Private Property: Recent Episodes
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Private Property looks at economic, historical, legal, philosophical works. Private ownership of the means of production is the center of the market economy.
The federal government, along with pharmaceutical, alcohol, and tobacco companies have spent money trying to put the legalization genie back in the prohibition bottle, so any argument or propaganda will suit their purposes.
Original Article: "Some Conservatives Still Pine for the Good Ol' Days of Cannabis Prohibition"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Many landlords just received a crash course about how irrelevant their property rights are in Washington.
Original Article: "An End to the Bizarre CDC Rent Moratorium"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Marxism sees the coming of socialism as an inescapable necessity. Even if one were willing to grant the correctness of this opinion, one still would by no means be bound to embrace socialism. It may be that despite everything we cannot escape socialism, yet whoever considers it an evil must not wish it onward for that reason and seek to hasten its arrival; on the contrary, he would have the moral duty to do everything to postpone it as long as possible. No person can escape death; yet the recognition of this necessity certainly does not force us to bring about death as quickly as possible. Marxists would have to become socialists just as little as we must become suicides if they were convinced that socialism would be bound to bring about no improvement but rather a worsening of our social conditions.Cf. Hilferding, Das Finanzkapital (Vienna:] 91 0), p. X.
Socialists and liberals agree in seeing the ultimate goal of economic policy as attainment of a state of society assuring the greatest happiness for the greatest number. Welfare for all, the greatest possible welfare for the greatest possible number—that is the goal of both liberalism and of socialism, even though this may now and then be not only misunderstood but even disputed. Both reject all ascetic ideals that want to restrain people to frugality and preach renunciation and flight from life; both strive for social wealth. Only over the way of reaching this ultimate goal of economic policy do their views disagree. An economic order resting on private ownership of the means of production and according the greatest possible scope to the activity and free initiative of the individual assures to the liberal the attainment of the goal aspired to. The socialist, on the other hand, seeks to attain it by socialization of the means of production.
The older socialism and communism strove for equality of property and of income distribution. Inequality was said to be unjust; it contradicted divine laws and had to be abolished. To that liberals reply that fettering the free activity of the individual would harm the general interest. In the socialist society the distinction between rich and poor would fall away; no one would any longer possess more than another, but every individual would be poorer than even the poorest today, since the communistic system would work to impede production and progress. It may indeed be true that the liberal economic order permits great differences in income, but that in no way involves exploitation of the poor by richer people. What the rich have they have not taken away from the poor; their surplus could not be more or less redistributed to the poor in the socialist society, since in that society it would not be produced at all. The surplus produced in the liberal economic order beyond what could also be produced by a communistic economic order is not even entirely distributed to the possessors; a part of it even accrues to the propertyless, so that everyone, even the poorest, has an interest in the establishment and maintenance of a liberal economic order. Fighting erroneous socialist doctrines is therefore not a special interest of a single class but the cause of all; everyone would suffer under the limitation of production and of progress entailed by socialism. That one has more to lose, another less, is incidental in relation to the fact that all would be harmed and that the misery awaiting them is equally great.
That is the argument in favor of private ownership of the means of production that every socialism that does not set up ascetic ideals would have to refute. Marx did indeed perceive the necessity of this refutation. When he sees the driving factor of the social revolution in the fact that the relations of ownership change from forms of development of the productive forces into fetters on them,Cf. Marx, Zur Kritik der politischen Ökonomie, edited by Kautsky (Stuttgart: 1897), P. xi. when he once in passing tries to offer a proof—which failed—that the capitalist manner of production impedes the development of productivity in a particular case,Cf. Marx, Das Kapital, vol. 3, first part, third edition (Hamburg: 1911), pp. 242 ff. he does incidentally recognize the importance of this problem. But neither he nor his followers could attribute to it the significance it deserves for deciding the question of socialism or liberalism. They are hampered in doing so even by the entire orientation of their thinking around the materialist interpretation of history. Their determinism just cannot understand how one can be for or against socialism, since the communist society does form the inescapable necessity of the future. It is moreover settled for Marx, as a Hegelian, that this development toward socialism is also rational in the Hegelian sense and represents progress toward a higher stage. The idea that socialism could mean a catastrophe for civilization would necessarily have seemed completely incomprehensible to him.
Marxian socialism therefore had no incentive to consider the question whether or not socialism as an economic form was superior to liberalism. To it, it seemed settled that socialism alone signified welfare for all, while liberalism enriched a few but abandoned the great masses to misery. With the appearance of Marxism, therefore, controversy over the advantages of the two economic orders died away. Marxists do not enter into such discussions. Ex professo [avowedly] they have not even tried to refute the liberal arguments in favor of private ownership of the means of production, not to mention actually refuting them.
In the view of individualists, private ownership of the means of production fulfills its social function by conveying the means of production into the hands of those who best understand how to use them. Every owner must use his means of production in such a way that they yield the greatest output, that is, the highest utility for society. If he does not do this, then this must lead to his economic failure, and the means of production shift over to the disposal of those who better understand how to use them. In that way the inappropriate or negligent application of means of production is avoided and their most effective utilization assured. For means of production that are not under the private ownership of individuals but rather are under social ownership, this is not true in the same way. What is missing here is the incentive of the owner's self-interest. The utilization of equipment is therefore not as complete as in the private sector; with the same input the same output cannot therefore be achieved. The result of social production must therefore remain behind that of private production. Evidence of that has been supplied by public enterprises of the state and municipalities (so individualists further argue). It is demonstrated and well known that less is accomplished in these than in the private sector. The output of enterprises that had been quite profitable under private ownership sank at once after coming under state or municipal ownership. The public firm can nowhere maintain itself in free competition with the private firm; it is possible today only where it has a monopoly that excludes competition. Even that alone is evidence of its lesser economic productivity.
Only a few socialists of Marxist orientation have recognized the significance of this counterargument; otherwise they would have had to admit that this is a point on which everything depends. If the socialist mode of production will be able to achieve no additional output in comparison with private enterprise, if, on the contrary, it will produce less than the latter, then no improvement but rather a worsening of the lot of the worker is to be expected from it. All argumentation of the socialists would therefore have to concentrate on showing that socialism will succeed in raising production beyond the amount possible in the individualistic economic order.
Most Social Democratic writers are quite silent on this point; others touch on it only incidentally. Thus, Kautsky names two methods that the future state will use for raising production. The first is the concentration of all production in the most efficient firms and the shutting down of all other, less high-ranking, firms.Cf. Kautsky, Die soziale Revolution, third edition (Berlin: 1911), II, pp. 21 ff. That this is a means of raising production cannot be disputed. But this method is in best operation precisely under the rule of free competition. Free competition pitilessly culls out all less-productive enterprises and firms. Precisely that it does so is again and again used as a reproach against it by the affected parties; precisely for that reason do the weaker enterprises demand state subsidies and special consideration in sales to public agencies, in short, limitation of free competition in every possible way. That the trusts organized on a private-enterprise basis work in the highest degree with these methods for achieving higher productivity must be admitted even by Kautsky, since he actually cites them as models for the social revolution. It is more than doubtful whether the socialist state will also feel the same urgency to carry out such improvements in production. Will it not continue a firm that is less profitable in order to avoid local disadvantages from its abandonment? The private entrepreneur ruthlessly abandons enterprises that no longer pay; he thereby makes it necessary for the workers to move, perhaps also to change their occupations. That is doubtless harmful above all for the persons affected, but an advantage for the whole, since it makes possible cheaper and better supply of the markets. Will the socialist state also do that? Will it not, precisely on the contrary, out of political considerations, try to avoid local discontent? In the Austrian state railroads, all reforms of this kind were wrecked because people sought to avoid the damage to particular localities that would have resulted from abandonment of superfluous administrative offices, workshops, and heating plants. Even the Army administration ran into parliamentary difficulties when, for military reasons, it wanted to withdraw the garrison from a locality.
The second method of raising production that Kautsky mentions, "savings of very many kinds," he also, by his own admission, finds already realized by the trusts of today. He names, above all, savings in materials and equipment, transport costs, and advertising and publicity expenses.Die soziale Revolution, p. 26. Now as far as savings of material and transport are concerned, experience shows that nowhere are operations carried on with so little thrift in this respect and nowhere with such waste of labor and materials of all kinds as in public service and public enterprises. Private enterprise, on the contrary, seeks, even in the owner's own interest alone, to work as thriftily as possible.
The socialist state will, of course, save all advertising expenses and all costs for traveling salesmen and for agents. Yet it is more than doubtful whether it will not employ many more persons in the service of the social apparatus of distribution. We have already had the experience in the war that the socialist apparatus of distribution can be quite ponderous and costly. Or are the costs of the bread, flour, meat, sugar, and other tickets really smaller than the costs of advertisements? Is the large staff that is necessary for the issue and administration of these rationing devices cheaper than the expenditure on traveling salesmen and agents?
Socialism will abolish small retail shops. But it will have to replace them with goods-delivery stations, which will not be cheaper. Even consumer cooperatives, after all, have no fewer employees than retail trade organized in a modern way employs; and precisely because of their higher expenses, they often could not stand the competition with merchants if they were not given tax advantages.
We see on what weak ground Kautsky's argumentation stands here. When he now asserts that "by application of these two methods a proletarian regime can raise production at once to so high a level that it becomes possible to raise wages considerably and at the same time reduce hours of work," well, this is an assertion for which no proof has so far been provided.One has heard often enough in recent years of frozen potatoes, rotten fruit, and spoiled vegetables. Did not things like that happen earlier? Of course, but to a much smaller extent. The dealer whose fruit spoiled suffered losses of wealth that made him more careful in the future; if he did not pay better attention, then this was finally bound to lead to his economic disappearance. He left the management of production and was shifted to a position in economic life where he was no longer able to do harm. It is otherwise in dealings with state-traded articles. Here no self-interest stands behind the goods; here officials manage whose responsibility is so divided that no one particularly concerns himself about a small misfortune.
The social functions of private ownership of the means of production are not yet exhausted in assuring the highest attainable productivity of labor. Economic progress rests on the continuing accumulation of capital. That was never disputed either by liberals or by socialists. The socialists who have concerned themselves somewhat more closely with the problem of the organization of the socialist society also do not neglect, then, always to mention that in the socialist state the accumulation of capital, which today is undertaken by private parties, will be society's responsibility.
In the individualistic society the individual accumulates, not society. Capital accumulation takes place by saving; the saver has the incentive of receiving income from the saved capital as the reward of saving. In the communist society, society as such will receive the income that today flows to the capitalists alone; it will then distribute this income equally to all members or otherwise use it for the good of the whole. Will that alone be a sufficient incentive for saving? To be able to answer this question, one must imagine that the society of the socialist state will be faced every day with the choice whether it should devote itself more to the production of consumer goods or more to that of capital goods, whether it should choose productive processes that do indeed take a shorter time but correspondingly yield less output or choose ones that take more time but then also bring greater output. The liberal thinks that the socialist society will always decide for the shorter production period, that it will prefer to produce consumer goods instead of capital goods, that it will consume the means of production that it will have taken over as heir of the liberal society or at best maintain them but in no case increase them. That, however, would mean that socialism will bring stagnation, if not the decline of our whole economic civilization, and misery and need for all. That the state and the cities have already pursued investment policy on a large scale is no disproof of this assertion, since they pursued this activity entirely with the means of the liberal system. The means were raised by loans, that is, they were provided by private parties who expected from them an increase in their capital incomes. If in the future, however, the socialist society should face the question whether it will feed, clothe, and house its members better or whether it will save on all these things in order to build railroads and canals, to open mines, to undertake agricultural improvements for the coming generations, then it will decide for the former, even on psychological and political grounds alone.
A third objection to socialism is the famous argument of Malthus. Population is said to have a tendency to grow faster than the means of subsistence. In the social order resting on private ownership, a limitation of the increase in population is posed by the fact that each person is able to raise only a limited number of children. In the socialist society this impediment to population increase will fall away, since no longer the individual but rather the society will have to take care of raising the new generation. Then, however, such a growth of population would soon occur that need and misery for all would be bound to appear.While the socialists have scarcely deigned to reply to the two first arguments mentioned, they have concerned themselves more exhaustively with the Malthusian law, without, to be sure, in the view of the liberals, refuting the conclusions that follow from it.
Those are the objections to the socialist society with which everyone would have to come to grips before he took the side of socialism.
It is no refutation at all of the objections raised against socialism that the socialists seek to stigmatize everyone who is not of their opinion with the label "bourgeois economist" as representative of a class whose special interests run counter to the general interest. That the interests of the possessors run counter to those of the whole would indeed first have to be proved; that is precisely what the entire controversy revolves around.
The liberal doctrine starts with the fact that the economic order resting on private ownership of the means of production removes the opposition between private and social interest because each individual's pursuit of his rightly understood self-interest assures the highest attainable degree of general welfare. Socialism wants to establish a social order in which the self-interest of the individual, selfishness, is excluded, a society in which everyone has to serve the common good directly. It would now be the task of the socialists to show in what manner this goal could be reached. Even the socialist cannot call into question the existence of a primary and direct opposition between the special interests of the individual and those of the whole, and he must also admit that a labor order can be based just as little on the categorical imperative alone as on the compulsory force of penal law. Up to now, however, no socialist has ever made even the mere attempt to show how this gap between special interest and general welfare could be bridged over. The opponents of socialism, however, along with Schäffle, consider precisely that question to be "the decisive but up to now entirely undecided point on which in the long run everything would depend, on which victory or defeat of socialism, reform or destruction of civilization by it, would be dependent from the economic side."Cf. Schäffle, Die Quintessenz des Sozialismus, 18th edition (Gotha: 1919), p. 30.
Marxian socialism calls the older socialism utopian because it tries to construct the elements of a new society out of one's head and because it seeks ways and means of implementing the contrived social plan. In contrast, Marxism is supposed to be scientific communism. It discovers the elements of the new society in the laws of development of capitalist society, but it constructs no future state. It recognizes that the proletariat, because of its conditions of life, can do nothing else than finally overcome every class opposition and thereby realize socialism; however, it does not seek philanthropists, as the utopians do, who would be ready to make the world happy by the introduction of socialism. If one wants to see the distinction between science and utopia in that, then Marxian socialism rightly claims its name. One could, however, make the distinction in another sense also. If one calls utopian all those social theories which, in outlining the future social system, start with the view that after introduction of the new social order people will be guided by essentially different motives than in our present conditions,Cf. Anton Menger, Das Recht auf den vollen Arbeitsertrag, fourth edition (Stuttgart: 1910), pp. 105 ff. then the socialist ideal of Marxism is also a utopia. In another sense than is usual, of course, one can distinguish between scientific and philanthropic socialism. Those socialists who are concerned in their prograins to start with economic lines of thinking and take the necessity of production into account can be called scientific socialists, in contrast with those who know how to bring forth only ethical and moral discussions and set up only a program for distribution but not for production also. Marx clearly noted the defects of merely philanthropic socialism when, after moving to London, he proceeded to study the economic theorists. The result of this study was the doctrine presented in Das Kapital. Later Marxists, however, have badly neglected this side of Marxism. They are much more politicians and philosophers than economists. One of the chief defects of the economic side of the Marxian system is its connection with classical economics, which corresponded to the state of economic science at that time. Today socialism would have to seek a scientific support in modern economics, in the theory of marginal utility. Cf. Joseph Schumpeter, "Das Grundprinzip der Verteilungslehre," Archiv für Sozialwissenschaft und Sozialpolitik, vol. 42, 1916/1917, P. 88. Its continued existence presupposes men who are in no position to pursue any special interest against the general interest.How easily the Marxists disregard this argument can be seen in Kautsky: "If socialism is a social necessity, then if it came into conflict with human nature, it would be the latter that would get the worse of the matter and not socialism." Preface to Atlanticus [Ballod], Produktion und Konsum im Sozialstatt (Stuttgart: 1898), p. xiv. Again and again, when this objection is made to him, the socialist refers to the fact that both today and in every earlier stage of society very much work, and often precisely the most highly qualified work, was indeed performed for its own sake and for the community and not for the direct advantage of the worker. He points to the indefatigable effort of the researcher, to the sacrifice of the physician, to the conduct of the warrior in the field. In recent years one could hear again and again that the great deeds performed by soldiers in the field were to be explained only by pure devotion to the cause and by a high sense of sacrifice, or at worst, perhaps, by striving for distinction, but never by striving for private gain. This argumentation overlooks the fundamental distinction that exists, however, between economic work of the usual kind and those special performances. The artist and the researcher find their satisfaction in the pleasure that the work in itself affords them and in the recognition that they hope to reap at some time, even if perhaps only from posterity, even in the case when material success should be lacking. The physician in the area of pestilence and the soldier in the field repress not only their economic interests but also their drive for self-preservation; even that alone shows that there can be no question of a regular state of affairs but only of a transitory, exceptional state from which no far-reaching conclusions can be drawn.
The treatment that socialism allots to the problem of self-interest points clearly to its origin. Socialism comes from the circles of intellectuals; at its cradle stand poets and thinkers, writers and men of letters. It does not deny its derivation from those strata that even on professional grounds alone have to concern themselves with ideals. It is an ideal of noneconomic people. Therefore, it is not much more striking that writers and men of letters of every kind were always represented among its adherents in large numbers and that it could always count on fundamental agreement among officials.
The view characteristic of officials comes clearly to light in the treatment of the problem of socialization. From the bureaucratic point of view, it involves only questions of management and administrative technique that can easily be solved if only one allows the officials more freedom of action. Then socialization could be carried out without danger of "eliminating free initiative and individual readiness to bear responsibility on which the successes of private business management rest."Cf. Bericht der Sozialisierungskommission über die Sozialisierung der Kohle [Report of the Socialization Commission on the Socialization of Coal), Frankfurter Zeitung, 12 March 1919. Actually, free initiative of individuals cannot exist in the socialized economy. It is a fateful error to believe it possible, by some sort of organizational measures, to leave scope for free initiative even in the socialized enterprise. Its absence does not hinge on defects of organization; it is grounded in the essence of the socialized enterprise. Free initiative means taking risks in order to win; it means putting up stakes in a game that can bring gain or loss. All economic activity is composed of such risky undertakings. Every act of production, every purchase by the trader and by the producer, every delay in selling, is such a risky undertaking. Still more so is undertaking every sizable investment or change in the enterprise, not to mention the investment of new capital. Capitalists and entrepreneurs must take chances; they cannot do otherwise, since they have no possibility of maintaining their property without such risk-bearing.
Anyone who has means of production at his disposal without being their owner has neither the risk of loss nor the chance of gain, as an owner does. The official or functionary need not fear loss, and for that reason he cannot be allowed to act freely and unrestrictedly like the owner. He must be restricted in some manner. If he could manage without restrictions, then he simply would be the owner. It is playing with words to want to impose readiness to bear individual responsibility on the nonowner. The owner does not have readiness to bear responsibility; he just does bear responsibility because he feels the consequences of his actions. The functionary may have ever so much readiness to bear responsibility; yet he never can bear responsibility other than morally. Yet the more moral responsibility one imposes on him, the more one cramps his initiative. The problem of socialization cannot be solved by civil-service instructions and reforms of organization.
The older socialists were opponents of democracy. They want to make the whole world happy with their plans and are impatient with anyone who is of another opinion. Their favorite form of state would be enlightened absolutism, in which they always secretly dream of themselves occupying the position of enlightened despot. Recognizing that they neither occupy this position nor can attain it, they seek the despot who would be ready to adopt their plans and become their tool. Other socialists, again, are oligarchically minded and want to have the world ruled by an aristocracy that includes the—in their opinion—really best people. In that regard it is a matter of indifference whether these aristocrats should be the philosophers of Plato, the priests of the Church, or the Newtonian Council of Saint-Simon.
With Marx there occurs in this respect, also, a complete change of interpretation. The proletarians form the immense majority of the population. They all necessarily have to become socialists, though, since consciousness is determined by social reality. Thus socialism, in contrast with all earlier class struggles, which had been movements of minorities or in the interests of minorities, is said to be the movement of the vast majority in the interest of the vast majority for the first time in history. It follows that democracy is the best means for realizing socialism. The real bedrock on which democratic socialism was built was that it found its base primarily in Germany, Austria, and Russia, thus in countries in which democracy had not been realized. There the democratic program was the obvious program of every opposition party and so necessarily of socialism also.
When the possibility offered itself in Russia to a very small number of socialists in relation to the millions of the people to grasp rule for themselves by capturing the means of power of broken-down Czarism, the principles of democracy were quickly thrown overboard. In Russia socialism certainly is not a movement of the immense majority. That it claims to be a movement in the interest of the immense majority is nothing special; all movements have claimed that. It is certain that the rule of the Bolsheviks in Russia rests just as much on possession of the government apparatus as the rule of the Romanovs once did. A democratic Russia would not be Bolshevik.
In Germany under the dictatorship of the proletariat there can be no problem, as its proponents assert, of defeating the resistance of the bourgeoisie to the socialization of the means of production. If the socialization of small peasant farms is renounced in advance and the continued receipt of small rentier incomes allowed also, as present-day socialism intends, then scarcely any resistance to socialization is to be expected in Germany. Liberal ideas, with which alone resistance against socialism could be mounted, have never won much ground in Germany; today they are shared by scarcely a dozen persons in Germany. Resistance to socialization based on the standpoint of private interests never has, however—rightly—any prospect of success, least of all in a country in which all industrial and mercantile wealth has always seemed to the great masses to be a crime. The expropriation of industry, of mining, and of big landholdings and the elimination of trade are the impetuous demand in Germany today of the overwhelming majority of the German people. To carry it out, dictatorship is needed least of all. Socialism can rely on the great masses at the moment; it does not yet have to fear democracy.
The German economy is today in the most difficult position imaginable. On the one hand the war has destroyed immense property values and laid upon the German people the obligation to pay huge reparations to the opponents; on the other hand it has brought clearly to consciousness the fact of the relative overpopulation of the German land. Everyone must recognize today that it will be extraordinarily difficult, if not impossible, for German industry after the war to compete with foreign industry without a sharp reduction of the wage level. Hundreds of thousands, even millions, of Germans are today seeing their small possessions melting away day by day. People who still considered themselves rich a few months ago, who were envied by thousands and, as "war winners," did not exactly enjoy affectionate attention in public, can today calculate exactly when they will have consumed the modest remains of their apparent wealth and will be left beggars. Members of the independent professions see how their standard of living is sinking day by day without hope of improvement.
That a people in such a position can be gripped by despair is not astonishing. It is easy to say that there is only one single remedy for the danger of the increasing misery of the entire German people, namely, to resume work as fast as possible and try, through improvements in the productive process, to make up for the damages inflicted on the German economy. But it is understandable that a people to whom the idea of power was preached for decades, whose instinct for force was awakened by the horrors of the long war, also seeks first of all in this crisis to resort again to power politics. The terrorism of the Spartacists continues the policy of the Junkers, as the terrorism of the Bolsheviks continues the policy of Czarism.
The dictatorship of the proletariat would facilitate getting over economic difficulties for the moment by expropriating the consumption goods held by the propertied classes. It is dear that that is not socialism and that no socialist theorist has ever advocated it. In this way one can only badly and only for a short time disguise the difficulties that confront production on a socialist basis. Imports of foodstuffs from abroad can be financed for a certain time by selling foreign securities and by exporting works of art and jewels. Sooner or later, however, this means must fail.
The dictatorship of the proletariat wants to use terror to nip any stirring up of opposition in the bud. Socialism is believed established for all eternity once its property has been taken away from the bourgeoisie and all possibility of public criticism has been abolished. It cannot be denied, of course, that much can be done in this way, that, above all, all European civilization can thus be destroyed; but one does not thereby build a socialist order of society. If the communist social order is less suited than one resting on private ownership of the means of production to bring about "the greatest happiness of the greatest number," then the ideas of liberalism cannot be killed off even by terrorist measures.
Marxian socialism, as a fundamentally revolutionary movement, is inwardly inclined toward imperialism. No one will dispute that, least of all the Marxists themselves, who straightforwardly proclaim the cult of revolution. It is less noted, however, that modern socialism of necessity must be imperialistic outwardly also.
Modern socialism does not come forth in propaganda as a rationalist demand; it is an economic-policy position that presents itself as a doctrine of salvation in the manner of religions. As an economic-policy idea it would have had to compete intellectually with liberalism; it would have had to try to invalidate the arguments of its opponents logically and to turn aside their objections against its own doctrines. Individual socialists have done that, too. By and large, though, socialists have scarcely bothered themselves with scientific discussion of the advantages and disadvantages of the two conceivable systems of social production. They have proclaimed the socialist program as a doctrine of salvation. They have represented all earthly suffering as an emanation of the capitalist social order and have promised, with the implementation of socialism, the removal of everything painful. They held the capitalist economy responsible for all shortcomings of the past and present. In the state of the future all longing and hoping will be fulfilled; there the restless will find rest; the unhappy, happiness; the inadequate, strength; the sick, cure; the poor, wealth; the abstinent, enjoyment. In the state of the future, work will be a pleasure and no longer a torment. In the state of the future, an art will flourish of whose magnificence "bourgeois" art gives no idea, and a science that will solve all riddles of the universe without remnant. All sexual need will disappear; man and wife will give each other happiness in love that earlier generations never dreamed of. Human character will undergo a thoroughgoing change; it will become noble and spotless; all intellectual, moral, and bodily inadequacies will fall away from mankind. What flourishes for the German hero in Valhalla, for the Christian in God's bosom, for the Moslem in Mohammed's paradise—socialism will realize all that on earth.
The Utopians, above all Fourier, were insatiable in wanting to paint the details of this life of ease. Marxism has most strictly tabooed every sketch of the state of the future. But this prohibition referred only to description of the economic, governmental, and legal order of the socialist state and was a masterful propaganda gambit. Since the arrangements of the future state were left in mysterious obscurity, the opponents of socialism were deprived of all possibility of criticizing them and perhaps showing that their realization could in no way create a paradise on earth. Depicting the favorable consequences of the socialization of property, on the contrary, was by no means as proscribed by Marxism as was demonstration of the ways and means by which it could be accomplished. In again and again representing all earthly evils as necessary concomitants of the capitalist social order and further declaring that they would be absent from the state of the future, it has, in utopian depiction of the happiness that it promises to bring, outdone the most imaginative authors of utopian novels. Mysterious intimation and mystical allusion have far stronger effect than open explanation.
That socialism appeared as a doctrine of salvation made the struggle against liberalism easy for it. Whoever seeks to refute socialism rationally encounters among most socialists not rational considerations, as he expects, but rather a belief, not derived from experience, in redemption by socialism. One undoubtedly can also defend socialism rationally. Yet for the great mass of its adherents it is a doctrine of salvation; they believe in it. For those for whom the religious gospels have lost force, it is, in place of faith, a consolation and hope in the difficulties of life. In the face of such conviction, all rationalist criticism fails. Whoever comes to the socialist of this sort with rational objections finds the same lack of understanding that rationalist criticism of the doctrines of faith encounters with the believing Christian.
In this sense, comparing socialism with Christianity was thoroughly justified. Yet the Kingdom of Christ is not of this world; socialism, on the contrary, wants to establish the kingdom of salvation on earth. Therein lies its strength, therein, however, its weakness too, from which it will collapse some day just as quickly as it has triumphed. Even if the socialist method of production really could raise productivity and provide greater welfare for all than the liberal method, it would be bound bitterly to disappoint its adherents, who also expect the highest exaltation of the inner feeling of happiness from it. It will not be able to remove the inadequacy of everything earthly, not quiet the Faustian drive, not fulfill inner yearning. When socialism will have become reality, it will have to recognize that a religion not referring to the life to come is an absurdity.
Marxism is an evolutionary theory. Even the word "revolution" has the meaning "evolution" in the sense of the materialistic interpretation of history. Yet regard for the Messianic character of the socialist gospel was bound to drive Marxian socialism again and again to endorsing violent overthrow, revolution in the strict sense of the word. It could not admit that evolution was coming nearer to socialism in any other way than that the contradictions of the capitalist mode of production were becoming ever more glaring and thereby bringing the revolutionary overthrow of capitalism into the near future. If it had been willing to admit that evolution was leading to the realization of socialism step by step, then it would have gotten into the embarrassment of having to explain just why its prophecies of salvation were not also being fulfilled step by step to some extent. For that reason Marxism necessarily had to remain revolutionary if it did not want to give up the strongest device of its propaganda, the doctrine of salvation; for that reason, despite all science, it had to hold firm to its theory of increasing misery and collapse. For that reason it had to reject the revisionism of Bernstein; for that reason it had to let not one iota of its orthodoxy be stolen from it.
Now, however, socialism is the victor. The day of fulfillment has dawned. Millions stand around impetuously demanding the salvation that is supposed to await them; they demand riches, they demand happiness. And now shall the leaders come and console the multitude by saying that diligent labor, perhaps after decades or centuries, will become their reward and that inner happiness can never be attained with outward means? Yet how have they reproached liberalism because it recommended diligence and thrift to the poor! Yet how have they derided the doctrines that would not ascribe all earthly hardship to the deficiency of social arrangements
Socialism has only one way out of this position. Regardless of the fact that it holds power, it must still keep trying to appear as an oppressed and persecuted sect, impeded by hostile powers from pushing through the essential parts of its program, and so shift onto others the responsibility for the nonappearance of the prophesied state of happiness. Along with that, however, the struggle against these enemies of general salvation becomes an unavoidable necessity for the socialist commonwealth. It must bloodily persecute the bourgeoisie at home; it must take the offensive against foreign countries that are not yet socialist. It cannot wait until the foreigners must turn to socialism voluntarily. Since it can explain the failure of socialism only by the machinations of foreign capitalism, it necessarily arrives at a new concept of the offensive socialist international. Socialism can be realized only if the whole world becomes socialist; an isolated socialism of one single nation is said to be impossible. Therefore, every socialist government must immediately concern itself with the extension of socialism abroad.
That is quite a different kind of internationalism from that of the Communist Manifesto. It is not defensively but offensively conceived. To help the idea of socialism to victory, however, it should suffice—one should think—for the socialist nations to arrange their societies so well that their example leads others to imitate them. Yet for the socialist state, attack on all capitalist states is a vital necessity. To maintain itself internally it must become aggressive externally. It cannot rest before it has socialized the whole world.
Socialist imperialism is also quite without a basis for economic policy. It is hard to see why a socialist commonwealth could not also acquire in trade with foreign countries all those goods that it could not produce itself. The socialist who is convinced of the higher productivity of communist production could dispute that least of all.Note how deficient the argument is in Marxist literature before 1918 for the thesis that socialism is possible only as world socialism.
Socialist imperialism outdoes every earlier imperialism in scope and depth. The inner necessity that has caused it to arise, rooted in the essence of the socialist gospel of salvation, drives it to fundamental boundlessness in every direction. It cannot rest before it has subjugated the entire inhabited world and before it has annihilated everything reminiscent of other forms of human society. Every earlier imperialism could do without further expansion as soon as it came up against obstacles to its spread that it could not overcome. Socialist imperialism could not do this; it would have to see such obstacles as difficulties not only for outward expansion but also for its development at home. It must try to annihilate them or itself disappear.
- The Nation as a Speech CommunityThe concepts nation and nationality are relatively new in the sense in which we understand them. Of course, the word nation is very old; it derives from Latin and spread early into all modern languages. But another meaning was associated with it. Only since the second half of the eighteenth century did it gradually take on the significance that it has for us today, and not until the nineteenth century did this usage of the word become general.Cf. Meinecke, Weltbürgertum und Nationalstaat, third edition (Munich: 1915),pp. 22 ff.; Kjellén, Der Staat als Lebensform (Leipzig: 1917), pp. 102 ff. Its political significance developed step by step with the concept; nationality became a central point of political thought. The word and concept nation belong completely to the modern sphere of ideas of political and philosophical individualism; they win importance for real life only in modern democracy.
If we wish to gain insight into the essence of nationality, we must proceed not from the nation but from the individual. We must ask ourselves what the national aspect of the individual person is and what determines his belonging to a particular nation.
We then recognize immediately that this national aspect can be neither where he lives nor his attachment to a state. Not everyone who lives in Germany or holds German citizenship is a German merely for that reason. There are Germans who neither live in Germany nor hold German citizenship. Living in the same places and having the same attachment to a state do play their role in the development of nationality, but they do not pertain to its essence. It is no different with having the same ancestry. The genealogical conception of nationality is no more useful than the geographic or the state conception. Nation and race do not coincide; there is no nation of pure blood.Cf. Kjellén, loc. cit., pp. 105 ff., and the works cited there. All peoples have arisen from a mixture of races. Ancestry is not decisive for belonging to a nation. Not everyone descended from German ancestors is a German merely for that reason; how many Englishmen, Americans, Magyars, Czechs, and Russians would otherwise have to be called Germans? There are Germans whose ancestors include not one German. Among members of the higher strata of the population and among famous men and women whose family trees are commonly traced, foreign ancestors can be demonstrated more often than among members of the lower strata of the people, whose origins are lost in darkness; yet the latter, too, are more seldom of pure blood than one tends to assume.
There are writers who have worked in good faith to investigate the significance of ancestry and race for history and politics; what success they attained will not be discussed here. Again, many writers demand that political significance be attached to community of race and that race policy be pursued. People can be of different opinions about the justness of this demand; to examine it is not our concern. It may also remain an open question whether that demand has already been heeded today and whether and how race policy really is pursued. Yet we must insist that just as the concepts nation and race do not coincide, so national policy and race policy are two different things. Also, the concept of race, in the sense in which the advocates of race policy use it, is new, even considerably newer than that of nation. It was introduced into politics in deliberate opposition to the concept of nation. The individualistic idea of the national community was to be displaced by the collectivist idea of the racial community. Success has so far eluded these efforts. The slight significance accorded to the race factor in the cultural and political movements of the present day contrasts sharply with the great importance that national aspects have. Lapouge, one of the founders of the anthroposociological school, expressed the opinion a generation ago that in the twentieth century people would be slaughtered by the millions because of one or two degrees more or less in the cephalic index.Cf. Manouvrier, ""L'indice céphalique et la pseudo-sociologie," Revue, Mensuelle de l'École Anthropologie de Paris, vol. 9, 1899, p. 283. We have indeed experienced the slaughter of people by the millions, but no one can assert that dolichocephaly and brachycephaly were the rallying cries of the parties in this war. We are, of course, only at the end of the second decade of the century for which Lapouge expressed his prophecy. It may be that he will yet prove right; we cannot follow him into the field of prophecy, and we do not wish to dispute over things that still rest darkly concealed in the womb of the future. In present-day politics the race factor plays no role; that alone is important for us.
The dilettantism that pervades the writings of our race theorists should not, of course, mislead us into skipping lightly over the race problem itself. Surely there is hardly any other problem whose clarification could contribute more to deepening our historical understanding. It may be that the way to ultimate knowledge in the field of historical ebb and flow leads through anthropology and race theory. What has so far been discovered in these sciences is quite scanty, of course, and is overgrown with a thicket of error, fantasy, and mysticism. But there exists true science in this field also, and here also there are great problems. It may be that we shall never solve them, but that should not keep us from investigating further and should not make us deny the significance of the race factor in history.
If one does not see racial affinity as the essence of nationality, that does not mean that one wants to deny the influence of racial affinity on all politics and on national politics in particular. In real life many different forces work in different directions; if we want to recognize them, then we must try to distinguish them in our minds as far as possible. That does not mean, though, that in observing one force, we should quite forget that still others are working along side it or against it.
We recognize that one of these forces is the speech community; this is indeed beyond dispute. If we now say that the essence of nationality lies in language, this is no mere terminological point about which there could be no further dispute. First, let it be stated that in saying so, we are in conformity with the general use of language. To the language we apply first, and to it alone in the original sense, the designation that then becomes the designation of the nation. We speak of the German language, and everything else that bears the label "German" gets it from the German language: when we speak of German writing, of German literature, of German men and women, the relation to the language is obvious. Moreover, it does not matter whether the designation of the language is older than that of the people or is derived from the latter; once it became the designation of the language, it is what became decisive for the further development of the use of this expression. And if we finally speak of German rivers and of German cities, of German history and of German war, we have no trouble understanding that in the last analysis this expression also traces back to the original naming of the language as German. The concept of the nation is, as already said, a political concept. If we want to know its content, we must fix our eyes on the politics in which it plays a role. Now we see that all national struggles are language struggles, that they are waged about language. What is specifically "national" lies in language.Cf. Scherer, Vorträge und Aufsätze zur Geschichte des geistigen Lebens in Deutschland und Österreich (Berlin: 1874), pp. 45 ff. That the criterion of nation lies in language was the view of Arndt and Jacob Grimm. For Grimm, a people is "the sum total of persons who speak the same language" (Kleinere Schriften, vol. 7 [Berlin: 1884], p. 557). A survey of the history of doctrine about the concept of nation is given in Otto Bauer, Die Nationalitätenfrage und die Sozialdemokratie (Vienna: 1907), pp. 1 ff., and Spann, Kurzgefasstes System der Gesellschaftslehre (Berlin: 1914), pp. 195 ff.
Community of language is at first the consequence of an ethnic or social community; independently of its origin, however, it itself now becomes a new bond that creates definite social relations. In learning the language, the child absorbs a way of thinking and of expressing his thoughts that is predetermined by the language and so he receives a stamp that he can scarcely remove from his life. The language opens up the way for a person of exchanging thoughts with all those who use it; he can influence them and receive influence from them. Community of language binds and difference of language separates persons and peoples. If someone finds the explanation of the nation as a speech community perhaps too paltry, let him just consider what immense significance language has for thinking and for the expression of thought, for social relations, and for all activities of life.
If, despite recognition of these connections people often resist seeing the essence of the nation in the speech community, this hinges on certain difficulties that the demarcation of individual nations by this criterion entails.Moreover, let it be expressly noted that with every other explanation of the essence of the nation, difficulties turn up in much higher degree and cannot be overcome. Nations and languages are not unchangeable categories but, rather, provisional results of a process in constant flux; they change from day to day, and so we see before us a wealth of intermediate forms whose classification requires some pondering.
A German is one who thinks and speaks German. Just as there are different degrees of mastery of the language, so there are also different degrees of being German. Educated persons have penetrated into the spirit and use of the language in a manner quite different from that of the uneducated. Ability in concept formation and mastery of words are the criterion of education: the school rightly emphasizes acquiring the ability to grasp fully what is spoken and written and to express oneself intelligibly in speech and writing. Only those are full members of the German nation who have fully mastered the German language. Uneducated persons are German only insofar as the understanding of German speech has been made accessible to them. A peasant in a village cut off from the world who knows only his home dialect and cannot make himself understood by other Germans and cannot read the written language does not count at all as a member of the GermanThat the concept of national community is a matter of degree is also recognized by Spahn (loc. cit., p. 207); that it includes only educated persons is explained by Bauer (loc. cit., pp. 70 ff). nation. If all other Germans were to die out and only people who knew only their own dialect survived, then one would have to say that the German nation had been wiped out. Even those peasants are not without a tinge of nationality, only they belong not to the German nation but rather to a tiny nation consisting of those who speak the same dialect.
The individual belongs, as a rule, to only one nation. Yet it does now and then happen that a person belongs to two nations. That is not the case merely when he speaks two languages but rather only when he has mastered two languages in such a way that he thinks and speaks in each of the two and has fully assimilated the special way of thinking that characterizes each of them. Yet there are more such persons than people believe. In territories of mixed population and in centers of international trade and commerce, one frequently meets them among merchants, officials, etc. And they are often persons without the highest education. Among men and women with more education, bilinguists are rarer, since the highest perfection in the mastery of language, which characterizes the truly educated person, is as a rule attained in only one language. The educated person may have mastered more languages, and all of them far better than the bilinguist has; nevertheless, he is to be counted in only one nation if he thinks only in one language and processes everything he hears and sees in foreign languages through a way of thinking that has been shaped by the structure and the concept formation of his own language. Yet even among the "millionaires of education"Cf. Anton Menger, Neue Staatslehre, second ed. (Jena: 1904), p. 213. there are bilinguists, men and women who have fully assimilated the education of two cultural circles. They were and are found somewhat more frequently than elsewhere in places where an old, fully developed language with an old culture and a still slightly developed language of a people only just completing the process of acquiring culture confront each other. There it is physically and psychically easier to achieve mastery of two languages and two cultural circles. Thus, there were far more bilinguists in Bohemia among the generation which immediately preceded the one now living than at present. In a certain sense one can also count as bilinguists all those who, besides the standard language, have full mastery of a dialect also.
Everyone belongs as a rule to at least one nation. Only children and deaf-mutes are nationless; the former first acquire an intellectual home through entry into a speech community, the latter through development of their thinking capacity into achievement of the capability of mutual understanding with the members of a nation. The process that operates here is basically the same as that by which adults already belonging to one nation switch over to another.It used to happen that children of German parents who had to be brought up at the expense of the municipality (so-called boarded children) were put by the municipality of Vienna into the care of Czech foster parents in the countryside; these children then grew up as Czechs. On the other hand, children of non-German parents were Germanized by German foster parents. One aristocratic Polish lady used to relieve the city of Vienna of the care of children of Polish parents in order to have the children grow up as Poles. No one can doubt that all these children became good Czechs, Germans, or Poles without regard to what nation their parents had belonged to.
The language researcher finds relationships among languages; he recognizes language families and language races; he speaks of sister languages and daughter languages. Some people have wanted to extend this concept directly to nations also; others, again, have wanted to make the ethnological relationship into a national one. Both ideas are totally inadmissible. If one wants to speak of national relationship, one may do so only with reference to the possibility of mutual understanding between the members of the nations. In this sense dialects are related to each other and to one or even to several standard languages. Even between standard languages, for example, between individual Slavic languages, such a relation holds. Its significance for national development exhausts itself in the fact that it facilitates a transition from one nationality to another.
On the other hand, it is politically quite unimportant that the grammatical relationship between languages facilitates learning them. No cultural and no political affinity emerges from it; no political structures can be erected on the basis of it. The notion of the relationship of peoples originates not from the national-policy/individualistic sphere of ideas but rather from the race-policy/collectivistic sphere; it was developed in conscious opposition to the freedom-oriented notion of modern autonomy. Pan-Latinism, Pan-Slavism, and Pan-Germanism are chimeras which, in confrontation with the national strivings of individual peoples, have always come out on the short end. They sound very good in the fraternizing festivities of peoples who for the moment are following parallel political goals; they fail as soon as they are supposed to be more. They never have possessed power to form states. There is no state that has been based on them.
If people have long resisted seeing the characteristic feature of the nation in language, one of the decisive circumstances was that they could not reconcile this theory with the reality that allegedly displays cases in which one nation speaks several languages and other cases in which several nations use one language. The assertion that it is possible for the members of one nation to speak several languages is supported with reference to the conditions of the "Czechoslovak" and "Yugoslav" nations. Czechs and Slovaks acted in this war as a unified nation. The particularist strivings of small Slovak groups have at least not manifested themselves outwardly and have not been able to achieve any political successes. It now seems that a Czechoslovak state will be formed to which all Czechs and Slovaks will belong. However, Czechs and Slovaks do not, for that reason, yet form one nation. The dialects from which the Slovak language was formed are extraordinarily close to the dialects of the Czech language, and it is not difficult for a rural Slovak who knows only his own dialect to communicate with Czechs, especially Moravians, when the latter speak in their dialect. If the Slovaks, back at the time before they began developing an independent standard language, that is, around the turn from the eighteenth to the nineteenth century, had come into closer political connection with the Czechs, then the development of a Slovak standard language would doubtless no more have occurred than the development of an independent Swabian standard language in Swabia. Political motives were decisive for the effort made in Slovakia to create an independent language. This Slovak standard language, which was formed quite according to the model of Czech and was closely related to it in every respect, could not develop, however, likewise because of political circumstances. Under the rule of the Magyar state, excluded from school, office, and court, it led a miserable existence in popular almanacs and opposition leaflets. Again, it was the slight development of the Slovak language that caused efforts to adopt the Czech standard language, which had been under way in Slovakia from the very beginning, to gain more and more ground. Today two movements oppose each other in Slovakia: one that wants to root all Czechism out of the Slovak language and develop the language pure and independent and a second that wishes its assimilation to Czech. If the latter movement should prevail, then the Slovaks would become Czechs and the Czechoslovak state would evolve into a purely Czech national state. If, however, the former movement should prevail, then the Czech state would gradually be compelled, if it did not want to appear an oppressor, to grant the Slovaks autonomy and finally, perhaps, complete independence. There is no Czechoslovak nation composed of Czech speakers and Slovak speakers. What we see before us is a particular Slavic nation's struggle for life. How it will turn out will depend on political, social, and cultural circumstances. From a purely linguistic point of view, either of the two developments is possible.
The case is no different with the relation of the Slovenes to the Yugoslav nation. The Slovene language, also, has been struggling since its origin between independence and approximation to or complete blending with Croatian. The Illyrian movement wanted to include the Slovene language also in the sphere of its strivings for unity. If Slovene should be able to maintain its independence even in the future, then the Yugoslav state would have to grant the Slovenes autonomy.
The South Slavs also present one of the most frequently cited examples of two nations speaking the same language. Croats and Serbs use the same language. The national difference between them, it is asserted, lies exclusively in religion. Here is said to be a case that cannot be explained by the theory that perceives the distinctive attribute of a nation in its language.
