herzl's legal and economic views in the jewish state: a scorecard

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European Journal of Law and Economics, 3:131-156 (1996) © 1996 Kluwer Academic Publishers Herzl's Legal and Economic Views in The Jewish State: A Scorecard PETER R. SENN 1121 Hinman Avenue, Evanston, IL 60202, USA Abstract This paper compares Theodor Herzl's conception of the legal and economic institutions he envisioned in The JewishState with those functioning Israel in 1995. His main goal, the establishmentof a Jewish state, was achieved, but,what has developed is not quite what Herzl expected, due mainly to the enormous burdens of defense. Never- theless, many of the legal and institutional features of the economy he envisioned are in place, although in altered form. Keywords: Herzl, Israel, Law and Economics 1. Introduction: Herzrs economics It is astonishing how little insight into the science of economics many of the men who move in the midst of active life possess. 1 -- Theodor Herzl Theodor Herzl's (1860-1904) booklet, Der Judenstaat (henceforth, The Jewish State) played an important role in the formation of the Zionist movement and, ultimately, the state of Israel. Published in 1896, it was not the first, however, to propose the idea of an indepen- dent Jewish state. George Eliot (1876, p. 400) (Mary Ann Evans) (1819-1880), to give just one of many possible examples, put the following forecast in the mouth of Mordecai in her last novel, Daniel Deronda: "Revive the organic centre: let the unity of Israel which has made the growth and form of its religion be an outward reality. Looking towards a land and a polity, our dispersed people in all the ends of the earth may share the dignity of a national life which has a voice among the peoples of the East and West" The Jewish State was the most important call that alerted world, but especially Jewish, opinion to the prospect of an independent nation state. One reason that it attracted atten- tion was that it set forth realistic possibilities. It resulted in Herzl's becoming the founder and leader of the Zionist movement and gaining a permanent and important place in the history of modem Israel. Herzl, one of the fathers of Israel, cannot be dismissed as a "Jewish self-hater. ''2 The task of the historian and economist is not to praise or blame Herzl on political or moral grounds but to carefully consider his work and its consequences. These evaluations are

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Page 1: Herzl's legal and economic views in The Jewish State: A scorecard

European Journal of Law and Economics, 3:131-156 (1996) © 1996 Kluwer Academic Publishers

Herzl's Legal and Economic Views in The Jewish State: A Scorecard

PETER R. SENN 1121 Hinman Avenue, Evanston, IL 60202, USA

Abstract

This paper compares Theodor Herzl's conception of the legal and economic institutions he envisioned in The Jewish State with those functioning Israel in 1995. His main goal, the establishment of a Jewish state, was achieved, but, what has developed is not quite what Herzl expected, due mainly to the enormous burdens of defense. Never- theless, many of the legal and institutional features of the economy he envisioned are in place, although in altered form.

Keywords: Herzl, Israel, Law and Economics

1. Introduction: Herzrs economics

It is astonishing how little insight into the science of economics many of the men who move in the midst of active life possess. 1

- - Theodor Herzl

Theodor Herzl's (1860-1904) booklet, Der Judenstaat (henceforth, The Jewish State) played an important role in the formation of the Zionist movement and, ultimately, the state of Israel. Published in 1896, it was not the first, however, to propose the idea of an indepen- dent Jewish state.

George Eliot (1876, p. 400) (Mary Ann Evans) (1819-1880), to give just one of many possible examples, put the following forecast in the mouth of Mordecai in her last novel, Daniel Deronda: "Revive the organic centre: let the unity of Israel which has made the growth and form of its religion be an outward reality. Looking towards a land and a polity, our dispersed people in all the ends of the earth may share the dignity of a national life which has a voice among the peoples of the East and West"

The Jewish State was the most important call that alerted world, but especially Jewish, opinion to the prospect of an independent nation state. One reason that it attracted atten- tion was that it set forth realistic possibilities. It resulted in Herzl 's becoming the founder and leader of the Zionist movement and gaining a permanent and important place in the history of m o d e m Israel.

Herzl, one of the fathers of Israel, cannot be dismissed as a "Jewish self-hater. ' '2 The task of the historian and economist is not to praise or blame Herzl on political or moral grounds but to carefully consider his work and its consequences. These evaluations are

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what determine the worth of his works and not the history of a man. No qualifications about his motives or personal life can change Herzl's place in the history of Israel)

It is now one hundred years since the publication of The Jewish State--a century-old set of plans for a country that did not exist. And since then, the most important part of Herzl's vision has been realized--a Jewish state exists.

This essay is about the legal and economic institutions Herzl proposed and how they currently operate in the state of Israel. When comparing the dream with the reality of 1995, it must be recognized that more than fifty years passed from the time of Herzl's proposal to the founding of the state, and that Israel has been in existence for almost a half century. Many changes have occurred, and what is true today was not always so. This essay em- phasizes Herzl's economics, the legal structure in which they are embedded, and what he thought was most important and would endure.

Herzl was well aware of the requirement that the new state be economically viable. As a result, he devoted a great deal of attention to its economic structure. He touched on a large number of economic subjects 4 and created, adapted, and changed existing economic institutions in his vision.

Herzl (1988, p. 70) considered the details of his plans as unimportant: "In considera- tion of my own inadequacy, I shall content myself with indicating the cogs and wheels of the machine to be constructed, and I shall rely on more skilled mechanicians than myself to put them together." Later on (p. 71) he says, "I shall not be lavish in artistically elaborated descriptions of my project, for fear of incurring the suspicion of painting a Utopia. ''5 Although sometimes criticized for this approach, Herzl anticipated that he could not foresee the details of the institutions that were to evolve.

There are many possible ways to organize the economic and legal material in Herzl's masterpiece. Because some of the most distinguishing characteristics of a state are to be found in its institutions, his thoughts on law and economics are organized around the main institutions he proposed. His lack of details and the overlapping and integration of topics make this arrangement a compromise at best.

Much has been, and more could be, written about Herzl's economics and its embodi- ment in Israeli law. It would be especially interesting to construct a more complete portrait of these views, but that is beyond the scope of this paper, which is limited to what Herzl wrote in The Jewish State.

The economics of Jewish emancipation

Herzl's plans can be understood only in the light of his frequently expressed views on the conditions of Jews who were legally emancipated. Where emancipation had worked for individual Jews, the results were bad: "Those Jews who were advanced intellectually and materially entirely lost the feeling of belonging to their race" (p. 77). Economic power for emancipated and assimilated Jews will not help: "And if the power they now possess creates rage and indignation among the Anti-Semites, what outbreaks would such an in- crease of power create?" (p. 78). He thinks "that the absorption of the Jews by means of their prosperity is unlikely to occur" (p. 78).

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He seems to have accepted one of Wilhelm Georg Friedrich Roscher's ( 1817-1894) theses: "We are what the Ghetto made us. We have attained pre-eminence in finance, because mediaeval conditions drove us to it" (p. 86). He thought the process was continuing: "We are again being forced into finance, now it is the stock exchange, by being kept out of other branches of economic activity" (p. 87).

Herzl thought the primary cause of anti-Semitism in the main countries affected by it was the "result of the emancipation of the Jews" (13. 89). He thought that Jewish wealth consisted "of printed papers which are locked up somewhere or other in the world" so that "nothing effectual could be done to our injury" (p. 90). Efforts to take this wealth from the Jews would be impossible because they could not be directed against Jews alone even "where the progressive income tax is enforced" (p. 90). "The very impossibility of getting at the Jews nourishes and embitters hatred of them" (p. 90). '~ction may be taken against individuals or even against groups of the most powerful Jews, but Governments will never take action against all Jews" (p 154). How wrong he was, 6 but he is easily forgiven his inability to foresee the Holocaust and its ramifications. It had significant and unforeseen results in emigration, and reparations for it have provided a useful part of Israel's budget.

He felt that the immediate cause of anti-Semitism "is our excessive production of mediocre intellects, who cannot find an outlet downwards or upwards--that is to say, no wholesome outlet in either direction. When we sink, we become a revolutionary proletariat, the subor- dinate officers of all revolutionary parties; and at the same time, when we rise, there rises also our terrible power of the purse" (p. 91).

Organization and finances

Herzl understood the need for both organization and finances. His grasp of modern business organizational forms is demonstrated by his proposal to create two corporations, both vital parts of his plan--the Society of Jews and the Jewish Company. He frequently refers to both organizations.

The Society of Jews was to assume overall direction of the movement: "The Society of Jews will do the preparatory work in the domains of science and politics, which the Jewish Company will afterwards apply practically" (p. 93). The Society became the World Zionist Organization. Today the World Zionist Organization is in existence with its status and functions enshrined in the Law of Status (1952) and a covenant signed in 1954.

