What Herzl did

Herzl was well aware of the requirement that the new Jewish state be econ­omically viable. As a result, he devoted a great deal of attention to its economic structure. He recognized that what we today call an adequate infrastructure (social overhead capital, roads, railroads and so on) would be needed if the state was to succeed.

The vast bulk of the literature on the problems of industrialization and development assumed an existing state with an infrastructure and a function­ing legal and economic system. Herzl could not. Although he had to start from scratch, he found the right approach. Nicholas Balabkins points out that ‘Herzl argued that such public investments should not be undertaken in a haphazard manner and in fact insisted that there should be a blueprint for these public investments’ (Balabkins, 1996, p. 170).

The economic requirements of the new state as Herzl imagined them, cou­pled with his own training, required nothing less than a strong hand to guide developments. The direction initially was to come from two corporate bodies, the Society of Jews and the Jewish Company and, afterwards, the state. He outlined the legal structure of the first two and guessed about the last. The Jewish Company furnishes a good example of his method of combining law and economics. He starts by defining its principal function which was to be to ‘convert into cash all vested interest left by departing Jews’ (Herzl, 1946, 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’ (ibid., p. 93). The Jewish Company was to be the financial arm of Zionism. He then decides upon an appropriate legal structure. It is to be ‘founded as a joint stock company subject to English jurisdiction, framed according to English laws, and under the protection of England’ (ibid., p.

Herzl touched upon several kinds of law: civil, criminal, international and commercial. He did not analyse them, but used his knowledge about them for his own purposes. He was concerned with Jewish law which was different from both Continental code law and English law. The differences stemmed, not so much from the religious nature of the Jewish law, but from the fact that the fundamental concepts which are the basis of the law, justice, welfare, equity and the like, were defined very differently. Here, again, he was a pioneer in his recognition of still unresolved problems that stem from differ­ent premises about the law and the relationships of different kinds of legal systems to the economic order.

Herzl wanted a rule of law but he was not sure about what kind of legal system would best suit the new state. In discussing immigration he says that it will be ‘inaugurated with absolute conformity to law’ (ibid., p. 83). 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’ (ibid., p. 147).

Property rights defined in law are fundamental for a modern market economy. Herzl recognized their importance. In discussing the departure of the colonists, Herzl insisted that everything be ‘carried out with due consid­eration for acquired rights, and with absolute conformity to law’ (ibid., p. 150). He is concerned that no property held by Jews should be lost (ibid., p. 79). He is also concerned that the emigrants should 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’ (ibid., p. 148).

Herzl’s recognition and acceptance of many of the principles of the market economy are very evident.

Herzl did not want to be an economic innovator, but he became one. There is little that is original in the specific innovations he proposed. Innovation refers to change, originality refers to the quality or fact of being original. Many innovations are not original. His method was close to the concept of entrepreneurship described by Joseph Alois Schumpeter (1883-1950). Change is brought about by new combinations of techniques, practices and ideas. The innovations and adaptations in the legal and economic institutions he pro­posed were all devised in the light of his understanding of what was required for his dream to come true. His aim was a Jewish state, a homeland for Jews. It was not to be a theocracy. What is original is how he put together the institutions he proposed in order to achieve his aims.

One way was his attempt to link the problems he saw with solutions employing appropriate incentives. He discussed many of the subjects of law and economics, often, as Backhaus says, in a modern way (1996, p. 128). His approach is primarily institutional, but with a greater emphasis on incentive­compatible behaviour than is found in most older institutional analyses. Voluntarism was to play a role. Incentives to follow the plans were to be more those of the carrot than the stick. He found no conflict between his efforts to combine the carrot of incentive-compatible behaviour with his belief that social problems can be solved by actions from above and the stick that is implied.

Statistics, in the older sense of measurement, play a big role in Herzl’s plans. They were to be used for the purpose of making sure that the plans were based on reality, for example in providing for the settlers and the new towns. His legal training, along with his later experience as a journalist, made him acutely aware of the complexities that his plans faced. This awareness found many expressions in his work on law and economics.

There are dozens of passages in which Herzl demonstrates his methods of using law and economics for his purpose. He recognized the potential difficulties of securing territory for the new state. He always assumed it would have to be purchased. In his discussion of the possibilities for obtain­ing it he often combines political and economic bargaining concepts. He considered the ways the benefits of the new state would come to those who occupied the land on which it was to be founded.

To fully appreciate Herzl’s view of economics in the new state, one must understand two other premises. The new state was to utilize the most ad­vanced technology. This, coupled with entrepreneurship, would ensure its success. His confidence in the spirit of enterprise and technological solutions appears in many places besides his discussions of worker education, building and agriculture: ‘The word “impossible” has ceased to exist in the vocabulary of technical science’ (ibid., p. 151). He was one of the first to recognize the practical influence of technological change on both the law and economic institutions.

Herzl’s broad approach required that he consider many economic elements outside the scope of modern law and economics. Among these are incentives to work and its organization, philanthropy, the evolution of social organiz­ations, housing and town planning. Some topics he treated lightly. Women are scarcely mentioned. Of course he was not right about everything. He badly misjudged the Arab reaction to the Israeli occupation. Because so many interests had to be taken into account, Israel took a much longer time to come into being than he expected. Many of his ideas were ignored, for example those about Israel’s flag, the seven-hour day, the rigid hierarchical organiz­ation of labour, and the barter system.