In the Serbo-Croatian people the sharpest religious contrasts confront each other. One part of the people belongs to the Orthodox Church and another part to the Catholic Church, and even today the Mohammedans form a not inconsiderable part. In addition to these religious contrasts, there are old political enmities that still stem in part from times whose political conditions have today long ago been superseded. The dialects of all these religiously and politically splintered peoples are, however, extraordinarily closely related. These dialects were so closely related to each other that the efforts to form a standard language proceeding from different sides always led to the same result; all efforts always resulted in the same standard language. Vuk Stefanovic Karadzic wanted to create a Serbian language, Ljudevit Gaj a unified South Slavic; Pan-Serbism and Illyrianism bluntly confronted each other. But since they had the same dialectical material to deal with, the results of their work were identical. The languages that they created differed so little from each other that they finally blended together into a unified language. If the Serbs did not use the Cyrillic alphabet and the Croats the Latin alphabet exclusively, then there would be no external sign for attributing a written work to one nation or the other. The difference of alphabets cannot split a unified nation in the long run; the Germans also use different forms of writing without this having acquired any national significance. The political development of the last years before the war and during the war itself has shown that the religious difference between Croats and Serbs upon which the Austrian policy of Archduke Francis Ferdinand and his followers had built castles in the air has long since lost its earlier significance. There seems to be no doubt that in the political life of the Serbs and Croats also, the national factor of a common language will override all impeding influences and that the religious difference will play no greater role in the Serbo-Croatian nation than it does in the German people.
Two other examples commonly named to show that speech community and nation do not coincide are the Anglo-Saxon and Danish-Norwegian cases. The English language, it is asserted, is used by two nations, the English and the Americans; and this alone shows that it is inadmissible to seek the criterion of nationality in language alone. In truth, the English and Americans are a single nation. The inclination to count them as two nations stems from the fact that people have become accustomed to interpret the nationality principle as necessarily including the demand for unifying all parts of a nation into a single state. It will be shown in the next section that this is not true at all and that, therefore, the criterion of the nation should in no way be sought in efforts to form a unified state. That Englishmen and Americans belong to different states, that the policies of these states have not always been in consonance, and that the differences between them have occasionally even led to war—all that is still no proof that Englishmen and Americans are not one nation. No one could doubt that England is bound together with its dominions and with the United States by a national bond that will show its binding force in days of great political crisis. The World War brought proof that disagreements between the individual parts of the Anglo-Saxon nation can appear only when the whole does not seem threatened by other nations.
It seems even more difficult at first sight to harmonize the problem of the Irish with the linguistic theory of the nation. The Irish once formed an independent nation; they used a separate Celtic language. At the beginning of the nineteenth century, 80 percent of the population of Ireland still spoke Celtic, and more than 50 percent understood no English at all. Since then the Irish language has lost much ground. Only somewhat more than 600,000 persons still use it, and only seldom are people still to be found in Ireland who understand no English. Of course, there are also efforts in Ireland today to awaken the Irish language to new life and to make its use general. That fact is, however, that very many of those who are on the side of the political Irish movement are English by nationality. The opposition between Englishmen and Irishmen is of a social and religious and not exclusively of a national nature; and so it can happen that inhabitants of Ireland who by nationality are no Irishmen also belong to the movement in great number. If the Irish should succeed in achieving the autonomy they strive for, then it is not ruled out that a large part of today's English population of Ireland would assimilate itself to the Irish nation.
The much-cited Danish-Norwegian example also cannot undercut the assertion that nationality lies in language. During the centuries-long political union between Norway and Denmark, the old Norwegian standard language was completely driven out by the Danish standard language; it still managed a miserable existence only in the numerous dialects of the rural population. After the separation of Norway from Denmark (1814), efforts were made to create a national language of its own. But the efforts of the party striving to create a new Norwegian standard language on the basis of the old Norwegian language definitely failed. Success went to those who seek only to enrich Danish by introduction of expressions from the vocabulary of the Norwegian dialects but otherwise are in favor of retaining the Danish language. The works of the great Norwegian writers Ibsen and Bjørnson are written in this language.Ibsen made fun of the efforts of the adherents of the separate "Norwegian" language in the person of Huhu in Peer Gynt (fourth act, madhouse scene). Danes and Norwegians still today, then, form a single nation, even though they belong politically to two states.
- Dialect and Standard LanguageIn primitive times every migration causes not only geographical but also intellectual separation of clans and tribes. Economic exchanges do not yet exist; there is no contact that could work against differentiation and the rise of new customs. The dialect of each tribe becomes more and more different from the one that its ancestors spoke when they were still living together. The splintering of dialects goes on without interruption. The descendants no longer understand one other.
A need for unification in language then arises from two sides. The beginnings of trade make understanding necessary between members of different tribes. But this need is satisfied when individual middlemen in trade achieve the necessary command of language. In early times, when the exchange of goods between distant regions had only a relatively slight significance, scarcely more than individual expressions and word families must have come into more general use in this way. Political changes had to be much more significant for the unification of dialects. Conquerors appeared and created states and political unions of all kinds. The political leaders of broad territories came into closer personal relations; members of all social strata of numerous tribes were united in military service. Partly independently of the political and military organization and partly in closest connection with it, religious institutions arise and spread from one tribe to another. Hand in hand with political and religious strivings for unity go linguistic strivings. Soon the dialect of the ruling or the priestly tribe gains predominance over the dialects of the subjects and laity; soon, out of the different dialects of fellow members of state and religion, a unified mixed dialect is formed.
Introduction of the use of writing becomes the strongest basis for the unification of language. Religious doctrines, songs, laws, and records preserved in writing give preponderance to the dialect in which they have been expressed. Now the further splintering of the language is impeded; now there is an ideal speech that seems worth striving to attain and to imitate. The mystical nimbus that surrounds the letters of the alphabet in primitive times and that even today—at least in regard to their printed form—has not yet quite disappeared raises the prestige of the dialect in which the writing is done. Out of the chaos of dialects there arises the general language, the language of rulers and laws, the language of priests and singers, the literary language. It becomes the language of the higher-placed and more educated persons; it becomes the language of state and culture;One must distinguish between written language and cultural or standard language. When dialects possess a written literature, it will no longer do to deny them the designation of written languages. All those languages should then be called standard languages that make the claim to express all human thoughts orally and in writing and thus also to be scientific and technical languages. The boundaries between the two naturally cannot always be sharply drawn. it appears finally as the sole correct and noble language; the dialects from which it has arisen, however, are thenceforth regarded as inferior. People consider them corruption's of the written language; people begin to despise them as the speech of the common man.
In the formation of unified languages, political and cultural influences are always working together from the very beginning. The natural element in the dialect of the people is that it draws its strength from the life of those who speak it. On the other hand, the standard and unified language is a product of studyrooms and chancelleries. Of course, it too stems in the last analysis from the spoken word of the common man and from the creations of gifted poets and writers. But it is always shot through with more or less pedantry and artificiality also. The child learns the dialect from his mother; it alone can be his mother tongue; the standard language is taught by the school.
In the struggle that now arises between standard language and dialect, the latter has the advantage that it already takes possession of the person in his most receptive years. But the former also does not stand helpless. That it is the general language, that it leads beyond regional disunity to understanding with broader circles, makes it indispensable to state and church. It is the bearer of the written heritage and the intermediary of culture. Thus it can triumph over the dialect. If, however, it is too distant from the latter, if it is or over time becomes so estranged from the latter that it is still intelligible only to persons who learn it with effort, then it must succumb; then a new standard language arises from the dialect. Thus Latin was displaced by Italian, Church Slavonic by Russian; thus in modern Greek the common speech will perhaps triumph over the katharevousa of classicism.
The luster with which the school and the grammarians are accustomed to surround the standard language, the respect they pay to its rules, and the contempt they show for anyone who sins against these rules cause the relation between the standard language and the dialect to appear in a false light. The dialect is not corrupted standard language; it is primeval language; only out of the dialects was the standard language formed, whether a single dialect or else a mixed form artificially formed out of different dialects was raised to the status of standard language. The question therefore cannot arise at all whether a particular dialect belongs to this or that standard language. The relation between standard language and dialect is not always that of unequivocal association or indeed of superiority and inferiority, and the circumstances of linguistic history and grammar are not alone decisive in that respect. Political, economic, and general cultural developments of the past and present determine to which standard language the speakers of a particular dialect incline; and it can happen that in this way a unified dialect attaches itself partly to one and partly to another standard language.
The process by which the speakers of a particular dialect make the transition to using a particular standard language thereafter, either exclusively or along with the dialect, is a special case of national assimilation. It is especially characterized by being a transition to a grammatically closely related standard language, with this way being as a rule the only conceivable one in a given case. The Bavarian peasant's son has in general no other way open to culture than through the German standard language, even though it may also happen in rare particular cases that, without this detour, he becomes French or Czech directly. Yet for the Low German there are already two possibilities: assimilation to the German or to the Dutch standard language. Which of the two courses he takes is decided neither by linguistic nor genealogical considerations but by political, economic, and social ones. Today there is no longer any purely Plattdeutsch village; at least bilingualism prevails everywhere. If a Plattdeutsch district were to be separated from Germany today and be joined to the Netherlands, with the German school and the German official and judicial language replaced by Dutch ones, then the people affected would see all that as a national rape. Yet one hundred or two hundred years ago, such a separation of a bit of German territory could have been carried out without difficulty, and the descendants of the people who were separated at that time would be just as good Hollanders today as they in fact are good Germans today.
In Eastern Europe, where school and office still do not have anywhere near as much significance as in the West, something of the kind is still possible today. The linguistic researcher will be able to determine of most of the Slavic dialects spoken in upper Hungary whether they are closer to Slovak than to Ukrainian and perhaps also to decide in many cases in Macedonia whether a particular dialect is closer to Serbian or to Bulgarian. Yet that still does not answer the question whether the people who speak this dialect are Slovaks or Ukrainians, Serbs or Bulgarians. For this depends not only on linguistic conditions but also on political, ecclesiastical, and social ones. A village with a dialect undoubtedly more closely related to Serbian can more or less adopt the Bulgarian standard language relatively quickly if it acquires a Bulgarian church and a Bulgarian school.
Only thus can one gain an understanding of the exceedingly difficult Ukrainian problem. The question whether the Ukrainians are an independent nation or only Russians who speak a particular dialect is senseless in this form. If the Ukraine had not lost its political independence in the seventeenth century to the Great Russian state of the Czars, then a separate Ukrainian standard language would probably have developed. If all Ukrainians, including those in Galicia, Bukovina, and upper Hungary, had come under the rule of the Czars as late as the first half of the nineteenth century, then this might not have hindered the development of a separate Ukrainian literature; but this literature would probably have assumed a position in relation to Great Russian no different from that of Plattdeutsch writings in relation to German. It would have remained dialect poetry without particular cultural and political pretensions. However, the circumstance that several million Ukrainians were under Austrian rule and were also religiously independent of Russia created the preconditions for the formation of a separate Ruthenian standard language. No doubt the Austrian government and the Catholic Church preferred that the Austrian Rusins develop a separate language instead of adopting Russian. In this sense there is a spark of truth in the assertion of the Poles that the Ruthenians are an Austrian invention. The Poles are wrong only in saying that without this official support of the early beginnings of the Ruthenian aspirations there would have been no Rusin movement at all in East Galicia. The national rising of the East Galicians could have been suppressed just as little as the awakening of other nations without history. If state and church had not sought to guide it into other channels, then it would probably have developed from the beginning with a stronger Great Russian orientation.
The Ukrainian movement in Galicia, then, significantly furthered, at least, the separatist strivings of the Ukrainians in South Russia and perhaps even breathed life into them. The most recent political and social upheavals have furthered South Russian Ukrainianism so much that it is not entirely impossible that it can no longer be overcome by Great Russianism. But that is no ethnographic or linguistic problem. Not the degree of relationship of languages and races will decide whether the Ukrainian or the Russian language will win out but rather political, economic, religious, and general cultural circumstances. It is easily possible for that reason that the final outcome will be different in the former Austrian and Hungarian parts of the Ukraine than in the part that has long been Russian.
Conditions are similar in Slovakia. The independence of the Slovakian language from Czech is also a product of an in a certain sense accidental development. If there had been no religious differences between the Moravians and Slovaks and if Slovakia had been politically linked with Bohemia and Moravia no later than the eighteenth century, then a separate Slovak written and standard language would hardly have evolved. On the other hand if the Hungarian government had given less emphasis to Magyarization of the Slovaks and had allowed their language more scope in school and administration, then it would probably have developed more strongly and would today possess more power of resistance against Czech.Still more examples could be cited, including, for example, the Slovene language also. Particular interest attaches to those cases in which something similar was attempted on a smaller scale. Thus—according to information for which I am indebted to the Vienna Slavicist Dr. Norbert Jokl—the Hungarian government tried in the county of Ung to make the Slovak and Ruthenian local dialects used there independent; it had newspapers appear in these dialects in which, for the Ruthenian dialect, Latin letters and a Magyarizing orthography were used. Again, in the county of Zala the effort was made to make a Slovene dialect independent, which was facilitated by the fact that the population, in contrast to the Austrian Slovenes, was Protestant. Schoolbooks were published in this language. In Papa there was a special faculty for training teachers of this language.
To the language researcher it may in general seem not impossible to draw language boundaries by classifying individual dialects with particular standard languages. Yet his decision does not prejudice the historical course of events. Political and cultural events are decisive. Linguistics cannot explain why Czechs and Slovaks became two separate nations, and it would have no explanation if the two in the future should perhaps blend into one nation.
- National ChangesFor a long time nations have been regarded as unchanging categories, and it has not been noticed that peoples and languages are subject to very great changes in the course of history. The German nation of the tenth century is a different one from the German nation of the twentieth century. That is even outwardly evident in the fact that the Germans of today speak a different language from that of the contemporaries of the Ottonians.
For an individual, belonging to a nation is no unchangeable characteristic. One can come closer to one's nation or become alienated from it; one can even leave it entirely and exchange it for another.
National assimilation, which must of course be distinguished from the blending and turnover of races, with which it undergoes certain interactions, is a phenomenon whose historical significance cannot be assessed too highly. It is one manifestation of those forces whose operation shapes the history of peoples and states. We see it at work everywhere. If we could fully understand it in its conditions and in its essence, then we would have taken a good step further on the path that leads to understanding of historical development. In striking contrast to this importance of the problem is the disregard with which historical science and sociology have so far passed it by.
Language serves for intercourse with one's fellow men. Whoever wants to speak with his fellow men and to understand what they say must use their language. Everyone must therefore strive to understand and speak the language of his environment. For that reason individuals and minorities adopt the language of the majority. It is always a precondition for that, however, that contacts occur between the majority and the minority; if this is not the case, then no national assimilation ensues either. Assimilation proceeds the faster the closer are the contacts of the minority with the majority and the weaker the contacts within the minority itself and the weaker its contacts with fellow nationals living at a distance. From that it immediately follows that the social positions of the different nationalities must be of special significance in this regard, for personal contacts are more or less bound up with class membership. Thus, particular social strata in an environment of a foreign nation can not only maintain their own customs and own languages for centuries but also assimilate others to them. A German nobleman who immigrated to Eastern Galicia around 1850 did not become a Ruthenian but a Pole; a Frenchman who settled in Prague around 1800 became not a Czech but a German. However, the Ruthenian peasant in Eastern Galicia who by upward social mobility joined the ruling class also became a Pole, and the Czech peasant's son who rose into the bourgeoisie became a German.Cf. Otto Bauer, "Die Bedingungen der Nationalen Assimilation," Der Kampf, vol. V, pp. 246 ff.
In a society organized by classes or castes, different nations can live side by side in the same territory for centuries without losing their national distinctness. History provides enough examples of that. In the Baltic lands of Livonia, Estonia, and Courland, in Carniola and in South Styria, the German nobility maintained itself for many generations amidst the environment of a different people; so did the German bourgeoisie in the Bohemian, Hungarian, and Polish cities. Another example is the Gypsies. If social contacts between the nations are lacking, if between them no connubium and only to a restricted extent commercium exists, if changing one's class or caste is possible only in rare exceptional cases, then the conditions for national assimilation are rarely present. Thus, self-contained peasant settlements inside a country inhabited by a population with another language could maintain themselves as long as the agricultural strata were bound to the soil. As, however, the liberal economic order set aside all bonds, removed the special privileges of classes, and gave the workers freedom of movement, the rigid national stratification was loosened. Upward social mobility and migrations made national minorities disappear rapidly, or at least pushed them into defensive positions tenable only with difficulty.
The tearing down of barriers that guarded against shifting from one social class to another, freedom of movement of the person, everything that has made modern man free, has very much facilitated the advance of standard languages against dialects. "Where the so greatly improved means of transport and communication have shaken people up today and mingled them together in an undreamed-of manner, this signals the end of local dialects, of local manners, traditions and usage's; the railroad whistle has sung their funeral dirge. In a few years they will disappear; in a few years it will be too late to collect them and perhaps still protect them," an English philologist already remarked decades ago.Cf. Socin, Schriftsprache und Dialekte im Deutschen nach Zeugnissen alter und neuer Zeit (Heilbronn; 1888), p. 501. Today one can no longer live even as a peasant or worker in Germany without at least understanding the standard High German language and being able, if necessary, to use it. The school is making its contribution to hastening this process.
Quite distinct from natural assimilation through personal contact with people speaking other languages is artificial assimilation—denationalization by state or other compulsion. As a social process, assimilation hinges on certain preconditions; it can only occur when its preconditions exist. Compulsory methods then remain powerless; they can never succeed when the preconditions are not at hand or are not created. Administrative compulsion can sometimes bring about these conditions and so indirectly bring about assimilation; it cannot bring about national transformation directly. If individuals are put into an environment where they are cut off from contact with their fellow nationals and made exclusively dependent on contacts with foreigners, then the way is prepared for their assimilation. But if one can use only compulsory means that do not influence the colloquial language, then attempts at national oppression have scarcely any prospect of success.
Before the opening of the age of modern democracy, when national questions did not yet have the political significance that they have today, for this reason alone there could be no question of national oppression. If the Catholic Church and the Habsburg state suppressed Czech literature in the seventeenth century in Bohemia, they were motivated by religious and political but not yet by national-policy considerations; they persecuted heretics and rebels, not the Czech nation. Only very recent times have seen attempts at national oppression on a large scale. Russia, Prussia, and Hungary, above all, have been the classical countries of compulsory denationalization. How much success Russianization, Germanization, and Magyarization have achieved is well known. After these experiences, the prognosis that one can make about possible future efforts at Polonization or Czechification is not a favorable one.
The losses that the national economy suffers from war, apart from the disadvantages that exclusion from world trade entails, consist of the destruction of goods by military actions, of the consumption of war material of all kinds, and of the loss of productive labor that the persons drawn into military service would have rendered in their civilian activities. Further losses from loss of labor occur insofar as the number of workers is lastingly reduced by the number of the fallen and as the survivors become less fit in consequence of injuries suffered, hardships undergone, illnesses suffered, and worsened nutrition. These losses are only to the slightest degree offset by the fact that the war works as a dynamic factor and spurs the population to improve the technique of production. Even the increase in the number of workers that has taken place in the war by drawing on the otherwise unused labor of women and children and by extension of hours of work, as well as the saving achieved by limitation of consumption, still does not counterbalance them, so that the economy finally comes out of the war with a considerable loss of wealth. Economically considered, war and revolution are always bad business, unless such an improvement of the production process of the national economy results from them that the additional amount of goods produced after the war can compensate for the losses of the war. The socialist who is convinced that the socialist order of society will multiply the productivity of the economy may think little of the sacrifices that the social revolution will cost.
But even a war that is disadvantageous for the world economy can enrich individual nations or states. If the victorious state is able to lay such burdens on the vanquished that not only all of its war costs are thereby covered but a surplus is acquired also, then the war has been advantageous for it. The militaristic idea rests on the belief that such war gains are possible and can be lastingly held. A people that believes that it can gain its bread more easily by waging war than by work can hardly be convinced that it is more pleasing to God to suffer injustice than to commit injustice. The theory of militarism can be refuted; if, however, one cannot refute it, one cannot, by appeal to ethical factors, persuade the stronger party to forgo the use of its power.
The pacifistic line of argument goes too far if it simply denies that a people can gain by war. Criticism of militarism must begin by raising the question whether the victor can then definitely count on always remaining the stronger or whether he must not fear being displaced by still stronger parties. The militaristic argumentation can defend itself from objections raised against it from this point of view only if it starts with the assumption of unchangeable race characters. The members of the higher race, who behave according to pacifistic principles among themselves, hold firmly together against the lower races that they are striving to subjugate and thus assure themselves eternal predominance. But the possibility that differences will arise among the members of the higher races, leading part of their members to join with the lower races in battle against the remaining members of the higher ones, itself shows the danger of the militaristic state of affairs for all parties. If one entirely drops the assumption of the constancy of race characters and considers it conceivable that the race that had been stronger before will be surpassed by one that had been weaker, then it is evident that each party must consider that it could be faced with new battles in which it too could be defeated. Under these assumptions, the militaristic theory cannot be maintained. There no longer is any sure war gain, and the militaristic state of affairs appears as a situation of constant battles, at least, which shatter welfare so badly that finally even the victor obtains less than he would have harvested in the pacifistic situation.
In any case, not too much economic insight is needed to recognize that a war means at least direct destruction of goods, and misery. It was dear to everyone that the very outbreak of the war had to bring harmful interruptions in business life on the whole, and in Germany and Austria at the beginning of August 1914 people faced the future with fear. Astonishingly, however, things seemed to work otherwise. Instead of the expected crisis came a period of good business; instead of decline, boom. People found that war was prosperity; businessmen who, before the war, were thoroughly peace-minded and were always reproached by the friends of war for the anxiety that they were always showing at every flare-up of war rumors now began to reconcile themselves to the war. All at once there were no longer any unsalable products, enterprises that for years had run only at a loss yielded rich profits. Unemployment, which had assumed a menacing extent in the first days and weeks of the war, disappeared completely, and wages rose. The entire economy presented the picture of a gratifying boom. Soon writers appeared who sought to explain the causes of this boom.The majority of authors, in conformity with the intellectual tendency of statism, did not occupy themselves with the explanation of the causes of the good course of business but rather discussed the question whether the war "should be allowed to bring prosperity." Among those who sought to give an explanation of the economic boom in war should be mentioned above all Neurath ("Die Kriegswirtschaft," reprint from the Jahresberischt der Neuen Wiener Handelsakademie, V [16], 1910, pp. 10 ff.), since he—following in the steps of Carey, List and Henry George—had already before the war, in this as in other questions of "war economy," adopted the standpoint that gained broad diffusion in Germany during the war. The most naive representative of this view that war creates wealth is Steinmann-Bucher, Deutschlands Volksvermögen im Krieg, second edition (Stuttgart: 1916), pp. 40, 85 ff.
Every unprejudiced person can naturally have no doubt that war can really cause no economic boom, at least not directly, since an increase in wealth never does result from destruction of goods. It would scarcely have been too difficult to understand that war does bring good sales opportunities for all producers of weapons, munitions, and army equipment of every kind but that what these sellers gain is offset on the other hand by losses of other branches of production and that the real war losses of the economy are not affected thereby. War prosperity is like the prosperity that an earthquake or a plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest.
Starting with the observation that war furthers the business of the armament industry, many writers have sought to trace war to the machinations of those interested in war industry. This view appears to find superficial support in the behavior of the armament industry and of heavy industry in general. The most energetic advocates of the imperialistic policy were admittedly found in Germany not in the circles of industry but in those of the intellectual occupations, above all of officials and teachers. The financial means for war propaganda were provided before and during the war, however, by the armament industry. The armament industry created militarism and imperialism, however, just as little as, say, the distilleries created alcoholism or publishing houses trashy literature. The supply of weapons did not call forth the demand, but rather the other way around. The leaders of the armament industry are not themselves bloodthirsty; they would just as gladly earn money by producing other commodities. They produce cannons and guns because demand for them exists; they would just as gladly produce peacetime articles if they could do a better business with them.It is a mania of the statists to suspect the machinations of "special interests" in all that does not please them. Thus, Italy's entry into the war was traced to the work of propaganda paid for by England and France. Annunzio is said to have been bribed, and so on. Will one perhaps assert that Leopardi and Giusti, Silvio Pellico and Garibaldi, Mazzini and Cavour had also sold themselves? Yet their spirit influenced the position of Italy in this war more than the activity of any contemporary. The failures of German foreign policy are in large part to be traced to this way of thinking, which makes it impossible to grasp the realities of the world.
Recognition of this connection of things would have been bound to become widespread soon, and people would have quickly recognized that the war boom was to the advantage of only a small part of the population but that the economy as a whole was becoming poorer day by day, if inflation had not drawn a veil around all these facts, a veil impenetrable to a way of thinking that statism had made unaccustomed to every economic consideration.
To grasp the significance of inflation, it helps to imagine it and all of its consequences taken out of the picture of the war economy. Let us imagine that the state had forsworn that aid for its finances that it resorted to by issuing paper money of every kind. It is clear that the issue of notes—if we disregard the relatively insignificant quantities of goods obtained from neutral foreign countries as a counterpart of gold withdrawn from circulation and exported—in no way increased the material and human means of waging war. By the issue of paper money not one cannon, not one grenade more was produced than could have been produced even without putting the printing press into operation. After all, war is waged not with "money" but with the goods that are acquired for money. For the production of war goods, it was a matter of indifference whether the quantity of money with which they were bought was greater or smaller.
The war considerably increased the demand for money. Many economic units were impelled to enlarge their cash balances, since the greater use, of cash payments in place of the granting of long-term credit, which had been usual earlier, the worsening of trading arrangements, and growing insecurity had changed the entire structure of the payments system. The many military offices that were newly established during the war or whose range of activity was broadened, together with the extension of the monetary circulation of the Central Powers into the occupied territories, contributed to enlarging of the economy's demand for money. This rise in the demand for money created a tendency toward a rise in its value, that is to say, toward an increase in the purchasing power of the money unit, which worked against the opposite tendency unleashed by the increased issue of banknotes.
If the volume of note issue had not gone beyond what business could have absorbed in view of the war-induced increase in the demand for money, merely checking any increase in the value of money, then not many words would have to be spent on it. In fact, though, the banknote expansion was far greater. The longer war continued, the more actively was the printing press put into the service of the financial administration. The consequences occurred that the quantity theory describes. The prices of all goods and services, and with them the prices of foreign bills of exchange, went up.
The sinking of the value of money favored all debtors and harmed all creditors. That, however, does not exhaust the social symptoms of change in the value of money. The price rise caused by an increase in the quantity of money does not appear at one stroke in the entire economy and for all goods, for the additional quantity of money distributes itself only gradually. At first it flows to particular establishments and particular branches of production and therefore first increases only the demands for particular goods, not for all; only later do other goods also rise in price. "During the issue of notes," say Auspitz and Lieben, "the additional means of circulation will be concentrated in the hands of a small fraction of the population, e.g., of the suppliers and producers of war materials. Consequently, these persons' demands for various articles will increase; and thus the prices and also the sales of the latter will rise, notably, however, also those of luxury articles. The situation of the producers of all these articles thereby improves; their demands for other goods will also increase; the rise of prices and sales will therefore progress even further and spread to an ever larger number of articles, and finally to all."Cf. Auspitz and Lieben, Untersuchungen über die Theorie des Preises (Leipzig: 1889), pp. 64 f.
If the decline in the value of money were to pervade the entire economy at one stroke and be registered against all goods to the same extent, then it would cause no redistribution of income and wealth. For in this respect there can only be a question of redistribution. The national economy as such gains nothing from it, and what the individual gains others must lose. Those who bring to market the goods and services whose prices are caught up first in the upward price movement are in the favorable position of already being able to sell at higher prices while still able to buy the goods and services that they want to acquire at the older, lower prices. On the other hand, again, those who sell goods and services that rise in price only later must already buy at higher prices while they themselves, in selling, are able to obtain only the older, lower prices. As long as the process of change in the value of money is still under way, such gains of some and losses of others will keep occurring. When the process has finally come to an end, then these gains and losses do also cease, but the gains and losses of the interim are not made up for again. The war suppliers in the broadest sense of the word (also including workers in war industries and military personnel who received increased war incomes) have therefore gained not only from enjoying good business in the ordinary sense of the word but also from the fact that the additional quantity of money flowed first to them. The price rise of the goods and services that they brought to market was a double one: it was caused first by the increased demand for their labor, but then too by the increased supply of money.
That is the essence of so-called war prosperity; it enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income.Cf. Mises, Theorie des Geldes und der Umlaufsmittel (Munich: 1912), pp. 222 ff.; second edition translated by H. E. Batson as The Theory of Money and Credit (Indianapolis: Liberty Classics, 1981), pp. 251 ff. A dear description of conditions in Austria during the Napoleonic Wars is found in Grünberg, Studien zur österreichischen Agrargeschichte (Leipzig: 1901), pp. 121 ff. also Broda, "Zur Frage der Konjunktur im und nach dem Kriege," Archiv für Sozialwissenschaft, vol. 45, pp. 40 ff.; also Rosenberg, Valutafragen (Vienna: 1917), pp. 14 ff.
The wealth of Germany and of German-Austria was above all an abundance of capital. One may estimate the riches of the soil and the natural resources of our country ever so high; yet one must still admit that there are other countries that are more richly endowed by nature, whose soil is more fruitful, whose mines are more productive, whose water power is stronger, and whose territories are more easily accessible because of location relative to the sea, mountain ranges, and river courses. The advantages of the German national economy rest not on the natural factor but on the human factor of production and on a historically given head start. These advantages showed themselves in the relatively great accumulation of capital, mainly in the improvement of lands used for agriculture and forestry and in the abundant stock of produced means of production of all kinds, of streets, railroads, and other means of transportation, of buildings and their equipment, of machines and tools, and, finally, of already produced raw materials and semifinished goods. This capital had been accumulated by the German people through long work; it was the tool that German industrial workers used for their work and from whose application they lived. From year to year this stock was increased by thrift.
The natural forces dormant in the soil are not destroyed by appropriate use in the process of production; in this sense they form an eternal factor of production. The amounts of raw materials amassed in the ground represent only a limited stock that man consumes bit by bit without being able to replace it in any way. Capital goods also have no eternal existence; as produced means of production, as semifinished goods, which they represent in a broader sense of the term, they are transformed little by little in the production process into consumption goods. With some, with so-called circulating capital, this takes place more quickly; with others, with so-called fixed capital, more slowly. But the latter also is consumed in production. Machines and tools also have no eternal existence; sooner or later they become worn out and unusable. Not only the increase but even the mere maintenance of the capital stock therefore presupposes a continual renewal of capital goods. Raw materials and semifinished goods which, changed into goods ready for use, are conveyed to consumption must be replaced by others; and machines and tools of all kinds worn out in the production process must be replaced by others to the extent that they wear out. Performing this task presupposes making a clear assessment of the extent of the wearing out and using up of productive goods. With means of production that always are to be replaced only with others of the same kind, this is not difficult. The road system of a country can be maintained by trying to hold the condition of the individual sections technically the same by ceaseless maintenance work, and it can be extended by repeatedly adding new roads or enlarging the existing ones. In a static society in which no changes in the economy take place, this method would be applicable to all means of production. In an economy subject to change, this simple method does not suffice for most means of production, for the used-up and worn-out means of production are replaced not by ones of the same kind but by others. Worn-out tools are replaced not by ones of the same kind but by better ones, if indeed the whole orientation of production is not changed and the replacement of capital goods consumed in a shrinking branch of production does not take place by installation of new capital goods in other branches of production that are being expanded or newly established. Calculation in physical units, which suffices for the primitive conditions of a stationary economy, must therefore be replaced by calculation of value in money.
Individual capital goods disappear in the production process. Capital as such, however, is maintained and expanded. That is not a natural necessity independent of the will of economizing persons, however, but rather the result of deliberate activity that arranges production and consumption so as at least to maintain the sum of value of capital and that allots to consumption only surpluses earned in addition. The precondition for that is the calculation of value, whose auxiliary means is accounting. The economic task of accounting is to test the success of production. It has to determine whether capital was increased, maintained, or diminished. The economic plan and the distribution of goods between production and consumption is then based on the results that it achieves.
Accounting is not perfect. The exactness of its numbers, which strongly impresses the uninitiated, is only apparent. The evaluation of goods and claims that it must work with is always based on estimates resting on the interpretation of more or less uncertain elements. Insofar as this uncertainty stems from the side of goods, commercial practice, approved by the norms of commercial legislation, tries to avoid it by proceeding as cautiously as possible; that is, it requires a low evaluation of assets and a high evaluation of liabilities. But the deficiencies of accounting also stem from the fact that evaluations are uncertain from the side of money, since the value of money is also subject to change. So far as commodity money, so-called full-value metallic money, is concerned, real life pays no regard to these deficiencies. Commercial practice, as well as the law, has fully adopted the naive business view that money is stable in value, that is, that the existing exchange relation between money and goods is subject to no change from the side of money.On this, cf. Mises, Theorie des Geldes und der Umlaufsmittel, pp. 237 ff. (English translation, pp. 268 ff.). Accounting assumes money to be stable in value. Only the fluctuations of credit and token-money currencies, so-called paper currencies, against commodity money were taken account of by commercial practice by setting up corresponding reserves and by write-offs. Unfortunately, German statist economics has paved the way for a change of perception on this point also. In nominalistic money theory, by extending the idea of the stability of value of metal money to all money as such, it created the preconditions for the calamitous effects of decline in the value of money that we now have to describe.
Entrepreneurs did not pay attention to the fact that the decline in the value of money now made all items in balance sheets become inaccurate. In drawing up balance sheets, they neglected to take account of the change in the value of money that had occurred since the last balance sheet. Thus it could happen that they regularly added a part of the original capital to the net revenue of the year, regarded it as profit, paid it out, and consumed it. The error which (in the balance sheet of a corporation) was made by not taking account of the depreciation of money on the liability side was only partly made up for by the fact that on the asset side also the components of wealth were not reported at a higher value. For this disregard of the rise in nominal value did not apply to circulating capital also, since for inventories that were sold, the higher valuation did appear; it was precisely this that constituted the inflationary extra profit of enterprises. The disregard of the depredation of money on the asset side remained limited to fixed investment capital and had as a consequence that in calculating depreciation, people used the smaller original amounts that corresponded to the old value of money. That enterprises often set up special reserves to prepare for reconversion to the peacetime economy could not, as a rule, make up for this.
The German economy entered the war with an abundant stock of raw materials and semifinished goods of all kinds. In peacetime, whatever of these stocks was devoted to use or consumption was regularly replaced. During the war the stocks were consumed without being able to be replaced. They disappeared out of the economy; the national wealth was reduced by their value. This could be obscured by the fact that in the wealth of the trader or producer, money claims appeared in their place—as a rule, war-loan claims. The businessman thought that he was as rich as before; generally he had sold the goods at better prices than he had hoped for in peacetime and now believed that he had become richer. At first he did not notice that his claims were being ever more devalued through the sinking of the value of money. The foreign securities that he possessed rose in price as expressed in marks or crowns. This too he counted as a gain.The nominalists and chartalists among monetary theorists naturally agreed with this layman's view: that upon the sale of foreign securities, the increased nominal value received because of the decline of the currency represented a profit; cf. Bendixen, Währungspolitik und Geldtheorie im Lichte des Weltkrieges (Munich: 1916), p. 37. That is probably the lowest level to which monetary theory could sink. If he wholly or partially consumed these apparent profits, then he diminished his capital without noticing it. It naturally would not have been possible to take account of these changes in accounting serving official purposes; this accounting had to be carried out in the legal currency. It would indeed have been possible, though, to base economic calculation on the recalculation of balance sheets and of profit-and-loss calculation in gold money.
The inflation thus drew a veil over capital consumption. The individual believed that he had become richer or had at least not lost, while in truth his wealth was dwindling. The state taxed these losses of individual economic units as "war profits" and spent the amounts collected for unproductive purposes. The public did not become tired, however, of concerning itself about the large war profits, which, in good part, were no profits at all.
All fell into ecstasy. Whoever took in more money than earlier—and that was true of most entrepreneurs and wage earners and, finally, with the further progress of the depreciation of money, of all persons except capitalists receiving fixed incomes—was happy about his apparent profits. While the entire economy was consuming its capital and while even stocks of goods ready for consumption held in individual households were dwindling, all were happy about prosperity. And to cap it all, economists began to undertake profound investigations into its causes.
Rational economy first became possible when mankind became accustomed to the use of money, for economic calculation cannot dispense with reducing all values to one common denominator. In all great wars monetary calculation was disrupted by inflation. Earlier it was the debasement of coin; today it is paper-money inflation. The economic behavior of the belligerents was thereby led astray; the true consequences of the war were removed from their view. One can say without exaggeration that inflation is an indispensable intellectual means of militarism. Without it, the repercussions of war on welfare would become obvious much more quickly and penetratingly; war-weariness would set in much earlier.
Today is too soon to survey the entire extent of the material damage that the war has brought to the German people. Such an attempt is bound in advance to start from the conditions of the economy before the war. Even for that reason alone it must remain incomplete. For the dynamic effects of the World War on the economic life of the world cannot thus be considered at all, since we lack all possibility of surveying the entire magnitude of the loss that the disorganization of the liberal economic order, the so-called capitalistic system of national economy, entails. Nowhere do opinions diverge so much as on this point. While some express the view that the destruction of the capitalistic apparatus of production opens the way for an undreamed-of development of civilization, others fear from it a relapse into barbarism.
But even if we disregard all that, we should, in judging the economic consequences of the World War for the German people, in no way limit ourselves to taking account only of war damages and war losses that have already actually appeared. These losses of wealth, which in and for themselves are immense, are outweighed by disadvantages of a dynamic nature. The German people will remain economically confined to their inadequate territory of settlement in Europe. Millions of Germans who previously earned their bread abroad are being compulsorily repatriated. Moreover, the German people have lost their considerable capital investment abroad. Beyond that, the basis of the German economy, the processing of foreign raw materials for foreign consumption, has been shattered. The German people are thereby being made into a poor people for a long time.
The position of the German-Austrians is turning out still more unfavorable in general than the position of the German people. The war costs of the Habsburg Empire have been borne almost completely by the German-Austrians. The Austrian half of the Empire has contributed in a far greater degree than the Hungarian half of the Empire to the outlays of the Monarchy. The contributions that were incumbent on the Austrian half of the Empire were made, furthermore, almost exclusively by the Germans. The Austrian tax system laid the direct taxes almost exclusively on the industrial and commercial entrepreneurs and left agriculture almost free. This mode of taxation in reality meant nothing other than the overburdening of the Germans with taxes and the exemption of the non-Germans. Still more to be considered is that the war loans were subscribed to almost entirely by the German population of Austria and that now, after the dissolution of the state, the non-Germans are refusing any contribution toward interest payments and amortization of the war loans. Moreover, the large German holding of money claims on the non-Germans has been greatly reduced by the depreciation of money. The very considerable ownership by German-Austrians of industrial and trade enterprises and also of agricultural properties in non-German territories, however, is being expropriated partly by nationalization and socialization measures, partly by the provisions of the peace treaty.
The question whether so-called war socialism is true socialism has been discussed repeatedly and with great passion. Some have answered yes just as firmly as others have answered no. In that connection the striking phenomenon could be observed that as the war continued and as it became even more obvious that it would end with failure of the German cause, the tendency to characterize war socialism as true socialism diminished also.
To be able to handle the problem correctly, one must first of all keep in mind that socialism means the transfer of the means of production out of the private ownership of individuals into the ownership of society. That alone and nothing else is socialism. All the rest is unimportant. It is a matter of complete indifference for deciding our question, for example, who holds power in a socialized community, whether a hereditary emperor, a Caesar, or the democratically organized whole of the people. It does not belong to the essence of a socialized community that it is under the leadership of soviets of workers and soldiers. Other authorities also can implement socialism, perhaps the church or the military state. It is to be noted, furthermore, that an election of the general directorship of the socialist economy in Germany, carried out on the basis of full universality and equality of the right to vote, would have produced a far stronger majority for Hindenburg and Ludendorff in the first years of the war than Lenin and Trotsky could ever have achieved in Russia.
Also nonessential is how the outputs of the socialized economy are used. It is of no consequence for our problem whether this output primarily serves cultural purposes or the waging of war. In the minds of the German people or at least of its preponderant majority, victory in the war was seen beyond doubt as the most urgent goal of the moment. Whether one approves of that or not is of no consequence.Max Adler (Zwei Jahre . . . ! Weltkriegsbetrachtungen eines Sozialisten [Nürnberg: 1916], p. 64) disputes the idea that war socialism is true socialism: "Socialism strives for the organization of the national economy for the sufficient and uniform satisfaction of the needs of all; it is the organization of sufficiency, even of superfluity; 'war socialism,' on the other hand, is the organization of scarcity and of need." Here the means is confused with the end. In the view of socialist theoreticians, socialism should he the means for achieving the highest productivity of the economy attainable under the given conditions. Whether superfluity or shortage reigns then is not essential. The criterion of socialism is, after all, not that it strives for the general welfare but rather that it strives for welfare by way of production based on the socialization of the means of production. Socialism distinguishes itself from liberalism only in the method that it chooses; the goal that they strive for is common to both. Cf. below, pp. 181 ff.
It is equally of no consequence that war socialism was carried out without formal reorganization of ownership relations. What counts is not the letter of the law but the substantive content of the legal norm.
If we keep all this in mind, then it is not hard to recognize that the measures of war socialism amounted to putting the economy on a socialistic basis. The right of ownership remained formally unimpaired. By the letter of the law the owner still continued to be the owner of the means of production. Yet the power of disposal over the enterprise was taken away from him. It was no longer up to him to determine what should be produced, to acquire raw materials, to recruit workers, and finally to sell the product. The goal of production was prescribed to him, the raw materials were delivered to him at definite prices, the workers were assigned to him and had to be paid by him at rates on whose determination he had no direct influence. The product, furthermore, was taken from him at a definite price, if he was not actually carrying out all the production as a mere manager. This organization was not uniformly and simultaneously implemented in all branches of industry—in many not at all. Also, its net had big enough meshes to let much get through. Such an extreme reform, which completely turns the conditions of production around, just cannot be carried out at one blow. But the goal being aimed at and being approached ever more closely with every new decree was this and nothing else. War socialism was by no means complete socialism, but it was full and true socialization without exception if one had kept on the path that had been taken.
Nothing about that is changed by the fact that the proceeds of production went first to the entrepreneur. The measures characterized as war-socialist in the narrow sense did not abolish entrepreneurial profit and interest on capital in principle, although the fixing of prices by the authorities took many steps in this direction. But precisely all the economic-policy decrees of the war period do belong to the full picture of war socialism; it would be mistaken to keep only particular measures in view and disregard others. Whatever the economic dictatorship of the various agencies of the war economy left free was gotten at by tax policy. War tax policy established the principle that all additional profit achieved beyond the profits of the prewar period was to be taxed away. From the beginning this was the goal that the policy aimed at and that it came closer to with each later decree. No doubt it would have completely reached this goal also if only it had had a little more time. It was carried out without regard to the change in the value of money that had occurred in the meanwhile, so that this meant a limitation of entrepreneurial profit not just to the amount obtained before the war but to a fraction of this amount. While entrepreneurial profit was thus limited on the top side, on the other side the entrepreneur was guaranteed no definite profit. As before, he still had to bear losses alone, while keeping no more chance of gain.
Many socialists declared that they were not thinking of an uncompensated expropriation of entrepreneurs, capitalists, and landowners. Many of them had the notion that a socialist community could allow the possessing classes to continue receiving their most recently received incomes, since socialization would bring such a great rise in productivity that it would be easy to pay this compensation. Under that kind of transition to socialism, entrepreneurs would have been compensated with larger amounts than under the one introduced by war socialism. They would have continued to receive as guaranteed income the profits that they had last received. It is incidental whether these incomes of the possessing classes would have had to continue only for a definite time or forever. War socialism also did not settle the question finally for all time. The development of wealth, income, and inheritance taxes would have been able, especially through extension of the progressivity of the tax rates, to achieve a complete confiscation soon.
The continued receipt of interest remained temporarily permitted to the owners of loan capital. Since they were suffering persistent losses of property and income from inflation, they offered no propitious object for greater intervention by the tax office. With regard to them, inflation was already performing the task of confiscation.
Public opinion in Germany and Austria, entirely dominated by the socialistic spirit, complained again and again that the taxation of war profits had been delayed too long and that even later it had not been applied with appropriate severity. One supposedly should have acted at once to collect all war profits, that is to say, all increases in wealth and income obtained during the war. Even on the first day of the war, therefore, complete socialization should have been introduced—leaving alone property incomes received before the war. It has already been explained why this was not done and what consequences for the conversion of industry onto a war footing would have resulted if this advice had been followed.