Herzl understood the importance of both public and private financial institutions and devoted a great deal of attention to "the financial soundness of the enterprise which will chiefly be called into question" (p. 84). The Jewish Company was to be the country's finan- cial arm, and his knowledge of private financial institutions is shown in his description of the Company. It was to be "founded as a joint stock company subject to English jurisdic- tion, framed according to English laws, and under the protection of England. Its principal center will be London." Its principal function was to be to "convert into cash all vested interest left by departing Jews" (p. 98). "The Jewish Company will be the liquidating agent of the business interests of departing Jews and will organize commerce and trade in the new country. (p. 93). No organization ever completely performed all of the functions in- tended by Herzl for the Company. 7

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Banking functions were first fulfilled by the Jewish Colonial Trust incorporated in Lon- don in 1899. It set up a subsidiary in Palestine, the Anglo-Palestine Bank, which became the Bank Leumi Le-Israel of today. The Jewish National Fund for the acquisition of land was also incorporated in London in 1901. It exists today, but most of its functions have been taken over by the Israel Lands Administration (ILA).

Herzl displays some familiarity with state finances, as when he discusses budgets, revenues, and taxes (p. 71). He anticipated that the Jewish Company would pay heavy taxes and would "everywhere provide a broad basis of taxation" (p. 113). It would "pay double duties on the two-fold transfer of goods which it accomplishes" (p. 113).

He optimistically assumed that finance ministers everywhere would "offer every facility in their power necessary for the successful achievement of the great undertaking" (p. 114). One reason for this was that profits would "accrue to government from the transport of passengers and goods, and where railways are State property the returns will be immediately recognizable (p. 114).

The half-century that elapsed between the statement of the plans and the reality of modern Israel included two world wars and enormous political and territorial changes. Both the Society and Company went through many transformations, but Herzl was right about the need for organization and attention to finances, as the histories of the World Zionist Organiza- tion, the Jewish Colonial Trust, and the Anglo-Palestine Bank testify.

Obtaining land

Herzl recognized the potential difficulties of securing territory for the new state and always assumed it would have to be purchased, s He did not foresee the complications that would arise from Israeli occupations, from land left behind by departing Arabs, and from the other demands of territorial defense.

In his discussion of the possibilities he often combines both political and economic bargain- ing concepts: "If His Majesty the Sultan were to give us Palestine, we would in return undertake to regulate the whole finances of Turkey. We should there form a portion of a rampart of Europe against Asia, an outpost of civilization as opposed to barbarism. We should as a neutral State remain in contact with all Europe, which would have to guarantee our existence. The sanctuaries of Christendom would be safeguarded by assigning to them an extra-territorial status such as is well-known to the law of nations" (p. 96). 9

Herzl knew that the new state would require outside help. He was correct about Europe but neglected the importance of the role of the United States both in protecting Jews of his day he wrote, and later, in guaranteeing the existence of Israel. l° The "sanctuaries of Christendom" have been "safeguarded." During the cold war, Israel was always on the side of the United States--not neutral.

Herzl thought that those who lived on the land of the new state would benefit greatly: "We could offer the present possessors of the land enormous advantages, assume part of the public debt, build new roads for traffic, which our presence in the country would render necessary, and do many other things. The creation of our State would be beneficial to adja- cent countries, because the cultivation of a strip of land increases the value of its surround- ing districts in innumerable ways." (p. 95).n

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Had there been peace, he probably would have been right about the original inhabitants of the land. Even without it, "Israeli Arabs are in general much better off" than they were before the creation of Israel (Israel Info Service, Internet reply, July 25, 1995). They have much better education and medical service. Roads and agriculture did come. What also came with the Israeli territorial expansion did not result in all the benefits to the native population that Herzl thought they would have. He missed the problem of the conflict be- tween the Arabs and the Jews.

The institutional background

The institutional structure of the state was of fundamental importance. His aim was a Jewish state--a homeland for Jews but not a theocracy. The innovations, adaptations, and changes that were reflected in the legal and economic institutions he proposed were all directed to the realities, as he saw them, required for his dream to come true. 12 His originality is not in the specific innovations he proposed but in how he put them together to achieve his aims. His approach linked the problems he saw with solutions employing appropriate incentives.

The kind of state he envisioned was to be heavily planned in the sense that most of the decisions about the infrastructure and many other legal and eocnomic decisions were to be made at the center. It was not to be a socialist state or a welfare state in the modern sense. It was closer to the German model of the time but differed from that model primar- ily by its greater emphasis on the state's role in developing the economic infrastructure and in promoting entrepreneurship. It also differed somewhat in that the Germans were concerned more with the problems of the poor while Herzl's concern was with the prob- lems of the Jews. Both the German model and Herzl guaranteed private property.

To fully appreciate Herzl's view of economics in the new state, one must understand his premises. The new state was to be based on technical progress and enterprise (1988, pp. 73-75), but enterprise is mixed with a great deal of plarming. For example, concerning immigation, "The poorest will go first to cultivate the soil" (p. 93), and then "the emigrants standing lowest in the economic scale will be slowly followed by those of a higher grade" (p. 94).

The orderly emigration he envisioned did not happen. By 1952 the population had doubled compared with 1948, mostly through new citizens who were survivors of the concentra- tion camps. During the rest of the 1950s, increasing numbers of Jews came from the Muslim countries of North Africa and the Middle East, so that by the late 1960s Jews from Asia and Africa outnumbered those from Europe. 13

Israel also increased its population in other ways Herzl could not have anticipated. The occupied territories resulting from the Six-Day War in 1967, for example, included an Arab population of aobut 1.5 million. The relaxation of Soviet emigration rules brought more than 200,000 Soviet Jews in 1989 and 1990.

Today the total population is a bit over 5 million of whom about 1 million are non-Jews. Legally, the occupied territories are not a part of Israel, and their Arab inhabitants are not in- cluded as part of Israel's population. About half of the Jewish population came from Europe, North America, Asia, and North Africa, and half are Israeli-born (called Sabras). Muslims and a smaller group of Christian Arabs constitute the majority of the non-Jewish population.

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Some social presuppositions

Herzl was something of a Darwinian: "Jew-baiting has merely stripped off our weaklings" (1988, p. 76); "Whoever can, will, and must perish, let him perish" (p. 79). He explicitly mentions Darwin in his discussion of why he thinks anti-Semitism for assimilated Jews will be "stopped forever" after the establishment of the new Jewish state (p. 80).

He did not have a high opinion of all Jews and saw them improving their situations in the new state: '~ t the same time we continue to produce an abundance of mediocre in- tellects who find no outlet, and this endangers our social position as much as does our increasing wealth. Educated Jews without means are now rapidly becoming Socialists. Hence we are certain to suffer very severely in the struggle between classes, because we stand in the most exposed position in the camps of both Socialists and capitalists" (p. 87).14

Differences of income, wealth, and occupation figure largely in his plans for building the new state. For example: "Those only will depart who are sure thereby to improve their position; those who are now desperate will go first, after them the poor; next the pros- perous, and, last of all, the wealthy. Those who go in advance will raise themselves to a higer grade, equal to those whose representatives will shortly follow. Thus the exodus will be at the same time an ascent of the class" (p. 82) 15. He also assumed that every traveler to the new land would pay his own expenses: "The middle classes will travel with Cook's tickets, the poorer classes in emigrant trains" (p. 114). "Those who are well off can travel in parties if they wish, taking their personal friends and connections with them" (p. 124). Once again, the Holocaust changed everything.

Herzl foresaw modem forms of social organization in the new country. For example, he wanted to encourage "large department stores which provide all necessaries of life" (p. 135). He observed that they have already crushed "small trading in large cities?' "The establishment of these stores is further advantageous, because it makes the country im- mediately habitable for people who require more refined necessaries of life" (p. 135).

Today Israel's stores provide "all necessaries of life?' The state-owned retailer, Shekem, has many stores, and there are other chains of supermarkets and department stores. American-style fast-food franchises such as Kentucky Fried Chicken and McDonald's offer chicken and hamburgers--but not cheeseburgers, milkshakes, and ice cream. 16

Cooperative and corporatist ideas are not uncommon. For example, in his discussion of ways that emigrating Jews could liquidate their businesses, he says that they "might sell their enterprise to the collective body of their employees, who would form a cooperative society, with limited liability, and might perhaps pay the requisite sum with the help of the State Treasury, which does not charge high interest" (p. 112).

Early in Israel's history collective and cooperative organizations, especially the kibbut- zim, played an important economic role. In 1995, their economic importance is slight, except in rural areas, where about 10 percent of the population lives. The majority of the rural Jews live in two unique cooperative frameworks, the kubbutz and moshav.

The kibbutz attempts to be a self-contained social and economic unit. Decisions are taken by the general assembly of its members. Property and the means of production are com- munally owned. About 2.5 percent of the population live in some 270 kibbutzim. Formerly the mainstay of Israel's agriculture, kibbutzim now seek practical ways to meet the challenges of modern life and are involved in industry, tourism, and services.

