Lottery had a monopoly, a competitor was recently given the go-ahead. It’s called the Health Lottery and is advertised as benefiting health-related good causes. But it gives a much lower proportion of its income to charity than its state competitor (20% as opposed to 28%), and despite also offering much smaller prizes has had a severe impact on the National Lottery. To what good? Well, it is enriching its owner.

        “At least with the private lotteries you know the money isn’t going to be used to fund the drug war, foreign wars of aggression, bailout banks, or bloat the pockets of government contractors.”

        State-run lotteries don’t have to do any of these things. Here in the UK our lottery raises money for the following causes:

        Health, Education, Environment, and charitable causes 46%
        Sports 18%
        Arts 18%
        Heritage 18%.
        The choice we have is between: a National Lottery which gives 28% of its revenue to good causes, or a privately-run lottery which gives 20% and makes a fortune for its owner. I know which of those two I’m going to give my money to, and it’s not the privately-run lottery.

        • http://www.libertariannews.org/ Michael Suede

          Yeah, but your citing a law! Right now, I can find laws that say marijuana is the most dangerous substance known to man!

          That is obviously not an unbiased source of information. I want a historical analysis about the impact of lotteries, not a legal source.

          I’m not buying this for a minute.

  • Martin David

    I’m glad if I have brought your attention to a new aspect of the subject, but your analysis of the reasons for the abolition of lotteries is wrong-headed and ignorant of English history.

    “It looks like the English state shutdown the private lotteries because they were too effective at funding public works. Lotteries undermine state power by empowering private citizens.”

    There was no such thing as the ‘state’ in the period we’re talking about here, certainly not in the modern sense. In the 17th century taxation was low and limited to a small proportion of the population – income tax was not yet invented. There was no standing army, no police service, no public services of any kind.

    The lotteries were shut down because they impoverished the populace. They were not effective at funding public works, they were effective at enriching the unscrupulous. There is a whole strand of campaigning literature – of which you are evidently unaware – by private individuals which rails against the immorality of those who sought to get rich at the expense of the poorest in society. The state had no possible motive of self-interest in shutting down these lotteries.

    • http://www.libertariannews.org/ Michael Suede

      Did you read the article?