The better war socialism was developed, the more palpable did individual consequences of a socialistic order of society already become. In technical respects enterprises did operate no more irrationally than before, since the entrepreneurs, who remained at the head of the enterprises and formally filled their old positions, still harbored the hope of being able to keep for themselves—even if only by illegal means—a larger or smaller part of the surpluses earned and at least hoped for future removal of all measures of war socialism, which, after all, were still always officially declared exceptional wartime orders. Yet a tendency toward increasing expenses became noticeable, especially in trade, because of the price policy of the authorities and the practice of the courts in handling the provisions of penal law regarding exceeding the maximum prices: permitted prices were ascertained on the basis of the entrepreneur's outlays plus a margin of "simple profit," so that the entrepreneur's profit became all the greater the more dearly he had made purchases and the more expenses he had incurred.
Of greatest significance was impairment of the initiative of entrepreneurs. Since they shared more heavily in losses than in profits, the incentive to undertake risky ventures was only slight. Many production possibilities remained unused in the second half of the war because entrepreneurs shied away from the risk bound up with new investments and with introducing new production methods. Thus the policy of the state's taking over responsibility for possible losses, adopted especially in Austria right at the beginning of the war, was better suited for stimulating production. Toward the end of the war, views on this point had changed. With regard to importing particular raw materials into Austria from abroad, the question arose of who should bear the "peace risk," the danger of a loss from the price crash that was expected in the event of peace. The entrepreneurs associated in "centrals," whose chances of profit were limited, wanted to undertake the business only if the state were ready to bear the possible loss. Since this could not be arranged, the importation did not take place.
War socialism was only the continuation at an accelerated tempo of the state-socialist policy that had already been introduced long before the war. From the beginning the intention prevailed in all socialist groups of dropping none of the measures adopted during the war after the war but rather of advancing on the way toward the completion of socialism. If one heard differently in public, and if government offices, above all, always spoke only of exceptional provisions for the duration of the war, this had only the purpose of dissipating possible doubts about the rapid tempo of socialization and about individual measures and of stifling opposition to them. The slogan had already been found, however, under which further socializing measures should sail; it was called transitional economy.
The militarism of General Staff officers fell apart; other powers took the transitional economy in hand.
So-called war socialism has been regarded as sufficiently argued for and justified with reference mostly to the emergency created by the war. In war, the inadequate free economy supposedly cannot be allowed to exist any longer; into its place must step something more perfect, the administered economy. Whether or not one should return after the war to the "un-German" system of individualism was said to be another question that could be answered in different ways.
This argumentation for war socialism is just as inadequate as it is characteristic of the political thinking of a people that was hampered in every free expression of views by the despotism of the war party. It is inadequate because it could really be a powerful argument only if it had been established that the organized economy is capable of yielding higher outputs than the free economy; that, however, would first have to be proved. For the socialists, who advocate the socialization of the means of production anyway and want to abolish the anarchy of production thereby, a state of war is not first required to justify socializing measures. For the opponents of socialism, however, the reference to the war and its economic consequences is also no circumstance that could recommend such measures. For anyone of the opinion that the free economy is the superior form of economic activity, precisely the need created by the war had to be a new reason demanding that all obstacles standing in the way of free competition be set aside. War as such does not demand a [centrally] organized economy, even though it may set certain limits in several directions to the pursuit of economic interests. In the age of liberalism, even a war of the extent of the World War (so far as such a war would have been thinkable at all in a liberal and therefore pacifistic age) would in no way have furthered tendencies toward socialization.
The most usual argument for the necessity of socialist measures was the argument about being besieged. Germany and its allies were said to be in the position of a besieged fortress that the enemy was trying to conquer by starving it out. Against such a danger, all measures usual in a besieged city had to be applied. All stocks had to be regarded as a mass under the control of a unified administration that could be drawn on for equally meeting the needs of all, and so consumption had to be rationed.
This line of argument starts from indisputable facts. It is clear that starving out (in the broadest sense of the term), which in the history of warfare had generally been used only as a tactical means, was used in this war as a strategic means.One war in which starving the opponent out was used as a strategic means was the Herero uprising in German Southwest Africa in 1904; in a certain sense the Civil War in North America and the last Boer War can also count here. But the conclusions drawn from the facts were mistaken. Once one thought that the position of the Central Powers was comparable to that of a besieged fortress, one would have had to draw the only conclusions that could be drawn from the military point of view. One would have had to remember that a besieged place, by all experience of military history, was bound to be starved out and that its fall could be prevented only by help from outside. The program of "hanging on" would then have made sense only if one could count on time's working for the besieged side. Since, however, help from outside could not be expected, one should not have shut one's eyes to the knowledge that the position of the Central Powers was becoming worse from day to day and that it was therefore necessary to make peace, even if making peace would have imposed sacrifices that did not seem justified by the tactical position of the moment. For the opponents would still have been ready to make concessions if they, for their part, had received something in return for the shortening of the war.
It cannot be assumed that the German General Staff had overlooked this. If it nevertheless clung to the slogan about "hanging on," that reflected not so much a misunderstanding of the military position as the hope for a particular psychic disposition of the opponent. The Anglo-Saxon nation of shopkeepers would get tired sooner than the peoples of the Central Powers, who were used to war. Once the English, also, felt the war, once they felt the satisfaction of their needs being limited, they would turn out to be much more sensitive than the Central Europeans. This grave error, this misunderstanding of the psyche of the English people, also led to adoption first of limited and then of unlimited submarine warfare. The submarine war rested on still other false calculations, on an overestimation of one's own effectiveness and on an underestimation of the opponent's defense measures, and finally on a complete misunderstanding of the political preconditions of waging war and of what is permitted in war. But it is not the task of this book to discuss these questions. Settling accounts with the forces that pushed the German people into this suicidal adventure may be left to more qualified persons.
But quite apart from these deficiencies, which more concern the generally military side of the question, the theory of siege socialism also suffers from serious defects concerning economic policy.
When Germany was compared with a besieged city, it was overlooked that this comparison was applicable only with regard to those goods that were not produced at home and also could not be replaced by goods producible at home. For these goods, apart from luxury articles, the rationing of consumption was in any case indicated at the moment when, with the tightening of the blockade and with the entry of Italy and Rumania into the war, all import possibilities were cut off. Until then it would have been better, of course, to allow full free trade, at least for the quantities imported from abroad, in order not to reduce the incentive to obtain them in indirect ways. It was mistaken in any case, as happened at the beginning of the war, especially in Austria, to resist price rises of these goods by penal measures. If the traders had held the goods back with speculative intent to achieve price increases, this would have limited consumption effectively right at the beginning of the war. The limitation of price increases was bound, therefore, to have downright harmful consequences. For those goods that could in no way be produced at home and also could not be replaced by substitutes producible at home, the state would better have set minimum rather than maximum prices to limit consumption as much as possible.
Speculation anticipates future price changes; its economic function consists in evening out price differences between different places and different points in time and, through the pressure which prices exert on production and consumption, in adapting stocks and demands to each other. If speculation began to exact higher prices at the beginning of the war, then it did indeed temporarily bring about a rise of prices beyond the level that would have been established in its absence. Indeed, since consumption would also thus be limited, the stock of goods available for use later in the war was bound to rise and thus would have led to a moderation of prices at that later time in relation to the level that was bound to have been established in the absence of speculation. If this indispensable economic function of speculation was to be excluded, something else should have immediately been put in its place, perhaps confiscation of all stocks and state management and rationing. In no way, however, was it suitable simply to be content with penal intervention.
When the war broke out, citizens expected a war lasting about three to six months. The merchant arranged his speculation accordingly. If the state had known better, it would have had the duty of intervening. If it thought that the war would already be ended in four weeks, then it could have intervened to keep price increases from being larger than seemed necessary for bringing stocks into harmony with demand. For that, too, fixing maximum prices would not have sufficed. If, however, the state thought that the war would last far longer than civilians thought, then it should have intervened, either by fixing minimum prices or by purchase of goods for the purpose of state stockpiling. For there was a danger that speculative traders, not familiar with the secret intentions and plans of the General Staff, would not immediately drive up prices to the extent necessary to assure the distribution of the small stocks on hand over the entire duration of the war. That would have been a case in which the intervention of the state in prices would have been thoroughly necessary and justified. That that did not happen is easy to explain. The military and political authorities were informed least of all about the prospective duration of the war. For that reason all their preparations failed, military as well as political and economic ones.
With regard to all those goods that even despite the war could be produced in territory of the Central Powers free of the enemy, the siege argument was already totally inapplicable. It was dilettantism of the worst sort to set maximum prices for these goods. Production could have been stimulated only by high prices; the limitation of price increases throttled it. It is hardly astonishing that state compulsion for cultivation and production failed.
It will be the task of economic history to describe in detail the stupidities of the economic policy of the Central Powers during the war. At one time, for example, the word was given to reduce the livestock by increased slaughtering because of a shortage of fodder; then prohibitions of slaughtering were issued and measures taken to promote the raising of livestock. Similar planlessness reigned in all sectors. Measures and countermeasures crossed each other until the whole structure of economic activity was in ruins.
The most harmful effect of the policy of siege socialism was the cutting off of districts with surpluses of agricultural production from territories in which consumption exceeded production. It is easy to understand why the Czech district leaders in the Sudetenland, whose hearts were on the side of the Entente, sought as much as possible to limit the export of foodstuff's out of the districts under their leadership to the German parts of Austria and, above all, to Vienna. It is less understandable that the Vienna government put up with this and that it also put up with its imitation by the German districts and also with the fact that Hungary shut itself off from Austria, so that famine was already prevailing in Vienna while abundant stocks were still on hand in the countryside and in Hungary. Quite incomprehensible, however, is the fact that the same policy of regional segmentation took hold in the German Reich also and that the agrarian districts there were permitted to cut themselves off from the industrial ones. That the population of the big cities did not rebel against this policy can be explained only by its being caught up in statist conceptions of economic life, by its blind belief in the omnipotence of official intervention, and by its decades-long ingrained mistrust of all freedom.
While statism sought to avoid the inevitable collapse, it only hastened it.
- Liberal or Pacifistic NationalismThat politics should be national is a modern postulate.
In most countries of Europe the princely state had replaced the estate system of the Middle Ages from the beginning of modern times. The political conception of the princely state is the interest of the ruler. The famous maxim of Louis XIV, L'état c'est moi, expresses most briefly the conception that was still alive at the three European imperial courts until the recent upheavals. It is no less clear when Quesnay, whose doctrines nevertheless already lead into the new conception of the state, precedes his work with the motto Pauvre paysan, Pauvre royaume; pauvre royaume, pauvre roi. It is not enough for him to show that on the well-being of the peasant that of the state also depends; he still considers it necessary to show that the king also can be rich only when the peasant is. Only then does the necessity appear proved of taking measures to raise the well-being of the peasants. For the object of the state is precisely the prince.
Against the princely state there then arises in the eighteenth and nineteenth centuries the idea of freedom. It revives the political thought of the republics of antiquity and of the free cities of the Middle Ages; it links up with the monarchomachs' hostility to princes; it patterns itself on the example of England, where the crown had already suffered a decisive defeat in the seventeenth century; it fights with the entire armament of philosophy, of rationalism, of natural law, and of history; it wins over the great masses through literature, which puts itself entirely at its service. Absolute kingship succumbs to the attack of the movement for freedom. In its place appears here parliamentary monarchy, there a republic.
The princely state has no natural boundaries. To be an increaser of his family estate is the ideal of the prince; he strives to leave to his successor more land than he inherited from his father. To keep on acquiring new possessions until one encounters an equally strong or stronger adversary—that is the striving of kings. For fundamentally, their greed for lands knows no boundaries; the behavior of individual princes and the views of the literary champions of the princely idea agree on that. This principle threatens, above all, the existence of all smaller and weaker states. That they are nevertheless able to maintain themselves is attributable only to the jealousy of the big ones, which anxiously watch that none should become too strong. That is the conception of European equilibrium, which forms coalitions and breaks them up again. Where it is possible without endangering the equilibrium, smaller states are destroyed; an example: the partition of Poland. Princes regard countries no differently from the way an estate owner regards his forests, meadows, and fields. They sell them, they exchange them (e.g., for "rounding off" boundaries); and each time rule over the inhabitants is transferred also. On this interpretation, republics appear as unowned property that anyone may appropriate if he can. This policy did not reach its high point, by the way, until the nineteenth century, in the Enactment of the Delegates of the Holy Roman Empire of 1803, in Napoleon's establishments of states, and in the decisions of the Congress of Vienna.
Lands and peoples are, in the eyes of princes, nothing but objects of princely ownership; the former form the basis of sovereignty, the latter the appurtenances of landownership. From the people who live in "his" land the prince demands obedience and loyalty; he regards them almost as his property. This bond that binds him with each one of his subjects should, however, also be the only one that joins the individual persons into a unit. The absolute ruler not only regards every other community between his subjects as dangerous, so that he tries to dissolve all traditional comradely relations between them that do not derive their origin from state laws enacted by him and is hostile to every new formation of community, perhaps through clubs; he also will not allow the subjects of his different territories to begin to feel themselves comrades in their role as subjects. But, of course, in seeking to tear apart all class ties to make subjects out of nobles, the bourgeoisie, and peasants, the prince atomizes the social body and thereby creates the precondition for the rise of a new political sentiment. The subject who has grown unaccustomed to feel himself a member of a narrow circle begins to feel himself a person, a member of his nation, and a citizen of the state and of the world. The way opens up for the new outlook on the world.
The liberal theory of the state, hostile to princes, rejects the princes' greed for lands and chaffering in lands. First of all, it finds it a matter of course that state and nation coincide. For so it is in Great Britain, the model country of freedom, so in France, the classical land of the struggle for freedom. That seems such a matter of course that no further word is wasted on it. Since state and nation coincide and there is no need to change this, there is no problem here.
The problem of state boundaries first appeared when the power of the idea of freedom gripped Germany and Italy. Here and in Poland there stands behind the despicable despots of the present day the great shadow of a vanished unified state. All Germans, Poles, and Italians have a great political goal in common: the liberation of their peoples from the rule of princes. That gives them first unity of political thinking and then unity of action. Across state boundaries, guarded by customs guards and gardeess, the peoples stretch their hands in unity. The alliance of the princes against freedom is confronted by the union of peoples fighting for their freedom.
To the princely principle of subjecting just as much land as obtainable to one's own rule, the doctrine of freedom opposes the principle of the right of self-determination of peoples, which follows necessarily from the principle of the rights of man.Cf. Sorel, Nouveaux essais d'histoire et de critique (Paris: 1898), pp. 99 ff. No people and no part of a people shall be held against its will in a political association that it does not want. The totality of freedom-minded persons who are intent on forming a state appears as the political nation; patrie, Vaterland becomes the designation of the country they inhabit; patriot becomes a synonym of freedom-minded.Cf. Michels, "Zur historischen Analyse des Patriotismus," Archiv für Sozialwissenschaft und Sozialpolitik, vol. 36, 1913, pp. 38 ff., 402 f.; Pressensé, "L'idée de Patrie," Revue mensuelle de l'École Anthropologie de Paris, vol. 9, 1899, pp. 91 ff. In this sense the French begin to feel themselves a nation when they break the despotism of the Bourbons and when they take up the struggle against the coalition of monarchs who threaten their just won freedom. The Germans, the Italians become nationally minded because foreign princes, joined in the Holy Alliance, hinder them from the establishing a free state. This nationalism directs itself not against foreign peoples but against the despot who subjugates foreign peoples also. The Italian hates above all not the Germans but the Bourbons and Habsburgs; the Pole hates not the Germans or Russians but the Czar, the King of Prussia, and the Emperor of Austria. And only because the troops on which the rule of the tyrants rests are foreign does the struggle also adopt a slogan against foreigners. But even in battle the Garibaldians shouted to the Austrian soldiers: Passate l'Alpi e tornerem fratelli.Cf. Robert Michels, "Elemente zur Entstehungsgeschichte des Imperialismus in Italien," Archiv für Sozialwissenschaft, vol. 34, 1912, p. 57. ["Go back across the Alps, and we'll become brothers again."] Among themselves the individual nations fighting for freedom get along marvelously. All peoples hail the struggle for freedom of the Greeks, the Serbs, and the Poles. In "Young Europe" the freedom fighters are united without distinction of nationality.
The nationality principle above all bears no sword against members of other nations. It is directed in tyrannos.
Therefore, above all, there is also no opposition between national and citizen-of-the-world attitudes. Cf. Seipel, Nation und Staat (Vienna: 1916), pp. 11 f. footnote; Meinecke, loc. cit., pp. 19 f. The idea of freedom is both national and cosmopolitan. It is revolutionary, for it wants to abolish all rule incompatible with its principles, but it is also pacifistic.Cf. Michels, "Patriotismus," loc. cit., p. 403. What basis for war could there still be, once all peoples had been set free? Political liberalism concurs on that point with economic liberalism, which proclaims the solidarity of interests among peoples.
One must also keep that in mind if one wants to understand the original internationalism of the socialist parties since Marx. Liberalism, too, is cosmopolitan in its struggle against the absolutism of the princely state. Just as the princes stand together to defend themselves against the advance of the new spirit, so the peoples also hold together against the princes. If the Communist Manifesto calls on the proletarians of all countries to unite in the struggle against capitalism, then that slogan is consistently derived from the asserted fact of the identity of capitalistic exploitation in all countries. It is no antithesis, however, to the liberal demand for the national state. It is no antithesis to the program of the bourgeoisie, for the bourgeoisie, too, is in this sense international. The emphasis lies not on the words "all countries" but on the word "proletarians." That like-thinking classes in the same position in all countries must combine is presupposed as a matter of course. If any point at all can be perceived in this exhortation, it is only the point made against pseudo-national strivings that fight every change in traditional arrangements as an infringement on warranted national individuality.
The new political ideas of freedom and equality triumphed first in the West. England and France thus became the political model countries for the rest of Europe. If, however, the liberals called for adoption of foreign institutions, then it was only natural that the resistance mounted by the old forces also made use of the age-old device of xenophobia. German and Russian conservatives also fought against the ideas of freedom with the argument that they were foreign things not suitable for their peoples. Here national values are misused for political purposes.Cf. Schultze-Gaevernitz, Volkswirtschaftliche Studien aus Russland (Leipzig: 1899), pp. 173 ff.; Bauer, Nationalitätenfrage, loc. cit., pp. 138 ff. But there is no question of opposition to the foreign nation as a whole or to its individual members.
So far as relations among peoples are concerned, therefore, the national principle is above all thoroughly peaceful. As a political ideal it is just as compatible with the peaceful coexistence of peoples as Herder's nationalism as a cultural ideal was compatible with his cosmopolitanism. Only in the course of time does peaceful nationalism, which is hostile only to princes but not to peoples also, change into a militaristic nationalism. This change takes place, however, only at the moment when the modern principles of the state, in their triumphant march from West to East, reach the territories of mixed population.
The significance of the nationality principle in its older peaceful form becomes especially clear to us when we observe the development of its second postulate. First of all, the nationality principle includes only the rejection of every overlordship and so also of every foreign overlordship; it demands self-determination, autonomy. Then, however, its content expands; not only freedom but also unity is the watchword. But the desire for national unity, too, is above all thoroughly peaceful.
One of its sources, as already mentioned, is historical remembrance. From the dismal present the glance turns back toward a better past. And this past shows a unified state, not in such splendid pictures for every people as for the Germans and the Italians, but, for most, attractive enough.
But the idea of unity is not merely romanticism; it is also important for political reality. In unity strength is sought to overcome the alliance of the oppressors. Unity in a unified state offers the peoples the highest assurance of maintaining their freedom. And there, too, nationalism does not clash with cosmopolitanism, for the unified nation does not want discord with neighboring peoples, but peace and friendship.
So we also see, then, that the idea of unity cannot exert its state-destroying and state-creating power where freedom and self-government already prevail and seem assured without it. To this day Switzerland has scarcely been tempted by that idea. The least inclination to secession is shown by the German-Swiss, and very understandably: they could only have exchanged freedom for subjugation in the German authoritarian state. But the French also, and on the whole also the Italians, have felt themselves so free in Switzerland that they felt no desire for political unification with their fellows in nationality.
For the national unified state, however, yet a third consideration is at work. Without doubt the stage of development of the international division of labor already reached today required an extensive unification of law and of communication and transportation facilities in general, and this demand will become all the more pressing the more the economy is further reshaped into a world economy. When economic contacts were still in their earliest stages, on the whole scarcely extending beyond the boundaries of a village, the splitting of the earth's surface into innumerable small legal and administrative districts was the natural form of political organization. Apart from military and foreign-policy interests, which, after all, did not press everywhere for union and for formation of great empires—and even where they were at work in this direction in the age of feudalism and still more in the age of absolutism, they did not always lead to formation of national states—there were no circumstances that demanded unification of law and administration. That became a necessity only to the extent that economic relations began to reach out more and more beyond the boundaries of provinces, of countries, and finally of continents.
Liberalism, which demands full freedom of the economy, seeks to dissolve the difficulties that the diversity of political arrangements pits against the development of trade by separating the economy from the state. It strives for the greatest possible unification of law, in the last analysis for world unity of law. But it does not believe that to reach this goal, great empires or even a world empire must be created. It persists in the position that it adopts for the problem of state boundaries. The peoples themselves may decide how far they want to harmonize their laws; every violation of their will is rejected on principle. Thus a deep chasm separates liberalism from all those views that want forcibly to create a great state for the sake of the economy.
Yet political realism must first still reckon with the existence of states and with the difficulties that they pit against the creation of supranational law and freedom of international transactions. It is with envy, therefore, that the patriots of nations fragmented into many states regard the nationally unified peoples. They want to follow their example. They view things with different eyes than do liberal doctrinaires. In the Germany of the German Confederation, the necessity of unification of law and the administration of justice, of communication and transportation facilities, and of the entire administration was recognized as urgent. A free Germany could also have been created through revolutions within the individual states; for that, unification would not have first been necessary. In favor of the unified state, however, there speaks in the eyes of political realists not only the necessity of setting an alliance of the oppressed against the alliance of the oppressors in order to achieve freedom at allThink of Schleswig-Holstein, the left bank of the Rhine, etc. but also the further necessity of holding together in order to find in unity the strength to preserve freedom. Even apart from that, the necessity of trade is pressing for unity. It will no longer do to permit the fragmentation in law, in monetary systems, in communications and transportation, and in many other fields, to continue. In all these fields the times require unification, even beyond national boundaries. Already the peoples are beginning to make preliminary preparations for world unity in all these matters. Does it not seem obvious to achieve in Germany, to begin with, what the other peoples have already achieved—to create a German civil law as precursor of the coming world law, a German penal law as a preliminary stage for world penal law, a German railroad union, a German monetary system, a German postal system? All that, however, the German unified state is to assure. The program of the men of freedom, therefore, cannot limit itself to the "auction of thirty princes' crowns" (Freiligrath); even if only because of the stage of economic development, it must call for the unified state.
Thus the striving for the unified state already contains the kernel of the new interpretation of the nationality principle, which leads from the peaceful liberal nationality principle to militant power-policy nationalism, to imperialism.
- Militant or Imperialistic NationalismA. The Nationality Question in Territories with Mixed PopulationsThe princely state strives restlessly for expansion of its territory and for increase in the number of its subjects. On the one hand it aims at the acquisition of land and fosters immigration; on the other hand it sets the strictest penalties against emigration. The more land and the more subjects, the more revenues and the more soldiers. Only in the size of the state does assurance of its preservation lie. Smaller states are always in danger of being swallowed up by larger ones.
For the free national state, all these arguments do not hold true. Liberalism knows no conquests, no annexations; just as it is indifferent towards the state itself, so the problem of the size of the state is unimportant to it. It forces no one against his will into the structure of the state. Whoever wants to emigrate is not held back. When a part of the people of the state wants to drop out of the union, liberalism does not hinder it from doing so. Colonies that want to become independent need only do so. The nation as an organic entity can be neither increased nor reduced by changes in states; the world as a whole can neither win nor lose from them.
Liberalism has been able to endure only in Western Europe and in America. In Central and Eastern Europe, after flourishing briefly, it was displaced again; its democratic program still lives on there only in the programs and more rarely in the deeds of the socialist parties. State practice has gradually perverted the pacifistic nationality principle of liberalism into its opposite, into the militant, imperialistic nationality principle of oppression. It has set up a new ideal that claims a value of its own, that of the sheer numerical size of the nation.
From the cosmopolitan standpoint, one must describe the splitting of mankind into different peoples as a circumstance that causes much trouble and costs. Much labor is spent on learning foreign languages and is wasted on translations. All cultural progress would make its way more easily, every contact between peoples would proceed better, if there were only one language. Even one who appreciates the immeasurable cultural value of diversity of material and intellectual arrangements and of the development of particular individual and national characters must admit this and must not deny that the progress of mankind would be made quite extraordinarily more difficult if there did not exist, besides the small nations numbering only a few hundred thousand or a few million souls, larger nations also.
But even the individual can experience the inconvenience of the multiplicity of languages. He notes it when he travels abroad, when he reads foreign writings, or when he wants to speak with his fellow men or write for them. The ordinary man may not care whether his nation is numerically larger or smaller, but for the intellectual worker this is of the greatest significance. For "for him language is more than a mere means of understanding in social contacts; it is for him one of his chief tools, indeed often his only tool, and one that he can scarcely change."Cf. Kautsky, Nationalität und Internationalität (Stuttgart: 1908), p. 19; also Paul Rohrbach, Der deutsche Gedanke in der Welt (Dusseldorf and Leipzig: Karl Robert Langewiesche Verlag, 1912), copies 108 to 112 thousand, p. 13. It is decisive for the success of literary work whether the author can make himself directly understood by a larger or a smaller number of persons. No one, therefore, desires a large size for his own nation more ardently than the poet and the scholarly writer, the intellectual leaders of nations. It is easy to understand why they may be enthusiastic about size. But that alone is far from explaining the popularity of this ideal.
For these leaders cannot in the long run even recommend any goals to the nation that the nation has not chosen itself. And there are still other ways to broaden the public for writers; the education of the people can be broadened, creating as many more readers and hearers as through diffusion of the national language abroad. The Scandinavian nations have trod this path. They seek national conquests not abroad but at home.
That the national state could become imperialistic, that, neglecting older principles, it could see a goal of its policy first in maintaining and then in increasing the number of members of the nation, even at the cost of the right of self-determination of individuals and of entire peoples and parts of peoples—for that development, circumstances were decisive that were foreign to the liberalism that had originated in the West and foreign to its pacifistic nationality principle. What was decisive was the fact that the peoples in the East do not have fully distinct areas of settlement but rather live locally mingled in broad territories, as well as the further fact that such mixing of peoples keeps occurring afresh through the migration of peoples. These two problems have brought militant or imperialistic nationalism to maturity. It is of German origin, for the problems out of which it arose first came onto the historical scene when liberalism reached German soil. But it has by no means remained limited to Germany; all peoples in a position to know that these circumstances are subjecting some of their fellow nationals to national alienation have followed the German people on the same path or will do so if history does not first find another solution to the problem.
Every observation of the problems to which we now turn must start from the fact that the conditions under which people live on particular parts of the earth's surface are different. We would best recognize the significance of this fact by trying to disregard it. If the conditions of life were the same everywhere on the earth's surface, then on the whole there would be no incentive for individuals and for peoples to change the places where they live.One could object that even if the conditions of life were everywhere the same, there would have to be migrations when one people grew in size more rapidly than others, for then migrations would have to take place out of the more densely settled territories into the more thinly settled ones. The Malthusian law entitles us to assume, however, that growth of population also depends on the natural conditions of life, so that merely from the assumption of the same external conditions of life there follows equality of increase in population.
That the conditions of life are unequal, however, brings it about that—to use Ségur's formulation—the history of mankind is the striving of peoples to progress from living in worse territories to better ones. World history is the history of national migrations.
National migrations take place either in forcible military form or in peaceful forms. The military form used to be the predominant one. The Goths, Vandals, Lombards, Normans, Huns, Avars, and Tartars seized their new homes with force and exterminated, drove away, or subjugated the local populations. Then there were two classes of different nationality in the country, the masters and the subjugated, which not only confronted each other as political and social classes but also were foreign to each other in ancestry, culture, and language. In the course of time these national contrasts disappeared, either because the conquerors were ethnically absorbed into the conquered or because the subjugated groups became assimilated to the victors. It has been centuries since this process took place in Spain and Italy, in Gaul, and in England.
In Eastern Europe there are still broad territories where this assimilation process has not begun at all or is only just beginning. Between the Baltic barons and their Estonian and Latvian tenants, between the Magyar or Magyarized nobles of Hungary and the Slavic or Rumanian peasants and farm workers, between the German townspeople of the Moravian cities and the Czech proletarians, between the Italian landlords of Dalmatia and the Slavic peasants and farm hands, the deep gap of national differences yawns even today.
The doctrine of the modern state and modern freedom that was developed in Western Europe knows nothing of these conditions. The problem of nationally mixed populations does not exist for it. For it, the formation of nations is a completed historical process. Frenchmen and Englishman today no longer take any foreign components into their European homelands; they live in compact territories of settlement. If individual foreigners do come to them, then they are easily and painlessly assimilated. No frictions between nationalities could arise from applying the nationality principle on English and French soil in Europe (but things are different in the colonies and in the United States). And so the opinion could also arise that the full application of the nationality principle could assure eternal peace. For since, according to the liberal view, wars of course arise only through kings' lust for conquest, there can be no more war once every people is constituted as a separate state. The older nationality principle is peaceful; it wants no war between peoples and believes that no reason for one exists.
Then it is suddenly discovered that the world does not show the same face everywhere as on the Thames and on the Seine. The movements of the year 1848 first lifted the veil that despotism had spread over the mixture of peoples in the empire of the Habsburgs; the revolutionary movements that later broke out in Russia, in Macedonia and Albania, in Persia and China, revealed the same problems there also. As long as the absolutism of the princely state had oppressed all in the same way, these problems could not be recognized. Now, however, scarcely as the struggle for freedom is beginning, they loom menacingly.Cf. Bernatzik, Die Ausgestaltung des Nationalgefühls im 19. Jahrhundert (Hanover: 1912), p. 24.
It seemed obvious to work for their solution with the traditional means of the Western doctrine of freedom. The majority principle, whether applied in the form of a referendum or in some other way, was considered suitable for solving all difficulties. That is democracy's answer. But here, was such a solution thinkable and possible at all? Could it have established peace here?
The basic idea of liberalism and of democracy is the harmony of interests of all sections of a nation and then the harmony of interests of all nations. Since the rightly understood interest of all strata of the population leads to the same political goals and demands, the decision on political questions can be left to the vote of the entire people. It may be that the majority errs. But only through errors that it itself has committed and whose consequences it itself suffers can a people achieve insight and can it become politically mature. Errors once committed will not be repeated; people will recognize where the best in truth is to be found. Liberal theory denies that there are special interests of particular classes or groups opposing the common good. It can therefore see only justice in the decisions of the majority; for the errors that were committed revenge themselves on all, both on those who had supported them and on the outvoted minority, which also must pay for not having understood how to win the majority over to its side.
As soon, however, as one admits the possibility and even the necessity of genuinely opposed interests, the democratic principle also has lost its validity as a "Just" principle. If Marxism and Social Democracy see an irreconcilable opposition of conflicting class interests everywhere, then they must, consistently, also reject the democratic principle. This has long been overlooked, since Marxism, precisely among those two nations among whom it had been able to gain the largest number of adherents, the Germans and Russians, has pursued not only socialist but also democratic goals. But that is only a matter of historical accident, the consequence of quite particular circumstances coming together. The Marxists fought for the right to vote, freedom of the press, and the right to form associations and assemblies as long as they were not the ruling party; where they came to power they did nothing more quickly than set these freedoms aside.Cf. Bucharin, Das Programm der Kommunisten (Bolschewiki) (Vienna: 1919), pp. 23 ff. That quite coincides with the behavior of the Church, which behaves democratically wherever others rule but, where it itself rules, wants nothing of democracy. A majority decision can never be "Just" for the Marxists as it is for liberalism; for them it is always only the expression of the will of a particular class. Even seen from this angle alone, therefore, socialism and democracy are irreconcilable contraries; the term Social Democrat contains a contradictio in adjecto. For the Marxists, only the triumph of the proletariat, the provisional goal and the end of historical evolution, is good; everything else is bad.
Like the Marxists, the nationalists also deny the doctrine of the harmony of all interests. Between peoples irreconcilable oppositions are said to exist; here one can never let things depend on the decision of the majority if one has the power to oppose it.
Democracy seeks first to solve the political difficulties that impede the establishment of a national state in territories with nationally mixed populations by those means that have proved themselves in nationally unified countries. The majority should decide; the minority should yield to the majority. That shows, however, that it does not see the problem at all, that it does not have any inkling of where the difficulty lies. Yet belief in the correctness and the all-healing power of the majority principle was so strong that people for a long time would not recognize that nothing could be accomplished with it here. The obvious failure was always attributed to other causes. There were writers and politicians who traced the national disorders in Austria to the fact that there still was no democracy in its territory; if the country should become democratically governed, then all friction between its peoples would disappear. Precisely the opposite is true. National struggles can arise only on the soil of freedom; where all peoples are subjugated—as in Austria before March 1848—then there can be no dissension among them.For that reason antidemocratic and churchly writers also recommend the return to the absolutism of the princes and of the Pope as a means of avoiding national struggles. The violence of the struggles between the nationalities grew to the extent that the old Austria approached democracy. They were not ended at all by the dissolution of the state; they are carried on only more bitterly in the new states, where ruling majorities confront national minorities without the mediation of the authoritarian state, which softens much harshness.
To recognize the deeper grounds for the failure of democracy in the nationality struggles of our time, one must first of all strive for clarity about the essence of democratic government.
Democracy is self-determination, self-government, self-rule. In democracy, too, the citizen submits to laws and obeys state authorities and civil servants. But the laws were enacted with his concurrence; the bearers of official power got into office with his indirect or direct concurrence. The laws can be repealed or amended, officeholders can be removed, if the majority of the citizens so wishes. That is the essence of democracy; that is why the citizens in a democracy feel free.
He who is compelled to obey laws on whose enactment he has no influence, he who must endure a government ruling over him in whose formation he can take no part, is, in the political sense, unfree and is politically without rights, even though his personal rights may be protected by law.Frequently, of course, civil rights can also be lost because of political powerlessness. That does not mean that every minority is politically unfree in the democratic state. Minorities can become the majority, and this possibility influences their position and the way that the majority must behave towards them. The majority parties must always take care that their actions do not strengthen the minority and do not offer it the opportunity to come to power. For the thoughts and programs of the minority affect the entire people as a political entity, whether or not they are able to prevail. The minority is the defeated party, but in the struggle of parties it has had the possibility of winning and, as a rule, despite the defeat, it maintains the hope of winning some time later and becoming the majority.
The members of national minorities that do not hold a ruling position by special privilege, are, however, politically unfree. Their political activity can never lead to success, for the means of political influence on their fellow men, the spoken and written word, are bound up with nationality. In the great national political discussions from which political decisions follow, the citizens of foreign nationality stand aside as mute spectators. They are negotiated about along with others, but they do not join in the negotiations. The German in Prague must pay municipal assessments; he too is affected by every decree of the municipality, but he must stand aside when the political struggle rages over control of the municipality. What he wishes and demands in the municipality is a matter of indifference to his Czech fellow citizens. For he has no means of influencing them unless he gives up the special ways of his people, accommodates himself to the Czechs, learns their language, and adopts their way of thinking and feeling. So long, however, as he does not do this, so long as he remains within his circle of inherited speech and culture, he is excluded from all political effectiveness. Although he also may formally, according to the letter of the law, be a citizen with full rights, although he may, because of his social position, even belong to the politically privileged classes, in truth he is politically without rights, a second-class citizen, a pariah. For he is ruled by others without himself having a share in ruling.
The political ideas that cause parties to come and go and states to be created and destroyed are bound up with nationality today just as little as any other cultural phenomenon. Like artistic and scientific ideas, they are the common property of all nations; no single nation can escape their influence. Yet every nation develops currents of ideas in its own special way and assimilates them differently. In every people they encounter another national character and another constellation of conditions. The idea of Romanticism was international, but every nation developed it differently, filled it with a particular content, and made something else out of it. We speak rightly, therefore, of German Romanticism as a particular trend in art that we can contrast with the Romanticism of the French or the Russians. And it is no different with political ideas. Socialism had to become something different in Germany, something different in France, something different in Russia. Everywhere, indeed, it met with a particular way of political thinking and feeling, with another social and historical development—in short, with other people and other conditions.
We now recognize the reason why national minorities that hold political power because of special privileges hang on to these privileges and to the ruling position bound up with them incomparably more tenaciously than do other privileged groups. A ruling class not of different nationality from the ruled still retains, even when overthrown, a greater political influence than would accrue to it according to the number of its members among the new rulers. It retains at least the possibility, under the new conditions, of fighting for power anew as the opposition party, of defending its political ideas, and of leading to new victories. The English Tories, as often as they were deprived of their privileges by a reform, have still celebrated a political resurrection every time. The French dynasties have not lost through dethronement all prospect of regaining the crown. They were able to form mighty parties that worked for a restoration; and if their efforts did not lead to success during the Third Republic, this was due to the intransigence and personal wretchedness of the pretender at the time and not to any fact that such efforts were quite hopeless. Rulers of foreign nationality, however, once they have left the scene, can never get power back unless they have the help of foreign arms; and, what is much more important, as soon as they no longer hold power, they not only are deprived of their privileges but are completely powerless politically. Not only are they unable to maintain influence corresponding to their numbers, but, as members of a foreign nationality, they no longer have any possibility at all of even being politically active or of having influence on others. For the political thoughts that now become dominant belong to a cultural circle that is foreign to them and are thought, spoken, and written in a language that they do not understand; they themselves, however, are not in a position to make their political views felt in this environment. From being rulers they become not citizens with equal rights but powerless pariahs who have no say when matters concerning them are being debated. If—without regard to theoretical and antiquarian misgivings that might be raised against it—we want to see a principle of modern democracy in the old postulate of the estates, nil de nobis sine nobis [nothing concerning us without us], we also see that it cannot be implemented for national minorities. They are governed; they do not have a hand in governing; they are politically subjugated. Their "treatment" by the national majority may be quite a good one; they may also remain in possession of numerous nonpolitical and even a few political privileges; yet they retain the feeling of being oppressed just because they are "treated" after all and may not take part.
The large German landowners in those Austrian crown lands that had a Slavic majority in the legislature felt themselves—despite their electoral privileges, which assured them a special representation in the provincial chamber and in the provincial committee—nevertheless oppressed, since they were faced by a majority whose political thinking they could not influence. For the same reason, German officeholders and house owners who possessed an electoral privilege that assured them a third of the seats on the municipal council in a municipality with a Slavic council majority still felt oppressed.
No less politically powerless are national minorities that never have possessed political dominance. This needs to be especially mentioned just as little of members of historyless nations who have lived as political inferiors for centuries under foreign rulers as of immigrants into colonial settlement areas overseas. Accidental circumstances may temporarily give them the possibility of political influence; in the long run this is out of the question. If they do not want to remain politically without influence, then they must adapt their political thinking to that of their environment; they must give up their special national characteristics and their language.
In polyglot territories, therefore, the introduction of a democratic constitution does not mean the same thing at all as introduction of democratic autonomy. Majority rule signifies something quite different here than in nationally uniform territories; here, for a part of the people, it is not popular rule but foreign rule.On the point that the majority principle appears applicable only where it is a question of settlement of differences within a homogeneous mass, cf. Simmel, Soziologie (Leipzig: 1908), pp. 192 ff. If national minorities oppose democratic arrangements, if, according to circumstances, they prefer princely absolutism, an authoritarian regime, or an oligarchic constitution, they do so because they well know that democracy means the same thing for them as subjugation under the rule of others. That holds true everywhere and also, so far, for all times. The often cited example of Switzerland is not relevant here. Swiss democratic local administration is possible without friction under the nationality circumstances of Switzerland only because internal migrations between the individual nationalities have long since had no significance there. If, say, migrations of French Swiss to the east should lead to stronger foreign national minorities in the German cantons, then the national peace of Switzerland would already have vanished long ago.
For all friends of democracy, for all those who see the political remedy only in the self-administration and self-government of a people, this must cause severe distress. The German democrats of Austria were in this position, above all, as well as the few honorable democrats that the Hungarian people counted in their midst. It was they who were looking for new forms of democracy to make democracy possible even in polyglot countries.
Furthermore, people tend to recommend proportional representation as a remedy for the defects of the majority system. For nationally mixed territories, however, proportional representation is no way out of these difficulties. A system of proportional representation is applicable only to elections but not also to decisions about acts of legislation, administration, and jurisprudence. Proportional representation makes it impossible, on the one hand, that one party, through gerrymandering, be represented less in the representative body than corresponds to its strength; on the other hand it assures the minority of representation in the bodies of elected representatives and so offers it the possibility of exercising a check on the majority and of making its own voice heard. All that does not operate for a national minority. Being an actual minority in the people, it can never hope to obtain a majority in the representative body through proportional representation. There remains to it, therefore, only the second significance of proportional representation. But the mere possibility of having some seats in the representative body is of little value for the national minority. Even when its representatives can sit in the representative body and take a part in deliberations, speeches, and decisions, the national minority still remains excluded from collaboration in political life. A minority is politically collaborating in the true sense of the word only if its voice is heard because it has prospects of coming to the helm some time. For a national minority, however, that is ruled out. Thus the activity of its deputies remains limited from the beginning to fruitless criticism. The words that they speak have no significance because they can lead to no political goal. In voting, their votes can be decisive only when nationally unimportant questions are on the agenda; in all other questions—and these are most of them—the national majority stands against it united like a phalanx. To realize this, one need only think of the roles that the Danes, Poles, and Alsatians played in the German Reichstag and the Croats in the Hungarian parliament or of the position that the Germans had in the Bohemian provincial legislature. If things were different in the Austrian Chamber of Deputies, if here, because no nation had an absolute majority, it was possible for the "delegation" of every single nation to become part of the majority, well, this proves nothing to the contrary because, after all, Austria was an authoritarian state in which not parliament but the government held all the cards. Precisely the Austrian Chamber of Deputies, in which the formation of parties was conditioned above all by tensions among nationalities, has shown how slightly a parliamentary collaboration of different peoples is possible.
It is therefore understandable why the principle of proportional representation also cannot be regarded as a usable means of overcoming the difficulties that arise from different nations living together. Where it has been introduced, experience has shown that it is admittedly quite usable for certain purposes, that it overcomes many frictions, but that it is far from being the remedy for national controversies that well-meaning utopians have considered it.
In Austria, the classical land of the nationality struggle, the proposal emerged in the first decade of the twentieth century for overcoming national difficulties by introducing national autonomy on the basis of the personality principle. These proposals, which came from the Social Democrats Karl RennerCf. Renner, Das Selbstbestimmungsrecht der Nationen in seiner Anwendung auf Österreich (Vienna: 1918), and numerous older writings of the same author. and Otto Bauer,Cf. Bauer, Nationalitätenfrage, loc. cit., pp. 324 ff. envisaged transformation of the Austrian authoritarian state into a democratic people's state. Legislation and administration of the entire state and the local administration of the autonomous areas should not extend to nationally disputed affairs; these should be administered in the local administrations by the members of the nations themselves, organized according to the personality principle, over whom, then, there should stand national councils as highest authorities of the individual nations. The educational system and the promotion of art and science, above all, were to be regarded as national issues.
Here we are not speaking of the significance that the program of national autonomy had in the historical development of the nationality program of the German-Austrians or of the basic presuppositions from which it proceeded. Here we must face only the question whether this program could have provided a satisfying solution to the fundamental difficulty that arises when different peoples live together. We can only reply "no" to this question. As before, those facts would still remain that exclude a national minority from participation in power and that, despite the letter of the law, which calls on them to join in governing, allow them to be not co-rulers but only the ruled. It is quite unthinkable from the start to split up all matters by nationality. It is impossible in a nationality mixed city to create two police forces, perhaps a German and a Czech, each of which could take action only against members of its own nationality. It is impossible to create a double railroad administration in a bilingual country, one under the control only of Germans, a second only of Czechs. If that is not done, however, then the above-mentioned difficulties remain. The situation is not as though handling political problems directly connected with language was all that caused national difficulties; rather, these difficulties permeate all of public life.
National autonomy would have offered national minorities the possibility of administering and arranging their school systems independently. They had this possibility to a certain degree, however, even without the implementation of this program, though at their own cost. National autonomy would have allowed them a special right of taxation for these purposes and, on the other hand, relieved them from contributing to the schools of other nationalities. That alone, however, is not worth as much as the authors of the program of national autonomy thought.
The position that the national minority would have obtained from the grant of national autonomy would have approximated the position of those privileged colonies of foreigners that the estate system established and that the princely state then established on models bequeathed by the estate system, perhaps like the position of the Saxons in Transylvania. This would not have been satisfactory in modern democracy. Generally speaking, the whole line of thought about national autonomy looks back more to the medieval conditions of the estate system than to the conditions of modern democracy. Given the impossibility of creating modern democracy in a multinational state, its champions, when as democrats they rejected the princely state, necessarily had to turn back to the ideals of the estate system.
If one looks for a model of national autonomy in certain problems of organization of minority churches, then this is only quite superficially a correct comparison. It is overlooked that since the force of faith no longer can, as it once could, determine the entire life style of the individual, there no longer exists between members of different churches today that impossibility of political understanding that does indeed exist between different peoples because of differences of language and the resulting differences in styles of thinking and of outlook.