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In the moshav, farms and households are run by families. Cooperation used to include marketing and purchasing, but today moshav farmers are more economically independent. About 450 moshavim, averaging about 60 families each and including about 3.3 percent of the population, supply much of Israel's farm produce.

The political and legal presuppositions

Herzl envisioned a constitution for his new state, but it was to be elite focused. He thought that "a democratic monarchy and an aristocratic republic are the finest forms of a State" (p. 44). The constitution was to be that of "an aristocratic republic" (p. 145). Dissent from it was not to be tolerated: "Should any opposition manifest itself, the Society will suppress it. The Society cannot permit the exercise of its functions to be interpreted by short-sighted or ill-disposed individuals" (p. 145). He thought that "plitics must take shape in the upper strata and work downward" (p. 145 ). Today, only some politics in Israel takes "shape in the upper strata." Political parties based on every kind of interest reflect a democracy that is far from "an aristocratic republic."

Fifty years after its formation, Israel does not have a written constitution. English in- fluence is evident in the 1950 decision of the Knesset (Parliament) to acquire a constitu- tion gradually by the enactment of fundamental laws. The Israeli legislature is a unicameral body of 120 members elected for four years under a system of proportional representation. All citizens eighteen years and above are entitled to vote. An operative constitution is em- bodied in a set of Basic Laws that establish the framework and powers of the executive, legislative, and judicial branches of government and regulate areas deemed of particular importance such as the economy and lands, civil-military relations, and the status of Jerusalem. 17

Herzl wanted to avoid a theocracy: "Shall we end by having a theocracy? No, indeed. Faith unites us, knowledge gives us freedom . . . . We shall keep our priests within the con- fines of their temples in the same way as we shall keep our professional army within the confines of their barracks. Army and priesthood shall receive honors high as their valuable functions deserve. But they must not interfere in the administration of the State which con- fers distinction upon them, else they will conjure up difficulties without and within" (p. 146).

Israel now has two court systems, one religious and one civil. The religious courts govern marriage, divorce, alimony, and wills. By law, the Sabbath and Jewish holy days are observed throughout the country, and only kosher food is served in official institutions such as the army and hospitals. A system of Jewish religious schools exists parallel to the secular system of elementary, secondary, and higher education.

The role of religion in state government has always been debated in Israel. The effects of religious interference in the economy appear to be primarily those of a general and dif- fuse nature and are not easy to define. An example is found in issues about the extent and location of new settlements. The powerful bargaining role of the religious parties as the balance between the left-wing socialist parties and the right-wing nationalist parties is prob- ably responsible for the theocratic ingredients that have developed in Israeli life. Herzl would probably have objected not only to religious political parties but to many of the dozens of other parties organized around special-interest groups.

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He holds Switzerland as a model in his discussion of languages. He thought that "the language which proves itself to be of greatest utility for general intercourse will be adopted without compulsion as our national tongue" (p. 146). Today Hebrew is the official language of Israel. Arabic is used officially for the Arab minority, and English is the most com- monly used foreign language. Many people also speak Yiddish, Russian, and any of a number of other European languages. 18

The legal framework

Herzl wanted a rule of law. During a transition period the settlers "must act on the principle that every emigrant Jew is to be judged according to the laws of the country which he has left. But they must try to bring about a unification of these various laws to form a modern system of legislation based on the best portions of previous systems" (1988, p. 147). 19

When it became independent in 1948, Israel passed the Law and Administration Or- dinance. It provided that the laws of the country before statehood would continue if they were not contrary to the principles of the Declaration of the Establishment of the State of Isreal and were not in conflict with laws to be enacted by the Knesset.

Today the legal system includes some of the Ottoman law that was in force until 1917, many British Mandate laws from the period 1918 through 1948, parts of Jewish religious law, and some aspects of other systems. This legal system is still developing on the basis of a large body of independent statutory and case law.

In discussing the departure of the colonists Herzl insists that everything be "carried out with due consideration for acquired rights, and with absolute conformity to law, openly and by light of day, under the eyes of the authorities and the control of public opinion" (p. 150). In discussing immigation he says that it will be "inaugurated with absolute con- formity to law" (p. 83).

Herzl recognized the importance of property rights defined in law as fundamental for a market economy. He was concerned that no property held by Jews would be lost (p. 79) and that emigrants do not defraud those in the countries they leave: "Every just private claim originating in the abandoned countries will be heard more readily in the Jewish State than anywhere else" (p. 148). He went so far as to insist that "cheap passage and certain advantages in settlement" would be granted only to those "who can present an official testimonial from the local authorities certifying that they have left their affairs in good order" (p. 148).

His concern for property rights appears throughout. For example, he envisioned "an inner migration of Christian citizens into the positions evacuated by Jews" (p. 83). And of course, the Christians would own the property that the Jews sold to them when they left. When discussing the occupation of the land he says, "All acquired rights will be pro- tected" (p. 143).

The role of technology

Herzl had a great deal of faith in the powers of technology, and that despite its achieve- ments "its miraculous improvements have not been employed in the service of humanity"

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(p. 74). By putting this technology to work, "we are working not only for ourselves, but also for many other overburdened and oppressed beings" (i 9 . 7).

Many of his hopes for the success of the new state rested on a technological foundation: "Every social and technical achievement of our age and of the more advanced age which will be reached before the slow execution of my plan is accomplished must be employed for this object. Every valuable invention which exists now, or lies in the future, must be used. By these means a country can be occupied and a State founded in a manner as yet unknown to history, and with possibtifies of success such as never occurred before" (p. 143).

Herzl tied his appeal to popular questions of the time. The new country could avoid the problems that the "social question" was causing most of Europe by the proper use of technology (pp. 150-151):

The shape which the social question may take depends entirely on the development of our technical resources. Steampower concentrated men in factories about machinery where they were overcrowded, and where they made one another miserable by over- crowding. Our present enormous, injudicious, and unsystematic rate of production is the cause of continual severe crises which ruin both employers and employees. Steam crowded men together; electricity will probably scatter them again, and may perhaps bring about a more prosperous condition of the labor market. In any case our technical inventors, who are the true benefactors of humanity, will continue their labors after the commencement of the emigration of the Jews, and they will discover things as marvelous as those we have already seen, or indeed more wonderful even than these.

His confidence in technological solutions appears in many places besides his discus- sions of worker education, building, and agriculture. 2° "Whoever would attempt to con- vert the Jew into a husbandman would be making an extraordinary mistake" (p. 87). Peasants are backward, and "we know that all this [work] can be done by machinery. The agrarian question is only a question of machinery" (p. 88).21 To put the matter briefly, "The word 'impossible' has ceased to exist in the vocabulary of technical science" (p. 151). 22

Today, Israel has a small but growing advanced technological sector. The Technion, the Israel Institute of Technology, at Haifa and the Weizman Institute of Science in Rehovot rank high among their peers. The country is already the home of many successful high- technology companies such as Cytex and Indigo. It exports advanced weapons. Israel has been attempting to find more high-technology niches in international markets, such as medical scanning equipment, biotechnology, and high-technology electronics, to obtain much needed foreign exchange.

Vocational education is an integral part of Israel's educational system: "There are several worker education institutions sponsored by the Histradrut [the General Federation of Labor in Israel]. Provisions are also made to encourage workers to engage in professional develop- ment (i.e., courses), by way of salary incentives which are paid per hour spent in class" (Israel Info Service, Internet reply, July 25, 1995).

Israel is not an agrarian economy. Only about 3 percent of its gross domestic product comes from agriculture. The high productivity of the relatively small agricultural sector is evidence of the generally high level of technology in that sector. For decades Israel has been exporting agricultural products. It also exports its expertise to less developed countries.

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The country has much to do before it fully realizes Herzl's dreams of fully benefitting from modern technology. The social problems that Israel faces do not lend themselves to technological solutions in the way Herzl hoped. A series of wars and territorial disputes along with unanticipated waves of immigration have resulted in inflation, severe housing shortages, chronic foreign trade imbalances, and other problems. The multiethnic, multicultural, multireligious, and multilingual character of society has resulted in a high level of informal segregation patterns. 23 Some of the statist characteristics of the economy also may have been responsible for an unnecessarily low rate of technological change.

A planned society

Herzl's confidence in the role of science and technology for planning are early manifesta- tions of a universal view of planners everywhere--that social problems can be solved by actions from above. The new state was to be planned from beginning to end and top to bottom. When describing the tasks of the Society, he wrote that it "will have scientific and political tasks, for the founding of a Jewish State, as I conceive it, presupposes the application of scientific methods (1988, p. 140). "These men will have three tasks to per- form: (1) An accurate, scientific investigation of all natural resources of the country; (2) the organization of a strictly centralized administration; (3) the distribution of land" (p. 142).

Statistics play a big role in Herzl's planning: 24 "The Society will also supply the Jewish Company with comprehensive modern Jewish statistics, thus doing the work of what is called in France a 'societal d'dtudes" which undertakes all preliminary research previous to the financing of a great undertaking" (p. 120).

Some of his ideas about economic development and planning are set forth when he writes about his plans for the order of emigration and what will happen (p. 93): 25

It will be gradual, continuous, and will cover many decades. The poorest will go first to cultivate the soil. In accordance with a preconceived plan, they will construct roads, bridges, railways and telegraph installations; regulate rivers; and build their own dwell- ings; their labor will create trade, trade will create markets and markets will attract new settlers, for every man will go voluntarily, at his own expense and his own risk. The labor expended on the land will enhance its value, and the Jews will soon perceive that a new and permanent sphere of operation is opening here for that spirit of enter- prise which has heretofore met only with hatred and obloquy.

When discussing the "symbolic meaning" of providing new clothing for the poor new settlers, he writes, "The clothing industries of the Company will, of course, not produce their goods without proper organization. The Society of Jews will obtain from the local branches information about the number, requirements and date of arrival of the settlers, and will communicate all such information in good time to the Jewish Company. In this way it will be possible to provide for them with every precaution" (p. 116).

Town planning was to be important: 26 "The local groups will have plans of the towns, so that our people may know beforehand where they are to go, in which towns and in which houses they are to live. Comprehensive drafts of the building plans previously referred to will be distributed among the local groups" (pp. 127-128).

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Town planning has become a reality in Israel, although the role of local groups is not quite what Herzl envisioned. The Ministry of Construction and Housing has broad and general responsibility for the Israeli construction industry with the goal of providing homes for the entire population.

That Herzl had no qualms about a corporate body acting authoritatively for the good of all is exemplified in his discussion of the topic in the section Negotiorum Gestio. He devotes substantial attention to this subject in his discussion of the legal basis for the Jewish state (pp. 136-140). 27

Voluntarism also was intended to play a role, with incentives for following the plans more those of the carrot than the stick. For example, "Emigration is surely intended to be volun- tary" (p. 129). He thought that "the poorest, who have nothing to lose would drag them- selves there" (p. 129). He wanted to offer the poor inducements to go but did not want to pay people to emigrate (p. 130).

Herzl would be pleased that Israel has a very complete statistical service. The Central Bureau of Statistics (CBS) is the government institution charged with collecting, process- ing, and publishing statistical data about Israel's population, society, and economy. 2s The law requires all persons or bodies to reply to CBS inquiries, with full confidentiality of personal information guaranteed. In October and November of 1995 the CBS conducted a new population census.

Many more areas of Israeli public and private life are subject to state planning than Herzl envisioned. For example, the Ministry of Economics and Planning is a staff ministry that deals with national, economic, and social planning. The Ministry of Immigrant Absorp- tion is responsible for planning and implementing the economic, occupational, social, and cultural integration of immigrants (olim) during their first three years in Israel. The na- tional water-supply authority, Mekorot, has wide responsibilities for planning and implemen- ting of the use of all water.

Inevitably, planning on a countrywide scale is likely to fall to meet the ambitions of the planning authorities. Further study would be required to know how practical and effective the plans of the various ministries have been.

The market

Herzl recognized and accepted many of the principles of the market economy but wanted no invisible hand to be at work. Markets were to function to further Herzl's notion of what an economy should be: "The land which the Society of Jews will have secured by interna- tional law must, of course, be privately acquired" (1988, p. 100). He did not want any "forcing of prices" but expected "immense profits of this speculation in land" (p. 100). Those who made these profits would have earned them because they bore "the risk of the undertaking. When the undertaking involves any risk, the profits must be freely given to those who have borne it. But under no other circumstances will profits be permitted. Finan- cial morality consists in the correlation of risk and profit" (pp. 100-101). Statements such as this indicate that Herzl did not have a profound understanding of the role of profits in a market economy.

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He had many uses for markets and seemed to understand how they function. Herzl thought that he could use the principles of a market economy in his planned state but was not very alert to the conflicts that arise between central planning and the workings of a free market: "For example, in the organizing of the clothing industry, the quantity produced will at first be kept down so as to preserve an equilibrium between supply and demand; and wherever the Company undertakes the organization of new industries the same precaution must be exercised" (p. 116).

In discussing how the land is to be distributed in the new country, Herzl says, "The lots in provinces and towns will be sold by auction, and paid for, not in money, but in work. The general plan will have settled on streets, bridges, waterworks, etc., necessary for traf- fic. These will be united into provinces. Within these provinces sites for towns will be similarly sold by auction. The local groups will pledge themselves to carry the business property through, and will cover the cost by means of self-imposed assessments" (p. 142).

Today the Israel Lands Administration (ILA) is responsible for managing national lands, which include more than 90 percent of all land in the country.

Herzl wanted the market to solve the problems that would come up with respect to the property that the Jews could not take with them, such as "buildings, land and local business connections" (p. 98).29 He made the optimistic assumption that these "sales will take place freely and without any serious fall in prices" (p. 99) but he recognized that there could be "a considerable fall in the prices of landed property," which "may eventually make it impossible to find a market for it" (p. 99).

Herzl assumed the market would do its job for his proposed labor agency. When workers are needed, "The central office will publish this demand, and the proper men will apply there for the work. These would then travel with their families to the place where they were wanted, and would remain there without feeling the pressure of undue competition. A permanent and comfortable home would thus be provided for them" (p. 118).

He was concerned about how markets would grow and demand for their output would be created. For example, in discussing the establishment of a new business in the new coun- try, Herzl writes, "The first poor settlers will be his first customers; these will be followed by emigrants of a higher class, who require superior goods" (p. 111).

In discussing how to create a market that will attract middle-class and rich Jewish en- trepreneurs, he asks, "Would anyone ask whence the demand comes which creates the market?" (p. 132). The answer is given in a long section on "The Phenomenon of Multi- tudes." In essence, people in the new state will be given hope that makes them come and work. The results of this work in money or credits will create market demand.

Herzl also had some understanding about innovation and demand. This is apparent in his discussion of the development of railroads and the early opposition to it: "They did not realize the truth--which now seems obvious to us--that travelers do not produce railways, but, conversely, railways produce travelers, the latent demand, of course, is taken for granted" (p. 97).

Herzl would have approved of the fact that, in the early days of Israel, market considera- tions almost always took second place to planning. As the Israel Info Service put it, "In Israel, as withmany young nations, it was originally the state which provided the initial impetus for the development of business and the creation of a national capability to com- pete in world markets. Moreover, in Israel's case, government intervention in the economy

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was heightened by its complex security situation and the need to develop a sophisticated military industrial complex. However, as the economy matured and the private sector developed, the government has sought to reduce its involvement in the economy" (lnternet reply, July 25, 1995). Some privatization is occurring in Israel, but almost always with vigorous opposition from those who will lose special privileges if the old arrangements are discarded.

It is not clear that, given the level of understanding of his time, Herzl had any coherent, general concept of the role played by markets in an economy. But his idea that they could be used for his purposes is a forerunner of later discussions that aimed at using markets to achieve socialist goals.

Entrepreneurship

Probably because of his Austrian background, Herzl places special importance on the spirit of enterprise and often uses the term entrepreneur (Unternehmer) (1988, p. 73): "And the Jewish spirit of enterprise will not even fail where people welcome it. For Jewish capitalists will be glad to invest their funds where they are familiar with surrounding conditions. And whereas Jewish money is now sent out of countries on account of existing persecutions, and is sunk in most distant foreign undertakings, it will flow back again in consequence of this peaceable solution, and will contribute to the further progress of the countries which the Jews have left" (p. 152).

He is aware of the power of monopolies and tries to find compromises that allow in- dividual enterprise, while at the same time ensuring that risky speculation is controlled (pp. 116-117):

But individual enterprise must never be checked by the Company with its superior force. We shall only work collectively when the immense difficulties of the task deemed common action; we shall, wherever possible, scrupulously respect the rights of the in- dividual. Private property, which is the economic basis of independence, shall be developed freely and be respected by us. Our first unskilled laborers will at once have the opportunity to work their way up to private proprietorship.

The spirit of enterprise must, indeed, be encouraged in every possible way. Organization of industries will be promoted by a judicious system of duties, by the employment of cheap raw material, and by the institution of a board to collect and publish industrial statistics.

But this spirit of enterprise must be wisely encouraged, and risky speculation must be avoided. Every new industry must be advertised for a long period before establish- ment, so as to prevent failure on the part of those who might wish to start a similar business six months later. Whenever a new industrial establishment is founded, the Com- pany should be informed, so that all those interested may obtain information from it.

As Herzl anticipated, the highly regulated nature of the Israeli economy has limited the role of entrepreneurship. To cope with some of the problems of modem trade, Israel has been looking for ways to allow for a wider scope for individual entrepreneurs, but the per- sistence of a huge body of regulations has made progress slow.