The personality principle can bring no solution to the difficulties of our problem because it indulges in extreme self-deception about the scope of the questions at issue. If only language questions, so called in the narrower sense, were the object of the national struggle, then one could think of paving the way for peace between peoples by special treatment of those questions. But the national struggle is not at all limited to schools and educational institutions and to the official language of the courts and authorities. It embraces all of political life, even all that which, as Renner and many others with him believe, ties a unifying bond around the nations, the so-called economic aspect. It is astonishing that this could be misunderstood precisely by Austrians, who, after all, were bound to see every day how everything became a national bone of contention—road construction and tax reforms, bank charters and public purveyances, customs tariffs and expositions, factories and hospitals. And purely political questions above all. Every foreign-policy question is the object of national struggle in the multinational state, and never did this show up more clearly in Austria-Hungary than during the World War. Every report from the battlefield was received differently by the different nationalities: some celebrated when others grieved; some felt downcast when others were happy. All these questions are controversial by nationality; and if they are not included in the solution of the nationality question, then the solution just is not complete.
The problem that the national question poses is precisely that the state and administration are inevitably constructed on a territorial basis in the present stage of economic development and so inevitably must embrace the members of different nationalities in territories of mixed language.
The great multinational states, Russia, Austria, Hungary, and Turkey, have now fallen apart. But that too is no solution to the constitutional problem in polyglot territories. The dissolution of the multinational state gets rid of many superfluous complications because it separates territories from each other that are compactly inhabited by the members of one people.The abuse of the compactly settled territories of the Germans in Bohemia is disregarded here; the national question would he soluble there, only people do not want to solve it. The dissolution of Austria solves the national question for the interior of Bohemia, for Western Galicia, and for the greater part of Carniola. But, as before, it remains a problem in the isolated German cities and villages that are sprinkled in the Czech-language territory of Bohemia, in Moravia, in Eastern Galicia, in the Gottschee [Kocevje] district, etc.
In polyglot territories the application of the majority principle leads not to the freedom of all but to the rule of the majority over the minority. The situation is made no better by the fact that the majority, in inner recognition of its injustice, shows itself anxious to assimilate the minorities nationally by compulsion. That attitude of course also implies—as a keen writer has noted—an expression of the nationality principle, an acknowledgment of the demand that state boundaries should not stretch beyond the boundaries of peoples.Cf. Kjellén, loc. cit., p. 131. Still the tormented peoples wait for the Theseus who shall overcome this modern Procrustes.
A way must be found out of these difficulties, however. It is not a question only of small minorities (for example, remnants of migrations that have long since come to a standstill), as one would tend to think if one assessed this situation only from the point of view of a few German cities in Moravia or Hungary or of the Italian colonies on the east coast of the Adriatic. The great present-day migrations of peoples have given all these questions a heightened importance. Every day new migrations create new polyglot territories; and the problem that a few decades ago was visible only in Austria has long since become a world problem, although in another form.
The catastrophe of the World War has shown to what abyss that problem has led mankind. And all the streams of blood that have flowed in this war have not brought it a hairsbreadth closer to solution. In polyglot territories, democracy seems like oppression to the minority. Where only the choice is open either oneself to suppress or to be suppressed, one easily decides for the former. Liberal nationalism gives way to militant antidemocratic imperialism.
B. The Migration Problem and NationalismThe variety of conditions of life in the individual parts of the earth's surface touches off migrations of individual persons and entire peoples. If the world economy were managed by the decree of an authority that surveyed everything and ordered what was most appropriate, then only the absolutely most favorable conditions of production would be utilized. Nowhere would a less productive mine or a less productive field be in use if more productive mines or fields lay unused elsewhere. Before a less productive condition of production is put to use, one must always first consider whether there do not exist more productive ones. Less productive conditions of production that might be in use would be discarded at once if others should be found whose yield would be so much greater than an increased yield would be attained from discarding the old and introducing the new sources of production, even despite the loss to be expected because the immovably invested capital would become useless. Since the workers have to settle in places of production or in their immediate neighborhood, the consequences for the conditions of settlement follow automatically.
The natural conditions of production are by no means unchangeable. In the course of history they have undergone great changes. Changes can take place in nature itself, for example, through changes of climate, volcanic catastrophes, and other elemental events. Then there are the changes that occur from human activity, for example, exhaustion of mines and of the fertility of the soil. More important, however, are changes in human knowledge, which overturn traditional views about the productivity of the factors of production. New needs are awakened, either from the development of the human character or because the discovery of new materials or forces has stimulated them. Previously unknown production possibilities are discovered, either through the discovery of hitherto unknown natural forces and putting them to use or through the progress of productive techniques, which makes it possible to tap natural forces that had been unusable or less usable before. It follows that it would not be enough for the director of the world economy to determine the locations of production once and for all; he would continually have to make changes in them according to changing circumstances, and every change would have to go hand in hand with a resettlement of workers.
What would happen under ideal world socialism by order of the general director of the world economy is achieved in the ideal of the free world economy by the reign of competition. The less productive enterprises succumb to the competition of the more productive. Primary production and industry migrate from places of lower-yielding conditions of production to places of higher-yielding ones; and with them migrate capital, so far as it is mobile, and workers. The result for the movement of peoples is thus the same in either case: the stream of population goes from the less fruitful territories to the more fruitful.
That is the basic law of migrations of persons and peoples. It holds true in the same degree for the socialist and the free world economy; it is identical with the law under whose operation the distribution of population takes place in every smaller territory cut off from the outside world. It always holds true, even though its effectiveness may be disturbed in greater or lesser degree by extra-economic factors also, perhaps by ignorance of conditions, by sentiments that we are accustomed to calling love of home, or by intervention of an external power that hinders migration.
The law of migration and location makes it possible for us to form an exact concept of relative overpopulation. The world, or an isolated country from which emigration is impossible, is to be regarded as overpopulated in the absolute sense when the optimum of population—that point beyond which an increase in the number of people would mean not an increase but a decrease of welfare—is exceeded.Compare Wicksell, Vorlesungen über Nationalökonomie auf Grundlage des Marginalprinzipes (Jena: 1913), vol. 1, p. 50. A country is relatively overpopulated where, because of the large size of the population, work must go on under less favorable conditions of production than in other countries, so that, ceteris paribus, the same application of capital and labor yields a smaller output there. With complete mobility of persons and goods, relatively overpopulated territories would give up their population surplus to other territories until this disproportion had disappeared.
The principles of freedom, which have gradually been gaining ground everywhere since the eighteenth century, gave people freedom of movement. The growing security of law facilitates capital movements, improvement of transportation facilities, and the location of production away from the points of consumption. That coincides—not by chance—with a great revolution in the entire technique of production and with drawing the entire earth's surface into world trade, The world is gradually approaching a condition of free movement of persons and capital goods. A great migration movement sets in. Many millions left Europe in the nineteenth century to find new homes in the New World, and sometimes in the Old World also. No less important is the migration of the means of production: capital export. Capital and labor move from territories of less favorable conditions of production to territories of more favorable conditions of production.
Now, however—as a result of a historical process of the past—the earth is divided up among nations. Each nation possesses definite territories that are inhabited exclusively or predominantly by its own members. Only a part of these territories has just that population which, in conformity with the conditions of production, it would also have under complete freedom of movement, so that neither an inflow or an outflow of people would take place. The remaining territories are settled in such a way that under complete freedom of movement they would have either to give up or to gain population.
Migrations thus bring members of some nations into the territories of other nations. That gives rise to particularly characteristic conflicts between peoples.
In that connection we are not thinking of conflicts arising out of the purely economic side effects of migrations. In territories of emigration, emigration drives up the wage rate; in territories of immigration, immigration depresses the wage rate. That is a necessary side effect of migration of workers and not, say, as Social Democratic doctrine wants to have believed, an accidental consequence of the fact that the emigrants stem from territories of low culture and low wages. The motive of the emigrant is precisely the fact that in his old homeland, because of its relative overpopulation, he can get no higher wage. If this reason were absent, if there were no difference in the productivity of labor between Galicia and Massachusetts, then no Galician would emigrate. If one wants to raise the European territories of emigration to the level of development of the eastern states of the Union, then there is just nothing else to do than let the emigration proceed to the point that the relative overpopulation of the former and the relative underpopulation of the latter have disappeared. Clearly, American workers view this immigration just as unhappily as European employers view the emigration. Indeed, the Junker east of the Elbe thinks no differently about the flight of workers from the land when his tenant goes to West Germany than when he goes to America; the unionized worker of the Rhineland is disturbed by immigration from the lands east of the Elbe no less than members of a Pennsylvania trade union. But that in the one case the possibility exists of forbidding the emigration and immigration, or at least of impeding it, while in the other case such measures could be thought of by at most a few eccentrics born a couple of centuries too late, is only to be attributed to the fact that, besides damage to the interests of individuals in the case of international migration, other interests also are damaged.
Emigrants who settle in previously uninhabited territories can preserve and further cultivate their national character in the new home also. Spatial separation can lead over time to the emigrants' developing a new independent nationality. Such development of independence was in any case easier in times when transport and communication still had to struggle with great difficulties and when the written transmission of the national culture was greatly impeded by the slight diffusion of literacy. With the present-day development of the means of transportation and communication, with the relatively high degree of popular education and the wide dissemination of the monuments of national literature, such national splitting off and the formation of new national cultures is far more difficult. The trend of the times works rather toward convergence of the cultures of peoples living far apart, if not even toward a blending of nations. The bond of common language and culture that links England with its far-away dominions and with the United States of America, which now will soon have been politically independent for one and a half centuries, has become not looser but closer. A people that today sends out colonists into an uninhabited territory can count on the emigrants' keeping their national character.
If, however, the emigration is directed to already inhabited territories, then various possibilities are conceivable. It may be that the immigrants come in such masses or possess such superiority through their physical, moral, or intellectual constitution that they either entirely displace the original inhabitants, as the Indians of the prairies were displaced by the palefaces and were driven to destruction, or that they at least achieve domination in their new home, as would perhaps have been the case with the Chinese in the western states of the Union if legislation had not restricted their immigration in time or as could be the case in the future with the European immigrants into North America and Australia. Things are different if immigration takes place into a country whose inhabitants, because of their numbers and their cultural and political organization, are superior to the immigrants. Then it is the immigrants who sooner or later must take on the nationality of the majority.The assimilation is furthered if the immigrants come not all at once but little by little, so that the assimilation process among the early immigrants is already completed or at least already under way when the newcomers arrive.
The great discoveries had made the whole surface of the earth known to Europeans since the end of the Middle Ages. Now all traditional views about the inhabitability of the earth gradually had to change; the New World, with its excellent conditions of production, was bound to attract settlers from old and now relatively overpopulated Europe. At first, of course, it was only adventurers and political malcontents who moved far away to find a new home. Reports of their successes then drew others after them, at first only a few, then ever more and more, until finally in the nineteenth century, after improvement of the means of ocean transportation and the removal of limitations on freedom of movement in Europe, millions went migrating.
Here is not the place to investigate how it happened that all colonial land suitable for settlement by white Europeans was colonized by the English, Spanish, and Portuguese. Here it is enough for us to recognize the outcome that the best parts of the earth's surface inhabitable by whites thereby became English national property and that, in addition, the Spaniards and Portuguese in America, and scarcely also the Dutch in South Africa and the French in Canada, came onto the scene. And this outcome is extremely important. It made the Anglo-Saxons the most numerous nation among the white civilized peoples. This, coupled with the circumstance that the English possess the largest merchant fleet in the world and that they administer the best territories of the tropics as political rulers, had led to the fact that the world today wears an English face. The English language and English culture have impressed their stamp on our times.
For England this means above all that Englishmen who leave the island of Great Britain because of its relative overpopulation can almost always settle in territories where the English language and English culture prevail. When a Briton goes abroad, whether to Canada or to the United States or to South Africa or to Australia, he does cease to be a Briton, but he does not cease to be an Anglo Saxon. It is true that the English until quite recently, did not appreciate this circumstance, that they paid no special attention to emigration, that they faced the dominions and the United States indifferently, coldly, and sometimes even with hostility, and that only under the influence of Germany's efforts directed against them did they begin to seek closer economic and political relations first with the dominions and then with the United States. It is just as true that the other nations, which had been less successful in acquiring overseas possessions, also long paid just as little attention to this development of affairs as the English themselves and that they envied the English more for their rich tropical colonies, for their trade and seaport colonies, and for shipping, industry, and trade than for possession of territories of settlement, which were less appreciated.
Only as the stream of emigrants, flowing abundantly at first only from England, also came to be fed more from other European territories did people begin to concern themselves with the national fate of the emigrants. People noticed that while the English emigrants could maintain their mother tongue and national culture, home customs, and usage's of their fathers in their new homes, the other European emigrants overseas gradually ceased to be Dutchmen, Swedes, Norwegians, etc. and adapted themselves to the nationality of their environment. People saw that this alienation was unavoidable, that it occurred quicker here, slower there, but that it never failed to occur and that the emigrants—at the latest in the third generation, most already in the second, and not seldom even in the first—became members of Anglo-Saxon culture. The nationalists who dreamed about the size of their nation viewed this with sorrow, but it seemed to them that nothing could be done about it. They founded associations that endowed schools, libraries, and newspapers for the colonists to check the emigrants' national alienation; but what they achieved thereby was not much. People had no illusions about the fact that the reasons for emigration were of compelling economic nature and that the emigration as such could not be impeded. Only a poet like Freiligrath could ask the emigrants:
Oh sprecht! warum zogt ihr von dannen?Das Neckartal hat Wein und Korn.[Oh speak! Why are you moving away?The Neckar Valley has wine and grain.]The statesman and the economist well knew that there were more wine and more grain overseas than at home.
As late as the beginning of the nineteenth century people could scarcely suspect the significance of this problem. Ricardo's theory of foreign trade still started with the assumption that the free mobility of capital and labor exists only within the boundaries of a country. In the home country all local differences in the profit rate and the wage rate are evened out by movements of capital and workers. Not so for differences between several countries. Lacking there was that free mobility which would ultimately be bound to cause capital and labor to flow from the country offering less favorable conditions of production to the country of more favorable conditions. A range of emotional factors ("which I should be sorry to see weakened," the patriot and politician Ricardo interjects here into the exposition of the theorist) resists that. Capital and workers remain in the country, even though they thereby suffer a loss of income, and turn to those branches of production having, while not absolutely, still relatively more favorable conditions.Cf. Ricardo, Principles of Political Economy and Taxation in The Works of D. Ricardo, edited by McCulloch, second edition (London: 1852), pp. 76 ff. The basis of the free-trade theory is thus the fact that noneconomic reasons keep capital and labor from moving across national boundaries, even if this seems advantageous for economic motives. This may have been true on the whole in the days of Ricardo, but for a long time it has no longer been true.
But if the basic assumption of Ricardo's doctrine of the effects of free trade falls, then this doctrine must also fall along with it. There is no basis for seeking a fundamental difference between the effects of freedom in domestic trade and in foreign trade. If the mobility of capital and labor internally differs only in degree from their mobility between countries, then economic theory can also make no fundamental distinction between the two. Rather, it must necessarily reach the conclusion that the tendency inheres in free trade to draw labor forces and capital to the locations of the most favorable natural conditions of production without regard to political and national boundaries. In the last analysis, therefore, unrestricted free trade must lead to a change in the conditions of settlement on the entire surface of the earth; from the countries with less favorable conditions of production capital and labor flow to the countries with more favorable conditions of production.
The free-trade theory modified in this way, just like the doctrine of Ricardo, also reaches the conclusion that from the purely economic point of view nothing speaks against free trade and everything against protectionism. But since it leads to quite different results regarding the effect of free trade on locational shifts of capital and labor, it presents a quite changed point of departure for testing the extraeconomic reasons for and against the protective system.
If one sticks with the Ricardian assumption that capital and labor are not impelled to move abroad even by more favorable conditions of production, then it turns out that the same applications of capital and labor lead to different results in the individual countries. There are richer and poorer nations. Trade-policy interventions can change nothing about that. They cannot make the poorer nations richer. The protectionism of the richer nations, however, appears completely senseless. If one drops that Ricardian assumption, then one sees a tendency prevail over the entire earth toward equalization of the rate of return on capital and of the wage of labor. Then, finally, there no longer are poorer and richer nations but only more densely and less densely settled and cultivated countries.
There can be no doubt that, even then, Ricardo and his school would have advocated nothing other than the policy of free trade, since they could not have avoided recognizing that protective tariffs are not the way out of these difficulties. For England, however, this problem never existed. Its rich holdings of territories for settlement lets emigration appear a matter of national indifference to it. The British emigrants can maintain their national character even far away; they cease to be Englishmen and Scots, but they remain Anglo-Saxons, and the war showed anew what that means politically.
For the German people, though, things are different. For reasons that go far back, the German nation has no territories for settlement at its disposal where emigrants can maintain their German character. Germany is relatively overpopulated; it must sooner or later yield up its surplus population, and if for some reason or other it could not or would not do this, then the standard of living of the Germans would have to sink to a lower level. If, however, Germans do emigrate, then they lose their national character, if not in the first generation, then in the second, third, or at the latest the fourth.
That was the problem that German policy saw posed for it after the establishment of the empire of the Hohenzollerns. The German people faced one of those great decisions that a nation does not have to make every century. It was fateful that the solution to this great problem became urgent before another, no less great, problem was solved, that of the establishment of the German national state. Even only to comprehend a question of this significance and of this historical gravity in its full scope would have required a generation that could decide its fate fearlessly and freely. That, however, was not allowed to the German people of the Great Prussian Reich, the subjects of the twenty-two federated princes. In these questions, also, it did not take its fate into its own hands; it left the most important decision to the generals and diplomats; it followed its leaders blindly without noticing that it was being led to the precipice. The end was defeat.
As early as the beginning of the thirties of the nineteenth century, people in Germany had begun to concern themselves with the problem of emigration. Now it was the emigrants themselves who made the unsuccessful attempt to establish a German state in North America; now again it was the Germans at home who sought to take the organization of emigration into their hands. That these efforts could lead to no success is not surprising. How ever could the attempt to establish a new state succeed for the Germans, who in their own country were not even able to transform the pitiable multiplicity of several dozen patrimonial principalities, with their enclaves, their hereditary affiliations, and their family laws, into a national state? How could German men have found the strength to assert themselves out there in the wide world among Yankees and Creoles when at home they were not even able to put an end to the farcical rule of the miniature thrones of the Reuss and Schwarzburg princes? Where was the German subject to get the political insight that politics on the grand scale requires when at home it was forbidden to him "to judge the actions of the supreme state authority by the measure of his limited intellect?"Cf. the decree of 15 January 1838 of the Prussian Minister of the Interior, v. Rochow, reprinted in Prince-Smith's Gesammelte Schriften (Berlin: 1880), vol. 3, p. 230.
In the middle of the seventies of the last century the problem of emigration had acquired such significance that its solution could no longer be dragged out. The decisive thing was not that emigration was steadily growing. According to data of the United States, the immigration of Germans there (not counting Austrians) had risen from 6,761 in the decade 1821 to 1830 to 822,007 in the decade 1861 to 1870; then, right after 1874, an—although at first only temporary—drop-off in the German emigration to the United States occurred. Far more important was that it was becoming ever clearer that the conditions of production in Germany for agriculture and for the most important branches of industry were so unfavorable that competition with foreign countries was no longer possible. The extension of the railroad net in the countries of Eastern Europe and the development of ocean and river shipping made it possible to import agricultural products into Germany in such quantity and at such low prices that the continued existence of the bulk of German agricultural units was most seriously threatened. Already from the fifties Germany was a rye-importing country; since 1875 it has also been a wheat-importing country. A number of branches of industry, particularly the iron industry, also had to struggle with growing difficulties.
It is clear where the causes lay, even though people of the time may have felt it only vaguely. The superiority of the natural conditions of production of foreign countries made itself all the more strongly evident as the continuing development of means of transportation cheapened freight rates. People did try to explain the lesser competitive capacity of German production in another way; and in that connection, as indeed is generally characteristic of the discussion of problems of economic policy in Germany during the last few decades, people concerned themselves predominantly with nonessential side issues and so quite overlooked the great significance of the principles of the problem.
If people had recognized the fundamental significance of these problems and had grasped the deeper interconnection of things, then they would have had to say that Germany was relatively overpopulated and that to restore a distribution of population over the entire surface of the earth corresponding to the conditions of production, part of the Germans had to emigrate. Whoever did not share misgivings of national policy about a decline in the size of population or even about an end to the growth of population in Germany would have been content with this judgment. In any case he would have consoled himself with the fact that individual branches of production would move abroad partially in such a way that German entrepreneurs would establish enterprises abroad so that the consumption of the entrepreneurs' incomes would take place in the German Reich and would thereby expand the food-supply margin of the German people.
The patriot who sees his ideal in a large number of people would have had to recognize that his goal could not be reached without reduction of the standard of living of the nation unless the possibility were created, through acquiring colonies for settlement, of retaining part of the surplus population within the nation despite its emigration from the mother country. He would then have had to turn all his strength to acquisition of land for settlement. In the middle of the seventies of the nineteenth century, and even a decade longer, conditions were not at all yet such that it would not have been possible to reach this goal. In any case it could have been reached only in association with England. England was at that time and for long afterwards still troubled by a great concern, by anxiety that its Indian possession could be seriously threatened by Russia, For that reason it needed an ally that would have been in a position to hold Russia in check. Only the German Reich might have done that. Germany was strong enough to guarantee England the possession of India; Russia could never have thought of attacking India as long as it was not sure of Germany on its western border.To rule out any misunderstanding, let it be expressly noted that there is no intention here of taking a position on the question that was much discussed in Germany whether the "western" or "eastern" orientation for German policy was to be preferred. Both orientations were imperialist-minded, i.e., the question ran whether Germany should attack Russia or England. Germany should have allied itself with England to stand by it in a defensive war against Russia. There is no doubt, however, that then this war would never have occurred. England could have given a great compensation for this guarantee, and surely would have given it. Perhaps it would have let Germany have its extensive South African possession, which at that time had only a very thin Anglo-Saxon settlement; perhaps it also would have helped Germany obtain a large territory for settlement in Brazil or Argentina or in western Canada. Whether this was attainable may be doubted after all.But let it be noted that England, until the outbreak of the World War, repeatedly made attempts to have peaceful negotiations with Germany and was ready to buy peace even at the price of giving up some land. But it is certain that if Germany could have attained anything along this line at that time, it could have done so only in association with England. The great Prussian Reich of the Junkers east of the Elbe, however, wanted no alliance with liberal England. For reasons of domestic politics, the Three Emperors' League, the continuation of the Holy Alliance, seemed to it to be the sole suitable association that it could enter into. When this alliance finally showed itself untenable and the German Reich, faced with the choice either of siding with Russia against Austria-Hungary or with Austria-Hungary against Russia, decided for the alliance with Austria, then Bismarck still repeatedly sought to maintain a friendly relationship with Russia. So, then, this opportunity of acquiring a great territory for settlement for Germany remained unused.
Instead of seeking, in association with England, to acquire a colony for settlement, the German Reich made the transition to protective tariffs from 1879 on. As ever at great turning points of policy, here, too, people saw neither the deeper significance of the problem nor the meaning of the new policy being adopted. To the liberals the protective tariff seemed a temporary backsliding into a superseded system. The practitioners of political realism, that hodgepodge of cynicism, lack of conscience, and unvarnished selfishness, evaluated the policy merely from the standpoint of their own interests as an increase in the incomes of landowners and entrepreneurs. The Social Democrats trotted out their faded recollections of Ricardo; as for a deeper knowledge of things, which surely would not have been difficult with the help of this guide, they were hindered by their doctrinaire clinging to Marxist theory. Only much later, and even then only hesitantly, was the great significance grasped that that policy shift had not only for the German people but for all peoples.When Lensch (Drei Jahre Weltrevolution (Berlin: 1917], pp. 28 ff.) designates the shift in trade policy of 1879 as one of the deepest grounds of today's world revolution, then he is certainly to be agreed with, but for quite other reasons than those he adduces. In view of the events that have taken place in the meanwhile, it is no longer worth while to refute his further discussions.
The most remarkable thing about the protective tariff policy of the German Empire is that it lacked any deeper foundation. For the political realist it was sufficiently justified by its finding a majority in the German Reichstag. Any theoretical foundation for the protective tariff theory, however, looked very bad. The appeal to List's theory of an infant-industry tariff just did not hold water. It is no refutation of the free-trade argument to assert that the protective system puts idle productive forces to use. That they do not come into use without protection proves that their use is less productive than that of the productive forces used in their place. The infant industry tariff also cannot be economically justified. Old industries have an advantage over young ones in many respects. But the rise of new industries is to be deemed productive from the overall point of view only when their lesser productivity at the start is at least made up for by greater productivity later. Then, however, the new enterprises are not only productive from the point of view of the whole economy but also privately profitable; they would be brought into existence even without special encouragement. Every newly established firm reckons with such initial costs that should be recovered later. It is untenable to cite, in opposition, the fact that almost all states have supported the rise of industry by protective tariffs and other protectionistic measures. The question remains open whether the development of viable industries would have proceeded even without such encouragement. Within the territories of states, changes of location occur without any external help. In territories that lacked industry before, we see industries arise that not only maintain themselves successfully alongside those of older industrial territories but not seldom drive those quite out of the market.
None of the German tariff rates, moreover, could be called an infant-industry tariff; neither the grain tariffs nor the iron tariffs nor any one of the several hundred other protective tariffs may be given this name. And tariffs other than infant industry tariffs were never advocated by List; he was fundamentally a free-trader.
Moreover, the presentation of a protective-tariff theory in Germany has never once been attempted at all.Schuller, in Schutzzoll und Freihandel (Vienna: 1905), gives a theory of the setting of tariff rates; on his arguments for the protective tariff, cf. Mises, "Vom Ziel der Handelspolitik," Archiv für Sozialwissenschaft und Sozialpolitik, vol. 42, 1916/1917, p. 562, and Philippovich, Grundriss der politischen Ökonomie, vol. 2, 1 st part, seventh ed.(Tübingen: 1914), pp. 359 f. The longwinded and self-contradictory discussions about the necessity of protection for all national labor and of a gap-free tariff cannot lay claim to this name. They do indicate the direction in which reasons for the protective tariff policy had to be sought; they could not be suitable, however—and precisely because they renounced any economic line of thinking in advance and were oriented purely by power politics—for examining the question whether the goals being sought could also really be attained by this means.
Of the arguments of the protective-tariff advocates, we must at first leave aside the military one—or, as people now commonly say, the "war-economy" one—regarding autarky in case of war; that one will be discussed later. All other arguments start from the fact that the natural conditions for great and important branches of production are more unfavorable in Germany than in other territories and that the natural disadvantages must be compensated for by protective tariffs if production is to take place in Germany at all. For agriculture it could only be a question of thereby maintaining the internal market, for industry only of maintaining foreign markets, a goal that could be reached only by dumping by branches of production cartelized under the protection of the tariff. Germany, as a relatively overpopulated country working under more unfavorable conditions than foreign countries in a number of branches of production, had to export either goods or people. It decided for the former. It overlooked the fact, however, that export of goods is possible only if one competes with countries of more favorable conditions of production, that is, if, despite higher costs of production, one delivers just as cheaply as the countries producing at lower costs. That means, however, pressing down workers' wages and the standard of living of the whole people.
For years people in Germany could indulge in extreme illusions about that. To understand this interconnection of things, it would have been necessary to think economically and not in terms of statism and power politics. But some day it was nevertheless bound to impress itself on everyone with irrefutable logic that the protective tariff system was bound to fail in the end. One could deceive oneself about the fact that it was damaging the relative well-being of the German people as long as an absolute growth of national wealth could still be observed. But attentive observers of world economic development could not help but express misgivings about the future development of German foreign trade. What would happen to German commodity exports once an independent industry had become developed in the countries that still formed the market for German industry and had been in a position to produce under more favorable conditions?Cf., out of a large literature, Wagner, Agrar- und Industriestaat, second ed.
From this situation the desire finally arose among the German people for great colonies for settlement and for tropical territories that could supply Germany with raw materials. Because England stood in the way of the realization of these intentions, because England had broad territories at its disposal in which Germans could have settled, and because England possessed great tropical colonies, the desire arose to attack England and defeat it in war. That was the idea that led to construction of the German battle fleet.
England recognized the danger in time. First it strived for a peaceful settlement with Germany; it was ready to pay a high price for that. When this intention was wrecked on the resistance of German policy, England prepared itself accordingly. It was firmly resolved not to wait until Germany had a fleet superior to the English; it was resolved to wage war earlier, and it enlisted allies against Germany. When Germany got into war with Russia and France in 1914 over Balkan affairs, England fought also because it knew that in case of a German victory it would have to wage war alone with Germany in a few years. The construction of the German battle fleet had to lead to war with England before the German fleet had achieved superiority over the English. For the English knew that the German ships could be used in no other way than to attack England's fleet and its coast. The pretext with which Germany sought to conceal the ultimate intentions that it was pursuing by constructing the fleet was that it needed a mighty fleet to protect its expanded ocean trade. The English knew what to make of that. Once, when there still were pirates, merchant ships did need protection by cruisers on endangered seas. Since the establishment of security on the sea (approximately since 1860) that had no longer been necessary. It was quite impossible to explain the construction of a battle fleet usable only in European waters by a desire to protect trade.
It is also immediately understandable why, from the beginning, almost all states of the world sympathized with England against Germany. Most had to fear Germany's hunger for colonies. Only a few nations of Europe are in a situation similar to the German in being able to feed their populations within their own borders only under more unfavorable conditions than are found in the rest of the world. To these belong the Italians in the first place, and also the Czechs. That these two nations also were on the side of our adversaries was Austria's doing.That Japan and China were also against us is to be ascribed to the disastrous Chiao-chou policy.
Now the war has been fought, and we have lost it. The German economy has been quite shattered by the long "war economy"; in addition, it will have to bear heavy reparations burdens. But far worse than these direct consequences of the war must appear the repercussion on Germany's world economic position. Germany has paid for the raw-material supplies on which it depends partly by export of manufactures, partly from the yield of its foreign enterprises and capital investments. That will no longer be possible in the future. During the war the foreign investments of the Germans were expropriated or used up in payment for the import of various goods. The export of manufactures, however, will encounter extreme difficulties. Many markets have been lost during the war and will not be easy to win back. Here, too, the war has created no new situation but only has hastened a development that would have occurred without it. The impediment to trade caused by the war has brought new industries to life in Germany's former markets. They would have arisen even without the war, but later. Now, once they are there and are operating under more favorable conditions of production than German enterprises, they will pose severe competition to German exports. The German people will be compelled to shrink their consumption. They will have to work more cheaply, that is, live worse, than other peoples. The entire level of German culture will thereby be depressed. After all, culture is wealth. Without well-being, without wealth, there never has been culture.
True, emigration might still remain open. But the inhabitants of the territories that might be considered do not want to admit any German immigrants. They fear being outnumbered by the German elements; they fear the pressure that immigration would be bound to exert on wages. Long before the war, Wagner could already refer to the fact that, except for the Jews, there is no other people than the German "that is scattered in so many national fragments and individuals among other civilized peoples and other nations almost over the entire earth's surface, that often forms a quite capable element here, often also only a sort of cultural fertilizer, seldom in the leading positions in life, more frequently in the middle ones and down to the lower ones, little men and little women." And he added that "this German diaspora" is not much more liked, even though more respected, than Jews and Armenians and is not seldom subject to just as strong an aversion on the part of the native population.Cf. Wagner, loc. cit., p. 81. How will things become now, after the war?
Only now can one fully survey the damage that the departure from the principles of liberal policy has caused for the German people. How very different a position Germany and Austria would be in today if they had not undertaken the fateful return to the protective tariff! Of course, the size of the population would not be as large as it is today. But the smaller population could be living and working under conditions just as favorable as those of the other countries of the world. The German people would be richer and happier than it is today; it would have no enemies and no enviers. Hunger and anarchy—that is the result of the protectionist policy.
The outcome of German imperialism, which cast the German people into bitter misery and made it into a pariah people, shows that those whose leadership it followed in the last generation were not on the right path. Neither fame nor honor nor wealth nor happiness was to be found on this path. The ideas of 1789 would not have brought the German people to its position today. Did not the men of the Enlightenment, who today are reproached for lack of state feeling,Cf. Sprengel, Das Staatsbewusstein in der Deutschen Dichtung seit Heinrich von Kleist (Leipzig: 1918), pp. 8 ff. better understand what is good for the German people and the entire world? More clearly than all theories could do, the course of history shows that properly understood patriotism leads to cosmopolitanism, that the welfare of a people lies not in casting other peoples down but in peaceful collaboration. Everything that the German people possessed, its intellectual and material culture, it has uselessly sacrificed to a phantom, to no one's benefit and to its own harm.
A nation that believes in itself and its future, a nation that means to stress the sure feeling that its members are bound to one another not merely by accident of birth but also by the common possession of a culture that is valuable above all to each of them, would necessarily be able to remain unperturbed when it saw individual persons shift to other nations. A people conscious of its own worth would refrain from forcibly detaining those who wanted to move away and from forcibly incorporating into the national community those who were not joining it of their own free will. To let the attractive force of its own culture prove itself in free competition with other peoples—that alone is worthy of a proud nation, that alone would be true national and cultural policy. The means of power and of political rule were in no way necessary for that.
That nations favored by fate possess wide territories of settlement could provide no cogent grounds for adopting another policy. It is true that those colonies were not taken with smooth talk, and one can think only with shudders and anger of the fearful mass murders that prepared the basis for many of the colonial settlements flourishing today. But all other pages of world history were also written in blood, and nothing is more stupid than efforts to justify today's imperialism, with all of its brutalities, by reference to atrocities of generations long since gone. It must be recognized that the time for expeditions of conquest is past, that today it is at least no longer acceptable to use force on peoples of the white race. Whoever wanted to contradict this principle of modern political world law, an expression of the liberal ideas of the time of the Enlightenment, would have to set himself against all other nations of the world. It was a fateful error to want to undertake a new partition of the earth with cannons and armored ships.
The nations suffering from relative overpopulation in their homelands can no longer use those means of relief today that were usual at the time of national migrations. Full freedom of emigration and immigration and unlimited free mobility of capital must be their demand. Only in this way can they attain the most favorable economic conditions for their fellow nationals.
Of course, the struggle of nationalities over the state and government cannot disappear completely from polyglot territories. But it will lose sharpness to the extent that the functions of the state are restricted and the freedom of the individual is extended. Whoever wishes peace among peoples must fight statism.
C. The Roots of ImperialismIt is usual to seek the roots of modern imperialism in the desire for territories to settle and colonies to exploit. This interpretation represents imperialism as an economic necessity. We best recognize that this interpretation is inadequate if we consider how liberalism stands on the same problem. Its watchword is freedom of movement; at the same time, it is averse to all colonial undertakings. The proof that the liberal school has provided is irrefutable: that free trade and only free trade appears justified from the purely economic point of view, that only it guarantees the best provisioning of all persons, the greatest yield of labor with the smallest expenditure of costs.
This liberal dogma cannot be shaken, either, by the assertion—on whose correctness we offer no opinion—that there are peoples who are not ready for self-government and never will be ready. These lower races supposedly must be politically governed by the higher races, without economic freedom being in any way limited thereby. Thus have the English long interpreted their rule in India, thus was the Congo Free State conceived: the open door for economic activity of all nations in free competition both with the members of the ruling nation and with the natives. That the practice of colonial policy deviates from this ideal, that it again, as formerly, regards the natives only as a means, not as an end in their own right, that it—above all the French, with their trade-policy assimilation system—excludes from the colonial territories all who do not belong to the ruling nation, is only a consequence of imperialistic lines of thinking. But where do these come from?
An individualistic justification for imperialism can also be found. That is the one based on the conditions of territories with mixed population. There the consequences of the application of the democratic principle were bound by themselves alone to lead to militant aggressive nationalism. Things are no different in those territories to which the stream of immigration is directed today. There the problem of mixed languages arises ever anew, there imperialistic nationalism must also arise ever anew. Thus we see efforts growing in America and in Australia for limitation of undesired—foreign-nationality—immigration, efforts that were bound to arise out of the fear of being outnumbered by foreigners in one's own country at the same time that the fear arose that the immigrants of foreign national origin could no longer be fully assimilated.
Doubtless this was the point from which the rebirth of imperialistic thinking proceeded. From here the spirit of imperialism gradually undermined the entire thought structure of liberalism, until finally it could also replace the individualistic basis from which it had originated with a collectivistic one. The idea of liberalism starts with the freedom of the individual; it rejects all rule of some persons over others; it knows no master peoples and no subject peoples, just as within the nation itself it distinguishes between no masters and no serfs. For fully developed imperialism, the individual no longer has value. He is valuable to it only as a member of the whole, as a soldier of an army. For the liberal, the number of fellow members of his nationality is no unduly important matter. It is otherwise for imperialism. It strives for the numerical greatness of the nation. To make conquests and hold them, one must have the upper hand militarily, and military importance always depends on the number of combatants at one's disposal. Attaining and maintaining a large population thus becomes a special goal of policy. The democrat strives for the unified national state because he believes that this is the will of the nation. The imperialist wants a state as large as possible; he does not care whether that corresponds to the desire of the peoples.We have seen how the striving for the unified national state originates from the desire of the peoples. Imperialism interprets the matter otherwise. For it, the idea of the unified state is a legal title for annexations. Thus the Pan-Germans wanted to annex the German cantons of Switzerland and even the Netherlands against their will.
The imperialistic people's state scarcely differs from the old princely state in its interpretation of sovereignty and its boundaries. Like the latter, it knows no other limits to the expansion of its rule than those drawn by the opposition of an equally strong power. Even its lust for conquest is unlimited. It wants to hear nothing of the right of peoples. If it "needs" a territory, then it simply takes it and, where possible, demands further from the subjugated peoples that they find this just and reasonable. Foreign peoples are in its eyes not subjects but objects of policy. They are—quite as the princely state once thought—appurtenances of the country where they live. Expressions also recur in the modern imperialistic manner of speaking, therefore, that were believed to be already forgotten. People speak again of geographic boundaries,The answer of the nationality principle to the theory of natural geographic boundaries was given by Arndt when he explained that "the single most valid natural boundary is made by language" (Der Rhein. Deutschlands Strom aber nicht Deutschlands Grenze, 1813, p. 7) and then was aptly formulated by J. Grimm when he speaks of the "natural law . . . that not rivers and not mountains form the boundary lines of peoples and that for a people that has moved over mountains and rivers, its own language alone can set the boundary" (loc. cit., p. 557). How one can manage to derive from the nationality principle the demand for annexation of the territories "of the small, unviable peoples, specifically, those incapable of having their own state" may be seen in Hasse, Deutsche Politik, vol. 1, third part (Munich: 1906), pp. 12 f. of the necessity of using a piece of land as a "buffer zone"; territories are again rounded off; they are exchanged and sold for money.
These imperialistic doctrines are common to all peoples today. Englishmen, Frenchmen, and Americans who marched off to fight imperialism are no less imperialistic than the Germans. Of course, their imperialism differed from the German variety before November 1918 in one important point. While the other nations brought their imperialistic efforts to bear only against the peoples of the tropics and subtropics and treated the peoples of the white race in conformity with the principles of modern democracy, the Germans, precisely because of their position in the polyglot territories in Europe, directed their imperialistic policy against European peoples also.Only in impeding immigration does imperialism on the part of the Anglo-Saxons operate against the whites also. The great colonial powers have held fast to the democratic-pacifistic nationality principle in Europe and America and have practiced imperialism only against the African and Asiatic peoples. They have therefore not come into conflict with the nationality principle of the white peoples, as has the German people, which even in Europe has sought to practice imperialism everywhere.
To justify the application of imperialistic principles in Europe, the German theory saw itself compelled to fight the nationality principle and replace it with the doctrine of the unified state. Small states are said no longer to have any justification for their existence nowadays. They are said to be too small and too weak to form an independent economic territory. They supposedly must therefore necessarily seek links with larger states in order to form an "economic and trench community" with them.Cf. Naumann, Mitteleuropa (Berlin: Georg Reimer, 1915), pp. 164 ff. (Central Europe, trans. by Christabel M. Meredith, New York: Knopf, 1917, pp. 179 ff.); Mitscherlich, Nationalstaat und Nationalwirtschaft und ihre Zukunft (Leipzig: 1916), pp. 26 ff; on other writers of the same orientation, cf. Zurlinden, Der Weltkrieg. Vorläufige Orientierung von einem schweizerischen Standpunkt aus, vol. 1 (Zurich: 1917), pp. 393 ff.
If this means no more than that small states are scarcely able to mount sufficient resistance to the lust for conquest of their more powerful neighbors, well, one cannot contradict that. Small states cannot in fact compete with large ones on the battlefield; if it comes to war between them and a great power, then they must succumb unless help comes to them from outside. This help seldom is lacking. It is provided by large and small states, not from sympathy or on principle but in their own interest. In fact, we see that small states have maintained themselves for centuries just as well as the great powers. The course of the World War shows that even nowadays small states do not always prove weakest in the end. If one seeks to prod the small states by threats into association with a larger state or if one compels them into subjugation through force of arms, well, this is no proof of the assertion that "time is working against small state sovereignties."Cf. Renner, Österreichs Erneuerung, vol. 3 (Vienna: 1916), p. 65. This proposition is no less correct or false today than in the days of Alexander the Great, Tamerlane, or Napoleon. The political ideas of modern times allow the continued existence of a small state to appear rather more secure today than in earlier centuries. That the Central Powers won military victories over a number of small states during the World War in no way justifies our declaring that "running a state on a small scale" is just as out of date today as so running an ironworks. When Renner, with reference to military victories that German and Austrian troops won over the Serbs, thinks he can dispose of the nationality principle with the Marxist expression: "the material conditions of being a state rebel against its immaterial ones—a contradiction of concepts that in practice becomes a tragic fate for people and state,"Renner, Österreichs Erneuerung, vol. 3 (Vienna: 1916), p. 66. he is thereby overlooking the fact that military weakness could be fatal for small states thousands of years ago also.
The assertion that all small states have had their day is further supported by Naumann, Renner, and their followers by the remark that a state must at least possess enough territory for a self-sufficient economy. That this is not true is already clear from what was said earlier. There can be no question of a test of economic self-sufficiency in the formation of states at a time when the division of labor embraces broad stretches of land, whole continents, indeed the whole world. It does not matter whether the inhabitants of a state meet their needs directly or indirectly by production at home; what is important is only that they can meet them at all. When Renner confronted the individual Austrian nations striving for political independence with the question of where they then would obtain this or that article once they had been detached from the whole of the Austro-Hungarian state, well, that was absurd. Even at the time when the state structure was unified, they did not obtain these goods for nothing but only for value supplied in return, and this value in return does not become greater when the political community has fallen apart. This objection would have had some sense only if we were living at a time when trade between states was impossible.
The size of a state's territory therefore does not matter. It is another question whether a state is viable when its population is small. Now, it is to be noted that the costs of many state activities are greater in small states than in large ones. The dwarf states, of which we still have a number in Europe, like Liechtenstein, Andorra, and Monaco, can organize their court systems by levels of jurisdiction, for example, only if they link up with a neighboring state. It is clear that it would be financially quite impossible for such a state to set up as comprehensive a court system as that which a larger state makes available to its citizens, for example, by establishing courts of appeal. One can say that, seen from this point of view, states encompassing a smaller number of people than the administrative units of the larger states are viable only in exceptional cases, namely, only when they have especially rich populations. The smaller states for which this precondition does not hold will, for reasons of state finance, have to link their administrations with a larger neighboring state.Cf. also the speech of Bismarck in the session of the Prussian House of Deputies of 11 December 1867 on Prussia's treaty of accession with the principality of Waldeck-Pyrmont. (Fürst Bismarcks Reden, edited by Stein, vol. 3, pp. 235 ff.) Nations so small in number of people that they do not satisfy these conditions do not exist at all and cannot exist at all, since the development of an independent standard language presupposes, after all, the existence of several hundred thousand speakers.
When Naumann, Renner, and their numerous disciples recommended to the small peoples of Europe an association with a Central Europe under German leadership, they completely misunderstood the essence of the protective-tariff policy. On political or military grounds, an alliance with the German nation assuring independence to all participants could be desirable for the small nations of Eastern and Southeastern Europe. In no case, however, could an alliance that would be serviceable exclusively to German interests appear welcome to them. That was the only kind, however, that the advocates of Central Europe had in view. They wanted an alliance that would enable Germany to compete militarily with the world's great powers for colonial possessions, possessions whose advantages could have benefited the German nation alone. They conceived of the Central European world empire, furthermore, as a protective-tariff community. Just that, however, is what all these smaller nations do not want. They do not want to be mere markets for German industrial products; they do not want to forgo developing at home those branches of industry that have their natural locations there and importing from outside Germany the goods produced more cheaply there. It was thought that the rise in prices of agricultural products that was infallibly bound to occur in consequence of incorporation into the Central European tariff territory would, even by itself alone, be attractive to the predominantly agrarian states whose incorporation into the Central European empire was being sought. It was overlooked, however, that this argument could make an impression only on economically untrained persons. It is not to be denied that Rumania, say, on joining a German-Austrian-Hungarian customs community, would have experienced a rise in the prices of agricultural products. It is overlooked, however, that industrial products would have risen in price, on the other hand, since then Rumania would have had to pay the higher German domestic prices, while if it is not joined in a customs community with Germany, it pays the lower world-market prices. What it would have lost from joining the German customs community would have been greater than what it would have gained thereby. At present Rumania is a relatively underpopulated or at least a not overpopulated country; that means that the bulk of its export goods can at present and in the foreseeable future be exported without any dumping. Rumania has no enterprises in primary production and only a few in industry whose location would not be natural. Things are different for Germany, which, precisely in the most important branches of production, works under more unfavorable conditions than foreign countries.
The imperialistic way of thinking, which comes forward with the claim to be helping modern economic development to its rightful condition, is in truth gripped by barter-economy and feudal preconceptions. In the age of the world economy it is downright nonsensical to represent the demand for creation of large autarkic economic territories as an economic demand. In peacetime it is a matter of indifference whether one produces foodstuffs and raw materials at home oneself or, if it seems more economic, obtains them from abroad in exchange for other products that one has produced. When a medieval prince acquired a piece of land where ore was mined, then he had a right to call this mine his own. But if a modern state annexes a mining property, these mines still have not thereby become those of its citizens. They must buy their products by transferring products of their own labor just as they did before, and that changes have occurred in the political order remains without significance for ownership of them. If the prince is happy about the annexation of a new province, if he is proud about the size of his realm, that is immediately understandable. If, however, the common man is happy that "our" realm has become larger, that "we" have acquired a new province, well, that is a joy that does not arise from the satisfaction of economic needs.
In economic policy, imperialism in no way suits the stage of world economic development reached in 1914. When the Huns slashed through Europe killing and burning, they harmed their enemies by the destruction that they left behind, but not themselves also. But when German troops destroyed coal mines and factories, then they also worsened the provisioning of the German consumer. That coal and various manufactured products can be produced in the future only in smaller quantities or only with higher costs will be felt by everyone involved in world economic transactions.
Once that has been recognized, however, then only the military argument can still be adduced in favor of the policy of national expansion. The nation must be populous to field many soldiers. Soldiers are needed, however, to acquire land on which soldiers can be raised. That is the circle that the imperialistic way of thinking does not escape.
D. PacifismDreamers and humanitarians have long campaigned for the idea of general and eternal peace. Out of the misery and distress that wars have brought to individuals and peoples, the deep longing arose for peace that should never again be disturbed. Utopians paint the advantages of freedom from war in the most splendid colors and call on states to unite in an enduring alliance for peace embracing the entire world. They appeal to the highmindedness of emperors and kings; they refer to divine commands and promise whoever would realize their ideals undying fame far exceeding even that of the great war heroes.
History has omitted these peace proposals from its agenda. They have never been anything more than literary curiosities that no one took seriously. The powerful have never thought of renouncing their power; it has never occurred to them to subordinate their interests to the interests of humanity, as the naive dreamers demanded.
To be judged quite differently from this older pacifism, which was carried along by general considerations of humanitarianism and horror of bloodshed, is the pacifism of the Enlightenment philosophy of natural law, of economic liberalism, and of political democracy, which has been cultivated since the eighteenth century. It does not arise from a sentiment that calls on the individual and the state to renounce the pursuit of their earthly interests out of thirst for fame or in hope of reward in the beyond; nor does it stand as a separate postulate without organic connection with other moral demands. Rather, pacifism here follows with logical necessity from the entire system of social life. He who, from the utilitarian standpoint, rejects the rule of some over others and demands the full right of self-determination for individuals and peoples has thereby rejected war also. He who has made the harmony of the rightly understood interests of all strata within a nation and of all nations among each other the basis of his world view can no longer find any rational basis for warfare. He to whom even protective tariffs and occupational prohibitions appear as measures harmful to everyone can still less understand how one could regard war as anything other than a destroyer and annihilator, in short, as an evil that strikes all, victor as well as vanquished. Liberal pacifism demands peace because it considers war useless. That is a view understandable only from the standpoint of the free-trade doctrine as developed in the classical theory of Hume, Smith, and Ricardo. He who wants to prepare a lasting peace must, like Bentham, be a free-trader and a democrat and work with decisiveness for the removal of all political rule over colonies by a mother country and fight for the full freedom of movement of persons and goods.Cf Bentham, Grundsätze für ein zukünftiges Völkerrecht und für einen dauernden Frieden, translated by Klatscher (Halle: 1915), pp. 100 ff. Those and no others are the preconditions of eternal peace. If one wants to make peace, then one must get rid of the possibility of conflicts between peoples. Only the ideas of liberalism and democracy have the power to do that.Today people have managed to hold liberalism responsible for the outbreak of the World War. Compare, on the other hand, Bernstein, Sozialdemokratsche Völkerpolitik (Leipzig: 1917), pp. 170 ff., where the close connection of free trade with the peace movement is mentioned. Spann, an opponent of pacifism, expressly emphasizes the "dislike and dread of war which today characterizes the capitalist community" (loc. cit., p. 137).
Once one has abandoned this standpoint, however, one can make no sound argument against war and conflict. If one holds the view that there are irreconcilable class antagonisms between the individual strata of society that cannot be resolved except by the forcible victory of one class over others, if one believes that no contacts between individual nations are possible except those whereby one wins what the other loses, then, of course, one must admit that revolutions at home and wars abroad cannot be avoided. The Marxian socialist rejects war abroad because he sees the enemy not in foreign nations but in the possessing classes of his own nation. The nationalistic imperialist rejects revolution because he is convinced of the solidarity of interests of all strata of his nation in the fight against the foreign enemy. Neither is a principled opponent of armed intervention, neither a principled opponent of bloodshed, as the liberals are, who sanction only defensive war. Nothing, therefore, is in such bad taste for Marxian socialists as to fume over war, nothing in such bad taste for chauvinists as to fume over revolution, out of philanthropic concern for the innocent blood thereby shed. Quis tulerit Gracchos de seditione querentes? [Who could endure the Gracchi complaining of sedition?]
Liberalism rejects aggressive war not on philanthropic grounds but from the standpoint of utility. It rejects aggressive war because it regards victory as harmful, and it wants no conquests because it sees them as an unsuitable means for reaching the ultimate goals for which it strives. Not through war and victory but only through work can a nation create the preconditions for the well-being of its members. Conquering nations finally perish, either because they are annihilated by strong ones or because the ruling class is culturally overwhelmed by the subjugated. Once already the Germanic peoples conquered the world, yet were finally defeated. East Goths and Vandals went down fighting; West Goths, Franks and Lombards, Normans and Varangians remained victors in battle, but they were culturally defeated by the subjugated; they, the victors, adopted the language of the defeated and were absorbed into them. One or the other is the fate of all ruling peoples. The landlords pass away, the peasants remain; as the chorus in the Bride of Messina expresses it: "The foreign conquerors come and go, and we obey but we remain." The sword proves in the long run not to be the most suitable means of gaining broad diffusion for a people. That is the "impotence of victory" of which Hegel speaks.Compare Hegel, Werke, third edition, vol. 9 (Berlin: 1848), p. 540.,One could raise the question of what, then, the distinction between pacifism and militarism really consists, since the pacifist, too, is fundamentally not for maintaining peace at any price; rather, under certain conditions he prefers war to an unbearable state of peace; and conversely, the militarist, too, does not want to wage perpetual war but only to restore a definite condition that he regards as desirable. Both supposedly stand, therefore, in fundamental opposition to the absolute life renouncing passivity that the Gospel proclaims and that many Christian sects practice; between the two themselves, however, there exists only a difference of degree. In fact, however, the contrast is so great that it becomes a fundamental one. It lies, on the one hand, in assessment of the size and difficulty of the impediment barring us from peace and, on the other hand, in assessment of the disadvantages connected with conflict. Pacifism believes that we are barred from eternal peace only by a thin partition whose removal must lead at once to the state of peace, while militarism sets such remote goals for itself that their attainment in the foreseable future cannot be expected, so that a long era of war still lies ahead. Liberalism believed that eternal peace could be lastingly established merely by the abolition of princely absolutism, German militarism, however, was clear about the fact that achieving and maintaining the German supremacy being sought would continually entail wars for a long time yet. Furthermore, pacifism always has an eye open to the damages and disadvantages of war, while militarism considers them slight. From that there then follows in pacifism its outspoken preference for the state of peace and in militarism its constant glorification of war and, in its socialist form, of revolution. A further fundamental distinction between pacifism and militarism is possible according to their positions on the theory of power. Militarism sees the basis of rule in material power (Lassalle, Lasson), liberalism in the power of the mind (Hume).
Philanthropic pacifism wants to abolish war without getting at the causes of war.
It has been proposed to have disputes between nations settled by courts of arbitration. Just as in relations between individuals self-help is no longer permitted and, apart from special exceptional cases, the harmed person has only the right to call on the courts, so must things also become in relations between nations. Here also force would have to give way to law. It is supposedly no harder to settle disputes between nations peacefully than those among individual members of a nation. The opponents of arbitration in disputes between nations were to be judged no differently than the medieval feudal lords and brawlers, who also resisted the jurisdiction of the state as far as they could. Such resistance's must simply be abolished. If this had already been done years ago, then the World War, with all of its sad consequences, could have been avoided. Other advocates of arbitration between states go less far with their demands. They desire the obligatory introduction of arbitration, at least for the near future, not for all disputes but only for those touching on neither the honor nor the conditions of existence of nations, that is, only for the lesser cases, while for the others the old method of decision on the field of battle could still be retained.
It is a delusion to assume that the number of wars can thereby be reduced. For many decades already, wars have still been possible only for weighty reasons. That requires neither confirmation by citing historical examples nor even a long explanation. The princely states waged war as often as required by the interests of princes aiming at extending their power. In the calculation of the prince and his counselors, war was a means just like any other; free from any sentimental regard for the human lives that were thereby put at stake, they coolly weighed the advantages and disadvantages of military intervention as a chess player considers his moves. The path of kings led literally over corpses. Wars were not perhaps begun, as people are accustomed to saying, for "trivial reasons." The cause of war was always the same: the princes' greed for power. What superficially looked like the cause of war was only a pretext. (Remember, say, the Silesian wars of Frederick the Great.) The age of democracy knows no more cabinet wars. Even the three European imperial powers, which were the last representatives of the old absolutist idea of the state, had for a long time already no longer possessed the power to instigate such wars. The democratic opposition at home was already much too strong for that. From the moment when the triumph of the liberal idea of the state had brought the nationality principle to the fore, wars were possible only for national reasons. That could be changed neither by the fact that liberalism soon was seriously endangered by the advance of socialism nor by the fact that the old military powers still remained at the helm in Central and Eastern Europe. That is a success of liberal thinking that can no longer be undone, and that should not be forgotten by anyone who undertakes to revile liberalism and the Enlightenment.
Whether the arbitration procedure should now be chosen for less important disputes arising in relations among nations or whether their settlement should be left to negotiations between the parties is a question that interests us less here, however important it may otherwise be. It must be noted only that all arbitration treaties discussed in recent years seem suitable only for settlement of such less important matters of dispute and that up to now all attempts further to extend the range of international arbitration have failed.
If it is asserted that utterly all disputes between peoples can be settled through courts of arbitration, so that decision by war can be quite eliminated, then the fact must be noted that every administration of justice first presupposes the existence of a generally recognized law and then the possibility of applying the legal maxims to the individual case. Neither applies to those disputes between nations of which we speak. All attempts to create a substantive international law through whose application disputes among nations could be decided have miscarried. A hundred years ago the Holy Alliance sought to elevate the principle of legitimacy to the basis of international law. The possessions of the princes at that time were to be protected and guaranteed both against other princes and also, in line with the political thinking of the time, against the demands of revolutionary subjects. The causes of the failure of this attempt need not be investigated at length; they are obvious. And yet today people seem inclined to renew the same attempt again and to create a new Holy Alliance in Wilson's League of Nations. That it is not princes but nations that are guaranteeing their possessions today is a distinction that does not affect the essence of things. The decisive thing is that possessions are ensured at all. It is again, as a hundred years ago, a division of the world that presumes to be an eternal and final one. It will be no more enduring than the earlier one, however, and will, no less than that one, bring blood and misery to mankind.
As the legitimacy principle as understood by the Holy Alliance was already shaken, liberalism proclaimed a new principle for regulating relations among nations. The nationality principle seemed to signify the end of all disputes between nations; it was to be the norm by which all conflict should be peacefully solved. The League of Nations of Versailles adopts this principle also, though, to be sure, only for the nations of Europe. Yet in doing so it overlooks the fact that applying this principle wherever the members of different peoples live mingled together only ignites conflict among peoples all the more. It is still more serious that the League of Nations does not recognize the freedom of movement of the person, that the United States and Australia are still allowed to block themselves off from unwanted immigrants. Such a League of Nations endures so long as it has the power to hold down its adversaries; its authority and the effectiveness of its principles are built on force, to which the disadvantaged must yield but which they will never recognize as right. Never can Germans, Italians, Czechs, Japanese, Chinese, and others regard it as just that the immeasurable landed wealth of North America, Australia, and East India should remain the exclusive property of the Anglo-Saxon nation and that the French be allowed to hedge in millions of square kilometers of the best land like a private park.
Socialist doctrine hopes for establishment of eternal peace through the realization of socialism. "Those migrations of individuals," says Otto Bauer, "that are dominated by the blindly prevailing laws of capitalist competition and are almost fully exempt from the application of deliberate rules then cease. Into their place steps the deliberate regulation of migrations by the socialist community. They will draw immigrants to where a larger number of people at work increases the productivity of labor; where the land bestows a declining yield to a growing number of persons, they will induce part of the population to emigrate. With emigration and immigration thus being consciously regulated by society, the power over its language boundaries falls for the first time into the hands of each nation. Thus, no longer can social migrations against the will of the nation repeatedly violate the nationality principle."Cf. Bauer, loc. cit., p. 515.
We can imagine the realization of socialism in two ways. First, in its highest fulfillment as a socialist world state, as unified world socialism. In such a state the office responsible for the overall control of production will determine the location of each unit of production and thereby also regulate migrations of workers and thus perform the same tasks that fall to the competition of producers in the—so far not even approximately implemented—free economy. This office will resettle workers from the territories with more unfavorable conditions of production into those with more favorable conditions. Then, however, nationality problems will still turn up in the socialist world community. If spinning and iron production are to be cut back in Germany and expanded in the United States, then German workers will have to be resettled in Anglo-Saxon territory. It is precisely such resettlements that, as Bauer says, repeatedly violate the nationality principle against the will of the nation; but they violate it not only in the capitalist economic order, as he thinks, but in the socialist order just the same. That they are governed in the liberal economic order by the "blindly ruling" laws of capitalist competition but in the socialist community are "deliberately" regulated by society is incidental. If the deliberate regulation of the migrations of workers is guided by the rational point of view of pure economic efficiency—which of course Bauer too, and with him every Marxist, takes for granted—then it must lead to the same result that free competition also leads to, namely, that workers, without regard to historically inherited national conditions of settlement, are resettled where they are needed for exploitation of the most favorable conditions of production. Therein, however, lies the root of all national frictions. To assume that migrations of workers transcending the boundaries of national territories of settlement would not lead to the same conflicts in the socialist community as in the free community would of course be a downright utopian way of thinking. If, though, one wants to conceive of the socialist community as a nondemocratic one, then such an assumption is permissible; for, as we have seen, all national frictions first arise under democracy. World socialism, conceived of as a world empire of general servitude of peoples, would admittedly bring national peace also.
The realization of socialism is also possible, however, otherwise than through a world state. We can imagine a series of independent socialist political systems—perhaps nationally unified state—existing side by side without there being a common management of world production. The individual communities, which then are owners of the natural and produced means of production located in their territories, are connected with each other only in the exchange of goods. In a socialism of that kind, national antagonisms will not only not be made milder in comparison with the situation in the liberal economic order but will be considerably sharpened. The migration problem would lose nothing of its capacity to create conflicts between peoples. The individual states would perhaps not completely shut themselves off from immigration, but they would not allow immigrants to acquire resident status and to acquire a full share of the fruits of national production. A kind of international migrant-worker system would arise. Since each one of these socialist communities would have the product of the natural resources found in its territory at its disposal, so that the income of the residents of the individual territories would be different in size—larger for some nations, smaller for others—people would resist the inflow of elements of foreign nationality even for this reason alone. In the liberal economic order it is possible for members of all nations to acquire private ownership of the means of production of the entire world so that, e.g., Germans also can assure themselves a part of the land resources of India and, on the other hand, again, German capital can move to India to help exploit the more favorable conditions of production there. In a socialist order of society, that sort of thing would not be possible, since political sovereignty and economic exploitation must coincide in it. The European peoples would be excluded from ownership in foreign continents. They would have to endure calmly the fact that the immeasurable riches of overseas territories redound to the advantage of the local inhabitants only and would have to observe how a part of this landed wealth remains unexploited because capital for its use cannot be obtained.
All pacifism not based on a liberal economic order built on private ownership of the means of production always remains utopian. Whoever wants peace among nations must seek to limit the state and its influence most strictly.
It is no accident that the basic ideas of modern imperialism can already be found in the writings of two fathers of German socialism and of modern socialism in general, namely, in the works of Engels and Rodbertus. From the statist outlook of a socialist it seems obvious, because of geographic and commercial necessities, that a state must not let itself be shut off from the sea.Cf. Rodbertus, Schriften, edited by Wirth, new edition, vol. 4 (Berlin: 1899), p. 282. The question of access to the sea, which has always directed the Russian policy of conquest in Europe and in Asia and has dominated the behavior of the German and Austrian states regarding Trieste and of the Hungarian state regarding the South Slavs and which has led to the infamous "corridor" theories to which people want to sacrifice the German city of Danzig, does not exist at all for the liberal. He cannot understand how persons may be used as a "corridor," since he takes the position from the first that persons and peoples never may serve as means but always are ends and because he never regards persons as appurtenances of the land on which they dwell, The free-trader, who advocates complete freedom of movement, cannot understand what sort of advantage it offers to a people if it can send its export goods to the coast over its own state territory. If the old Russia of Czarism had acquired a Norwegian seaport and in addition a corridor across Scandinavia to this seaport, it could not thereby have shortened the distance of the individual parts of the Russian interior from the sea. What the Russian economy feels as disadvantageous is that the Russian production sites are located far from the sea and therefore lack those advantages in the transport system that ease of ocean freight transport assures. But none of that would be changed by acquisition of a Scandinavian seaport; if free trade prevails, it is quite a matter of indifference whether the nearest seaports are administered by Russian or other officials. Imperialism needs seaports because it needs naval stations and because it wants to wage economic wars. It needs them not to use them but to exclude others from them. The nonstatist economy of trade free of the state does not recognize this argumentation.
Rodbertus and Engels both oppose the political demands of the non-German peoples of Austria. That the Germans and Magyars, at the time when the great monarchies really became a historical necessity in Europe, "put all these small, stunted, impotent nationlets together into a great empire and thereby made them capable of taking part in a historical development to which they, left to themselves, would have remained quite foreign"—for not having understood that, Engels reproaches the Pan-Slavists. He admits that such an empire cannot prevail "without forcibly crushing many a tender flowerlet of a nation. But without force and without iron ruthlessness, nothing is accomplished in history; and if Alexander, Caesar, and Napoleon had possessed the same capacity for compassion to which Pan-Slavism now appeals for the sake of its decayed clients, what then would have become of history! And are the Persians, Celts, and Christian Germans not worth the Czechs and the people of Ogulin and Sereth?"Cf. Mehring, Aus dem literarischen Nachlass von Marx, Engels und Lassalle, vol 3(Stuttgart: 1902), pp. 255 f. These sentences could have come quite well from a Pan-German writer or mutatis mutandis from a Czech or Polish chauvinist, Engels then continues: "Now, however, in consequence of the great progress of industry, trade, and communications, political centralization has become a much more pressing need than back in the fifteenth and sixteenth centuries. What still must be centralized becomes centralized. And now the Pan-Slavists come and demand that we should 'set free' these half-Germanized Slavs, we should undo a centralization that is imposed on these Slavs by all their material interests?" That is in essence nothing but Renner's doctrine of the tendency toward concentration in political life and of the economic necessity of the multinational state. We see that the orthodox Marxists did Renner an injustice in accusing him of heresy as a "revisionist."
The way to eternal peace does not lead through strengthening state and central power, as socialism strives for. The greater the scope the state claims in the life of the individual and the more important politics becomes for him, the more areas of friction are thereby created in territories with mixed population. Limiting state power to a minimum, as liberalism sought, would considerably soften the antagonisms between different nations that live side by side in the same territory. The only true national autonomy is the freedom of the individual against the state and society. The "statification" of life and of the economy leads with necessity to the struggle of nations.
Full freedom of movement of persons and goods, the most comprehensive protection of the property and freedom of each individual, removal of all state compulsion in the school system, in short, the most exact and complete application of the ideas of 1789, are the prerequisites of peaceful conditions. If wars then cease, "then peace has proceeded from the inner forces of things, then people and indeed free people have become peaceful."Cf. W. Humboldt, Ideen zu einem Versuch, die Grenzen der Wirksamkeit des Staats zu bestimmen, edition of the "Deutsche Bibliothek," (Berlin), p. 66.
Never have we been further from this ideal than today.
- On the History of German DemocracyA. PrussiaAmong the most notable phenomena of the history of the last hundred years is the fact that the modern political ideas of freedom and self-government could not prevail among the German people, while elsewhere they could make themselves influential almost everywhere on earth. Everywhere democracy has been able to overcome the old princely state; everywhere the revolutionary forces have triumphed. Only precisely in Germany and in Austria—and besides there only in Russia—has the democratic revolution been defeated again and again. While every nation of Europe and America has experienced an age of liberalism in constitutional and economic policy, in Germany and Austria only slight successes have been accorded to liberalism. In the political sector, the old princely state, as represented at its purest in the constitution of Prussia under Frederick the Great, did indeed have to grant some concessions, but it was far from transforming itself into a parliamentary monarchy of, say, the English or Italian sort; as a result of the great political movements of the nineteenth century the authoritarian state appears here.
The democratic state, as we see it realized almost everywhere at the beginning of the twentieth century, rests on the identity of the rulers and the ruled, of the state and of the people. In it no government is possible against the will of the majority of the people. In it government and the governed, state and people, are one. Not so in the authoritarian state. Here on the one side stand the state-preserving elements, which regard themselves and themselves alone as the state; the government proceeds from them and identifies itself with them. On the other side stands the people, which appears only as object, not as subject, of government actions, which addresses the state sometimes pleadingly, sometimes demandingly, but which never identifies itself with it. This antithesis found its most eloquent expression in former Austrian parliamentary language in the contrast of "state necessities" with "people's necessities." The former were understood to include what the state and the latter what the people sought from the financial expenditures of the budget, and the deputies were at pains to be compensated for the granting of state necessities by the granting of people's necessities—which sometimes were necessities of the individual political parties or even of individual deputies. These contraries could never have been made understandable to an English or French politician; he would not have been able to understand how something could be necessary for the state without at the same time being necessary for the people, and conversely.
The contrast between authorities and people which characterizes the authoritarian state is not quite identical with the one between prince and people that characterizes the princely state; still less is it identical with the contrast between the prince and the estates in the old estate system. In their contrast with the modern democratic state, with its fundamental unity of government and people, however, all these dualistic state forms do share a common characteristic.
Attempts have not been lacking to explain the origin and basis of this peculiarity of German history. Those writers made it easiest for themselves who believed they understood the authoritarian state as the emanation of a special type of German spirit and sought to portray the democratic national state as "un-German," as not suitable for the soul of the German.Max Weber provided a destructive critique of these theories in Parlament und Regierung im neugeordneten Deutschland (Munich: 1918). Then, again, the attempt has been made to draw the special political position of Germany into an explanation. A state that seems endangered by external enemies in such a way as the German state was supposedly cannot tolerate a freedom-oriented constitution at home. "The measure of political freedom that can be permitted in governmental institutions must rationally be inversely proportional to the military-political pressure bearing on the borders of the state."Cf. Hintze in the collective work Deutschland und der Weltkrieg (Leipzig: 1915), p. 6. A penetrating critique of these views, which rest on a proposition of the English historian Seeley, appears in Preuss, Obrigkeitsstaat und grossdeutscher Gedanke (Jena: 1916), pp. 7 ff. That an intimate connection must exist between the political position and the constitution of a people will be conceded without further ado. But it is striking that efforts were made to bring only the foreign political position, but not the domestic political position, into explaining constitutional conditions. In what follows the converse procedure will be followed. An attempt will be made to explain that much-discussed peculiarity of German constitutional life by domestic political conditions, namely, by the position of the Germans of Prussia and Austria in the polyglot territories.
When the subjects of the German princes began to awake from their centuries-long political slumber, they found their fatherland torn to shreds, divided as patrimonial estates among a number of families whose external impotence was but poorly cloaked by their ruthless internal tyranny. Only two territorial princes were strong enough to stand on their own feet; their means of power rested, however, not on their German position but on their possessions outside Germany. For Austria this assertion needs no further justification; the fact was never disputed. It was otherwise for Prussia. It is common to overlook the fact that the position Of Prussia in Germany and in Europe always remained insecure until the Hohenzollerns succeeded in building a rather large contiguous state territory, first by the annexation of Silesia, which at the time was half Slavic, and then by the acquisition of Posnania and West Prussia. Precisely those deeds of Prussia on which its power rested—its participation in the victory over the Napoleonic system, the crushing of the revolution of 1848, and the war of 1866—could not have been accomplished without the non-German subjects of its eastern provinces. Even the acquisition of German land accomplished by the struggles waged from 1813 to 1866 with the help of its non-German subjects in no way shifted the center of gravity of the Prussian state from the east to the west. Still, as before, the undiminished maintenance of its possessions east of the Elbe remained a condition of existence for Prussia.
The political thinking of the German mind, which was slowly maturing for public life, could be modeled on none of the states existing on German soil. What the patriotic German saw before him was only the ruins of the old imperial magnificence and the disgraceful and slovenly administration of the German petty princes. The way to the German state would have to involve the overthrow of these small despots. All agreed on that. What, however, should happen to the two German powers?
The difficulty inherent in the problem may best be recognized from a comparison with Italy. Conditions in Italy were similar to those in Germany. Blocking the modern national state were a number of petty princes and the great power Austria. The Italians would have gotten rid of the former quickly, but of the latter—by themselves—never. And Austria not only held fast to a large part of Italy directly, it also protected the sovereignty of the individual princes in the remaining territories. Without Austria's intervention, Joachim Murat or General Pepe would long since probably have established an Italian national state. But the Italians had to wait until Austria's relations with the other powers offered them the opportunity to reach their goal. Italy owes its freedom and unity to French and Prussian help, and in a certain sense to English help also; to unite Trentino, too, with the kingdom of Italy required the help of the entire world. The Italians themselves lost all the battles they fought against Austria.
In Germany conditions were different. How were the German people to succeed in overcoming Austria and Prussia, the two mighty military monarchies? Foreign help, as given in Italy, could not be counted on. The most natural course would probably have been for the German national idea to acquire so much power over the Germans in Prussia and Austria that they strove for a united Germany. If the Germans, who were the majority by far in the Prussian army and represented the most important element in the Austrian army, had proved true as Germans the way the Magyars did in 1849 as Magyars, then there would have arisen out of the confusions of the revolution of 1848 a German Reich free and united from the Belt to the Etsch. The non-German elements in the armies of Austria and Prussia would hardly have been in a position to mount successful resistance to the assault of the entire German people.
The Germans in Austria and Prussia, however, were also opponents or at least only limited adherents of the German strivings for unity—and that is what was decisive. The efforts of the men of St. Paul's Church suffered shipwreck, not, as legends have it, because of doctrinairism, idealism, and professorial ignorance of the ways of the world but rather because of the fact that the majority of Germans supported the cause of the German nation only half-heartedly. What they desired was not the German state alone but rather the Austrian or the Prussian state as well at the same time—and this is not to mention those who actually considered themselves only Austrians or Prussians and not at all Germans.
We who today are accustomed to seeing the pure Prussian and the pure Austrian only in the conservative east of the Elbe and the Alpine clerical, we who in the appeal to Prussia or Austria can always see only the pretexts of enemies of the national state—we can only with difficulty concede even mere good faith to the black-and-yellow and black-and-white patriots of that time. This not only does a serious injustice to men about whose honorable striving there should be no doubt; this lack of historical perspective also blocks our path to knowledge of the most important events of German history.
Every German knows the passage in Goethe's Dichtung und Wahrheit in which the aging poet portrays the deep impression that the figure of Frederick the Great made on his contemporaries.The criticism that Mehring makes (Die Lessing-Legende, third edition [Stuttgart: 1909] pp. 12 ff.) does not weaken the force of this passage as evidence for the views of the old Goethe. It is true that the state of the Hohenzollerns, too, which Prussian court historiography lauded as the implementation of all utopias, was not a whit better than the other German states; and Frederick William I or Frederick II were no less hateful despots than any Württemberg or Hessian lord. But one thing distinguished Brandenburg-Prussia from the other German territories: the state was not ridiculous; its policy was purposeful, steady, and power-seeking. This state could be hated, it might be feared, but it could not be overlooked.
If, thus, the political thoughts of even the non-Prussian Germans secretly strayed toward Prussia out of the narrowness of their political existence, if even foreigners judged this state not totally unfavorably, was it any wonder that the beginnings of political thought in the Prussian provinces clung more often to the Prussian state, which, with all its faults, still had the advantage of actual existence, than to the dream of a German state, which was unmasked every day by the wretchedness of the Holy Roman Empire? Thus a Prussian state-consciousness was formed in Prussia. And these feelings were shared not only by the salaried champions of the Prussian state apparatus and its beneficiaries but also by men of undoubtedly democratic sentiments like WaldeckCf. Oppenheim, Benedikt Franz Leo Waldek (Berlin: 1880), pp. 41 ff. and hundreds of thousands like him.
It is common to describe the German question much too narrowly as the opposition of great-German and small-German. In truth the problem was larger and broader. It was first of all the gap that yawned between German national sentiment on the one side and Austrian and Prussian state-consciousness on the other.
The German unified state could have been built only on the ruins of the German states; whoever wanted to construct it therefore first had to root out those sentiments that were striving to maintain the Prussian and Austrian states. In March 1848 that seemed easy to do. At that time it could be expected that the Prussian and Austrian democrats, faced with the need to decide, would, even if perhaps after inner struggles, join the side of a great and unified Germany. Yet in both great German states, democracy was defeated sooner than one would have thought possible. Its sway lasted scarcely a few weeks in Vienna and Berlin; then the authoritarian state embarked on the plan that pulled the reins tight. What was the cause? The turnaround did come extraordinarily quickly. Right after the complete victory of democracy in March, the power of the new spirit began to crumble; and after a short time the Prussian army, led by the Prince of Prussia, who had fled the country only shortly before, could already take the offensive against the revolution.
There should be general agreement that the position of the eastern provinces of Prussia was decisive here.Cf. Bismarck, Gedanken und Erinnerungen (Stuttgart: 1898), vol. 1, p. 56. If this is remembered, it will not be too hard to understand clearly the causes of the turnaround. There in the East the Germans were in the minority amidst a numerically superior population of foreign language; there they had to fear that the lmplementation and application of democratic principles would cost them the ruling position that they had so far possessed. They would have become a minority that could never have expected to acquire power; they would have had to taste that lack of political rights that is the fate of minorities of foreign nationality.
The Germans of the provinces of Prussia, Posnania, and Silesia could hope for nothing good from democracy. That, however, determined the positions of the Germans of Prussia on the whole, for the Germans of the polyglot territories had much greater political importance than corresponded to their numbers. These Germans included, after all, almost all members of the higher strata of the population of those provinces—the officials, teachers, merchants, estate owners, and larger industrialists. In the upper strata of the Germans of Prussia, the members of the threatened borderlands therefore formed a numerically far larger part than the German borderland inhabitants formed on the whole in the total German population of Prussia. The solid mass of inhabitants of the borderlands joined with the parties supporting the state and thereby gave them preponderance. The idea of the German state could win no power over the non-German subjects of Prussia, and its German subjects feared German democracy. That was the tragedy of the democratic idea in Germany.
Here lie the roots of the peculiar political-intellectual constitution of the German people. It was the threatened position of the Germans in the borderlands that caused the ideal of democracy in Germany to fade quickly away and the subjects of Prussia, after a short honeymoon of revolution, to return penitently to the military state. They knew now what lay ahead for them in democracy. However much they might despise Potsdam's despotism, they had to bow to it if they did not want to fall under the rule of Poles and Lithuanians. From then on they were the faithful guard of the authoritarian state. With their help the Prussian military state triumphed over the men of freedom. All Prussia's political questions were now judged exclusively according to the position in the East. It was what determined the feeble position of the Prussian liberals in the constitutional conflict. It was what caused Prussia to seek Russian friendship, so long as that could be done at all, and thereby thwarted the natural alliance with England.
It now occurred to the Prussian authoritarian state to apply its methods of gaining and maintaining its position in Germany to the solution of the greater German national problem also. The weapons of the Junkers had triumphed in Germany. They had crushed the German bourgeoisie; they had excluded the Habsburg influence and elevated the Hohenzollerns high above the smaller and middle princes. Prussian military power suppressed the non-German elements in the Slavic eastern provinces of Prussia, in North Schleswig, and in Alsace-Lorraine. The bright splendor of the victories won in three wars shone on Prussian militarism. As it had crushed with power everything trying to hinder it on its way, so it believed it should also use armed force to solve all newly arising problems. By the power of weapons the hard-pressed position of the Habsburgs and the Germans in the Danube monarchy should be sustained and conquests made in the East and West and overseas.
The liberal theory of the state had long since exposed the error in this reasoning. The theorists and practitioners of power politics should have remembered Hume's famous arguments that all rule rests on power over minds; the government is always only a minority and can govern the majority only because the latter either is convinced of the legitimacy of the rulers or considers their rule desirable in its own interests.Cf. Hume, Of the First Principles of Government (Essays, edited by Frowde), pp. 29 if. Then they could not have overlooked the fact that the German authoritarian state, even in Germany, rested in the last analysis not on the power of bayonets but precisely on a particular disposition of the German mind, which was caused by the national conditions of settlement of the Germans in the East. They should not have deceived themselves over the fact that the defeat of German liberalism was attributable solely to the conditions of settlement in the German East: the rule of democracy there would have led to driving the Germans out and depriving them of rights; hence a predisposition toward antidemocratic currents had been created in wide circles of the German people. They would have had to recognize that even the German authoritarian state, like any other state, rested not on victories of weapons but on victories of the spirit, on victories won by dynastic-authoritarian sentiment over liberal sentiment. These relationships could not be misinterpreted worse than they were by that German school of political realists that denied the influence of every intellectual current in the life of nations and wanted to trace everything back to "real power relations." When Bismarck said that his successes rested only on the power of the Prussian army and had only derision and scorn for the ideals of St. Paul's Church, then he overlooked the fact that the power of the Prussian state was grounded on ideals also, although on the opposite ideals, and that it would have had to collapse immediately if liberal thought had penetrated the Prussian army further than it actually did. Those circles that were anxiously striving to keep the "modern spirit of demoralization" away from the army were better informed in this respect.
The Prussian authoritarian state could not defeat the world. Such a victory could have been achieved by a nation hopelessly in the minority only through ideas, through public opinion, but never with weapons. But the German authoritarian state, filled with a boundless contempt for the press and for all "literature," scorned ideas as a means of struggle. For its adversaries, however, the democratic idea made propaganda. Not until the middle of the war, when it was already too late, was it recognized in Germany what power lay in this propaganda and how vain it is to fight with the sword against the spirit.
If the German people found the allotment of territories of settlement on the earth unjust, then they should have sought to convert the public opinion of the world, which did not see the injustice of this allotment. Whether this would have been possible is another question. It is not wholly improbable that allies for this struggle could have been found, united with whom much, perhaps even everything, could have been attained. It is certain, however, that the undertaking of a nation of eighty million to fight against the whole remaining world was hopeless if it was not pursued with intellectual means. Not with weapons but only with the spirit can a minority overcome the majority. True practical politics is the only kind that knows how to enlist ideas in its service.
- On the History of German DemocracyB. AustriaThe teleological interpretation of history, by which all historical events appear as realization of definite goals set for human development, has assigned many kinds of task to the Danube state of the Habsburgs, which for four hundred years has maintained its position among the European powers. Now it should be the shield of the West against the threat from Islam, now the stronghold and refuge of Catholicism against the heretics; others wanted to see it as the support of the conservative element in general, still others as the state summoned by its nationally polychromatic character to promote peace among peoples by way of example.A compendium of the various tasks that people have sought to assign to Austria is given by Seipel, loc. cit., pp. 18 ff. One sees that the tasks were multifarious; according to the shape of political affairs, people favored now the one and now the other interpretation. History goes its course, however, without regard to such chimeras. Princes and peoples bother themselves very little over what missions the philosophy of history assigns to them.
Causal historiography does not look for the "mission" or the "idea" that nations and states have to realize; it seeks the political concept that forms states out of nations and parts of nations. The political concept at the basis of almost all state structures of the last centuries of the Middle Ages and the first centuries of modern times was princely dominion. The state existed for the sake of the king and his house. That holds true of the state of the Austrian Habsburgs, from the Ferdinand who as German emperor was called the First to the Ferdinand who as Austrian emperor was the only one of that name, just as it holds true of all other states of that time. In that respect the Austrian state was no different from the other states of its time. The hereditary lands of Leopold I were fundamentally no different from the state of Louis XIV or Peter the Great. But then came other times. The princely state succumbed to the attack of the freedom movement; in its place appeared the free national state. The nationality principle became the bearer of state coherence and the concept of the state. Not all states could take part in this development without change in their geographical extent; many had to submit to changes in their territory. For the Danube monarchy, however, the nationality principle actually signified the negation of its justification for existence.
Far-seeing Italian patriots passed the death sentence on the state of the House of Habsburg-Lorraine as early as 1815; no later than 1848 there already were men among all peoples forming the Empire who agreed with this opinion, and for more than a generation one could easily say that the entire thinking youth of the Monarchy—perhaps aside from part of the Alpine Germans educated in Catholic schools—were hostile to the state. All non-Germans in the country longingly awaited the day that would bring them freedom and their own national state. They strove to get out of the "married-together" state. Many of them made compromises. They saw with open eyes how things stood in Europe and in the world; they had no illusions about the impediments that initially still stood in the way of realization of their ideals, and they were therefore ready to moderate their claims in the meanwhile. They came to terms with the provisional continuation of the Austrian and Hungarian states; indeed, even more, they used the Dual Monarchy as a counter in their own game. The Poles, the South Slavs, the Ukrainians, and in a certain sense the Czechs also, sought to make the weight of this great state, which despite everything was still powerful, serviceable for their own purposes. Superficial critics have sought to conclude from that fact that these peoples had reconciled themselves to the existence of the state, that they even desired it. Nothing was more wrong than this view. Never did irredentism seriously disappear from the program of any of the non-German parties. It was tolerated that official circles did not openly show the ultimate goals of their national strivings in Vienna; at home, however, people thought and spoke, with formal attention to the limits drawn by the paragraphs on high treason of the penal law, of nothing other than liberation and shaking off the yoke of the foreign dynasty. The Czech and Polish ministers, and even the numerous South Slav generals, never forgot that they were sons of subjugated peoples; never did they feel themselves in their court positions as other than pacemakers of the freedom movement that wanted to get out of this state.
Only the Germans took a different position toward the state of the Habsburgs. It is true that there was also a German irredentism in Austria, even if one may not interpret in this sense every hurrah for the Hohenzollerns or for Bismarck shouted at solstice festivals, student assemblages, and gatherings of voters. But although the Austrian government in the last forty years of the existence of the Empire was, with a few transitory exceptions, more or less anti-German and often draconically persecuted relatively harmless utterances of German national sentiments, while far sharper speeches and deeds of the other nationalities enjoyed benevolent toleration, the state-supporting parties among the Germans always kept the upper hand. Up to the last days of the Empire the Germans felt themselves the real champions of the state idea, citizens of a German state. Was that a delusion, was it political immaturity?
To be sure, a large part, even the largest part, of the German people in Austria was and today still is politically backward. But this explanation cannot satisfy us. We just are not satisfied with the assumption of an innate political inferiority of the German; we seek precisely the causes that made the Germans march politically behind the Ruthenians and Serbs. We ask ourselves how it then happened that all other peoples inhabiting the imperial state readily adopted the modern ideas of freedom and national independence but that the German-Austrians so much identified themselves with the state of the Habsburgs that, for the sake of its continuation, they finally readily incurred the immense sacrifices of goods and blood that a war of more than four years imposed on them.
It was German writers who expounded the theory that the Austro-Hungarian dual state was no artificial construction, as the doctrine misled by the nationality principle announced, but rather a natural geographic unit. The arbitrariness of such interpretations of course needed no special refutation. With this method one can just as well prove that Hungary and Bohemia had to form one state as the opposite. What is a geographic unit, what are "natural" boundaries? No one can say. With this method Napoleon I once argued France's claim to Holland, for the Netherlands are an alluvial deposit of French rivers; with the same method Austrian writers sought, before the fulfillment of Italian strivings for unity, to support the right of Austria to the lowlands of upper Italy.Cf. p. 79 above; further, the criticism in Justus, "Sozialismus und Geographie, "Der Kampf, vol. 11, pp. 469 ff. Today the czechs apply this theory to justify the annexation of German Bohemia.
Another interpretation is of the state as an economic territory, which was urged above all by Renner, who, besides that, also considered the geographic interpretation of the state valid. For Renner the state is an economic community," an "organized economic territory." Unified economic territories should not be torn apart; thus it was foolish to want to destroy the continued territorial existence of the Austro-Hungarian Monarchy.Cf. Renner, ?sterreichs Erneuerung Marximus, Krieg und Internationale (Stuttgart: 1917); on the other hand, Mises, :Vom Ziel der Handelspolitik," loc. cit., pp. 579 ff. (during the writing of this essay only the first volume of ?sterreichs Erneuerung was available to me), further, Justus, loc.cit.,; Emil Lederer, "Zeitgem?sse Wandlungen der sozialistischen Idee und Theorie," Archiv f?r Sozialwissenschaft, vol. 45, 1918/1919, pp. 261 ff. But this unified economic territory is just what the non-German people of Austria did not want; they did not let themselves be influenced by Renner's arguments either. Why did the Germans, precisely the Germans of Austria, create such doctrines, which were supposed to prove the necessity of this state, and sometimes even consider them right?
That the Germans always cared somewhat for the Austrian state, although this state was not at all a German state and, when it suited it, oppressed the Germans just the same as or even more than its other peoples—we must try to understand that fact by the same principle that explains the development of the Prussian-German political spirit of conservatism and militarism.
The political thinking of the Germans in Austria suffered from a double orientation toward the German and toward the Austrian state. After they had awakened from the centuries long sleep into which the Counter-Reformation had sunk them and when they began, in the second half of the eighteenth century, timidly to concern themselves with public questions, the Germans in Austria turned their thoughts to the Reich also; many a bold person dreamed, even before March 1848, of a unified German state. But never did they make it clear to themselves that they had to choose between being German and being Austrian and that they could not desire the German and the Austrian state at the same time. They did not or would not see that a free Germany was possible only if Austria was destroyed first and that Austria could endure only if it withdrew part of its best sons from the German Reich. They did not see that the goals they sought were incompatible and that what they wanted was an absurdity. They were not at all conscious of their halfheartedness, that halfheartedness that caused the whole pitiable irresoluteness of their policy, that halfheartedness that brought failure to all and everything they undertook.
Since Königgrätz it has become the fashion in North Germany to doubt the German sentiment of the German-Austrians. Since people equated German and Reichs-German without further ado and, moreover, true to the generally prevailing statist way of thinking, also identified all Austrians with the policy of the Vienna court, it was not hard to find a basis for this interpretation. It was nevertheless thoroughly wrong. Never did the Germans of Austria forget their national character; never, not even in the first years following the defeat in the Bohemian campaign, did they lose for even a minute the feeling of belonging together with the Germans on the other side of the black-and-yellow border-posts. They were German and also wanted to remain so; least of all should they be blamed for also wanting to be Austrians at the same time by those who subordinated the German idea to the Prussian.
No less wrong, however, is the opinion that was widespread in Austrian court circles that the German-Austrians were not serious about their Austrianism. Catholic-oriented historians sadly lamented the decline of the old Austria, that Austrian princely state which, from Ferdinand II until the outbreak of the revolution Of March 1848, had been the protector of Catholicism and of the legitimist idea of the state in Europe. Their complete lack of understanding of everything that had been thought and written since Rousseau, their aversion to all political changes that had taken place in the world since the French Revolution, caused them to believe that that esteemed old state of the Habsburgs could have endured if the "Jews and Freemasons" had not brought on its downfall. Their entire grudge was directed against the Germans in Austria and among them above all against the German Liberal Party, to which they attributed responsibility for the decline of the old empire. They saw how the Austrian state was more and more falling apart internally; and they dumped the guilt precisely onto those who alone were the champions of the Austrian state idea, who alone affirmed the state, who alone desired it.