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Work and the seven-hour day

For Herzl, "The Promised Land is the land of work (1988, pp. 115-116). He was con- cerned that poo r people who did not wish to work would come to the new country and thought "our present unsystematic private philanthropy does little good in proportion to the great expenditure it involves" (pp. 126-127): 3°

In a new society these organizations can be evolved out of our modern consciousness, and may be based on all previous social experiments. This matter is of great impor- tance to us, on account of our large number of paupers. The weaker characters among us, discouraged by external pressure, spoilt by the soft-hearted charity of our rich men, easily sink until they take to begging.

The Society, supported by the local groups, will give greatest attention to popular education with regard to this particular. It will create a fruitful soil for many powers which now wither uselessly away. Whoever shows a genuine desire to work will be suitably employed. Beggars will not be endured. Whoever refuses to do anything as a free man will be sent to the workhouse.

On the other hand we shall not relegate the old to an almshouse . . . . We will provide easy tasks for those who are incapable of physical labor; for we must allow for diminished vitality in the poor of an already enfeebled generation. But future generations shall be dealt with otherwise; they shall be brought up in liberty for a life of liberty.

Because he thought that the immigration and distribution of both skilled and unskilled workers would be planned and regulated, he predicted that "industrialists will be able to make use of centralized labor agencies, which will only receive a commission large enough to ensure their continuance." Unskilled laborers "will not be sweated" but work under conditions that preserve all their benefits (p. 117). 31 Skilled laborers "will work under similar regulations in the factories and the central labor agency will provide them when required" (p. 118).

An important dement of his vision for workers was the seven-hour day. He devotes con- siderable attention to this, organizing the working day into fourteen hours of labor with "work being done in shifts of three and a half hours. The organization of all this will be military in character; there will be commands, promotions and pensions, the means by which these pensions are provided being explained further on" (p. 104).

Although barter was a mainstay of his system, cash had a place: "Whoever works longer than seven hours receives his additional pay for overtime in cash" (p. 105). This cash pay- ment was to be an incentive for thrift.

"We will seek to bestow the moral salvation of work on men of every age and of every class; and thus our people will find their strength again in the land of the seven-hour day" (p. 127). Herzl was so devoted to his idea of the seven-hour day that he proposed as a design for the flag, seven golden stars that would stand for "the seven golden hours of our working-day" (p. 147). 32 Today, "The legal work week in Israel is 42.5 hours per week. Any worker that works more hours than that is entitled to be paid overtime" (Israel Info Service, Internet reply, July 25, 1995).

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Herzl wanted to avoid another kind of problem: "The Society will be able to prevent the introduction of non-Jewish work-slaves by boycotting obstinate employers, by obstruct- ing traffic and by various other methods" (pp. 117-118). Although Israel has seen some problems with non-Jewish workers, they do not involve "work-slaves" of any kind but often are related to imported workers. Some difficulties were encountered when the government tried to curb violence by limiting the number of Palestinians allowed into Israel to work. In recent years Israel has been importing workers, for example, from the Philippines and Thailand, and according to some observers, a small minority of these people work under deplorable conditions.

The organization of the Israeli labor force has several distinctive features. The government is the country's largest employer. Members of the trade union Histadrut "compromise most of the country's labor force and include Jews and Arabs representing all economic sectors as well as the free professions . . . . Throughout the economy, scores of separate Histadrut- affiliated unions represent their members through elected committees. Although a trade union, the Histadrut owns a holding company (Hevrat Haovdim), which retains control of some of the country's largest industrial and construction enterprises. In addition, it oper- ates Israel's largest health insurance network as well as recreational, educational, and wel- fare services for Histadrut members" (gopher://israel-info.gov.il:70/OO/facts/econ/ec8).

Work in Israel is organized in a far different way than Herzl contemplated. A union that controls or owns the enterprises of the workers it represents, as the Histadrut does, and that has as its main bargaining opponent the government (Israel's largest employer) is unusual. Here, the term union is not to be understood in the conventional sense of a workers' organization that represents their interests as opposed to those of their employer. In recent years the Histadrnt has been reducing its assets and eliminating some of its functions in an attempt to become a federation of unions in the more conventional sense. The Histadrut is also a powerful force in Israeli politics.

Herzl could not have foreseen the high unemployment rates (over 10 percent) and under- employment rates (almost a third of the workforce is in public services) that seem to char- acterize highly planned welfare states everywhere. 33 "The moral salvation of work" for people "brought up in liberty for a life of liberty" has yet to be achieved.

Housing in the new state

Housing in the new state was to be provided and planned by both the public and private sectors: "The Company's housing agency will provide quarters for the poorest on their arrival. Later on, when more prosperous emigrants follow, their obvious need for lodgings on first landing will have to be supplied by hotels built by private enterprise. Some of these more prosperous colonists will, indeed, have built their houses before becoming permanent settlers, so that they will merely move from an old home into a new one" (Herzl, 1988, p. 125).

Herzl's housing plans included the rich and the poor. Dwellings "for the poorer classes of citizens" would have a choice of "about 100 different types of houses" (p. 108). When rich Jews began "to rebuild their mansions which are stared at in Europe with such en- vious eyes" then it would "soon become fashionable to live over there in beautiful modern houses" (p. 109).

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His recognition of differences in economic status is apparent in his discussions of many different issues, of which housing is only one. He expected, for example, that workers' dwellings "will certainly present a uniform appearance, because the Company must build cheaply" (p. 102). At this point his vision become somewhat utopian and reminiscent of other idealistic plans for new communities in the United States. He thought that houses could be built cheaply "because of the non-payment of workmen" (p. 102). His plan was to have unskilled laborers who got "no payment of wages at all during the first period of settlement" build their dwellings through a kind of mutual assistance program (p. 103).

Herzl would not have been surprised that the Israeli Ministry of Construction and Hous- ing has wide authority over setting housing assistance policy for different groups, building new towns and neighborhoods, providing regional and local development plans, building public institutions, planning and constructing the road network, and establishing many rules, including those that regulate construction, housing sales, and tenant protection.

Herzl's plans for most workers to build their own houses did not happen. 34 Today some construction is done through housing companies, on both their own and state land, often with partial Ministry financing. Sometimes, as with apartments for purchase or rental, the Ministry itself builds. Housing shortages remain.

The army

Herzl's first mention of an army occurs in the discussion on commerce: "The army of the Company's officials will gradually introduce more refined requirements of life. (Of- ficials include officers of our defensive forces, who will always form about a tenth part of our male colonists. They will be sufficiently numerous to quell mutinies, for the major- ity of our colonists will be peaceably inclined.)" (1988, p. 108). Evidently, Herzl expected more trouble from the settlers than from the people they displaced or their neighbors. 35'

Although Herzl did not give the army much attention, he had a short section on it: "The Jewish State is conceived as a neutral one. It will therefore require only a professional army, equipped, of course, with every requisite of modern warfare, to preserve order in- ternally and externally" (p. 147).

Today, the Israel Defense Forces (IDF), founded with the State of Israel in 1948, pro- vides for the country's defense. The nucleus of the Israeli armed forces is a highly skilled group of professionals and is one of the most battle-trained armed forces in the world. But far from only "a tenth part of our male colonists" Israel has compulsory universal military service that includes women. The strength of the IDF comes from the reserve system. Following, roughly, the Swiss model, when the compulsory service is over, each soldier is assigned to a reserve unit where men up to age fifty one and single women, usually up to age twenty four, serve about thirty days a yea r . 36 The armed forces do have "every requisite of modern warfare" including a highly respected air force.

Herzl optimistically underestimated the need for an army. "but the Jews, once settled in their own State, would probably have no more enemies" (p. 153). This optimism about the need for defense has been called a colossal political oversight.

Throughout Israel's history, the economic burden of defense has been great. Defense has been a major part of all budgets, which have always been in deficit. These deficits

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have accumulated. The interest on them and the current defense budgets now account for a bit more than one-half (50.7 percent in 1993) of the entire state budget (Ministry of In- dustry and Trade, 1994, p. 1).

Women in the new state

Women are scarcely mentioned in The Jewish State. When discussing the integration of middle-class emigrants into local groups Herzl (1988, p. 128) says, "The daughters of the middle classes will marry these ambitious men. One of them will send for his wife or fiancee to come out to him, another for his parents, brothers and sisters. Members of a new civilization marry young. This will promote general morality and ensure sturdiness in the new generation; and thus we shall have no delicate offspring of late marriages, children of fathers who spent their strength in the struggle for life." 37

When discussing the seven-hour work day, he says, "Pregnant women will be relieved of all work, and will be supplied with nourishing food by the Truck. We want our future generations to be strong men and women" (p. 105). The "Truck" was not spelled out in detail but appears to have been the central organization for the barter system that was to play an important role in the beginnings of the new state.