From the moment when the modern ideas of freedom also crossed the boundaries of Austria, which had been anxiously guarded by Metternich and Sedlnitzky, the old Habsburg family state was done for. That it did not fall apart as early as 1848, that it could maintain itself for seventy years more—that was solely the work of the Austrian state idea of the German Austrians, that was solely the service of the German freedom parties, of precisely those who were more hated and persecuted by the court than all others, more hated even than those who openly threatened and fought the continuation of the state.
The material basis of the Austrian political thought of the German-Austrians was the fact of German settlements strewn over the entire extent of the Habsburg lands. As a result of centuries-long colonization, the urban bourgeoisie and the urban intelligentsia were German everywhere in Austria and Hungary, large landownership was in great part Germanized, and everywhere, even in the middle of foreign-language territory, there were German peasant settlements. All Austria outwardly bore a German stamp; everywhere German education and German literature were to be found. Everywhere in the Empire the Germans were also represented among the petty bourgeoisie, among the workers, and among the peasants, even though in many districts, especially in Galicia, in many parts of Hungary, and in the coastal territories, the German minority among the members of the lower strata of the people was quite small. But in the entire Empire (upper Italy excepted) the percentage of Germans among the educated and among the members of the higher strata was quite considerable, and all those educated persons and prosperous bourgeois who were not themselves German and did not want to acknowledge belonging to the German nation were German by their education, spoke German, read German, and appeared at least outwardly to be German. That part of the Austrian population that most strongly felt the intolerableness of the tyranny of the Vienna government and alone seemed capable of replacing the court circles in governing were the upper middle class and the members of the free professions and educated persons—just those strata that are commonly called the bourgeoisie and the intellectuals. But they were German in the entire Empire, at least in lands belonging to the German Federation. Thus Austria no doubt was not German, but politically it wore a German face. Every Austrian who wanted to take any interest at all in public affairs had to master the German language. For the members of the Czech and of the Slovene peoples, however, education and social ascent could be achieved only through Germanness. They still had no literature of their own that would have made it possible for them to do without the treasures of German culture. Whoever rose became German because precisely the members of the higher strata were German.
The Germans saw that and believed that it had to be so. They were far from wanting to Germanize all non-Germans compulsorily, but they thought that this would take place on its own. They believed that every Czech and South Slav would try, even in his own interest, to adopt German culture. They believed that it would remain so forever, that for the Slav the way to culture was Germanness, and that social ascent was bound up with Germanization. That these peoples also could develop independent cultures and independent literatures, that from their midst they could also bring forth independent national characters—they did not think of that at all. Thus the naive belief could arise among them that all Austria felt and thought politically as they did, that all had to share their ideal of the great, mighty, unified state of Austria, which could bear only a German stamp.
Those were the political ideas with which the German-Austrians went into the revolution. The disappointment that they experienced was abrupt and painful.
Today, as we look back in review over the development of the last seven decades, it is easy to say what position the Germans should have taken in view of the new state of affairs; it is easy to show how they could and should have done better. Today one can clearly show how much better the German nation in Austria would have fared if it had adopted in 1848 that program that it in 1918 then perforce made its own. The share that would have fallen to the German people in a splitting up of Austria into independent national states in the year 1848 was bound to have been far larger than the one that it acquired in 1918 after the terrible defeat in the World War. What held the Germans back at that time from undertaking a clean separation between German and non-German? Why did they not make the proposal themselves; why did they reject it when the Slavs brought it forth?
It has already been mentioned that the Germans then held the widespread opinion that the Germanization of the Slavs was only a question of time, that it would take place without external compulsion by the necessity of development. Even this interpretation alone was bound to influence the entire choice of positions on the problem of nationalities. The decisive factor, however, was different. It was that the Germans could not and did want to give up the national minorities sprinkled in the contiguous territories of settlement of the other peoples. They had blood brothers living everywhere in Slavic territory; all cities there were either entirely or at least in large part German. Of course, it was only a fraction of the whole German people in Austria that they would have given up in this way. But the numerical significance of this enclaved population in relation to all the rest of the German people in Austria hardly expresses the significance of the loss that they would thereby have suffered. These enclaved people belonged in greatest part to the higher strata of the nation. To give them up signified, therefore, a far heavier loss than the mere numbers indicated. To give them up meant to give up the best parts of the German people in Austria; it meant to sacrifice the University of Prague and the merchants and factory owners of Prague, Brünn [Brno], Pilsen [Plzen], Budweis [Ceske Budejovice], 0lmütz [Olomouc], of Trieste, Laibach [Ljubljana], of Lemberg [Lwów, Lvov], Czernowitz [Cernauti, Chernovtsy], of Pest, Pressburg [Bratislava], Temesvar [Timisoara], etc., who were very significant for Austrian conditions. To give them up meant to wipe out the colonizing work of centuries; it meant to deliver up German peasants in all parts of the broad empire, German officers and officials, to being deprived of rights.
One now understands the tragic position of the Germans in Austria. With a bold, defiant spirit of rebellion the Germans had risen up to break the despotism and take the government of the state into their own hands; they wanted to create a free, great Austria out of the hereditary estate of the dynasty. Then they had to recognize all at once that the great majority of the people did not at all desire their free German Austria, that they even preferred to remain subjects of the Habsburgs rather than be citizens of an Austria bearing a German stamp. Then they discovered to their dismay that the application of democratic principles was bound to lead to the dissolution of this empire, in which, after all, they had been the leading elements intellectually and wished to remain the leading elements. Then they had to recognize that democracy was bound to deprive German citizens of territories inhabited predominantly by Slavs of their political rights. They had to recognize that the Germans of Prague and Brünn [Brno] were indeed in a position to take the scepter away from the Habsburgs and establish a parliamentary form of government but that they not only had nothing to win thereby but much to lose. Under the despotism of the sovereign's officials, they could still live as Germans; although they might also be subjects, they were still subjects enjoying the same rights as other subjects. But in a free state they would have become second-class citizens; for others, foreigners, whose language they did not understand, whose train of thought was foreign to them, on whose politics they could have had no influence, would have harvested the fruits of their struggle for freedom. They recognized that they were without power against the crown, for the crown could always call up peoples against them to whom their voice could not penetrate; they recognized and had to feel it as painful, when Slavic regiments subdued the uprising of German citizens and students, that they had no prospect of shaking off the yoke that oppressed them. At the same time, however, they recognized that the victory of the old reactionary Austria still had to be more welcome to them than victory of the new freedom-oriented state; for under the scepter of the Habsburgs they still could live as Germans; under the dominion of the Slavs, however, there was for them only political death.
Scarcely a people has ever found itself in a more difficult political position than the German-Austrians after the first heady days of the March 1848 revolution. Their dream of a free German Austria had suddenly come to naught. In view of their national comrades scattered about in foreign territories of settlement, they could not desire the dissolution of Austria into national states; they had to desire the continued existence of the state, and then there remained nothing else for them than to support the authoritarian state. The Habsburgs and their adherents, however, did not desire an alliance with the anticlerical liberals. They would rather have seen the state collapse than share it with the German freedom party. They recognized only too soon that the Germans in Austria were bound to be a pillar of the state whether they wanted to be or not, that one could rule without danger in Austria without the Germans and even against them, because the Germans were not in a position to form a serious opposition; and they oriented their policy accordingly.
Thus every straightforward policy was made impossible for the Germans of Austria. They could not work seriously for democracy, for that would have been national suicide; they could not renounce the Austrian state because, despite everything, it still offered protection against the most extreme oppression. From this division the divided German policy developed.
The essence of the policy was maintaining the national patrimony, as it was called, that is, the effort to hold back the gradually occurring annihilation of the German minorities strewn about in territory of foreign settlement. From the beginning that was a hopeless undertaking, for these minorities were fated to disappear.
Only the peasant settlements had the possibility, where the German settlers were living together in self-contained villages, of still preserving their German character. Of course, even here the process of de-Germanization goes on uninterruptedly. Even mere economic contact with neighbors of foreign nationality, which becomes all the more active as economic development proceeds, wears away at their special character and makes it difficult for a small colony far removed from the main stem of its people to preserve its mother tongue. The effect of the school is added; even the German school in foreign land must include the language of the country in the curriculum if it is not to make the later advancement of the children all too difficult. Once the youth learns the language of the country, however, there begins that process of adaptation to the environment that finally leads to complete assimilation. What is decisive, however, is that a locality in the modern economic organism in which constant migrations must take place cannot long exist without immigration from the outside or without loss of population to the outside. In the first case the locality is exposed to being inundated by members of foreign nationalities and, in further consequence, to the native population's also losing its original national character; in the second case, the leftover part of the population remaining behind may well preserve its original nationality, but the emigrants become nationally alienated. Of the numerous peasant settlements that had arisen, strewn about and isolated, in the Habsburg lands, only those where modern industry or mining developed did become alienated from German character. In the remaining ones immigration from outside was lacking. But the better, more energetic elements are gradually moving away; they may gain economically thereby, but they lose their nationality. The ones remaining behind can preserve their national character but often suffer from inbreeding.
In short, the German minorities in cities strewn about in Slavic land were hopelessly fated to decline. With the abolition of the pre-1848 labor-rent system, the migration movement set in in Austria also. Internal migrations took place on a large scale. Thousands moved from the countryside into the cities and industrial centers, and the immigrants were Slavs, who quickly pushed the Germans into the numerical minority.On the causes of the faster population growth of the Slavs, to which is to be ascribed the fact that the movement into the cities in Austria had a predominantly Slavic character, cf. Hainisch, Die Zukunft der Deutsch?sterreicher (Vienna: 1892), pp. 68 ff.
Thus the Germans of the cities saw the Slavic tide rising all around them. Around the old center of the city, where German townspeople had dwelt for centuries, a garland of suburbs developed where no German sound was heard. Within the old city everything still bore a German stamp: the schools were German, German was the language of the city administration, and the Germans still held all municipal offices. But day by day their number dwindled. First the German petty bourgeoisie disappeared. Bad times had come for the crafts and trades, on whose golden base the German colonization of these lands had once grown up; they declined uninterruptedly, for they were not capable of competing with factory industry, just that industry that was attracting the Slavic workers. The German master craftsman sank into the proletariat; and his children, who went into the factory along with the Slavic immigrants, became Slavs through contact with their new comrades. But the German patrician families also became ever smaller in number. They became poor because they could not adapt to the new conditions, or they died out. Replacements did not come. Earlier, those who had risen from below became German. This was now no longer true. Slavs who had become rich were no longer ashamed of their national character. If the old German families shut themselves off from the upstarts, they formed a new Slavic society of the upper strata.
The German policy in Austria, which was based on maintaining the political power position of these minorities, became in this way a conservative, a reactionary, policy. Every conservative policy, however, is fated from the start to fail; after all, its essence is to stop something unstoppable, to resist a development that cannot be impeded. What it can gain at best is time, but it is questionable whether this success is worth the cost. Every reactionary lacks intellectual independence. If one wanted to apply here metaphors taken over from military thinking, as is usual for all lines of political thought in Germany, then one could say that conservatism is defense and, like every defense, lets the terms be dictated to it by its adversary, while the attacker dictates the terms of action to the defender.
The essence of German policy in Austria had become that of holding lost positions as long as possible. Here one struggled over the seats in the administration of a municipality, there over a chamber of commerce, there again over savings bank or even over only a government job. Little questions were puffed up to great significance. It was bad enough that the Germans thereby put themselves repeatedly in the wrong when, for example, they denied the Slavs the establishment of schools or when they sought with the means of power available to them to make forming clubs or holding meetings more difficult. But it was still worse that in these struggles they a]ways suffered and were bound to suffer defeats and that they thereby became accustomed to being always in retreat and being always defeated. The history of the German policy in Austria is a chain of uninterrupted failures.
These conditions had a devastating effect on the German spirit. People gradually grew accustomed to looking at every measure, every political matter, exclusively from the viewpoint of its local significance. Every reform in public life, every economic measure, every construction of a road, every establishment of a factory, became a question of national patrimony. To be sure, the Slavs also looked at everything from this point of view, but the effect on the political character of the nation was different with them. For through these ways of thinking the Germans became reactionaries, enemies of every innovation, opponents of every democratic arrangement. They left to the Slavs the cheap fame of being fighters for the modern European spirit in Austria and took it upon themselves again and again to support and defend what was out of date. All economic and cultural progress and especially every democratic reform that was carried through in Austria was bound to work against the German minorities in the polyglot territories. It was therefore resisted by the Germans; and if it finally triumphed, then this victory was a defeat for the Germans.
This policy also deprived the Germans of every freedom against the Crown. In the revolution of 1848 the Germans of Austria had risen against the Habsburgs and their absolutism. But the German Liberal Party, which had written the principles of 1848 on its banner, was not in a position to lead the struggle against the Dynasty and against the Court with vigor. It had no firm ground under its feet in the polyglot lands; it was dependent on the favor and disfavor of the government there. If the Court wanted, it could annihilate it; and it did so too.
The empire of the Habsburgs was erected by Ferdinand II on the ruins of the freedoms of the estates and the ruins of Protestantism. It was not only the Bohemian estates that he had to fight against, but also the Styrian and Austrian. The Bohemian rebels fought against the Emperor in alliance with those of Lower and Upper Austria; and the Battle on the White Mountain established the absolute rule of the Habsburgs not only over Bohemia, Moravia, and Silesia but also over the Austrian lands. From the beginning the Habsburg Empire was neither German nor Czech; and when in 1848 it had to fight for its existence anew, Czech and German freedom movements alike were against it. After the establishment of sham constitutionalism in the sixties, the Court would much rather have relied on the Slavs than on the Germans. For years the government was carried on with the Slavs against the Germans; for nothing was more hateful to the Court than the German element, which could not be forgiven for the loss of political position in the German Reich. But all the concessions of the Court could not hold the Czechs and South Slavs firm to the authoritarian state. Among all other peoples of Austria the democratic idea triumphed over the authoritarian idea; it was not possible for the authoritarian state to work with them in the long run. Only with the Germans was it otherwise. Against their will they could not get loose from the Austrian state. When the state called them, they were always at its service. In the Empire's death hour the Germans stood loyal to the Habsburgs.
A turning point in the history of the German-Austrians was the Peace of Prague, which drove Austria out of the political structure of Germany. Now the naive belief was done for that Germanness and Austrianness could be reconciled. Now it seemed that one had to choose between being German and being Austrian. But the Germans in Austria did not want to see the necessity of this decision; they wanted, as long as they could, to remain both Germans and Austrians at the same time.
The pain that the German-Austrians felt in 1866 over the turn of events went deep; they never were able to recover from the blow. So quickly had the decision broken over them, so quickly had the events played themselves out on the battlefield, that they had scarcely become conscious of what was going on. Only slowly did they grasp the meaning of what had happened. The German fatherland had expelled them. Were they then not also Germans? Did they not remain Germans, even if there was no place for them in the new political structure being erected on the ruins of the German Confederation?
No one has given better expression to this pain than the aged Grillparzer. He who put into the mouth of Ottokar von Horneck the praise of the "rosy-cheeked youth" Austria and made Libussa proclaim a great future to the Slavs in obscure words,"You who have long served will finally rule" (Libussa, fifth act). he, who was totally an Austrian and totally a German, finds his equilibrium again in the proud verses:
Als Deutscher ward ich geboren,Bin ich noch einer?Nur was ich deutsch geschrieben,Das nimmt mir keiner.[As a German I was born,Am I one still?Only what I have written in GermanNo one takes away from me.]But the German-Austrians had to come to terms with the fact that no Germany still existed, only a Great Prussia. From then on they no longer existed for the Germans in the Reich; they no longer bothered themselves about them, and every day the facts belied the pretty words spoken at gymnastic and shooting festivals. The Great Prussian policy prepared to travel those paths on which it finally wound up at the Marne. It no longer cared about the Germans in Austria. The treaties that bound the Austro-Hungarian Monarchy with the German Reich from 1879 on were concluded by the Great Prussian authoritarian government with the Emperor of Austria and the Magyar oligarchy in Hungary. Precisely they took away from the Germans in Austria the hope of being able to count on the help of the Germans in the Reich with regard to irredentist strivings.
The defeat that the Great German idea had suffered at Königgrätz was at first papered over by the fact that precisely because of the unfortunate outcome of the war the German liberal Party for a short time acquired a certain, if limited, influence on state affairs. For a dozen years it could furnish ministers to the government; during this time it repeatedly furnished ministers, even the Prime Minister, and pushed through many important reforms against the will of the Crown, the feudal nobility, and the Church. With extreme exaggeration, that has been called the rule of the Liberal Party in Austria. In truth, the Liberal Party never ruled in Austria; it could not rule. The majority of the people never followed its banners. How could non-Germans also have joined this German party? Among the Germans it always, even when it was flourishing, met strong opposition from the Alpine peasants blindly following the clergy. Its position in the House of Deputies rested not on having the majority of the people behind it but on the electoral system, which in a subtle manner favored the upper middle class and the intelligentsia but withheld the right to vote from the masses. Every extension of the right to vote, every change in the arrangement of electoral districts or of the manner of voting, had to be and was damaging to it. It was a democratic party, but it had to fear the consistent application of democratic principles. That was the inner contradiction from which it suffered and from which it was finally bound to be ruined; it resulted with compelling necessity from that proton pseudos [basic fallacy] of its program, which sought to reconcile Germanness with Austrianness.
The German Liberal Party could exert a certain influence on the government as long as this was allowed to it from above. The military and political defeats that the old Austrian princely state had repeatedly suffered compelled the Court to yield temporarily. The Liberals were needed; they were summoned into the ministries not, as it were, because they could no longer be resisted but rather because only they could be expected to put state finances in order and carry through the defense reform. Since no one knew where else to turn, they were entrusted with the reconstruction as the only party that affirmed Austria. They were dismissed in disfavor when they were thought to be no longer needed. When they tried to resist, they were annihilated.
Then Austria gave up on itself. After all, the German Liberal Party had been the only one that had affirmed this state, that sincerely desired it and acted accordingly. The parties that the later governments depended on did not desire Austria. The Poles and Czechs who held ministerial portfolios were not seldom competent as specialists and even sometimes pursued a policy that benefited the Austrian state and its peoples. But all their thinking and efforts always concerned only the national plans for the future of their own peoples. Their relation to Austria was always guided only by regard to their peoples' strivings for independence. To their own consciences and to the fellow members of their nationality, their administration of office seemed valuable only for the successes that they obtained in the national emancipation struggle. Not because they had administered their offices well were they given credit by their fellow countrymen, on whose opinion alone they as parliamentarians laid weight, but because they had done much for national separatism.
Besides being filled by Czechs, Poles, and occasional South Slavs and clerical Germans, the highest positions of the Austrian authoritarian government were almost always filled by officials whose only political goal was the maintenance of the authoritarian government and whose only political means was divide et impera. Here and there an old Liberal still turns up in between, usually a professor seeking in vain to swim against the current, only finally, after many disappointments, to disappear again from the political scene.
The point at which the interests of the Dynasty and of the Germans seemed to meet was their aversion to democracy. The Germans of Austria had to fear every step on the way to democratization because they were thereby being driven into the minority and delivered up to a ruthless arbitrary rule of majorities of foreign nationality. The German Liberal Party recognized that fact and turned energetically against all efforts for democratization. The contradiction with its liberal program into which it thereby fell caused its ruin. Faced with a historic decision in which it had to choose between the wretched muddling along of the Austrian state for a few decades at the price of giving up the freedom-oriented principles of its program and the immediate annihilation of this state with sacrifice of the German minorities in the territories of foreign language, it undoubtedly made the wrong choice. It may be blamed for that. Yet nothing is more certain than that in the position it found itself in, it could not choose freely. It simply could not sacrifice the minorities any more than the German parties that succeeded it in Austria could do so.
No reproach is less justified, therefore, than that the German liberals had been poor politicians. This judgment is usually based on their position on the question of the occupation of Bosnia and Herzegovina. That the German Liberal Party had spoken out against the imperialist tendencies of Habsburg militarism was much held against it, especially by Bismarck. Today one will judge otherwise about that. What was previously a matter of reproach against the German Liberal Party—that it had sought to resist militarism and that it went into opposition right at the beginning of the expansion policy that finally led to the Empire's downfall—will in the future redound to its praise and not to its blame.
The German Liberal Party had in any case a much deeper insight into the conditions of existence of the Austrian state than all other powers and parties operating in this country. The Dynasty, especially, had done its utmost to hasten the destruction of the Empire. Its policy was guided less by rational considerations than by resentment. It persecuted the German liberal Party in blind rage with its hate, even beyond the grave. Since the German Liberals had become antidemocratic, the Dynasty, which always wanted only to restore the old princely state and to which even the authoritarian state seemed too modern a form of state constitution, thought it could indulge in democratic antics from time to time. Thus it repeatedly pushed through the extension of the right to vote against the will of the Germans, each time with the result that the German elements in the House of Deputies lost ground and the radical-national elements of the non-Germans won ever greater influence. Austrian parliamentarianism was thereby finally blown apart. With Badeni's electoral reform of the year 1896 the Empire entered a state of open crisis. The House of Deputies became a place in which the deputies no longer pursued any goal other than to demonstrate the impossibility of the continued existence of this state. Everyone who observed party relations in the Austrian House of Deputies was bound to recognize immediately that this state could still drag out its existence only because European diplomacy was at pains to postpone the danger of war as long as possible. Already twenty years before the end of the war, the domestic political conditions of Austria were more than ripe for collapse.
The German parties that succeeded the German Liberals showed much less insight into political conditions than the much-reviled German Liberals. The German Nationalist factions, which energetically fought the German Liberals, behaved like democrats at the beginnings of their party activity, when they were still concerned with overcoming the German Liberals. Very soon, however, they had to recognize that democratization in Austria was identical with de-Germanization, and from this recognition they then became just as antidemocratic as the German Liberals had once become. If one disregards the resonant words with which they sought in vain to conceal the paltriness of their program, as well as their anti-Semitic tendencies, which from the standpoint of maintenance of German character in Austria had to be called downright suicidal, then the German Nationalists really differed from the German Liberals only on one single point. In the Linz Program they gave up German claims to Galicia and Dalmatia and contented themselves with claiming for Germanism the lands of the former German Confederation. In raising this claim, however, they clung to the same error that the German Liberals had committed, namely, underrating the capacity for development and the prospects for the future of Slavs of western Austria. They had decided just as little as the German Liberals to sacrifice the German minorities scattered in foreign-language lands, so that their policy incorporated the same irresolution as that of the old German Liberals. They did indeed play with Irredentist thoughts more often than the Liberals, but they never had anything seriously in mind other than maintaining the Austrian state under German leadership and German predominance. Faced with the same choice that the German Liberals had been faced with, they trod the same path that the Liberals had already embarked on before them. They decided for the maintenance of the Empire and against democracy. Thus their fate also became the same as that of the old German Liberals. They were used by the Dynasty in the same way as the Liberals. The Dynasty could treat them as badly as possible and yet knew that it could always count on them.
The greatest error that the German Liberals committed in judging their fellow citizens of foreign language was that they saw in all non-Germans nothing but enemies of progress and allies of the Court, of the Church, and of the feudal nobility. Nothing is easier to understand than that this interpretation could arise. The non-German peoples of Austria were equally averse to Great-Austrian and Great-German aspirations; they had recognized earlier than all others, earlier even than the German Liberal party, that Austria's support was to be sought only in the party association of the German liberals. To annihilate the German Liberal Party therefore became the most important and at first the only goal of their policy, and in so doing they sought and found as allies all those who, like them, were fighting this party to the death. Thus the serious error for which they paid dearly could arise among the liberals. They misunderstood the democratic element in the fight of the Slavic nations against the Empire. They saw in the Czechs nothing other than the allies and willing servants of the Schwarzenbergs and Clam-Martinics. The Slavic movement was compromised in their eyes by its alliance with the Church and the Court. How, also, could those men who had fought on the barricades in 1848 forget that the uprising of the German bourgeoisie had been put down by Slavic soldiers?
The mistaken position of the German Liberal Party on national problems resulted from this misunderstanding of the democratic content of the nationality movements. Just as they did not doubt the final victory of light over darkness, of the Enlightenment over clericalism, so they also did not doubt the final victory of progressive Germanism over the reactionary Slavic masses. In every concession to Slavic demands it saw nothing other than concessions to clericalism and militarism.Note that Marx and Engels had also fallen into the same error; quite like the Austrian-German Liberals, they too saw reactionary doings in the national movements of the nations without history and were convinced that with the unavoidable victory of democracy, Germanism would triumph over these dying nationalities. Cf. Marx, Revolution und Kontrerevolution in Deutschland, German translation by Kautsky, third edition (Stuttgart: 1913), pp. 61 ff.; Engels (Mehring, loc. cit.), pp. 246 ff. Cf. in addition Bauer, "Nationalit?tenfrage," loc. cit., pp. 271 f.
That the position of the Germans on the political problems of Austria was determined by the force of the conditions into which history had placed them is best shown by the development of the nationality program of German Social Democracy in Austria. Social Democracy had first won ground in Austria among the Germans, and for long years if was and remained no more than a German party, with a few fellow travelers among the intellectuals of the other nationalities. At this time when, because of the electoral system, it was scarcely possible for it to play a role in Parliament, it could regard itself as uninvolved in the national struggles. It could take the position that all national quarrels were nothing more than an internal concern of the bourgeoisie. On the vital questions of Germanism in Austria, it took no position other than that of its brother party in the German Empire toward the foreign policy of the Junkers, of the National Liberals, or even of the Pan-Germans. If those German parties that were waging the national struggle reproached it, like the German clericals and the Christian Socialists, for harming its own people by its behavior, well, this was thoroughly justified at the time, even though the extent of this damage was only slight precisely because of the also slight political significance of Social Democracy at the time. The more, however, the significance of Social Democracy in Austria grew—and it grew above all because in Austrian conditions Social Democracy was the only democratic party among the Germans of Austria—it was all the more bound to acquire the responsibility that was incumbent on every German party in Austria in national questions. It began to become German-nationalist; then, no more than the two older German parties of Austria, could it get around the conditions that had brought Germanism and democracy into contradiction in Austria. Just as the German Liberal Party finally had to drop its democratic principles because following them was bound to lead to harming Germanism in Austria, just as the German Nationalist Party had done the same, so Social Democracy too would have had to do this if history had not forestalled it and shattered the Austrian state before this turn of events was fully completed.
After a series of programmatic declarations of merely academic value had been overtaken by the facts, Social Democracy at first made a try with the program of national autonomy.Cf. Marx, Revolution und Kontrerevolution in Deutschland, pp. 52 ff.
There is no doubt that this program rests on a deeper grasp of nationality problems than the Linz Program, on which, though, the flower of German Austria at the time had also collaborated. In the decades between these two programs, much had taken place that was bound to open the eyes of the Germans of Austria also. But there, too, they could not escape the constraint that historical necessity had placed on them. The program of national autonomy, even if it spoke of democracy and self-government, was also basically nothing but what the nationality programs of the German Liberals and the German Nationalists had really been in essence: namely, a program for saving the Austrian state of Habsburg-Lorraine dominion over the Imperial and Royal hereditary lands. It claimed to be much more modern that the older programs, but it was in essence nothing else. One cannot even say that it was more democratic than the earlier ones, for democracy is an absolute concept, not a concept of degree.
The most important difference between the program of national autonomy and the older German nationality programs is that it feels the necessity of justifying the existence and demonstrating the necessity of the existence of the Austrian state not only from the standpoint of the Dynasty and from the standpoint of the Germans but also from that of the other nationalities. And it does not content itself, moreover, with those showy phrases that were usual among the so-called black-and-yellow writers, as, for example, with a reference to the maxim of Palacky that one would have had to invent Austria if it had not already existed. But this argument, which was worked out particularly by Renner, is totally untenable. It starts with the idea that maintaining the Austro-Hungarian customs territory as a distinct economic territory is in the interest of all the peoples of Austria and that each one, therefore, has an interest in creating an order that maintains the viability of the state. That this argument is not correct has already been shown; when one has recognized the faultiness of the program of national autonomy, then one sees immediately that it contains nothing but an attempt to find a way out of the nationality struggles without destroying the Habsburg state. Not quite unjustifiably, therefore, the Social Democrats have occasionally been called Imperial and Royal Social Democrats; they did appear as the only pro-state party in Austria, especially at those moments of the kaleidoscopically changing party constellation in Austria when the German Nationalists temporarily set aside their Austrian sentiment and behaved irredentistically.
The collapse of Austria saved Social Democracy from going too far in this direction. In the first years of the World War, Renner, in particular, did everything in this respect that was at all possible with his doctrines that opponents called social imperialism. That the majority of his party did not unconditionally follow him on this path was not a merit of its own but rather the consequence of growing dissatisfaction with a policy that was imposing the most extreme bloody sacrifices on the population and condemning it to hunger and misery.
The German and German-Austrian Social Democrats could represent themselves as democratic because they were opposition parties without responsibility as long as the German people could not fully accept democratic principles, fearing that their application would harm the Germans in the polyglot territories of the East. When, with the outbreak of the World War, a part, perhaps the largest part, of the responsibility for the fate of the German people fell to them too, they also took the path taken before them by the other democratic parties in Germany and Austria. With Scheidemann in the Reich and with Renner in Austria they made the change that was bound to take them away from democracy. That Social Democracy did not proceed further on this path, that it did not become a new guard of the authoritarian state which, with regard to democracy, would scarcely have been different from the National Liberals in the Reich and the German Nationalists in Austria—that was due to the sudden change in conditions.
Now, with defeat in the World War and its consequences for the German position in the territories with mixed population, the circumstances have been removed that previously forced all German parties away from democracy. The German people can today seek salvation only in democracy, in the right of self-determination both of individuals and of nations.The same causes that held the German people back from democracy were at work in Russia, Poland, and Hungary also. One will have to draw them into the explanation if one wants to understand the development of the Russian Constitutional Democrats or of the Polish club in the Austrian Imperial Council or of the Hungarian party of 1848.
Ludwig von Mises wrote Nation, State and Economy in the same year, 1919, as John Maynard Keynes wrote The Economic Consequences of the Peace, a better known diagnosis of and prescription for the postwar economic situation. Mises, writing a few months earlier, presumably had less detailed knowledge of the Versailles Treaty and so was less concerned with its specific provisions. Keynes went into more detail than Mises in estimating such things as the wealth of the belligerents, the amount of destruction suffered, and the capacity of the Germans to pay reparations. His focus was narrower, than that of Mises, who regarded his own analysis as one particular instance of applying lessons derived from both history and economic theory.
The two books have much in common. Both compare prewar and postwar economic conditions. Both authors recognize that each country's prosperity supports rather than undercuts that of others. Both appreciate how much the standard of living of Europe and particularly of Germany had depended on world trade and regret its interruption. Both, rightly or wrongly, perceived something of an overpopulation problem in Europe and in Germany in particular and made some not too optimistic remarks about the possibilities of emigration as a remedy. Mises even waxed wistful over loss of opportunities that Germany might have had in the nineteenth century peacefully to acquire overseas territories suitable for settlement.
Both authors more or less took it for granted that the German ruling class and segments of public opinion had been largely responsible for the war. Mises deployed history, politics, sociology, psychology, and other disciplines in exploring the intellectual and ideological background of German militarism. Keynes also engaged in psychology. His dissection of the character and personality of Woodrow Wilson is justly renowned, and he made biting comments on the immorality of Lloyd George's "Hang the Kaiser" election campaign of December 1918.
Both Mises and Keynes emphasized how currency deterioration causes social as well as economic disorder. Keynes endorsed Lenin's supposed observation about the best way to destroy the capitalist system. "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Keynes warned against misdirecting blame onto "profiteers," and Mises, too, understood the constructive function of profit, even in wartime. Mises explained how inflation undercuts the vital functions performed by accounting. Keynes and Mises were exhibiting prescience, writing four years before the hyperinflationary collapse of the German mark would dramatize the points they were already making.
Keynes's book included no signs of anticapitalism or of support for comprehensive government economic intervention. Mises was emphatic on these issues. He exposed some of the inefficiencies of socialism, although he had not yet formulated his later demonstration of the impossibility of accurate economic calculation under socialism.
Both Keynes and Mises come across in their respective books as analytical in their diagnoses and humanitarian in their recommendations. Both were pessimistic about economic conditions on the European continent, at least in the short run. Both opposed a vindictive peace; Keynes's warnings about reparations are well known. It is too bad that Keynes's fame did not carry over more effectively into actual influence and that Mises's book was not more accessible to the English-speaking world at the time. If only the two men could have joined forces!
Mises's book illustrates the differences between the political and economic philosophies of conservatism and of liberalism (liberalism in the European and etymologically correct sense of the word). Mises was emphatically not a conservative. His book rails repeatedly against political and economic privilege. He championed political democracy as well as a freemarket economy. He admired democratic revolutions against hereditary and authoritarian regimes; he sympathized with movements for national liberation and unity. As he explained, liberal nationalism—in sharp contrast with militaristic and imperialistic nationalism—can be an admirable attitude and a bulwark of peace. Different peoples should be able to respect and—to interpret a bit—even share in each one's pride in its own culture and history. (I think I can understand what Mises had in mind by recalling my feelings while traveling in Italy in 1961 at the time of celebrations and exhibitions commemorating the one hundredth anniversary of the founding of the Kingdom of Italy. As my traveling companion remarked, he almost felt like an Italian patriot.)
Mises's devotion to political democracy was tinged with a touching naiveté. Passages in his book suggest that he could hardly conceive of how the people, given the opportunity to rule through freely elected representatives, would fail to choose those politicians and policies that would serve their genuine common interest. This optimism is not to his discredit. It underlines the genuineness of his liberalism. It reminds us that he was writing more than sixty years ago, before the subsequent accumulation of sobering experience with democratic government. He was writing before the development of pubic-choice theory, that is, the application of economic analysis and methodological individualism to understanding government and government failure, analogous to the better publicized market failure (fragmented and inaccurate cost/benefit comparisons, externalities, and all that). But Mises certainly was not naive in relation to the experience and political analysis available in 1919. On the contrary, some of the most insightful parts of his book analyze the obstacles to the development of democracy in Germany and Austria. Mises saw the significance of the nationality and language situations in those two polyglot empires. He did not single-handedly develop an economic and psychological analysis of government, but he made an impressive beginning on that task in this and later books.
Mises could expect his German-speaking readers of over sixty years ago to recall the salient facts of German and Austrian history. Such an expectation may not hold for English-speaking readers of the 1980s. For this reason, a sketch follows of the historical background that Mises took for granted. In particular, it identifies events and persons that Mises alludes to.
German-speaking territories were ruled for centuries by dozens and even hundreds of hereditary or ecclesiastical monarchs—kings, dukes, counts, princes, archbishops, and the like. Mises speaks of "the pitiable multiplicity of several dozen patrimonial principalities, with their enclaves, their hereditary affiliations, and their family laws" and of "the farcical rule of the miniature thrones of the Reuss and Schwarzburg princes," Even after formation of the German Empire in 1871, its component states numbered four kingdoms, four grand duchies, fourteen lesser duchies and principalities, and three Hanseatic cities, as well as the conquered territory of Alsace-Lorraine.
Until beyond the middle of the nineteenth century, Germany was understood to include the German-speaking sections of Austria, which was usually the dominant German state. In the words of the Deutschlandlied, or national anthem (written in 1841 by the exiled liberal August Heinrich Hoffman von Fallersleben), Germany ranged from the Maas River in the West to the Memel River in the East and from the Etsch (Adige) River in the South to the Belt (Baltic Sea passages) in the North.
The domain of German rulers was not limited, however, to German-speaking territories. Poles and other Slavic peoples lived in the eastern sections of Prussia, especially after the conquests by Frederick the Great to which Mises refers. Brandenburg, where Potsdam and Berlin are located, was the nucleus of what became the Kingdom of Prussia in 1701. The Hohenzollern family held the title of Margrave of Brandenburg from 1415 on and continued as the Prussian royal family until 1918. Frederick William, the "Great Elector" (the meaning of "elector" is explained below), ruled from 1640 to 1688. He presided over the rebuilding and expansion of his state after the Thirty Years' War and obtained full sovereignty over Prussia. His son, Frederick I, who ruled from 1688 to 1713, was crowned the first King of (technically, "in") Prussia. Frederick William I, king from 1713 to 1740, was largely the founder of the Prussian army. His son Frederick II became known to history as Frederick the Great. He wrested Silesia from Austria in 1745 and joined with Russia and Austria in the first partition of Poland in 1772. His successor, Frederick William II, joined in the second and third partitions of 1793 and 1795, which wiped Poland off the map.
The Austrian Empire included not only speakers of German but also Hungarians, Rumanians, Czechs, Slovenes, Poles, Ruthenians, Italians, and others. According to a 1910 census, the population of the Austrian part of the Austro-Hungarian Monarchy consisted of 35 percent Germans, 23 percent Czechs, 17 percent Poles, 19 percent other Slavs, 2 ¾ percent Italians, and scattered others.
The Holy Roman Empire of the German Nation, to use its full name, existed until 1806. It coincided roughly, but only roughly, with German-speaking territory. It sometimes included parts of northern Italy but left out the eastern parts of Prussia. It was organized (or revived) under Otto I, whom the Pope crowned Emperor in 962. (He was succeeded by Otto II and Otto III; Mises refers to the age of the Ottonians.) The Empire was a loose confederation of princely and ecclesiastical sovereignties and free cities. Seven, eight, or nine of their rulers were Electors, who chose a new Emperor when a vacancy occurred. From 1273, except for a few intervals (notably 1308 to 1438), the Holy Roman Emperors belonged to the Habsburg family, whose domains included many lands outside the boundaries of the Empire. The dynastic expansion of the Habsburgs explains Mises's reference to the "married-together state." The male line of the family died out in 1740, when Charles VI was succeeded in his domains by his daughter Maria Theresa, an event that touched off the War of the Austrian Succession. Maria Theresa's husband was the former Duke of Lorraine and Holy Roman Emperor as Francis I from 1745 to 1765, which explains why the dynasty became known as the house of Habsburg-Lorraine.
Mises mentions several other events and personalities in the history of the Holy Roman Empire. Until his death in 1637, Ferdinand II reigned from 1617 as King of Bohemia, from 1618 as King of Hungary, and from 1619 as Emperor. His fanatical Catholicism alienated the Protestant Bohemian nobles, who rebelled in 1618 (the picturesquely named Defenestration of Prague occurred at this time), beginning the Thirty Years' War. The war, which wrought havoc on Germany, hinged not only on religious differences but also on the ambition of the Habsburgs to gain control of the entire country. The Imperial forces won the war's first major battle, fought on the White Mountain, near Prague, in 1620, ending Bohemian independence for three centuries. The Protestant side was aided at times by the Danes, the Swedes, and even the French under Louis XIII and Louis XIV. The Treaty of Westphalia, in 1648, awarded certain German provinces on the Baltic Sea to Sweden and southern Alsace to France, while the Emperor's authority over Germany became purely nominal. Acceptance of the religious split of Germany was an important step toward religious toleration. Leopold I, whom Mises mentions, was Holy Roman Emperor from 1657 to 1705. The greater part of his reign was occupied by wars with Louis XIV of France and with the Turks. Leopold II, Emperor from 1790 until his death in 1792 and the last crowned King of Bohemia, succeeded his brother Joseph II (also a son of Maria Theresa). He instigated the Declaration of Pillnitz, which helped precipitate the French Revolutionary Wars a few weeks after his death.
The Napoleonic Wars brought lasting changes to the map and the political systems of Europe. The Enactment of Delegates of the Holy Roman Empire (Reichsdeputationshauptschluss) was adopted in 1803 under pressure of Napoleon. Mises mentions this Enactment as an illustration of the old idea that lands were the properties of their sovereigns and so could be bought and sold, traded, reshaped, divided, and consolidated without regard to the wishes of their inhabitants, who were mere appurtenances of the land. The Enactment greatly reduced the number of sovereignties in the Empire, in part by ending the temporal rule of dignitaries of the Catholic Church and putting their lands under the rule of neighboring princes. In 1806, again under pressure of Napoleon, who had detached the western parts of Germany?only temporarily, as things turned out?and organized them into a Confederation of the Rhine, the old Empire was liquidated. Francis II gave up his title of Holy Roman Emperor but retained the title of Emperor of Austria as Francis I.
Mises mentions two men who strove for a unified Italian state at the end of the Napoleonic Wars. Joachim Murat, a Marshall of France whom Napoleon had made King of Naples in 1808, tried in 1815 to make himself king of all Italy; but he was captured and shot. Florestano Pepe, one of Murat's generals, fought against the Austrians in 1815. (Mises's allusion is presumably to Florestano Pepe rather than to his brother Guglielmo, another Neapolitan general, who organized the Carbonari and who led an unsuccessful proconstitutional revolt in 1821.)
After the Napoleonic Wars, the reigning dynasties of Europe tried to restore the old regime. The Holy Alliance, to which Mises repeatedly refers with scorn, is a phrase frequently but imprecisely used to label the reactionary policies of Russia, Prussia, and Austria in particular. Strictly speaking, the Holy Alliance was an innocuous declaration of Christian principles of statesmanship drawn up by Czar Alexander I in 1815 and signed by almost all European sovereigns. The repressive policies are more properly associated with the Congress system and the Quadruple Alliance of 1815, Mises mentions, by the way, the Polish kingdom of Alexander I. The Congress of Vienna (1814-1815) created the kingdom in personal union with Russia but with a constitution of its own (which was suspended after the Polish insurrection of 1830-1831).
With the Holy Roman Empire defunct, a decision of the Congress of Vienna loosely joined some 38 (soon 39) German sovereignties together again as the German Confederation. The federal diet, which met in Frankfurt under the presidency of Austria, had little power because unanimity or a two-thirds majority was required for most decisions.
In 1834, after achieving a free-trade area within its own territories, Prussia took the lead in establishing the Zollverein among most German states, not including Austria, through the merger of two regional customs unions. The new union is considered a step toward political unification. In 1861 it was reorganized with a constitution and parliament of its own. Mises mentions one of its intellectual fathers, the economist Friedrich List. List had been forced to emigrate to the United States in 1825 for advocating administrative reforms in Württemberg but had returned to Germany in 1832 as U.S. consul at Leipzig. He favored internal free trade, together with strictly temporary tariff protection to encourage the development of infant industries.
Mises makes many admiring and wistful references to the European revolutions of 1848. The revolutions were mostly the work of the middle-class intellectuals, who were bringing mainly French ideas to bear against political repression. The February revolution in Paris, resulting in the overthrow of King Louis Philippe and establishment of the Second Republic, was emulated elsewhere. In the numerous sovereignties into which Italy was still split, a movement for liberal constitutions was followed by an unsuccessful patriotic war to eject the Austrians.
Revolutionary riots came to Austria and Germany in March 1848, which explains why Mises refers to the March revolution and compares conditions afterwards with conditions as they were "before March" (to translate the German literally). In Vienna, Prince Clemens von Metternich, minister of foreign affairs and chief minister since 1809, had to resign and flee the country. The first Pan-Slav Congress met in Prague in June 1848 under the presidency of Frantisek Palacky, the Bohemian historian and nationalist. (Mises cites Palacky's much-quoted remark to the effect that if the Austrian multinational state had not existed, it would have been necessary to invent it.) Field Marshal Prince Alfred Windischgrätz bombarded the revolutionaries in Prague into submission in June 1848 and later turned to Vienna, where a further wave of radical unrest had broken out in October. He helped restore Habsburg power, with Prince Felix Schwarzenberg as the new chief minister from November 1848. Schwarzenberg engineered the abdication of Emperor Ferdinand I in favor of his 18-year-old nephew Francis Joseph, who would reign until his death in 1916.
Mises alludes not only to Schwarzenberg but also to Count Eduard von Clam-Gallas, who played a decisive role in suppressing the Italian and Hungarian revolutions of 1848-1849. (Actually, Mises mentions the Clam-Martinics, who were the Bohemian wing of the same wealthy noble family.) The Hungarian independence movement succeeded at first but was finally put down by Schwarzenberg and the Habsburgs with the aid of some of their Slavic subjects and the forces of the Russian Czar Nicholas I. After their defeat by the Russians in August 1849, the Hungarians suffered vengeance at the hands of the Austrian General Julius Freiherr von Haynau.
In Germany the revolutionaries sought both representative government in the various states and unification of the country. The King of Prussia and lesser German rulers at first granted democratic concessions but later withdrew them on observing the success of counterrevolution in Austria. The Crown Prince of Prussia, who had fled the country only shortly before, as Mises notes, was able to mount a counteroffensive. Yet some prospects seemed hopeful for a while. Aspiring for a united Germany, a self-constituted "preliminary parliament" convoked a German National Assembly, also known as the Frankfurt Parliament, which met in St. Paul's Church from 18 May 1848 to 21 April 1849. Its delegates were chosen by direct male suffrage throughout Germany and Austria. It was predominantly a middle-class body inspired by liberal and democratic ideas. This is what Mises had in mind when repeatedly referring to the ideals of St. Paul's Church, (He occasionally refers in the same sense to the "Ideas of 1789," thinking of course of the aspirations for freedom and political equality expressed at the beginning of the French Revolution and not to the Terror into which the revolution later degenerated.)