The truck and barter system never played the role Herzl envisioned. Israel is a cash economy where women comprise about one-third of the workforce.

As in his discussion of women, health and welfare are more a means to an end, an im- plicit concern rather than any central focus. Today pregnant women are protected by law, but the overall role of women in the economy is not without controversy. 38

Conclusion

The Jews who wish for a state shall have it, and they will deserve to have it. 39

- -Herz l (1988, p. 72)

The most important result of Herzl's call to action was the creation of the state of Israel. It did not happen the way he had planned, for three main reasons that relate to his achieve- ment in ensuring that the discussion of Zionism was henceforth both national and political: (1) because so many interests had to be taken into account, Israel took a long time to come into being; (2) he misjudged the Arabic reaction to the creation of the new state; and (3) he said nothing about scale factors and gave no estimates of the number of people he ex- pected. Although the matter has not been studied, there may be some minimum popula- tion or land-population ratio required for the long-run economic viability of an indepen- dent state in the modern world. 4°

What works for large nation-states does not always work for small ones and vice-versa. An important problem of central planning is how it can reflect dispersed information. It is quite possible that this issue is less significant in a small economy than it is in a large one.

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It is most surprising that so many of Herzl's ideas are to be found in the Israel of a cen- tury later. To mention only a few of these: in the legal system, the law of return; in organiza- tions, the World Zionist Organization and the Jewish National Fund; in economics, his ideas about planning, technology, and development.

Few things were more important to Herzl than the economic institutions and the legal structure of the new state. Although his economics were eclectic, it would not be too far- fetched to say that he was an early institutionalist of a rather special kind. 41 For him, as for most later institutionalists, group behavior and not price was a central theme. Economic generalizations were relative to time and place. Custom, habit, and law were important factors in the organization of group life, and the motives that influence economic behavior were not necessarily economic. 42

Like both American and Continental institutionalists he was a reformer and had relatively little use for theory and none for mathematical economics. One can guess that his dealings with the real world were among the factors that influenced him to become a forerunner of the economic institutionalists.

One need not guess, however, about the origins of some of his statist ideas. The in- fluence of his educational background is strongly felt throughout the booklet. He had a doctorate in law from the Faculti~t der Rechts-und Staatswissenschaflen (Faculty of Law and Political Science) of the University of Vienna. In common with the German univer- sities of its time, the faculty of law was virtually a school for state officials when Vienna was the capital of the Austro-Hungarian empire. His degree provided him with the creden- tials for a permanent position in the Austrian civil service, although being Jewish, he could not expect to rise very high without converting to Christianity. Admitted to the Vienna Bar in 1884, he was, for a time, a judicial clerk.

Two of his teachers were the famous Menger brothers, Anton (1841-1906) and Carl (1840-1921). A. Menger was a state socialist of the kind that presumed very strong ad- ministrative powers and was highly interventionist. Work was to be organized in a strictly hierarchical fashion. He had no use for democracy in the economic field and taught that it was the duty of the state to intervene on behalf of the lower classes: one of his articles is entitled "On the Social Tasks of the Science of the Law." In it he called for the creation of a modem state through the process of law.

C. Menger had studied Roscher and explained economic phenomena by starting with the values that people place on things because of their utility. He had "a much smaller agenda for the state in mind than even Adam Smith" (Streissler, 1990, p. 110). 43 Although he lectured on theory and not economic policy, his theory contained a strong case for free markets. The different views of the brothers about state intervention might explain Herzl's merging of both of their ideas about markets.

Herzl's booklet had more than one unexpected consequence. One of the most interesting of these was the controversy over and spread of the economic ideas expressed in it. Although the literature is fragmented and little studied, for almost fifty years before Israel was created, the economic organization of the new state was hotly debated. The importance of the debate lay in the fact that it was restricted to one group, while most economics was concerned with the members of a nation state or classes.

For this debate, the legal and economic ideas of the time had to be tailored to fit a popula- tion and conditions for which they were not originally intended. It is one of the few, if

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not the only, times this approach to law and economics for a religious group had been developed since the Middle Ages. In dealing with these conditions, Herzl was highly original. At the least, he must be credited with bravery.

The debate centered on the social ideas of the German economists as expressed by Gustav von Schmoller (1838-1917) and Adolph Heinrich Gotthilf Wagner (1835-1917), which often were opposed to a wide variety of socialist, cooperative, and corporate ideas about social and economic organization. Herzl was not a socialist; he was a reformer and meliorist. He could have been copying, for example, Schmoller, who, when describing the duties of the state toward the laborer, wrote, "we demand that it should concern itself, in an altogether new spirit, with his instruction and training, and should see that labor is not conducted under conditions which must have for their inevitable effect the degradation of the laborer" (Laidler, 1948, p. 738).

Herzl shared many, but not all, of the ideas of the younger historical school of economics as exemplified by Schmoller and Wagner. The Germans were dealing with the problems of industrialization in an existing state with an infrastructure and a functioning legal and economic system. The fact that Herzl's country was starting from scratch explains many of the differences in emphasis. He stressed more strongly than they did planning, en- trepreneurship, the functions of technology and knowledge, and, perhaps, the role of private property. When the history of state planning is written, it is possible that Herzl will have earned a place as an early prophet.

His emphasis on entrepreneurship, technology and knowledge, and property probably was shaped by his Austrian background. Almost certainly, many of his statist ideas, such as the rigid hierarchical organization of labor, came from A. Menger. Possibly as a result of his experiences in France, French ideas of solidarity--that the human race forms a single body of which the individuals are members--are also to be found.

Herzl's hummaistic vision is evident throughout and is exemplified in the last sentence of his conclusions: ' ~nd whatever we attempt there to accomplish for our welfare, will react powerfully and beneficially for the good of humanity" (p. 157).

Herzl wanted to give Jews a complete, viable identity in a homeland of their own, and his criticism of some Jews stemmed from his aspirations for their improvement and eman- cipation. He aimed for a social and economic structure that would make them less depen- dent on the commercial and f'mancial sectors of the economy. To understand any critique, one must get at the intentions of the author.

All classics must be read with an awareness of both the general intellectual climate and the state of knowledge of the era in which they were written. Herzl was the man who set Jews on the path to the new Jewish state of Palestine, which became Israel. He was con- cerned about the failure and probable impossibility of integrating Jews in his time. He wanted to reach higher spiritual and ethical levels, and the means to his goals were to be emigra- tion and the founding of a new state.

His tract inspired Jews everywhere. An example is Sigmund Freud (1856-1939), who was a nonpracticing Jew 44 and yet dreamed about Herzl. In the dream, Herzl com- municated the need for immediate action regarding Palestine if the Jewish people were to be saved. Freud had never before been interested in Herzl's ideas.

Herzl had to put the law and economics of his time into a mold that would fit the special conditions of a highly diverse group of Jews. Perfect views into the future are given to

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no one, and most innovators cannot foresee the ultimate consequences of their own ideas. The work may be great on some counts and objectionable on others, but the faults of great ideas and works should not be held against their authors.

As with Herzl's work, extraordinary complex and sometimes subtle forces dominated the formation of Israel. Utlimately, these forces will require theoretical explanations, which today are mostly lacking, and the exploration of many complicated and elusive ethical questions.

An article can cover many of Herzl's legal and economic ideas only in an abbreviated form. Much more research is required to explore the origins of these ideas and how he developed and changed them. But his attempt to connect the problems he saw with solu- tions using compatible incentives stands as his masterpiece. That his work was and re- mains influential in the legal and economic structure of Israel in 1995 is beyond doubt.

Appendix: Some publication details

The German edition from which I worked was the 1936 edition cited in the references. The notice in the 1936 edition says, "'Die erste Auflage des <<Judenstaats>> erschien am 14. Februar 1896 in Wien" (The first edition of The Jewish State appeared on February 14, 1896, in Vienna). The copyright notice is "Copyright 1905 by Jiidischer Verlag G.m.b.H., Berlin Druck von Julius Kittls Nachf. Keller & Co., M.-Ostrau" (all italics in the original).

Except for the title page and other front material, the 1988 Dover edition from which I worked appears to be an exact reprint of the 1946 edition. The 1988 Dover edition reproduces the credits in the 1946 edition (all italics in the original):

"THE JEWISH STATE" is published by the American Zionist Emergency Council for its constituent organizations on the occasion of the 50th Anniversary of the publication of "DER JUDENSTAAT" in Vienna, February 14, 1896.

The translation of "THE JEWISH STATE" based on a revised translation published by the Scopus Publishing Company was further revised by Jacob M. Alkow, editor of this book. The biography was condensed from Alex Bein's Theodor Herzl, published by the-Jewish Publication Society of America. The bibliography and the chronology were prepared by the Zionist Archives and Library. To Mr. Louis Lipsky and to all of the above mentioned contributors, The American Zionist Emergency Council is deeply indebted.

There are several other translations, here are two:

Herzl, Theodor. (1904). The Jewish State: An Attempt at a Modem Solution of the Jewish Question, revised from the English translation of Sylvie D~vigdor. Preface and notes by J. De Haas. New York: Maccabaean.

Herzl, Theodor. (1943). The Jewish State: An Attempt at a Modem Solution of the Jewish Question. Foreword by Chaim Weizmann. New York: Scopus Publishing Company for the Zionist Organization of America.

The original German title is Der Judenstaat; Versuch einer modernen Lfsung der Juden- frage. The 1988 reprint does not use the subtitle.

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Acknowledgments

An early version of this paper was presented at the annual meetings of the Association for Evolutionary Economics and the Southern Economics Association, November 18, 1995, in New Orleans. It is a pleasure to acknowledge the assistance that the detailed, useful critiques provided to me by Jiirgen Backhaus, Nicholas Balabkins, Mark E. Blum, Wolfgang Drechsler, Nachum T. Gross, Joel Mokyr, Larry Moss, and Max and Julia Segal. I am particulary obligated to Mary Stone Senn, who, in addition to making many specialized computer searches, was helpful in countless other ways. The Israel Info Service on the Internet contributed the answers to several questions. Thanks also to Anita Lauterstein, who handled manuscript production. Any errors are my own.

Notes

1. The first sentence of the introduction. All the references are to the 1988 English version cited, which is still in print (see the appendix).

The comparisons I have made with the German version (1 tth ed., 1936) show it to be a passable transla- tion that gives the main sense of what Herzl meant for my purposes. Compare, for example, the original German with the first sentence quoted above: "die volkswirtschaftliche einsicht von roAnnern, die mitten im praktischen Leben stehen, ist oft verbliiffend gering."

Translation is always an issue. Literally, Der Judenstaat translates as The State ofthe Jews. But Herzl himself used The Jewish State. There are many other issues. The important second sentence of the preface in German is "Es ist die Herstellung des Judenstaates" (it is the Herstellung of the Jewish state). Desmond Stewart (1974, p. 217, n. 1) discusses the alternation in the meaning of Herstellung from "establishment" to "restoration?'

2. It should be noted that scholars like David Sorkin (1987) reject the concept of self-hatred on the grounds that it is a moralistic verdict and not a historical explanation. A premise of the self-hatred argument appears to be that there are "good" and "bad" Jewish identities. Sander Gilman (1986) accepts the concept and has written a book on the subject.

3. There is a huge literature on both Herzl and Zionism. For eight early writings about him, see Herzl (1988, p. 158). For a sample of others, see those by JozsefPatai (1946), Ludwig Lewisohn (1955), Oscar K. Rabinowicz (1958), Amos Elon (1975), Norman Kotker (1972), and Steven Belier (1991). The Herzl Year Books (1958- 1996) contain much about him.

For a recent biography, which tries to demolish "Herzl-the-saint" by explaining his Zionism as a means of resolving his personal crisis over his Jewish identity, see Kornberg (1993).

For a general discussion of the reasons why Herzl's personal life is not very relevant to his economics, see Senn (1995).

There have long been bihliograhies on Israel and Zionism. For an older one see Iva Cohen (1970). For an annotated list of books on Zionism currently recommended by some distinguished scholars, see the In- ternet f'de: ftp://shamash.nysernet.org/israel/lists/scj-faq/reading-lists/zionism.

4. All but four of the Journal of Economic Literature's nineteen general classifications, A, B, C, and N, include topics Herzl discussed.

5. Despite his disclaimer, Herzl does deserve recognition as one of the few modern utopians whose visions were realized to a large extent. This has not yet been acknowledged in the extensive literature on utopias. Dreschler (personal communication) has another viewpoint about utopias. His view is that "a utopia is a scenario for didactic and/or heuristic puq~ses and NOT something to be achieved?' My argument is that Herzl thought of the Jewish state as ideal in the sense that anti-Semitism would be eliminated there.

6. It seems that he did not carefully consider what was happening in Russia where Jews were persecuted without being emancipated. Actions were taken also against all Jews, for example, during the systematic pogroms in Russia beginning in 1881. Herzl (p. 113) did anticipate an objection of the kind raised by the late Soviet Union to the emigration of Jews: "But the State revenues might suffer by the loss of a body of taxpayers,

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who, though little appreciated as citizens, are highly valued in finance. The State should, therefore, receive compensation for this loss."

7. He recognized the value of good will in business and anticipated that those who emigrated could "sell the good will of his original business, or hand it over to the control of managers under supervision of the Com- pany's officials" (p. 110).

Although I have found no recent reliable details, it is probable that larger sums of money have come into Israel as a result of German reparations than by way of the peaceful transfers Herzl anticipated. See the stan- dard work by Balabkins (1971) for the story to 1971.

In the 1930s, for a short time under the Nazis, some Jewish property was transferred to Palestine, and some fives were saved through the Haavara Company, which had a few of the functions of the Jewish Company.

8. "In the past, the government has paid Israeli citizens compensation for losses or destruction of property resulting from government actions or decisions" (Israel Info Service, Internet reply, July 25, 1995). But there is an extensive literature that has long debated israeli land-acquisition policies, especially with respect to the Palestinians. For a sample, see Said (1979) and the references there.

9. "Fiir Europa wiirden wir dort ein St/ick des Walles gegen Asien bilden, wir wiirden den Vorpostendienst der Kultur gegen die Barbarei besorgen." He evidently was not aware of how offensive a term like barbarism was to Muslims. In his defense, that kind of view of Asia was shared by left and liberal opinion of the time. For example, Friedrich Engels (1820-1895) thought the British occupation of Egypt, then a Turkish vassal, furthered human progress.

10. The reason for his neglect was, most probably, that the United States did not fit the case he was making about the causes and consequences of anti-Semitism.

11. Here Herzl shows some understanding of one of the elements of location theory. 12. Herzl did not want to be an economic innovator: "We have not the slightest intention of organizing trade

artificially" (p. 97). He thought that if there was sufficient "demand among Jews for an improvement of their status. . , then commerce will extend itself freely in the new country" (p. 97).

13. Israel has an excellent information service. The Israel Info Service on the Internet at < [email protected] > gave me several answers to specific questions. Other data about Israel was obtained from the printed or In- ternet sources provided by the Ministries of Finance, Environment, Energy and Infrastructure, Defense, Con- stmclion and Housing, Health, Religious Affairs, Foreign Affairs, Education and Culture, Agriculture, Economy and Planning, Science and Technology, Police, Justice, Labor and Social Welfare, Immigrants Absorption, Interior, Transport, Tourism, Industry and Trade, and Communication. Other official sources of data were the Israel Academy of Sciences and Humanities, the State Comptroller, the Bank of Israel, the Central Bureau of Statistics, the National Insurance Institute, the Postal Authority, the Israel Airports Authority, the Ports and Railways Authority, and the Israel Land Administration.

Because Israel is still a country under siege, the reliability of data from official sources might be question- ed. A slight reticence to fully answer a few questions and silence on a few others, in every case on quite delicate matters, was all I observed.

Another source used was "Israel;' Microsoft® Encarta, Copyright © 1994 Microsoft Corporation, Copyright © 1994 Funk & WagnaU's Corporation, and record 119 from CIA Worm Factbook (Internet at http://www, ic.gov/94fact/country/118.html).

Not all the data were complete through 1995, but any differences will be insignificant. Any misunderstan- ding or misinterpretation of the data is the author's sole responsibility. None of the Israeli sources are respon- sible for any of the conclusions or interpretations.

14. Joel Mokyr, in a personal communication, points out that one of the taproots of fascist anti-Semitism was the perception that many of the leaders of the Socialist movement--from Marx and Ferdinand Lassalle (1825-1864) to Leon Trotsky (Lev Davidovich Bronstein, 1879-1940) and Rosa Luxemburg (1870-1919)- were Jewish.

15. "We shall not revert to a lower stage, we shall rise to a higher one. We shall not dwell in mud huts; we shall build new more beautiful and more modern houses, and possess them in safety. We shall not lose our acquired possessions; we shall realize them. We shall surrender our well earned rights only for better ones. We shall not sacrifice our beloved customs; we shall find them again. We shall not leave our old home before the new one is prepared for us" (p. 82).

16. About 30 percent of Israelis eat only kosher food in which dairy products are never mixed with meat.

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17. "Other instruments considered to be of a constitutional nature are the Declaration of the Establishment of the State of Israel" and several other laws, including the Law of Return (1950) (gopher://israel-info.gov.il: 70/00/facts/state/st8).

Gross informs, in a personal communication, me that Israeli courts have not recognized the Declaration as a law, afortiori as having constitutional force (personal communication). I have not been able to resolve the issue.