One party among the Frankfurt delegates favored bringing Austria and Bohemia into the projected united Germany, although doing so would have disrupted the Habsburg Monarchy; another party thought it wiser to leave Austrian territory out. (With his reference not limited to this particular occasion, Mises does mention the tension between the great-German and small-German approaches to national unity.) The issue became academic when the Austrian government showed hostility to any splitting of its territory and when the Austrian constitution of 4 March 1849 reasserted the unity of the Habsburg domains. After lengthy debates, the Frankfurt delegates adopted a federal constitution and elected the King of Prussia, Frederick William IV, as Emperor. At the end of April, the King refused the offer on the grounds that accepting a crown from an elected assembly would be inconsistent with his divine right. The assembly then came apart. Meanwhile, with the suppression of revolutions and the consolidation of authoritarian rule in the German princely states, democratic leaders found it prudent to remain politically silent, as Mises observes, or even to emigrate.
The activities of the Frankfurt Parliament brought suspension of the diet of the German Confederation in 1848-1850. After rejecting the proffered imperial crown, the King of Prussia still hoped to unify Germany in his own way and with the consent of his fellow princes. An inner confederation, the Prussian Union, would join with the Habsburg Monarchy in a broader confederation. Most of the smaller German states initially accepted the plan, and first a national assembly and later a parliament met at Erfurt in 1849 and 1850 to put a constitution into effect. With the distractions in Hungary now overcome, however, the Austrian government was able to press its opposition. At Schwarzenberg's invitation, representatives of the petty states and Austria met at Frankfurt in May 1850 and reconstituted the diet of the old German Confederation. In November 1850, by the Punctation of Olmütz (known by Prussian historians as the Humiliation of Olmütz), the Prussians abandoned their Prussian Union scheme and recognized the reestablished diet of the Confederation.
Austria and the rest of Germany managed to stay out of the Crimean War of 1853-1856, in which Turkey, Great Britain, France, and Sardinia-Piedmont defeated Russia. Austrian threats of joining the war did help prod Russia to evacuate the occupied Danubian principalities in 1854, however, and later to agree to the proposed peace terms; prolonged mobilization drained Austrian finances. In 1859 Austria suffered defeat in a war with France and Sardinia-Piedmont, losing Lombardy but retaining Venetia in the peace settlement.
In 1863 Austria again demonstrated dominance among the German states in that Emperor Francis Joseph served as president of a congress of German princes in Frankfurt. However, Otto von Bismarck, who had become Prussian prime minister in 1862, was able to persuade his king not to attend. Prussia's absence helped keep the congress from accomplishing much.
In the summer of 1864, in a brief war touched off by the question of who was to inherit the rule of the duchies of Schleswig and Holstein, Prussia and Austria together defeated Denmark and acquired joint control over the two duchies. Bismarck skillfully escalated tensions over their administration and ultimate disposition into a war between Prussia and Austria in the summer of 1866. Austria had all the rest of Germany on its side except Mecklenburg and a few of the smaller north German states. Italy allied itself with Prussia. Austria defeated Italy on land and sea; but the decisive battle of the Seven Weeks' War was fought near Königgrätz (and Sadowa), about 65 miles east of Prague, on July 3. The timely arrival of troops commanded by the Crown Prince of Prussia (later, for 99 days in 1888, the Emperor Frederick III) helped clinch the victory of Field Marshal Count Helmuth Karl Bernhard von Moltke (who was later to be victorious in the war with France also) and seal the defeat of Austrian General Ludwig von Benedek.Benedek had had much experience on the Italian front but had been assigned to the northern front, supposedly to leave the easier Italian command to members of the Habsburg dynasty. Moltke and Benedek are named here because Mises mentions them as examples of victorious and defeated generals, respectively. He also mentions Karl Mack von Leiberich, an Austrian general who surrendered to Napoleon at Ulm in 1805, and Franz Gyulai, an Austrian general defeated in the war of 1859.
Mises's many references to Königgrätz, then, allude to the changes brought about by the brief war of 1866, which was ended by the preliminary peace of Nikolsburg and the definitive treaty of Prague. The King of Hanover was dethroned and his state absorbed into Prussia. (It is interesting to speculate on how differently the course of history might have turned out if only Queen Victoria of England had been a man. Her accession in 1837 separated the previously united crowns of England and Hanover, where the Salic Law barred females from the throne.) Austria lost Venetia to Italy but no territory to Prussia. Its expulsion from the German Confederation, however, ended Austria's dominance in German affairs. Austrians did not, though, immediately stop thinking of themselves as Germans. Mises illustrates their sentiment by quoting from the dramatist Franz Grillparzer (1791-1872).
The old German Confederation gave way to the North German Confederation, composed of Prussia and the other states north of the Main River, The component states retained their own administrations but placed their military forces and foreign policy under the federal government, dominated by Bismarck. Prussia also negotiated alliances with the south German states.
The defeated Austrians turned to tidying up their domestic affairs. They reached a compromise (Ausgleich) with the Hungarians, granting Hungary quasi-independence with its own parliament and government. Emperor Francis Joseph submitted to coronation as King of Hungary in Budapest on June 8, 1867 (only eleven days, by coincidence, before his brother Maximilian, the defeated and captured Emperor of Mexico, was executed at Querétaro).
The Franco-Prussian War of 1870-1871 resulted in the cession of Alsace-Lorraine to Germany. France also had to pay an indemnity of 5,000,000,000 francs, providing an unfortunate precedent for allied demands on Germany after its defeat in 1918.
The German Empire was proclaimed in a ceremony at Versailles, near Paris, in January 1871. Bismarck had persuaded the reluctant King Ludwig II of Bavaria (later called the "mad king") to invite King William I of Prussia to assume the hereditary title of German Emperor. The Empire absorbed the institutions of the North German Confederation of 1867, including the Federal Council and elected Reichstag; a modified constitution admitted the southern states of Bavaria, Württemberg, and Baden.
Meanwhile, Italy also achieved unification. Other Italian states joined with Sardinia-Piedmont in 1861 to proclaim its King, Victor Emmanuel II, King of Italy. In 1870, while the French, who had been protecting the Pope, were at war with Germany, the Italians seized the opportunity to conquer the Papal States and transfer the capital of Italy to Rome. Mises mentions three heroes of the movement for Italian liberation and unification: Giuseppe Mazzini, Giuseppe Garibaldi, and Count Camillo Benso di Cavour. He also mentions three Italian poets and patriots of the first half of the nineteenth century: Giacomo Leopardi, Giuseppe Giusti, and Silvio Pellico.
Not all Italian-speaking territory yet formed part of the Kingdom of Italy; some remained under Austro-Hungarian rule. This territory was called Italia irredenta, and irredentism was the movement calling for its liberation and absorption into Italy. World War I largely achieved the objectives of the movement. Mises mentions Gabriele D'Annunzio, a poet, novelist, and dramatist who helped persuade Italy to join the allies in that war, who lost an eye in aerial combat, and who later (after Mises was writing) led an unofficial occupation of Flume (now Rijeka, Yugoslavia) that eventuated in its incorporation into Italy.
Mises sometimes uses the word "irredentism" in its broader sense of a movement for any country's absorbing territories still outside its boundaries inhabited by people speaking its national language. Irredentism in this broader sense refers, in particular, to advocacy of incorporation of German-speaking Austria into the German Empire.
Representatives of the great European powers convened in Berlin in 1878 to impose on Russia a revision of the harsh treaty that it had imposed on Turkey after defeating it in a war. The Congress of Berlin also, incidentally, authorized Austria-Hungary to occupy and administer the Turkish provinces of Bosnia and Herzegovina, now in Yugoslavia. The occupation was not entirely trouble-free; Mises mentions rebellions in Herzegovina and around the Gulf of Kotor. Austria-Hungary finally annexed the occupied provinces in 1908.
Another important development in international politics was the negotiation of an alliance between Germany and Austria-Hungary in 1879. Apparently Bismarck's decision not to impose an excessively harsh peace on Austria in 1866 was paying off. This alliance, like the Russian-French alliance and others, set the stage for a chain reaction whereby the countries not directly involved in the original dispute between Austria and Serbia in 1914 got drawn into World War I.
The Wilhelministic Era, which Mises refers to, was the reign of William II as German Emperor, particularly from the dismissal of Bismarck as chancellor in 1890 until World War I.
The defeat of the Central Powers in that war split Austria-Hungary up into several states. Currency inflations gained momentum. In Germany the Spartacists, whom Mises mentions and who reorganized themselves into the German Communist Party in December 1918, seemed for a time to have prospects of gaining power in at least the major cities.
We now turn to a few explanations and identifications that did not fit into the preceding chronological survey. Cabinet ministers in both Germany and Austria were responsible to the Emperor rather than to parliament. Although a government could not be thrown out of office by a vote of no confidence, parliamentary majorities were necessary to enact specific pieces of legislation; and the government occasionally resorted to political maneuvers and tricks to achieve the necessary majorities. Mises refers scornfully to these circumstances. In Austria, in particular, the parliamentary situation and the alignment of parties was complicated by the mixture of nationalities and by such issues as what languages should be used in particular schools. Mises refers, for example, to Badeni's electoral reform of 1896. (Count Kazimierz Felix Badeni, a Polish aristocrat, became prime minister in 1895. The finance minister and foreign minister in his cabinet also came from the Polish part of the Empire. Badeni was dismissed in 1897 through the pressure of German-speaking factions, who considered his policies on use of language in the civil service too favorable to the Czechs.) Mises also notes allusions made at the time to the government's courting of the ironically nicknamed "Imperial and Royal Social Democrats" (the term "Imperial and Royal," commonly abbreviated in German as "K.k.," referred to the Austrian Empire and Kingdom of Hungary and meant something like "governmental" or "official").
The nationality situation is also in the background of Mises's reference to the Linz Program of 1882. The extreme German nationalists proposed the restoration of German dominance in Austrian affairs by detaching Galicia, Bukovina, and Dalmatia from the Monarchy, weakening the ties with Hungary to a purely personal union under the same monarch, and establishing a customs union and other close ties with the German Reich. They apparently did not realize that Bismarck had little reason to provide help, since the existing domestic situation in Austria-Hungary was consonant with his approach to international affairs. The leader of the extreme German-Austrian nationalists was Georg Ritter von Schönerer, who later made anti-Semitism a part of his program.
Employing synecdoche, Mises sometimes opposes Potsdam to Weimar. Potsdam was the home of the Prussian monarchy, and the word symbolizes the authoritarian state and militarism. Weimar, the literary and cultural center, stands for the aspect of Germany evoked by calling it the "nation of poets and thinkers." (The "classical period" of German literature, to which Mises also refers, corresponds roughly to the time of Goethe.)
The Gracchi, referred to in a Latin saying that Mises quotes, were the brothers Tiberius and Gaius Gracchus, agrarian, social, and political reformers of the second century B.C. Both perished in separate public disturbances, one of them after having sought an unconstitutional reelection as tribune of the people.
It is quite unnecessary to identify every event, person, or school of thought that Mises refers to—Alexander the Great and so on. Still, there is no harm in adding that the Manchester School was a group of English economists of the first half of the nineteenth century, led by Richard Cobden and John Bright, who campaigned for a market economy and a free-trade policy. François Quesnay, 1694-1774, was a French physician and economist who stressed the central role of agriculture and who prepared the Tableau Economique, a kind of rudimentary input-output table.
Benedikt Franz Leo Waldeck, 1802-1870, was Mises's example of the possibility of being both a Prussian nationalist and a sincere liberal democrat. Waldeck, a member of the highest Prussian court, had been a radical deputy in the Prussian constituent assembly in 1848 and leader of a committee that drafted a constitution. Later, as an opposition member of the Prussian chamber of deputies, he continued resisting authoritarian trends in government.
This introduction might fittingly end by especially recommending the discussion with which Mises ends his book?his discussion of the respective roles of value judgments and positive analysis in the choice between socialism and liberal capitalism. Mises proceeds not only from a liberal democratic outlook but also, and especially, from a rationalist and utilitarian philosophy.
Thanks are due to the Thomas Jefferson Center Foundation and the James Madison Center of the American Enterprise Institute for contributing much of the secretarial help required in preparing the translation. Thanks for their good work also go to Mrs. Anne Hobbs, Mrs. Carolyn Southall, and Miss Linda Wilson.
Leland B. YeagerLudwig von Mises Professor of Economic EmeritusAuburn University
The economic aspects of the World War are unique in history in kind and in degree; nothing similar ever existed before nor ever will exist again. This combination of developments was in general conditioned both by the contemporary stage of development of the division of labor and state of war technique, but in particular by both the grouping of the belligerent powers and the particular features of their territories as far as geography and technique of production were concerned. Only the conjunction of a large number of preconditions could lead to the situation that was quite unsuitably summarized in Germany and Austria under the catchword "war economy." No opinion need be expressed whether this war will be the last one or whether still others will follow. But a war which puts one side in an economic position similar to that in which the Central Powers found themselves in this war will never be waged again. The reason is not only that the configuration of economic history of 1914 cannot return but also that no people can ever again experience the political and psychological preconditions that made a war of several years' duration under such circumstances still seem promising to the German people.
The economic side of the World War can scarcely be worse misunderstood than in saying that in any case "the understanding of most of these phenomena will not be furthered by a good knowledge of the conditions of the peacetime economies of 1913 but rather by adducing those of the peacetime economies of the fourteenth to eighteenth centuries or the war economy of Napoleonic times."Cf. Otto Neurath, "Aufgabe, Methode und Leistungsähigheit der Kriegswirtschaftslehre," Archiv für Sozialwissenschaft und Sozialpolitik, vol. 44, 1917/1918, p. 765; cf., on the contrary, the discussion of Eulenburg, "Die wissenschaftliche Behandlung der Kriegswirtschaft," ibid., pp. 775-785. We can best see how much such an interpretation focuses on superficialities and how little it enables us to grasp the essence of the phenomena if we imagine, say, that the World War had been waged ceteris paribus at the stage of the international division of labor reached 100 years before. It could not have become a war of starving out then; yet that was precisely its essence. Another grouping of the belligerent powers would also have resulted in quite a different picture.
The economic aspects of the World War can only be understood if one first keeps in view their dependence on the contemporary development of world economic relations of the individual national economies, in the first place of Germany's and Austria-Hungary's and then of England's also.
Economic history is the development of the division of labor. It starts with the self-contained household economy of the family, which is self-sufficient, which itself produces everything that it uses or consumes. The individual households are not economically differentiated. Each one serves only itself. No economic contact, no exchange of economic goods, occurs.
Recognition that work performed under the division of labor is more productive than work performed without the division of labor puts an end to the isolation of the individual economies. The trade principle, exchange, links the individual proprietors together. From a concern of individuals, the economy becomes a social matter. The division of labor advances step by step. First limited to only a narrow sphere, it extends itself more and more. The age of liberalism brought the greatest advances of this sort. In the first half of the nineteenth century the largest part of the population of the European countryside, in general, still lived in economic self-sufficiency. The peasant consumed only foodstuffs that he himself had grown; he wore clothes of wool or linen for which he himself had produced the raw material, which was then spun, woven, and sewn in his household. He had built a house and farm buildings and maintained them himself, perhaps with the help of neighbors, whom he repaid with similar services. In the out-of-the-way valleys of the Carpathians, in Albania, and in Macedonia, cut off from the world, similar conditions still existed at the outbreak of the World War. How little this economic structure corresponds, however, to what exists today in the rest of Europe is too well known to require more detailed description.
The locational development of the division of labor leads toward a full world economy, that is, toward a situation in which each productive activity moves to those places that are most favorable for productivity; and in doing so, comparisons are made with all the production possibilities of the earth's surface. Such relocations of production go on continually, as, for example, when sheep-raising declines in Central Europe and expands in Australia or when the linen production of Europe is displaced by the cotton production of America, Asia, and Africa.
No less important than the spatial division of labor is the personal kind. It is in part conditioned by the spatial division of labor. When branches of production are differentiated by locality, then personal differentiation of producers must also occur. If we wear Australian wool on our bodies and consume Siberian butter, then it is naturally not possible that the producer of the wool and of the butter are one and the same person, as once was the case. Indeed, the personal division of labor also develops independently of the spatial, as every walk through our cities or even only through the halls of a factory teaches us.
The dependence of the conduct of war on the stage of development of the spatial division of labor reached at the time does not in itself, even today, make every war impossible. Individual states can find themselves at war without their world economic relations being essentially affected thereby. A German-French war would have been bound to lead or could have led to an economic collapse of Germany just as little in 1914 as in 1870-71. But today it must seem utterly impossible for one or several states cut off from world trade to wage war against an opponent enjoying free trade with the outside world.
This development of spatial division of labor is also what makes local uprisings appear quite hopeless from the start. As late as the year 1882, the people around the Gulf of Kotor and the Herzegovinians could successfully rebel against the Austrian government for weeks and months without suffering shortages in their economic system, composed of autarkic households. In Westphalia or Silesia, an uprising that stretched only over so small a territory could already at that time have been suppressed in a few days by blocking shipments into it. Centuries ago, cities could wage war against the countryside; for a long time now that has no longer been possible. The development of the spatial division of labor, its progress toward a world economy, works more effectively for peace than all the efforts of the pacifists. Mere recognition of the worldwide economic linkage of material interests would have shown the German militarists the danger, indeed impossibility, of their efforts. They were so much caught up in their power-policy ideas, however, that they were never able to pronounce the peaceful term "world economy" otherwise than in warlike lines of thought. Global policy was for them synonymous with war policy, naval construction, and hatred of England.Especially characteristic of this tendency are the speeches and essays published by Schmoller, Sering, and Wagner under the auspices of the "Free Association for Naval Treaties" under the title Handels und Machtpolitik (Stuttgart; 1900), 2 volumes.
That economic dependence on world trade must be of decisive significance for the outcome of a campaign could naturally not also escape those who had occupied themselves for decades with preparation for war in the German Reich. If they still did not realize that Germany, even if only because of its economic position, could not successfully wage a great war with several great powers, well, two factors were decisive for that, one political and one military. Helfferich summarized the former in the following words, "The very position of Germany's borders as good as rules out the possibility of lengthy stoppage of grain imports. We have so many neighbors—first the high seas, then Holland, Belgium, France, Switzerland, Austria Russia—that it seems quite inconceivable that the many routes of grain import by water and by land could all be blocked to us at once. The whole world would have to be in alliance against us; however, to consider such a possibility seriously, even for a minute, means having a boundless mistrust in our foreign policy."Cf. Helfferich, Handelspolitik (Leipzig; 1901), p. 197; similarly Dietzel, "Weltwirtschaft und Volkswirtschaft,"Jahrbuch der Gehe-Stiftung, vol. 5 (Dresden: 1900), pp. 46 f.; Riesser, Finanzielle Kriegsbereitschaft und Kriegfuhrung (Jena; 1909), pp. 73 f. Bernhardi speaks of the necessity of taking measures to prepare ways during a German-English war "by which we can obtain the most necessary imports of foods and raw materials and at the same time export the surplus of our industrial products at least partially" (Deutschland und der nächste Krieg [Stuttgart: 19121, pp. 179 f.). He proposes making provisions for "a kind of commercial mobilization." What illusions about the political situation he thereby indulged in can best be seen from his thinking that in a fight against England (and France allied with it), we would "not stand spiritually alone, but rather all on the wide earthly sphere who think and feel freedom-oriented and self-confident will be united with us" (ibid., p. 187). Militarily, however, recalling the experiences of the European wars of 1859, 1866, and 1870-71, people believed that they had to reckon with a war lasting only a few months, even weeks. All German war plans were based on the idea of success in completely defeating France within a few weeks. Anyone who might have considered that the war would last long enough for the English and even the Americans to appear on the European continent with armies of millions would have been laughed down in Berlin. That the war would become a war of emplacements was not understood at all; despite the experiences of the Russo-Japanese war, people believed that they could end the European war in a short time by rapid offensive strikes.Modern war theory started with the view that attack is the superior method of waging war. It corresponds to the spirit of conquest-hungry militarism when Bernhardi argues for this: "Only attack achieves positive results; mere defense always delivers only negative ones." (Cf. Bernhardi, Vom heutigen Klieg [Berlin: 1912], vol. 2, p. 223.) The argumentation for the attack theory was not merely political, however, but was also based on military science. Attack appears as the superior form of fighting because the attacker has free choice of the direction, of the goal, and of the place of the operations, because he, as the active party, determines the conditions under which the fight is carried out, in short, because he dictates to the party under attack the rules of action. Since, however, the defense is tactically stronger in the front than the offense, the attacker must strive to get around the flank of the defender. That was old war theory, newly proved by the victories of Frederick II, Napoleon I, and Moltke and by the defeats of Mack, Gyulai, and Benedek. It determined the behavior of the French at the beginning of the war (Mulhouse). It was what impelled the German army administration to embark on the march through neutral Belgium in order to hit the French on the flank because they were unattackable in the front. His remembering the many Austrian commanders for whom the defensive had become misfortune drove Conrad in 1914 to open the campaign with goalless and purposeless offensives in which the flower of the Austrian army was uselessly sacrificed. But the time of battles of the old style, which permitted getting around the opponent's flank, was past on the great European theaters of war, since the massiveness of the armies and the tactics that had been reshaped by modern weapons and means of communication offered the possibility of arranging the armies in such a way that a flank attack was no longer possible. Flanks that rest on the sea or on neutral territory cannot be gotten around. Only frontal attack still remains, but it fails against an equally well armed opponent. The great breakthrough offensives in this war succeeded only against badly armed opponents, as especially the Russians were in 1915 and in many respects also the Germans in 1918. Against inferior troops a frontal attack could of rourse succeed even against equally good, even superior, weapons and armaments of the defender (twelfth battle of the Isonzo). Otherwise, the old tactics could be applied only in the battles of mobile warfare (Tannenberg and the Masurian Lakes in 1914 and individual battles in Galicia). To have misunderstood this has been the tragic fate of German militarism. The whole German policy was built on the theorem of the military superiority of attack; in war of emplacements the policy broke down with the theorem. The military calculations of the General Staff were just as false as its economic and political ones.
The assertion is not true, therefore, that the German Empire had neglected to make the necessary economic preparations for war. It simply had counted on a war of only short duration; for a short war, however, no economic provisions had to be made beyond those of finance and credit policy. Before the outbreak of the war the idea would no doubt have been called absurd that Germany could ever be forced to fight almost the whole rest of the world for many years in alliance only with Austria-Hungary (or more exactly in alliance with the German-Austrians and the Magyars, for the Slavs and Rumanians of the Monarchy stood with their hearts and many of them also with weapons on the side of the enemy), Turkey, and Bulgaria. And in any case one would have had to recognize, after calm reflection, that such a war neither could have been waged nor should have been waged and that if an unspeakably bad policy had let it break out, then one should have tried to conclude peace as quickly as possible, even at the price of great sacrifices. For, indeed, there never could be any doubt that the end could be only a fearful defeat that would deliver the German people defenseless to the harshest terms of its opponents. Under such circumstances a quick peace would at least have spared goods and blood.
That should have been recognized at once even in the first weeks of the war and the only possible implications then drawn. From the first days of the war—at the latest, however, after the defeats on the Marne and in Galicia in September 1914—there was only one rational goal for German policy: peace, even if at the price of heavy sacrifices. Let us quite disregard the fact that until the summer of 1918 it was repeatedly possible to obtain peace under halfway acceptable conditions, that the Germans of Alsace, the South Tyrol, the Sudetenland, and the eastern provinces of Prussia could probably have been protected from foreign rule in that way; even then, if continuation of the war might have afforded a slightly more favorable peace, the incomparably great sacrifices that continuation of the war required should not have been made. That this did not happen, that the hopeless, suicidal fight was continued for years—political considerations and grave errors in the military assessment of events were primarily responsible for that. It was an incomprehensible delusion to speak of the possibility of a victorious peace when German failure had already been settled from the time of the battle of the Marne. But the Junker party preferred to let the German people be entirely ruined rather than give up its rule even one day earlier. But delusions about economic policy also contributed much.
Right at the beginning of the war a catchword turned up whose unfortunate consequences cannot be completely overlooked even today: the verbal fetish "war-economy." With this term all considerations were beaten down that could have led to a conclusion advising against continuing the war. With this one term all economic thought was put aside; ideas carried over from the "peacetime economy" were said not to hold for the "war economy," which obeyed other laws. Armed with this catchword, a few bureaucrats and officers who had gained full power by exceptional decrees substituted "war socialism" for what state socialism and militarism had still left of the free economy. And when the hungry people began to grumble, they were calmed again by reference to the "war economy." If an English cabinet minister had voiced the watchword "business as usual" at the beginning of the war, which however, could not be continued in England as the war went on, well, people in Germany and Austria took pride in traveling paths as new as possible. They "organized" and did not notice that what they were doing was organizing defeat.
The greatest economic achievement that the German people accomplished during the war, the conversion of industry to war needs, was not the work of state intervention; it was the result of the free economy. If, also, what was accomplished in the Reich in this respect was much more significant in absolute quantity than what was done in Austria, it should not be overlooked that the task which Austrian industry had to solve was still greater in relation to its powers. Austrian industry not only had to deliver what the war required beyond peacetime provisions; it also had to catch up on what had been neglected in peacetime. The guns with which the Austro-Hungarian field artillery went to war were inferior; the heavy and light field howitzers and the mountain cannons were already out of date at the time of their introduction and scarcely satisfied the most modest demands. These guns came from state factories; and now private industry, which in peacetime had been excluded from supplying field and mountain guns and could supply such material only to China and Turkey, not only had to produce the material for expanding the artillery; in addition, it also still had to replace the unusable models of the old batteries with better ones. Things were not much different with the clothing and shoeing of the Austro-Hungarian troops. The so-called bluish-gray—more correctly, light blue—fabrics proved to be unusable in the field and had to be replaced as rapidly as possible by gray ones. The supplying of the army with boots, which in peacetime had been done while the mechanized shoe industry that worked for the market was excluded, had to be turned over to the factories previously shunned by the quartermasters.
The great technical superiority that the armies of the Central Powers had achieved in the spring and summer of 1915 in the eastern theater of the war and that formed the chief basis of the victorious campaign from Tarnów and Gorlice to deep into Volhynia was likewise the work of free industry, as were the astonishing achievements of German and also of Austrian labor in the delivery of war material of all kinds for the western and the Italian theaters of war. The army administrations of Germany and Austro-Hungary knew very well why they did not give in to the pressure for state ownership of the war-supplying enterprises. They put aside their outspoken preference for state enterprises, which would have better suited their world view, oriented toward power policy and state omnipotence, because they knew quite well that the great industrial tasks to be accomplished in this area could be accomplished only by entrepreneurs operating on their own responsibility and with their own resources. War socialism knew very well why it had not been entrusted with the armaments enterprises right in the first years of the war.
Rationalist utilitarianism rules out neither socialism nor imperialism on principle. Accepting it provides only a standpoint from which one can compare and evaluate the advantages and disadvantages of the various possibilities of social order; one could conceivably become a socialist or even an imperialist from the utilitarian standpoint. But whoever has once adopted this standpoint is compelled to present his program rationally. All resentment, every policy prompted by sentiment, and all mysticism is thereby rejected, regardless of whether it appears in the garb of racial belief or of any other gospel of salvation. The fundamentals of policy can be disputed, pro and con, on rational grounds. If agreement cannot be reached both over the ultimate goals and also, although more seldom, over the choice of means by which they shall be pursued, since their evaluation depends on subjective feelings, one must still succeed in this manner in sharply narrowing the scope of the dispute. The hopes of many rationalists go still further, of course. They think that every dispute can be resolved by intellectual means, since all disagreements arise only from errors and from inadequacy of knowledge. Yet in assuming this they already presuppose the thesis of the harmony of the rightly understood interests of individuals, and this is indeed disputed precisely by imperialists and socialists.
The entire nineteenth century is characterized by the struggle against rationalism, whose dominion seemed undisputed at its beginning. Even its assumption of a fundamental similarity in the way of thinking of all people is attacked. The German must think otherwise than the Briton, the dolichocephalic person otherwise than the brachycephalic; "proletarian" logic is contrasted with "bourgeois" logic. Reason is denied the property of being able to decide all political questions; feeling and instinct must show men the path that they have to tread.
Rational policy and rational economic management have outwardly enriched beyond measure the lives of the individual and of nations. That could be overlooked, since attention was always paid only to the poverty of those still living outside the boundaries of the territories already won by the free economy and because the lot of the modern worker was always compared with that of the rich man of today, instead of the lots of both being compared with those of their ancestors. It is true that modern man is never content with his economic position, that he would like to have things still better. Yet precisely this incessant striving for more wealth is the driving force of our development; one cannot eliminate it without destroying the basis of our economic civilization. The contentment of the serf, who was happy when he did not suffer actual hunger and when his lord did not thrash him too badly, is no ideal state of affairs whose passing one could lament.
It is also true, however, that the rise of outward welfare corresponds to no increase of inner riches. The modern city dweller is richer than the citizen of Periclean Athens and than the knightly troubadour of Provence, but his inner life exhausts itself in mechanical functions at work and in superficial dissipations of his leisure hours. From the pine torch to the incandescent lamp is a great step forward, from the folk song to the popular song a sad step backward. Nothing is more comforting than that people are beginning to become conscious of this lack. In that alone lies hope for a culture of the future that will put everything earlier in the shade.
Yet the reaction against inner impoverishment should not impugn the rationalization of outward life. The romantic longing for wild adventures, for quarreling and freedom from external restraint, is itself only a sign of inner emptiness; it clings to the superficial and does not strive for depth. Relief is not to be hoped for from a farrago of external experience. The individual must seek by himself the way to find within himself the satisfaction that he expects in vain from outside. If we chose to deliver up politics and the economy to imperialism, to resentment, and to mystical feelings, then we would indeed become outwardly poorer but not inwardly richer.
Warlike activity assures a man of that deep satisfaction aroused by the highest straining of all forces in resistance to external dangers. That is no mere atavistic reawakening of impulses and instincts that have become pointless in changed circumstances. The inner feeling of happiness aroused not by victory and revenge but rather by struggle and danger originates in the vivid perception that exigency compels the person to the highest deployment of forces of which he is capable and that it makes everything that lies within him become effective. . . .der Krieg lässtt die Kraft erscheinen, Alles erhebt er zum Ungemeinen, Selber dem Feigen erzeugt er den Mut. (Die Braut von Messina) [. . . war makes strength appear, It raises everything to the extraordinary, Even in the coward it creates courage. (The Bride of Messina)] It is characteristic of very great persons to move forward to highest accomplishment out of an inner drive; others require an external impulse to overcome deep-rooted inertia and to develop their own selves. The common man will never share the happiness that the creative person feels in devotion to his work unless extraordinary circumstances confront him, too, with tasks that demand and reward the commitment of the whole person. Here lies the source of all heroism. Not because the individual feels death and wounds as sweet but rather because, in the enrapturing experience of the deed, he puts them out of his mind does he assail the enemy. Bravery is an emanation of health and strength and is the rearing up of human nature against external adversity. Attack is the most primary initiative. In his feelings man is always an imperialists.This does not refer to the glorification of war by weak-willed esthetes who admire in warlike activity the strength that they lack. This writing-table and coffeehouse imperialism has no significance. With its paper effusions, it is only a fellow-traveler. Games and sport represent an attempt to react from natural, emotional imperialism. It is no accident that England, the home of modern utilitarianism, is also the fatherland of modern sport and that precisely the German—and among them, again, the strata most averse to the utilitarian philosophy, university youth—have shut themselves off the longest from the spread of sports activity.
But reason forbids giving free rein to feelings. To want to beat the world to ruins to let a romantic longing exhaust itself contradicts the simplest deliberation so much that no word need be wasted on it.
The rational policy that is commonly called the ideas of 1789 has been reproached for being unpatriotic—in Germany, un-German. It takes no regard of the special interests of the fatherland; beyond mankind and the individual, it forgets the nation. This reproach is understandable only if one accepts the view that there is an unbridgeable cleavage between the interest of the people as a whole on the one side and that of individuals and of all mankind on the other side. If one starts with the harmony of rightly understood interests, then one cannot comprehend this objection at all. The individualist will never be able to grasp how a nation can become great and rich and powerful at the expense of its members and how the welfare of mankind can obstruct that of individual peoples. In the hour of Germany's deepest degradation, may one raise the question whether the German nation would not have fared better by holding firm to the peaceful policy of much-reviled liberalism rather than to the war policy of the Hohenzollerns?
The utilitarian policy has further been reproached for aiming only at the satisfaction of material interests and neglecting the higher goals of human striving. The utilitarian supposedly thinks of coffee and cotton and on that account forgets the true values of life. Under the reign of such a policy all would have to be caught up in precipitous striving for the lower earthly pleasures, and the world would sink into crass materialism. Nothing is more absurd than this criticism. It is true that utilitarianism and liberalism postulate the attainment of the greatest possible productivity of labor as the first and most important goal of policy. But they in no way do this out of misunderstanding of the fact that human existence does not exhaust itself in material pleasures. They strive for welfare and for wealth not because they see the highest value in them but because they know that all higher and inner culture presupposes outward welfare. If they deny to the state the mission of furthering the realization of the values of life, they do so not out of want of esteem for true values but rather in the recognition that these values, as the most characteristic expression of inner life, are inaccessible to every influence by external forces. Not out of irreligiosity do they demand religious freedom but out of deepest intimacy of religious feeling, which wants to make inner experience free from every raw influence of outward power. They demand freedom of thought because they rank thought much too high to hand it over to the domination of magistrates and councils. They demand freedom of speech and of the press because they expect the triumph of truth only from the struggle of opposing opinions. They reject every authority because they believe in man.
Utilitarian policy is indeed policy for this earth. But that is inherent in all policy. The person who has a low opinion of the mind is not the one who wants to make it free from all external regulation but rather the one who wants to control it by penal laws and machine guns. The reproach of a materialistic way of thinking applies not to individualistic utilitarianism but to collectivistic imperialism.
With the World War mankind got into a crisis with which nothing that happened before in history can be compared. There were great wars before; flourishing states were annihilated, whole peoples exterminated. All that can in no way be compared with what is now occurring before our eyes. In the world crisis whose beginning we are experiencing, all peoples of the world are involved. None can stand aside; none can say that its cause too will not be decided along with the others. If in ancient times the destructive will of the more powerful met its limits in the inadequacy of the means of destruction and in the possibility available to the conquered of escaping persecution by moving away, then progress in the techniques of war and transportation and communication makes it impossible today for the defeated to evade the execution of the victor's sentence of annihilation.
War has become more fearful and destructive than ever before because it is now waged with all the means of the highly developed technique that the free economy has created. Bourgeois civilization has built railroads and electric power plants, has invented explosives and airplanes, in order to create wealth. Imperialism has placed the tools of peace in the service of destruction. With modern means it would be easy to wipe out humanity at one blow. In horrible madness Caligula wished that the entire Roman people had one head so that he could strike it off. The civilization of the twentieth century has made it possible for the raving madness of the modern imperialists to realize similar bloody dreams. By pressing a button one can expose thousands to destruction. It was the fate of civilization that it was unable to keep the external means that it had created out of the hands of those who had remained estranged from its spirit. Modern tyrants have things much easier than their predecessors. He who rules the means of exchange of ideas and of goods in the economy based on the division of labor has his rule more firmly grounded than ever an imperator before. The rotary press is easy to put into fetters, and whoever controls it need not fear the competition of the merely spoken or written word. Things were much more difficult for the Inquisition. No Phillip II could paralyze freedom of thought more severely than a modern censor. How much more efficient than the guillotine of Robespierre are the machine guns of Trotsky! Never was the individual more tyrannized, than since the outbreak of the World War and especially of the world revolution. One cannot escape the police and administrative technique of the present day.
Only one external limit is posed to this rage for destruction. In destroying the free cooperation of men, imperialism undercuts the material basis of its power. Economic civilization has forged the weapons for it. In using the weapons to blow up the forge and kill the smith, it makes itself defenseless in the future. The apparatus of the economy based on division of labor cannot be reproduced, let alone extended, if freedom and property have disappeared. It will die out, and the economy will sink back into primitive forms. Only then will mankind be able to breathe more freely. If the spirit of reflectiveness does not return sooner, imperialism and Bolshevism will be overcome at the latest when the means of power that they have wrested from liberalism will have been used up.
The unfortunate outcome of the war brings hundreds of thousands, even millions, of Germans under foreign rule and imposes tribute payments of unheard-of size on the rest of Germany. A legal order is being established in the world that permanently excludes the German people from possession of those parts of the earth that have the more favorable conditions of production. In the future, no German will be allowed to acquire ownership of land resources and means of production abroad; and millions of Germans, narrowly pushed together, will have to feed themselves badly on the niggardly soil of Germany, while, overseas, millions of square kilometers of the best land lie idle. Need and misery for the German people will emerge from this peace. The population will decline; and the German people, which before the war counted among the most numerous peoples of the earth, will in the future have to be numerically less significant than they once were.
All thinking and effort of the German people must be directed to getting out of this position. This goal can be reached in two ways. One is that of imperialistic policy. To grow strong militarily and to resume the war as soon as the opportunity for attack presents itself—that is the only means thought of today. Whether this way will be practicable at all is questionable. The nations that today have robbed and enslaved Germany are very many. The amount of power that they have exercised is so great that they will watch anxiously to prevent any strengthening of Germany again. A new war that Germany might wage could easily become a Third Punic War and end with the complete annihilation of the German people. But even if it should lead to victory, it would bring so much economic misery upon Germany that the success would not be worth the stakes; moreover, the danger would exist that the German people, in the ecstasy of victory, would fall again into that limitless and boundless madness of victory that has already repeatedly turned to misfortune for it, since it can finally lead again only to a great debacle.
The second course that the German people can take is that of completely turning away from imperialism. To strive for reconstruction only through productive labor, to make possible the development of all powers of the individual and of the nation as a whole by full freedom at home—that is the way that leads back to life. To set nothing against the efforts of imperialistic neighbor states to oppress and de-Germanize us other than productive labor, which makes one wealthy and thereby free, is a way that leads more quickly and surely to the goal than the policy of struggle and war. The Germans who have been subjugated to the Czechoslovak, Polish, Danish, French, Belgian, Italian, Rumanian, and Yugoslav states will better preserve their national character if they strive for democracy and self-government, which finally do lead to full national independence, than if they pin their hopes on a victory of weapons.
The policy that strived for the greatness of the German nation through outward means of force has broken down. It has not only diminished the German people as a whole but also brought the individual German into misery and need. Never has the German people sunk so low as today. If it is now to rise again, then it can no longer strive to make the whole great at the expense of individuals but rather must strive for a durable foundation of the well-being of the whole on the basis of the well-being of individuals. It must switch from the collectivistic policy that it has followed so far to an individualistic one.
Whether such a policy will be at all possible in the future, in view of the imperialism that is now asserting itself everywhere in the world, is another question. But if this should not be the case, then precisely all modern civilization faces downfall.
"The most virtuous person cannot live in peace if that does not please his evil neighbor." Imperialism presses weapons into the hands of all who do not want to be subjugated. To fight imperialism, the peaceful must employ all its means. If they then triumph in the struggle, they may indeed have crushed their opponent, yet themselves have been conquered by his methods and his way of thinking. They then do not lay down their weapons again; they themselves remain imperialists.
Englishmen, Frenchmen, and Americans had already shed all cravings for conquest in the nineteenth century and had made liberalism their first principle. To be sure, even in their liberal period their policy was not entirely free of imperialist deviations, and one cannot immediately chalk up every success of the imperialistic idea among them to the account of defense. But no doubt their imperialism drew its greatest strength from the necessity of warding off German and Russian imperialism. Now they stand as victors and are not willing to content themselves with what they indicated before their victory as their war aim. They have long since forgotten the fine programs with which they went to war. Now they have power and are not willing to let it get away. Perhaps they think that they will exercise power for the general good, but that is what all those with power have believed. Power is evil in itself, regardless of who exercises it.Cf. J. Burckhardt, Weltgeschichtliche Betrachtungen (Berlin, 1905), p. 96.
But if they now do want to adopt that policy with which we have suffered shipwreck, so much the worse for them; for us that can still be no reason for abstaining from what benefits us. We demand the policy of calm, peaceful development not indeed for their sake but for our own sake. It was the greatest error of German imperialists that they accused those who had advised a policy of moderation of having unpatriotic sympathy for foreigners; the course of history has shown how much they thereby deluded themselves. Today we know best where imperialism leads.
It would be the most terrible misfortune for Germany and for all humanity if the idea of revenge should dominate the German policy of the future. To become free of the fetters that have been forced upon German development by the peace of Versailles, to free our fellow nationals from servitude and need, that alone should be the goal of the new German policy. To retaliate for wrong suffered, to take revenge and to punish, does satisfy lower instincts, but in politics the avenger harms himself no less than the enemy. The world community of labor is based on the reciprocal advantage of all participants. Whoever wants to maintain and extend it must renounce all resentment in advance. What would he gain from quenching his thirst for revenge at the cost of his own welfare?
In the League of Nations of Versailles the ideas of 1914 are in truth triumphing over those of 1789; that it is not we who have helped them to victory, but rather our enemies, and that the oppression turns back against us is important for us but less decisive from the standpoint of world history. The chief point remains that nations are being "punished" and that the forfeiture theory comes to life again. If one admits exceptions to the right of self-determination of nations to the disadvantage of "evil" nations, one has overturned the first principle of the free community of nations. That Englishmen, North Americans, French, and Belgians, those chief exporters of capital, thereby help gain recognition for the principle that owning capital abroad represents a form of rule and that its expropriation is the natural consequence of political changes shows how blind rage and the desire for momentary enrichment repress rational considerations among them today. Cool reflection would be bound to lead precisely these peoples to quite other behavior in questions of international capital movements.
The way that leads us and all humanity out of the danger that world imperialism signifies for the productive and cultural community of nations and so for the fate of civilization is rejection of the policy of feeling and instinct and return to political rationalism. If we wanted to throw ourselves into the arms of Bolshevism merely for the purpose of annoying our enemies, the robbers of our freedom and our property, or to set their house on fire too, that would not help us in the least. It should not be the goal of our policy to drag our enemies into our destruction with us. We should try not to be destroyed ourselves and try to rise again out of servitude and misery. That, however, we can attain neither by warlike actions nor by revenge and the policy of despair. For us and for humanity there is only one salvation: return to the rationalistic liberalism of the ideas of 1789.
It may be that socialism represents a better form of organization of human labor. Let whoever asserts this try to prove it rationally. If the proof should succeed, then the world, democratically united by liberalism, will not hesitate to implement the communist community. In a democratic state, who could oppose a reform that would be bound to bring the greatest gain to by far the overwhelming majority? Political rationalism does not reject socialism on principle. But it does reject in advance the socialism that hinges not on cool understanding but rather on unclear feelings, that works not with logic but rather with the mysticism of a gospel of salvation, the socialism that does not proceed from the free will of the majority of the people but rather from the terrorism of wild fanatics.
The question whether or not our economic development is already "ripe" for socialism originates in the Marxian idea of the development of the productive forces. Socialism can be realized only when its time has come. A form of society cannot perish before it has developed all the productive forces that it is capable of developing; only then is it replaced by another, higher, form. Before capitalism has lived out its course, socialism cannot take over its inheritance.
Marxism likes to compare the social revolution with birth. Premature births are failures; they lead to the death of the new creature.Cf. Kautsky, Die Soziale Revolution, loc. cit., I, pp. 13 ff. From this point of view Marxists inquire whether the attempts of the Bolsheviks in Russia to establish a socialist commonwealth are not premature. It must be difficult indeed for the Marxist, who regards a definite degree of development of the capitalistic mode of production and of heavy industry as a necessary condition for the appearance of socialism, to understand why socialism has achieved victory precisely in the Russia of small peasants and not in highly industrialized Western Europe or in the United States.
It is different when the question is raised whether or not this or that branch of production is ripe for socialization. This question is as a rule posed in such a way that the very posing of the question basically admits that socialized enterprises in general yield smaller outputs than those operating under private ownership and that, therefore, only particular branches of production should be socialized in which no excessive disadvantages are to be expected from this lesser productivity. Thus it is explained that mines, above all coal mines, are already ripe for socialization. Obviously people thus proceed from the view that it is easier to operate a mine than, say, a factory producing for the fashion market; people evidently believe that mining only involves exploiting the gifts of nature, which even the ponderous socialist enterprise can manage. And, again, when others regard the large industrial enterprise as above all ripe for socialization, they are proceeding from the idea that in the large enterprise, which already is working with a certain bureaucratic apparatus anyway, the organizational preconditions for socialization are given. Such ideas involve a serious fallacy. To prove the necessity of the socialization of particular enterprises, it is not enough to show that socialization does little harm in them because they still would not fail then even if they did work more poorly than would be the case under the administration of private enterprise. Whoever does not believe that socialization brings a rise of productivity would, to be consistent, have to consider any socialization as mistaken.