Herzl might be considered directly responsible for the Law of Return, which grants every Jew the right to return to Israel and, on entry, to automatically acquire citizenship. It gives legal confirmation to the raison d'e~tre of the Jewish state and to the age-old yearning for the return to Zion as declared in the Basle Program issued by the First Zionist Congress in 1897.

19. There are pockets of minority languages. For example, about 3,000 Circassians are Sunni Muslims, who share neither the Arab origin nor the cultural background of the larger Islamic community. They have main- tained a distinct ethnic identity without assimilating either into Jewish society or into the general Muslim community. Arabic, although still used for everyday communication, is gradually being replaced by Hebrew among the youth, along with the Circassian language.

19. In the beginning, he would "deliver up Jewish criminals more readily than any other State would do" (p. 148). But if criminals make amends, "they will be received without any restrictions whatever, for our criminals also must enter upon a new life" (p. 148).

The rule of law Herzl wanted during the years just before the official recognition of Israel did not happen. This was primarily because of the fighting with England in those years. It was out of the question for the settlers to recognize British law with respect to criminal acts during that war. On the other hand, the rebellion against England never interfered with general law and order or property rights.

20. "Independent operatives and small employers, must be carefully taught on account of the rapid progress of scientific improvements, must acquire technical knowledge even if no longer very young men, must study the power of water, and appreciate the forces of electricity (p. 118).

21. Herzl understood the dangers of basing the new economy on an agrarian foundation. He thought that "the tax on land, the risks attached to crops, the pressure of large proprietors who cheapen labor, and American competition in particular" would make such an economy almost impossible" (p. 89). Manufacturers, however, "must therefore be treated with additional consideration" (p. 89).

22. "Indeed, we shall build in a bolder and more stately style than was ever adopted before, for we now possess means which men never yet possessed" (p. 94).

23. '~s a multi-ethnic, multi-cultural, multi-religious and multi-lingual society, Israel has a high level of infor- mal segregation patterns. While groups are not separated by official policy, a number of different sectors within the society choose to remain somewhat segregated in order to maintain their strong cultural, religious and/or ethnic identity. As a result, significant socio-economic disparities can be found between several of these sectors.

"In addition to the ultra-Orthodox and Arab sectors, which maintain essentially separate communities, other partly segregated groups include the more recent immigrants, as well as some of the older ones, who prefer to live among their own.

"Despite a fairly high level of social cleavage, the relatively low level of social conflict between these groups and mainstream Israeli society can be attributed to the country's judicial and political systems which repre- sent strict legal and civic equality.

"Thus Israel is not a melting-pot society, but rather more of a mosaic made up of a large number of differ- ent sectors; and, as such, it is quite stable despite the inherent potential for social unrest ("Pluralism and Segregation" 1995; gopher://israel-info.gov.il:70/OO/facts/society/so3d).

24. "The Society of Jews will be in a position to prepare scientifically accurate statistics of our human forces" (p. 134).

25. The importance of planning the order of settlement of the new country is expressed again and again: "For, above all, we require enormous numbers of unskilled laborers to do the first rough work of settlement, to lay down roads, plant trees, level the ground, construct railroads, telegraph installations, etc. All this will be carded out in accordance with a large and previously settled plan" (p. 107; see also p. 94).

26. What he meant in some cases is not entirely clear: "The principle of our administration will be strict cen- tralization of our local groups' autonomy" (p. 128).

27. "The Society will thus be acknowledged in its relations with Government as a State-creating power. This acknowledgment will practically create the state" (p. 94).

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28. The CBS prepares thousands of statistical series, describing socioeconomic phenomena: population and its movements, immigration, housing, employment, standard of living, consumption; activity in every economic sector including the labor force, industry, agriculture, construction, transport, finance, energy; as well as changes in the national accounts, international trade, and the balance of payments.

29. In that case, the Jewish Company would take over its management and ultimately turn the properties over to Christian substitutes "so that everything may be carded through in equity, fairness and justice, and without imperilling the internal welfare of the people" (p. 99). He expected the Company to make a profit on liqui- dating the European property and exchanging it for property in the new land because the new land would be inexpensive (.p. 100).

30. In fact, he was suspicious of the philanthropic efforts of assimilated Jews in organizing emigration societies: "For some of these charitable institutions are created not for, but against, persecuted Jews; they are created to dispatch these poor creatures just as fast and far as possible. And thus, many an apparent friend of the Jews turn out, on careful inspection, to be nothing more than an Anti-Semite of Jewish origin, disguised as a philanthropist" (p. 81).

31. Some worker benefits that Herzl lists are a seven-hour day and the ability of workers to work out their terms of service, earn pensions, and earn promotions.

32. In 1948 Israel adopted a flag with the six-pointed Star of David, an ancient Jewish symbol, on a white background with blue bars above and below it. The bars represent the traditional Jewish prayer shawls.

33. "Unemployment rate: 11% (1992 est.)" (C1A Worm Factbook: Current C1A World Factbook, Record (119) Israel (1994) (URL=http://www.ic.gov/94fact/country/l18.html).

"In 1993 unemployment fell, reaching an annual average of 10 percent" (from the Bank of Israel, Annual Report, ch. 4, "Unemployment" (1993) (gopher://israel-info.gov.il:70/OO/gowminlboifooi93/chap4/930403.boi).

"Unemployment rate (%) 10.0" (The Israeli Economy at Glance, "Facts and Figures 1993"' p. 1). According to Facts about Israel, "Over 50% of the labor force in Israel is employed in the public sector,

namely State or cooperative-owned institutions and enterprises. This is the highest percentage in the non- Commnist world. The labor force is almost entirely organized in trade unions" (p. 115).

34. Something like this currently exists in projects like Benei Baitcha (build your own home). 35. Herzl may have been prescient on one count about the army. In 1996, the main possibility of serious civil

disorder, in the worst case civil war, lies in the conflict between religious leaders and their followers in the army who threaten the bridge between the religious and secular communities. The most portentous issue is over the dismantling of army bases and Jewish settlements in territory occupied by Israel as it attempts to make peace.

36. At age eighteen, all eligible men and women are drafted. Women serve for two years: men, for three. Over 500 of about 800 job categories are open to women.

37. '~ccording to the Statistical Abstract of Israel, the average age for grooms (including Jews, Muslims, Chris- tians and Druze) marrying for the first time in 1992 was 26.4 years. The average age for brides in the same year was 23.3 years. We have no data on the rest of the world, therfore we cannot compare. My personal opinion is that Herzl was wrong--the more backward a society, the younger their youth marry" (Israel Info Service, Internet reply, July 25, 1995).

38. "Without claiming to have achieved absolute social equality, Israeli women have achieved an advanced posi- tion compared with most other societies. At the same time, some traditional restrictions on the role played by women are still applied in certain sectors of the population, specifically among the orthodox Jews and the non-Jewish minorities" (Division of Information, n.d., p. 80). The Women's Equal Rights Law of 1951 gives women equal status with men.

39. Last sentence of the preface. "Die Juden, die wollen, werden ihren Staat haben and sic werden ihn verdienen." Drechsler, in a personal communication, makes a somewhat different translation: "Those Jews who wish it will have their state and they will deserve i t"

40. Although the matter has not been settled, avoiding wars appears to be the one necessary condition for the long-run economic viability of a small state. Extremely small states in the middle of large ones--as, for ex- ample, Luxembourg--exist only because they get along with the larger states. Small states among other small states, like many of those in Africa and the Middle East, that fight with each other have not proven themselves economically viable in the long run.

Drechsler, in a personal communication, thinks that all nations need toleration from their neighbors or they perish or lose territory. He also cautions us to remember John Maynard Keynes's (1883-1946) famous dictum, "In the long run we are all dead"

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41. There are several reasons he does not fit into the usual histories of economics. He was not an economist. His reform efforts concentrated on one group, unlike the Continentals and Americans, who were more concerned with classes and nations. He does not earn a place in the history of institutional economics on the basis of one short tract, but the evidence in it does provide some enticing leads to a possible place in that history.

42. Like the members of the German historical school Herzl was attentive to the changing structure and function of economic institutions. He shared both Karl Heinrich Marx's (1818-1883) and Thorstein Bunde Veblen's (1857-1929) concern with interpreting cultural processes.

Mark E. Blum (in this issue) makes a persuasive case that many elements of Herzl's thought can also be traced to the cultural and intellectual milieu of the Austria of the time. Especially strong are the influences of the Habsburg monarchy and its administrative model. Blum's idea that HerzI's vcork was part of the deconstruc- lion of political-social norms that accompanies every fin-de-siecle in European history is provocative.

43. It should be noted that the book in which this appears (Caldwell, 1990) is a gold mine of information although badly handicapped by the lack of an index.

44. Reported in Aron (1956-1957, p. 294). When Freud later met Herzl in a bus, he was impressed by the great similarity of the real person to the image of his dream.

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