We can also find a hidden admission of the lesser productivity of the economy in a socialist social order in the idea on which many writers base the proposition that the war has set us back in development and has, therefore, further postponed the time of ripeness for socialism. Thus, Kautsky says: "Socialism, that is, general welfare within modern civilization, becomes possible only through the great development of productive forces that capitalism brings, through the enormous riches that it creates and that are concentrated in the hands of the capitalist class. A state that has squandered these riches through a senseless policy, perhaps an unsuccessful war, offers from the outset no favorable point of departure for the quickest diffusion of welfare in all classes."Cf. Kautsky, Die Diktatur des Proletariats, second edition, (Vienna: 1918), p. 40. Whoever—like Kautsky—expects a multiplication of productivity from socialistic production would, however, really have to see one more reason for hastening socialization precisely in the fact that we have become poorer because of the war.
The liberals are much more consistent in this. They are not waiting for another mode of production, perhaps the socialist one, to make the world ripe for liberalism; they see the time for liberalism as always and everywhere given, since, in general and without exception, they assert the superiority of the mode of production resting on private ownership of the means of production and on the free competition of producers.
The way that the socialization of enterprises would have to take place is clearly and distinctly indicated by the public ownership measures of the states and municipalities. One could even say that the administrative art of German states and cities is no more familiar than this practice, which has been followed for many years. With regard to administrative technique, socialization is nothing new, and the socialist governments that are now at work everywhere would have to do nothing beyond continuing what their predecessors in state and communal socialism have already done before.
Of course, neither the new power-holders nor their constituents want to hear anything about that. The masses, which today stormily demand the most rapid accomplishment of socialism, imagine it as something quite different from the extension of state and municipal enterprise. Indeed, they have heard from their leaders again and again that these public enterprises have nothing in common with socialism. What socialization should be, however, if not state and municipal ownership, no one can say.According to Engels (Herrn Eugen Dührings Umwälzung der Wissenschaft, seventh edition [Stuttgart: 11910], p. 299 n.), referring to "the case in which the means of production or of transport and communications have really outgrown the control by corporations and in which state ownership has thus become economically imperative," state ownership means economic progress and "the attainment of a new stage in the taking possession of all productive forces by society itself, even when the state of today carries it out." What Social Democracy previously cultivated is now bitterly taking revenge on it, namely, its always engaging for decades only in demagogic everyday politics and not in principled politics for the final triumph. In fact, Social Democracy has long since given up centralist socialism; in daily politics it has ever more and more become union- oriented, syndicalistic, and, in the Marxian sense, "petty bourgeois." Now syndicalism raises its demands, which stand in irreconcilable contradiction to the program of centralist socialism.
Both orientations have one point in common: they want to make the worker the owner of the means of production again. Centralist socialism wants to achieve this by making the whole working class of the entire world or at least of an entire country the owner of the means of production; syndicalism wants to make the work forces of individual enterprises or individual branches of production the owners of the means of production that they use. The ideal of centralist socialism is at least discussible; that of syndicalism is so absurd that one need waste few words on it.
One of the great ideas of liberalism is that it lets the consumer interest count alone and disregards the producer interest. No production is worth maintaining if it is not suited to bring about the cheapest and best supply. No producer is recognized as having a right to oppose any change in the conditions of production because it runs counter to his interest as a producer. The highest goal of all economic activity is the achievement of the best and most abundant satisfaction of wants at the smallest cost.
This position follows with compelling logic from the consideration that all production is carried on only for the sake of consumption, that it is never a goal but always only a means. The reproach made against liberalism that it thereby takes account only of the consumer viewpoint and disdains labor is so stupid that it scarcely needs refutation. Preferring the producer interest over the consumer interest, which is characteristic of antiliberalism, means nothing other than striving artificially to maintain conditions of production that have been rendered inefficient by continuing progress. Such a system may seem discussible when the special interests of small groups are protected against the great mass of others, since the privileged party then gains more from his privilege as a producer than he loses on the other hand as a consumer; it becomes absurd when it is raised to a general principle, since then every individual loses infinitely more as a consumer than he may be able to gain as a producer. The victory of the producer interest over the consumer interest means turning away from rational economic organization and impeding all economic progress.
Centralist socialism knows this very well. It joins liberalism in fighting all traditional producer privileges. It proceeds from the view that there would he no producer interest at all in the socialist commonwealth, since each one would recognize there that the consumer interest alone is worth considering. Whether or not this assumption is justified will not be discussed here; it is immediately evident that if it should not hold true, socialism could not be what it pretends to be.
Syndicalism deliberately places the producer interest of the workers in the foreground. In making worker groups owners of the means of production (not in so many words but in substance), it does not abolish private property. It also does not assure equality. It does remove the existing inequality of distribution but introduces a new one, for the value of the capital invested in individual enterprises or sectors of production does not correspond at all to the number of workers employed in them. The income of each single worker will be all the greater, the smaller the number of fellow workers employed in his enterprise or sector of production and the greater the value of the material means of production employed in it. The syndicalistically organized state would be no socialist state but a state of worker capitalism, since the individual worker groups would be owners of the capital. Syndicalism would make all repatterning of production impossible; it leaves no room free for economic progress. In its entire intellectual character it suits the age of peasants and craftsmen, in which economic relations are rather stationary.
The centralist socialism of Karl Marx, which once had triumphed over Proudhon and Lassalle, has, in the course of development of recent decades, been pushed back step by step by syndicalism. The struggle between the two views, which outwardly occurred in the form of a struggle between the political-party organization and the labor-union organization and behind the scenes took on the shape of a struggle of leaders risen from the working class against intellectual leaders, has ended with a complete victory of syndicalism. The theories and writings of the party chiefs still outwardly wear the garment of centralist socialism, but the practice of the party has gradually become syndicalist, and in the consciousness of the masses the syndicalist ideology lives exclusively. The theoreticians of centralist socialism have not had the courage—out of tactical concerns, because they wanted to avoid an open breach between the two positions, as in France—to take a decisive stand against the syndicalist policy; if they had mustered the courage for that, they would doubtless have been defeated in this struggle. In many respects they have directly furthered the development of the syndicalist line of thinking, since they fought the development toward centralist socialism that was taking place under the leadership of statist socialism. They had to do this, on the one hand to mark a sharp distinction between their position and that of the authoritarian state, and on the other hand because the economic failures being caused by state and municipal ownership were, after all, becoming so broadly and generally visible that they could become dangerous to the ardent enthusiasm with which the masses were following the obscure ideal of socialism. If one kept pointing out again and again that state railroads and city lighting works were in no way a first step toward realizing the state of the future, one could not educate the population in favor of centralist socialism.
As workers had become unemployed through introduction of improved methods of work, it was syndicalism that sought to destroy the new machines. Sabotage is syndicalistic; in the final analysis, however, every strike is also syndicalistic; the demand for introduction of the social protective tariff is syndicalistic. In a word, all those means of the class struggle that the Social Democratic Party did not want to give up because it feared losing influence on the working masses only stimulated the syndicalistic—Marx would have said "petty-bourgeois"—instincts of the masses. If centralist socialism has any adherents at all today, this is not the accomplishment of Social Democratic agitation but of statism. State and municipal socialism provided publicity for centralist socialism by putting socialism into practice; academic socialism provided literary propaganda for it.
What is going on before our eyes today is of course neither centralist socialism nor syndicalism; it is not organization of production at all and also not organization of distribution, but rather distribution and consumption of consumer goods already on hand and annihilation and destruction of means of production already on hand. Whatever is still being produced is being produced by the remnants of the free economy that are still allowed to exist; wherever this socialism of today has already penetrated, there is no longer any question of production. The forms in which this process is occurring are manifold. Strikes shut enterprises down, and where work is still being done, the ca' canny system itself sees to it that the output is only slight. By high taxes and by compulsion to pay high wages to the workers even when there is no work for them, the entrepreneur is forced to consume his capital. Working in the same direction is inflationism, which, as has been shown, conceals and thereby fosters capital consumption. Acts of sabotage by the workers and inept interventions by the authorities destroy the material apparatus of production and complete the work that war and revolutionary struggles began.
In the midst of all this destruction only agriculture remains, above all small farms. It too has suffered severely under the circumstances, and here too much of the working capital has already been consumed, and ever more of it is being consumed. The large units will probably be socialized or even broken up into small farms. In any case, their productive power will thereby suffer, even apart from the impairment of their capital. Still, the devastation of agriculture remains relatively slight in comparison with the ever-worsening dissolution of the apparatus of industrial production.
The dying out of the spirit of social cooperation, which constitutes the essence of the social revolutionary process that is occurring before our eyes, must entail different consequences in industry, in transport, and in trade—in short, in the city—than in agriculture. A railroad, a factory, a mine simply cannot be operated without that spirit, on which the division of labor and the coordination of labor rest. It is otherwise in agriculture. If the peasant withdraws from exchange and shifts his production back to the autarky of the self-sufficient household economy, he does live worse than he once lived, but he can keep on living anyway. Thus we see the peasantry becoming ever more and more self-sufficient. The peasant is again beginning to produce everything that he wishes to consume in his household and, on the other hand, to cut back his production for the needs of the city-dweller.That holds true of German-Austria especially. In the Reich the conditions are still different for the time being.
What that means for the future of the city population is clear. The industry of Germany and German-Austria has largely lost its foreign market; now it is losing the domestic market also. When work in the workshops is again resumed, the peasants will face the question whether it is not more advantageous for them to obtain industrial products cheaper and better from abroad. The German peasant will again be a free-trader, as he had been up to 40 years ago.
It is scarcely thinkable that this process should go on in Germany without the greatest disruptions. For it does signify no less than the decay of German urban civilization, the slow starvation of millions of German city-dwellers.
If revolutionary syndicalism and destructionism should not remain limited to Germany but instead should spread over all Europe and even to America also, then we would face a catastrophe comparable only with the collapse of the ancient world. Ancient civilization also was built on a far-reaching division of labor and coordination of labor; in it too the—even if limitedWe too have never really had "free competition."—operation of the liberal principle had brought about a great flourishing of material and intellectual culture. All that disappeared as the immaterial bond that held this whole system together, the spirit of social cooperation, disappeared. In the dying Roman Empire also the cities were depopulated; the man who owned no land sank into misery; whoever could somehow do so moved to the countryside to escape starvation.Numerous documents in late Roman legal sources. Cf., e.g., 1. un. C. Si curialis relicta civitate rus habitare maluerit, X, 37. Then, too, there occurred, accompanied outwardly by the most severe disturbances of the monetary system, the process of reversion of the monetary economy to a barter economy, the exchange economy to the economy without exchange. The modern process would differ from the decline of ancient civilization only in that what once occurred over centuries would now complete itself in an incomparably more rapid tempo.
[Audio and epub editions forthcoming.]
In June 2004, Professor Hoppe visited the Mises Institute in Auburn to deliver an ambitious series of lectures titled Economy, Society, and History.
Over ten lectures, one each morning and afternoon for a week, Dr. Hoppe presented nothing short of a sweeping historical narrative and vision for a society rooted in markets and property. Delivered only from notes, to an audience of academics and intellectuals, the lectures showed astonishing depth and breadth.Even the most jaded scholars in the room were blown away by the erudition and scholarship of Hoppe’s presentation.
This project brings together the core of Hoppe’s lifetime of theoretical work in one vital and cohesive source. Here we find provocative themes developed by Hoppe in the 1980s and 90s, particularly in his essays found in A Theory of Socialism and Capitalism and The Economics and Ethics of Private Property. We also find his devastating critique of democracy, made famous in his seminal book Democracy—The God That Failed.
We’ve taken the recordings, edited them, and put them into a printed book. As always, Hoppe is equipped—and unafraid— to tackle history, anthropology, philosophy, sociology, ethics, politics, and economics, melding them into one coherent thesis:
Chapter 1: The Nature of Man and the Human Condition: Language, Property, and Production Property developed naturally, not artificially, as a consequence of human action. What is the philosophical justification for private property, and what does property mean for economics and justice?
Chapter 2: The Spread of Humans Around the World: The Extension and Intensification of the Division of LaborHow did man evolve to develop trade and specialization? What did that mean for the development of society?
Chapter 3: Money and Monetary Integration: The Growth of Cities and the Globalization of TradeMoney solves problems of barter and trade; good money makes global economics possible. But money is always and forever subject to corrupting monopolization by states and central banks. How do we separate money from the state, and separate trade from politics?
Chapter 4: Time Preference, Capital, Technology, and Economic GrowthTime, and our preference for present goods over future goods, informs everything we do. Low time preference, demonstrated by capital accumulation, is the key to advancing civilization. How do we encourage capital accumulation when the forces of statism work against us?
Chapter 5: The Wealth of Nations: Ideology, Religion, Biology, and EnvironmentHow did the West get rich? What intellectual movements threaten progress, or advance it?
Chapter 6: The Production of Law and Order: Natural Order, Feudalism, and FederalismMust law be positive rather than evolved? Who creates it, and who enforces it?
Chapter 7: Parasitism and the Origin of the StateHow did we get here? How does the ruling class derive its putative legitimacy, and what can the distant origins of governance teach us about the vast managerial social welfare states we endure today?
Chapter 8: From Monarchy to DemocracyIs democracy really the great advancement in human liberty we have been taught to believe? What is the role of natural and artificial elites?
Chapter 9: State, War, and ImperialismStates are necessarily expansionist and bellicose. How do we tame their warring and intervening nature?
Chapter 10: Strategy: Secession, Privatization, and the Prospects of LibertyCan private covenant communities replace the state? Why is a private property order morally urgent? Is secession viable? How do we move forward strategically?
As you can see, this book is a tremendous addition to Hoppe’s body of work, and a hugely important contribution to the “big picture” outlook for the West. Hoppe’s work is more important today than ever, given the penchant of modern bureaucratic states to war, intervene, tax, regulate, debase, and generally plunder the engines of peace and civilization.
Economy, Society, and History is a blueprint for understanding the world, rethinking it, and creating a better one.
The clearer it had to become in the course of the war that the Central Powers were bound to be finally defeated in the war of starving out, the more energetically were references made from various sides to the necessity of preparing better for the next war. The economy would have to be reshaped in such a way that Germany would be capable of withstanding even a war of several years. It would have to be able to produce inside the country everything required for feeding its population and for equipping and arming its armies and fleets in order to be no longer dependent on foreign countries in this respect.
No long discussions are needed to show that this program cannot be carried out. It cannot be carried out because the German Reich is too densely populated for all foodstuffs needed by its population to be produced at home without use of foreign raw materials and because a number of raw materials needed for production of modern war material just do not exist in Germany. The theorists of the war economy commit a fallacy when they try to prove the possibility of an autarkic German economy by reference to the usability of substitute materials. One supposedly must not always use foreign products; there are domestic products scarcely inferior to foreign ones in quality and cheapness. For the German spirit, which has already famously distinguished itself in applied science, a great task arises here which it will solve splendidly. The efforts previously made in this field have led to favorable results. We are said already to be richer now than we were before, since we have learned how to exploit better than before materials that earlier were neglected or were used for less important purposes or not fully used.
The error in this line of thinking is obvious. It may well be true that applied science is far from yet having spoken the last word, that we may still count on improvements in technology that will be no less significant than the invention of the steam engine and of the electric motor. And it may happen that one or the other of these inventions will find the most favorable preconditions for its application precisely on German soil, that it will perhaps consist precisely in making useful a material that is abundantly available in Germany. But then the significance of this invention would lie precisely in shifting the locational circumstances of a branch of production, in making the productive conditions of a country that were previously to be regarded as less favorable more favorable under the given circumstances. Such shifts have often occurred in history and will occur again and again. We will hope that they occur in the future in such a way that Germany will become, to a higher degree than at present, a Country of more favorable conditions of production. If that should happen, then many burdens will be lifted from the German people.
Yet these changes in the relative pattern of conditions of production must be sharply distinguished from introducing the use of substitute materials and producing goods under worse conditions of production. One can of course usse linen instead of cotton and wooden soles instead of leather soles. However, in the former case one has replaced a cheaper by a dearer material, that is, by one in whose production more costs must be incurred, and in the latter case a better by a less usable material. That means, however, that the meeting of needs becomes worse. That we use paper sacks instead of jute sacks and iron tires on vehicles instead of rubber tires, that we drink "war" coffee instead of real coffee, shows that we become poorer, not richer. And if we now carefully put to use garbage that we had earlier thrown away, then this makes us richer just as little as if we obtained copper by melting works of art.Cf. Dietzel, Die Nationalisierung der Kriegsmilliarden (Tübingen: 1919), pp. 31 ff. To be sure, living well is not the highest good; and there may be reasons for peoples as well as individuals to prefer a life of poverty to a life of luxury. But then let that be said openly without taking refuge in artificial theorems that try to make black out of white and white out of black; then let no one seek to obscure the clear case by allegedly economic arguments.Not only economists have been active in this direction; still more has been done by technicians, but most by physicians. Biologists who, before the war, declared the nutrition of the German industrial worker to be inadequate suddenly discovered during the war that food poor in protein is especially wholesome, that fat consumption in excess of the quantity permitted by the authorities is damaging to health, and that a limitation of the consumption of carbohydrates has little significance.
It should not be disputed that war needs can beget and, in fact, have begotten many useful inventions. How much they represent a lasting enrichment of the German economy can be known only later.
Only those proponents of the idea of autarky who subordinate all other goals to the military one are thinking consistently. He who sees all values as realized only in the state and thinks of the state above all as a military organization always ready for war must demand of the economic policy of the future that it strive, pushing all other considerations aside, to organize the domestic economy for self-sufficiency in case of war. Regardless of the higher costs that thereby arise, production must be guided into the channels designated as most suitable by the economic general staff. If the standard of living of the population thereby suffers, well, in view of the high objective to be attained, that does not count at all. Not the standard of living is the greatest happiness of people, but fulfillment of duty.
But there is a grave error in this line of thinking also. Admittedly it is possible, if one disregards costs, to produce within the country everything necessary for waging war. But in war it is important not only that weapons and war material just be on hand but also that they be available in sufficient quantity and in best quality. A people that must produce them under more unfavorable condition of production, that is, with higher costs, will go into the field worse provisioned, equipped, and armed than its opponents. Of course, the inferiority of material supplies can to a certain extent be offset by the personal excellence of the combatants. But we have learned anew in this war that there is a limit beyond which all bravery and all sacrifice are of no use.
From recognition that efforts for autarky could not be carried through, there arose the plan for a future state stockpiling system. In preparation for the possible return of a war of starvation, the state must build up stockpiles of all important raw materials that cannot be produced at home. In that connection a large stock of grain was also thought of, and even stocks of fodder.Cf. Hermann Levy, Vorratswirtschaft und Volkwirtschaft (Berlin: Verlag von Julius,Springer), 1915, pp. 9 ff.; Naumann, Mitteleuropa; pp. 149 f; Diehl, Deutschland als geschlossener Handelstaat im Weltkrieg (Stuttgart: 1916), pp. 28 f.
From the economic standpoint, the realization of these proposals does not seem inconceivable. From the political standpoint, though, it is quite hopeless. It is scarcely to be assumed that other nations would calmly look on at the piling up of such war stocks in Germany and not, for their part, resort to countermeasures. To foil the whole plan, they indeed need only watch over the exports of the materials in question and each time permit the export only of such quantities as do not exceed the current demand.
What has quite incorrectly been called war economy is the economic preconditions for waging war. All waging of war is dependent on the state of the division of labor rached at the time. Autarkic economies can go to war against each other; the individual parts of a labor and trade community can do so, however only insofar as they are in a position to go back to autarky. For that reason, with the progress of the division of labor we see the number of wars and battles diminishing ever more and more. The spirit of industrialism, which is indefatigably active in the development of trade relations, undermines the warlike spirit. The great steps forward that the world economy made in the age of liberalism considerably narrowed the scope remaining for military actions. When those strata of the German people who had the deepest insight into the world economic interdependence of the individual national economies doubted whether it was still at all possible that a war could develop and, if that should happen at all, expected at most a war that would end quickly, they thereby showed better understanding of the realities of life than those who indulged in the delusion that even in the age of world trade one could practice the political and military principles of the Thirty Years' War.
When one examines the catchword about war economy for its content, it turns out that it contains nothing other than the demand to turn economic development back to a stage more favorable for waging war than the 1914 stage was. It is a question only of how far one should go in doing that. Should one go back only as far as to make warfare between great states possible, or should one try to make warfare possible between individual parts of a country and between city and countryside also? Should only Germany be put in a position to wage war against the entire remaining world, or should it also be made possible for Berlin to wage war against the rest of Germany?
Whoever on ethical grounds wants to maintain war permanently for its own sake as a feature of relations among peoples must clearly realize that this can happen only at the cost of the general welfare, since the economic development of the world would have to be turned back at least to the state of the year 1830 to realize this martial ideal even only to some extent.
The authoritarian-militaristic spirit of the Prussian authoritarian state finds its counterpart and completion in the ideas of German Social Democracy and of German socialism in general. To hasty observation the authoritarian state and Social Democracy appear as irreconcilable opposites between which there is no mediation. It is true that they confronted each other for more than fifty years in blunt hostility. Their relation was not that of political opposition, as occurs between different parties in other nations also; it was complete estrangement and mortal enmity. Between Junkers and bureaucrats on the one hand and Social Democrats on the other hand, even every personal, purely human contact was ruled out; scarcely ever did one side or the other make an attempt to understand its opponent or have a discussion with him.
The irreconcilable hatred of the monarchy and of the Junker class did not concern, however, the social-economic program of the Social Democratic Party. The program of the German Social Democratic Party contains two elements of different origins tied together only loosely. It includes on the one hand all those political demands that liberalism, especially its left wing, represents and also has partly implemented already in most civilized states. This part of the Social Democratic Party program is built on the great political idea of the national state, which wants to dissolve the princely and authoritarian state and turn the subject into a citizen of the state. That the Social Democratic Party has pursued this goal, that it took the banner of democracy from the enfeebled hands of dying German liberalism and alone held it high in the darkest decades of German politics despite all persecutions—that is its great pride and fame, to which it owes the sympathy that the world accords it and that first brought it many of its best men and the masses of the oppressed and of "bourgeois fellow-travelers." The very fact, however, that it was republican and democratic drew onto it the inextinguishable hatred of the Junkers and bureaucrats; that alone brought it into conflict with authorities and courts and made it into an outlawed sect of enemies of the state, despised by all "right-thinking people."
The other component of the program of German Social Democracy was Marxian socialism. The attraction that the slogan about the capitalistic exploitation of the workers and that the promising utopia of a future state exerted on the great masses was the basis of an imposing party and labor-union organization. Many, however, were won over to socialism only through democracy. As the German bourgeoisie, after the annihilating defeats that German liberalism had suffered, submitted unconditionally to the authoritarian state of Bismarck, as, in line with the German protective-tariff policy, the German entrepreneurial class identified itself with the Prussian state, so that militarism and industrialism became politically related concepts for Germany, then the socialist side of the party program absorbed new strength from democratic aspirations. Many refrained from criticizing socialism in order not to harm the cause of democracy. Many became socialists because they were democrats and believed that democracy and socialism were inseparably connected.
In truth, though, close relations exist precisely between socialism In regard to economic policy, socialism and communism are identical; both strive for socialization of the means of production, in contrast with liberalism, which wants on principle to let private ownership even of the means of production continue. The distinction that has recently come into use between socialism and communism is irrelevant with regard to economic policy unless one also foists on the communists the plan of wanting to discontinue private ownership of consumption goods. On centralist and syndicalist socialism (actually, only centralist socialism is true socialism), see below, pp, 195 ff. and the autocratic-authoritarian form of state that correspond to the essence of both.On the intimate relation between militarism and socialism, cf. Herbert Spencer, loc. cit., vol. 3, p. 712. The imperialistic tendencies of socialism are treated by Seillière, Die Philosophie des Imperialismus, second edition of the German version (Berlin: 1911), vol. 2, pp. 171 ff., vol. 3, pp. 59 ff. Sometimes socialism does not even outwardly deny its intimate relation with militarism. That comes to light especially clearly in those socialistic programs that want to arrange the future state on the model of an army, Examples: wanting to solve the social question by setting up a "food army" or a "worker army" (cf Popper-Lynkeus, Die allegemeine Nährpflicht (Dresden: 1912], pp. 373 ff.; further, Ballod, Der Zukunftsstaat, second edition, [Stuttgart: 1919], pp. 32 ff.). The Communist Manifesto already demands the "establishment of industrial armies." It should be noted that imperialism and socialism go hand in hand in literature and politics. Reference was already made earlier (pp. 94 ff.) to Engels and Rodbertus; one could name Many others, e.g., Carlyle (cf Kemper, "Carlyle als Imperialist," Zeitschrift für Politik, XI, 115 ff.). Australia, which, as the only one among the Anglo-Saxon states, has turned away from liberalism and come closer to socialism than any other country, is the imperialistic state par excellence in its immigration legislation. For that reason the authoritarian state also did not fight socialist efforts at all as harshly as it confronted all democratic impulses. On the contrary, the Prussian-German authoritarian state evolved strongly toward the side of "social kingship" and would have turned still more toward socialism if the great workers' party of Germany had been ready even before August 1914 to give up its democratic program in exchange for the gradual realization of its socialistic goals.
The sociopolitical doctrine of Prussian militarism can best be recognized in the literary products of the Prussian school of economic policy. Here we find complete harmony established between the ideal of the authoritarian state and that of a far-reaching socialization of large industrial enterprise. Many German social thinkers reject Marxism—not, however, because they reject its goals but because they cannot share its theoretical interpretation of social and economic developments. Marxism, whatever one may say against it, nevertheless has one thing in common with all scientific economics: it recognizes a conformity to law in the historical process and presupposes the causal interconnection of all that happens. German statism could not follow it in this respect because it sees everywhere only marks of the activity of great kings and powerful states. The heroic and teleological interpretation of history seems more obvious to statism than the causal; it knows no economic law; it denies the possibility of economic theory.This spirit of hostility to theoretical investigation has also infected the German Social Democrats. It is characteristic that just as theoretical economics could flourish on German-speaking territory only in Austria, so also the best representatives of German Marxism, Kautsky, Otto Bauer, Hilferding, and Max Adler, come from Austria. In that respect Marxism is superior to German social-policy doctrine, which has no theoretical basis at all and never has sought to create one. All social problems appear to this school as tasks of state administration and politics, and there is no problem on whose solution it does not venture with a light heart. Always, however, it is the same prescription that it issues: commands and prohibitions as lesser means, state ownership as the great, never-failing means.
Under such circumstances Social Democracy had an easy position. Marxian economic theory, which in Western Europe and America was able to win only a small following and was not able to assert itself alongside the accomplishments of modern economic theory, did not have to suffer much under the criticism of the empirical-realistic and historical school of German economics. The critical work to be done against Marxian economic theory was carried out by the Austrian school, ostracized in Germany, and above all by Böhm-Bawerk.It is naturally not intended here to undertake a critical assessment of Marxism. The discussion in this section is intended only to explain the imperialistic tendencies of socialism. Also, enough writings are available anyway to whoever is interested in these problems (e.g., Simkhowitsch, Marxismus versus Sozialismus, translated by Jappe Jena; 1913]). Marxism could easily dispose of the Prussian school; it was dangerous to it not as an opponent but as a friend. Social Democracy had to take care to show that social reform such as German social policy strove for could not replace the social revolution and that state ownership in the Prussian sense was not identical with socialization. This demonstration could not succeed, but its failure did not damage Social Democracy. For it was, after all, the party eternally condemned to fruitless opposition, which was always able to make capital for its party position precisely out of the defects of the social-reform and socialization measures.
That Social Democracy became the most powerful party in the German Reich it owes primarily to the democratic part of its program, taken over as the heir of liberalism. That, however, socialism as such also enjoys the greatest sympathy among the German people, so that only isolated voices speak out seriously and in principle against socialization and that even so-called bourgeois parties want to socialize the branches of production that are "ripe" for socialization—that is the result of the propaganda work that statism has performed. Socialist ideas constitute no victory over the Prussian authoritarian state but are its consistent development; their popularity in Germany has been furthered no less by the academic socialism of privy councilors than by the propaganda work of Social Democratic agitators.
Among the German people today, thanks to the views advocated for fifty years by the Prussian school of economic policy, there is no longer even any understanding of what the contrast between liberalism in economic policy and socialism really consists of. That the distinction between the two orientations lies not in the goal but in the means is not clear to many. Even to the antisocialist German, socialism appears as the sole just form of economic organization, assuring the people the most abundant satisfaction of their needs; and if he himself opposes it, he does so in the consciousness of resisting what is best for the common interest, doing so for his own benefit because he feels himself threatened in his rights or privileges. The bureaucrats mostly take this position, which is often enough found, however, among entrepreneurs also. It has long been forgotten in Germany that liberalism also, just as socialism does, recommends its economic system out of concern not for the interests of individuals but for those of all, the great masses. That "the greatest happiness of the greatest number" should he the goal of policy was first maintained by a radical free-trader, Jeremy Bentham. Bentham also carried on his famous struggle against usury laws, for example, not out of concern for the interests of the moneylenders but out of concern for the interests of all.Cf. Bentham, Defence of Usury, second edition (London: 1790), pp. 108 f. The point of departure of all liberalism lies in the thesis of the harmony of rightly understood interests of individuals, of classes, and of peoples. It rejects the basic idea of Mercantilism that the advantage of the one is the disadvantage of the other. That is a principle that may hold true for war and plunder; for economics and trade it does not hold. Therefore liberalism sees no basis for opposition between classes; therefore it is pacifist in relations between peoples. Not because it considers itself called upon to represent the special interests of the possessing classes does it advocate maintenance of private ownership of the means of production, but rather because it sees the economic order resting on private ownership as the system of production and distribution that assures the best and highest material satisfaction for all sections of the people. And just as it calls for free trade at home not out of regard for particular classes but out of regard for the welfare of all, so it demands free trade in international relations not for the sake of foreigners but for the sake of one's own people.
Interventionist economic policy takes another standpoint. It sees irreconcilable antagonisms in relations among states. Marxism, however, has proclaimed the doctrine of class struggle; on the irreconcilable opposition of classes it erects its doctrine and its tactics.
In Germany liberalism was never understood; it never found a base here. Only thus can it be explained that even the opponents of socialism more or less accepted socialist doctrines. That appears most clearly in the position of the opponents of socialism on the problem of the class struggle. Marxian socialism preaches the struggle of the proletariat against the bourgeoisie. Elsewhere this battle cry is opposed by that of the solidarity of interests. Not so in Germany. Here the proletarians are confronted by the bourgeoisie as a class. The united bourgeois parties confront the proletarian party. They do not see that in this way they recognize the argumentation of the Marxists as correct and thereby make their struggle hopeless. He who can adduce in favor of private ownership of the means of production nothing other than that its abolition would harm the rights of the possessors limits the supporters of the antisocialist parties to the nonproletarians. In an industrial state the "proletarians" naturally have numerical superiority over the other classes. If party formation is determined by class membership, then it is clear that the proletarian party must gain victory over the others.
The pages that I herewith submit to the public do not presume to be more than observations about the crisis in world history that we are living through and contributions to understanding the political conditions of our time. I know that any attempt to offer more would be premature and therefore mistaken. Even if we were in a position to see interrelations clearly and to recognize where developments are heading, it would be impossible for us to confront the great events of our day objectively and not let our view be blurred by wishes and hopes. Standing in the middle of battle, one strives in vain to keep cool and calm. It exceeds human capacity to treat the vital questions of one's time sine ira et studio [without anger and partiality]. I should not be blamed for not being an exception to this rule.
It may perhaps seem that the topics treated in the individual parts of this book hang together only superficially. Yet I believe that they are closely connected by the purpose that this study serves. Of course, reflections of this kind, which must always remain fragmentary, cannot deal with the completeness and unity of the whole. My task can only be to direct the reader's attention to points that public discussion does not usually take sufficiently into account.
Vienna, beginning of July 1919
Professor Dr. L. Mises
There were three ways available to cover the costs that the State Treasury incurred in the war.
The first way was confiscating the material goods needed for waging war and drafting the personal services needed for waging war without compensation or for inadequate compensation. This method seemed the simplest, and the most consistent representatives of militarism and socialism resolutely advocated employing it. It was used extensively in drafting persons into actually waging war. The universal military-service obligation was newly introduced in many states during the war and in others was substantially extended. That the soldier received only a trifling compensation for his services in relation to the wages of free labor, while the worker in the munitions industry was highly paid and while the possessors of expropriated or confiscated material means of war received an at least partially corresponding compensation, has rightly been called a striking fact. The explanation for this anomaly may be found in the fact that only a few people enlist today even for the highest wages and that in any case prospects of putting together any army of millions on the basis of enlistments would not be very good. In relation to the immense sacrifices that the state demands of the individual through the blood tax, it seems rather incidental whether it compensates the soldier more or less abundantly for the loss of time that he suffers from his military-service obligation. In the industrial society there is no appropriate compensation for war services; In such a society they have no price at all; they can be demanded only compulsorily, and then it is surely of slight significance whether they are paid for more generously or at the laughably low rates at which a man was compensated in Germany. In Austria the soldier at the front received a wage of 16 heller and a field supplement of 20 heller, 36 heller a day in all!And, moreover, the troops that had to fight through the fearful battles in the Carpathians and in the swamps of the Sarmatian plain, in the high mountains of the Alps, and in the Karst were poorly supported and inadequately clothed and armed! That reserve officers, even in the continental states, and that the English and American troops received a higher compensation is explained by the fact that a peacetime wage rate had been established for officer service in the continental states and for all military service in England and America which had to be taken as a point of departure in the war. But however high or however low the compensation of the warrior may be, it is never to be regarded as a full compensation for the compulsorily recruited man. The sacrifice that is demanded of the soldier serving by compulsion can be compensated only with intangible values, never with material ones.From the political point of view it was a grave mistake to follow completely different principles in the compensation of the officer and the enlisted man and to pay the soldier at the front worse than the worker behind the lines. That contributed much to demoralizing the army!
In other respects the uncompensated expropriation of war material was scarcely considered. By its very nature alone it could occur only with regard to goods on hand, in individual economic units in sufficient quality at the beginning of the war, but not also where producing new goods was concerned.
The second way available to the state for acquiring resources was introducing new taxes and raising already existing taxes. This method too was used everywhere as much as possible during the war. The demand was made from many sides that the state should try, even during the war, to cover the total war costs by taxes; in that connection reference was made to England, which was said to have followed this policy in earlier wars. It is true that England covered the costs of smaller wars that were only insignificant in relation to its national wealth in greatest part by taxes during the war itself. In the great wars that England waged, however, this was not true, neither in the Napoleonic Wars nor in the World War. If one had wanted immediately to raise such immense sums as this war required entirely by taxation without incurring debt, then, in assessing and collecting taxes, one would have had to put aside regard for justice and uniformity in the distribution of tax burdens and take from where it was possible to take at the, moment. One would have had to take everything from the owners of movable capital (not only from large owners but also from small ones, e.g., savings-bank depositors) and on the other hand leave the owners of real property more or less free.
If, however, the high war taxes were assessed uniformly (for they would have had to be very high if they were fully to cover each year the war costs incurred in the same year), then those who had no cash for paying taxes would have had to acquire the means for paying by going into debt. Landowners and owners of industrial enterprises would then have been compelled to incur debt or even to sell part of their possessions. In the first case, therefore, not the state itself but rather many private parties would have had to incur debts and thereby obligate themselves to interest payments to the owners of capital. However, private credit is in general dearer than public credit. Those land and house owners would therefore have had to pay more interest on their private debts than they had to pay indirectly in interest on the state debt. If, however, they had found themselves forced to sell a smaller or larger part of their property in order to pay taxes, then this sudden offer of a large part of real property for sale would have severely depressed prices, so that the earlier owners would have suffered a loss; and the capitalists who at this moment had had cash at their disposal would have gained a profit by buying cheaply. That the state did not fully cover the costs of the war by taxes but rather in largest part by incurring state debt, whose interest was paid from the proceeds of taxes, therefore does not signify, as is often assumed, a favoring of the capitalists.Cf. Dietzel, Kriegssteuer oder Kriegsanleihe? (Tübingen: 1912), pp.13 ff.
One now and then hears the interpretation expressed that financing war by state loans signifies shifting the war costs from the present onto following generations. Many add that this shifting is also just, since, after all, the war was being waged not only in the interest of the present generation but also in the interest of our children and grandchildren. This interpretation is completely wrong. War can be waged only with present goods. One can fight only with weapons that are already on hand; one can take everything needed for war only from wealth already on hand. From the economic point of view, the present generation wages war, and it must also bear all material costs of war. Future generations are also affected only insofar as they are our heirs and we leave less to them than we would have been able to leave without the war's intervening. Whether the state now finances the war by debts or otherwise ran change nothing about this fact. That the greatest part of the war costs was financed by state loans in no way signifies a shifting of war burdens onto the future but only a particular principle of distributing the war costs. If, e.g., the state had to take half of his wealth from each citizen to be able to pay for the war financially, then it is fundamentally a matter of indifference whether it does so in such a way that it imposes a onetime tax on him of half of his wealth or takes from him every year as a tax the amount that corresponds to interest payments on half of his wealth. It is fundamentally a matter of indifference to the citizen whether he has to pay 50,000 crowns as tax one time or pay the interest on 50,000 crowns year in, year out. This becomes of greater significance, however, for all those citizens who would not be able to pay the 50,000 crowns without incurring debt, those who would first have to borrow the share of tax falling on them. For they would have to pay more interest on these loans that they take out as private parties than the state, which enjoys the cheapest credit, pays to its creditors. If we set this difference between the dearer private credit and the cheaper state credit at only one percentage point, this means, in our example, a yearly saving of 500 crowns for the taxpayer. If year after year he has to pay his contribution to interest on his share of the state debt he saves 500 crowns in comparison with the amount that he would have had to pay every year as interest on a private loan that would have enabled him to pay the temporary high war taxes.
The more socialist thinking gained strength in the course of the war, the more were people bent on covering the war costs by special taxes on property.
The idea of subjecting additional income and the growth of property obtained during the war to special progressive taxation need not, fundamentally, be socialistic. In and of itself the principle of taxation according to ability to pay is not socialistic. It cannot be denied that those who achieved a higher income in the war than in peacetime or had increased their property were ceteris paribus more able to pay than those who did not succeed in increasing their income or their property. Moreover, one can quite rule out the question of how far these nominal increases in wealth and income were to be regarded as real increases in income and wealth and whether it was not a question here merely of nominal increases in amounts expressed in money in consequence of the decline in the value of money. Someone who had an income of 10,000 crowns before the war and increased it during the war to 20,000 crowns doubtless found himself in a more favorable position than someone who had remained with his prewar income of 10,000 crowns. In this disregard of the value of money, which only goes without saying in view of the general tenor of German and Austrian legislation, there did lie, to be sure, a deliberate disadvantaging of movable capital and a deliberate preference for landowners, especially farmers.
The socialistic tendencies of war-profit taxation came to light above all in their motives. War-profit taxes are supported by, the view that all entrepreneurial profit represents robbery from the community as a whole and that by rights it should be entirely taken away. This tendency comes to light in the scale of the rates, which more and more approach complete confiscation of the entire increase in property or income and doubtless finally will reach even this goal set for them. For one should indeed suffer no illusion about the fact that the unfavorable opinion of entrepreneurial income manifested in these war taxes is not attributable to wartime conditions alone and that the line of argument used for the war taxes—that in this time of national distress every increase in wealth and every increase in income is indeed unethical—can also be maintained in the period after the war with the same justification, even if with differences in detail.
Socialistic tendencies are also quite clear in the idea of a one-time capital levy. The popularity that the slogan about a one-time capital levy enjoys, a popularity so great that it makes any serious discussion of its appropriateness quite impossible, can be explained only by the entire population's aversion to private property. Socialists and liberals will answer quite differently the question whether a one-time property tax is preferable to a current one. One can refer to the fact that the current, yearly recurring, property tax offers the advantage in comparison with the one-time property tax that it does not remove capital goods from the disposal of the individual (quite apart from the fact that it is fairer and more uniform, since it permits errors made in one year's assessment to be corrected the next year and that it is independent of the accident of possession and evaluation of property at a particular moment because it deals with property year in and year out according to the current amount of wealth that it constitutes). When someone operates an enterprise with a capital of his own of 100,000 marks, then it is not at all a matter of indifference to him whether he has to pay an amount of 50,000 marks at one time as a property tax or pay each year only the amount corresponding to the interest that the state has to pay on a debt of 50,000 marks. For it is to be expected that with this capital beyond the amount that the state would have to demand from him for paying interest on the 50,000 marks, he could earn a profit that he could then keep. This is not what is decisive for the liberal's position, however, but rather the social consideration that by the one-time capital levy the state would transfer capital out of the hands of entrepreneurs into the hands of capitalists and lenders. If the entrepreneur is to carry on his business after the capital levy on the same scale as before it, then he must acquire the missing amount by obtaining credit, and as a private party he will have to pay more interest than the state would have had to pay. The consequence of the capital levy will therefore be a greater indebtedness of the enterprising strata of the population to the non-enterprising capitalists, who, as a result of the reduction of the war debt, will have exchanged part of their claims on the state for claims on private parties.
The socialists, of course, go still further. They want to use the capital levy not only for lightening the burden of war debts—many of them want to get rid of war debts in a simple manner by state bankruptcy—but they demand the capital levy in order to give the state shares of ownership in economic enterprises of all kinds, in industrial corporations, in mining, and in agricultural estates. They campaign for it with the slogan about the state's and society's sharing in the profit of private enterprises.Cf. above all Goldscheid, Staatssozialismus oder Staatskapitalismus, fifth edition (Vienna: 1917); idem., Sozialisierung der Wirtschaft oder Staatsbankerott (Vienna: 1919). As if the state were not sharing in the profits of all enterprises through tax legislation anyway, so that it does not first need a civil-law title to draw profit from the enterprises. Today the state shares in the profits of enterprises without being obliged to cooperate at all in the management of the production process and without being exposed to harm in any way by possible losses of the enterprise. If, however, the state owns shares in all enterprises, it will also share in losses; moreover, it will even be forced to concern itself with the administration of individual businesses, just that, however, is what the socialists want.
Only from lack of historical sense could one raise the question whether and how the World War could have been avoided. The very fact that the war took place shows that the forces working to cause it were stronger than those working to prevent it. It is easy to show, after the fact, how affairs could or should have been better managed. It is clear that the German people underwent experiences during the war that would have restrained them from war if they had already undergone those experiences. But nations, like individuals, become wise only through experience, and only through experience of their own. Now, to be sure, it is easy to see that the German people would be in a quite different position today if they had shaken off the yoke of princely rule in that fateful year 1848, if Weimar had triumphed over Potsdam and not Potsdam over Weimar. But every person must take his life and every nation must take its history as it comes; nothing is more useless than complaining over errors that can no longer be rectified, nothing more vain than regret. Neither as judges allotting praise and blame nor as avengers seeking out the guilty should we face the past. We seek truth, not guilt; we want to know how things came about to understand them, not to issue condemnations. Whoever approaches history the way a prosecutor approaches the documents of a criminal case—to find material for indictments—had better stay away from it. It is not the task of history to gratify the need of the masses for heroes and scapegoats.
That is the position a nation should take toward its history. It is not the task of history to project the hatred and disagreements of the present back into the past and to draw from battles fought long ago weapons for the disputes of one's own time. History should teach us to recognize causes and to understand driving forces; and when we understand everything, we will forgive everything. That is how the English and French approach their history. The Englishman, regardless of his political affiliation, can consider the history of the religious and constitutional struggles of the seventeenth century, the history of the loss of the New England states in the eighteenth century, objectively; there is no Englishman who could see in Cromwell or Washington only the embodiment of national misfortune. And no Frenchman would want to strike Louis XIV, Robespierre, or Napoleon out of the history of his people, be he Bonapartist, royalist, or republican. And for the Catholic Czech, also, it is not hard to understand Hussites and Moravian Brethren in terms of their own time. Such a conception of history leads without difficulty to understanding and appreciation of what is foreign.
Only the German is still far from a conception of history that does not see the past with the eyes of the present. Even today Martin Luther is, for some Germans, the great liberator of minds, and, for others, the embodiment of the anti-Christ. This holds above all for recent history. For the modern period, which begins with the Peace of Westphalia, Germany has two approaches to history, the Prussian-Protestant and the Austrian-Catholic, which reach a common interpretation on scarcely a single point. From 1815 on, a still broader clash of views develops, the clash between the liberal and the authoritarian ideas of the state;On this compare Hugo Preuss, Das deutsche Volk und die Politik (Jena: Eugen Diederichs, 1915), pp. 97 ff. and finally, the attempt has recently been made to oppose a "proletarian" to a "capitalist" historiography. All that shows not only a striking lack of scientific sense and historical critical faculty but also a grievous immaturity of political judgment.
Where it was not possible to achieve consensus in interpreting long-past struggles, it is much less to be expected that agreement can be reached in evaluating the most recent past. Already, here also, we see two sharply contradictory myths arising. On the one hand it is asserted that the German people, misled by defeatist propaganda, had lost the will to power; and thus, through "collapse of the home front," the inevitable final victory, which would have made the earth subject to it, was transformed into disastrous defeat. It is forgotten that despair did not grip the people until the decisive victories heralded by the General Staff failed to occur, until millions of German men bled to death in purposeless struggles against an opponent far superior in numbers and better armed, and until hunger brought death and disease to those who had stayed at home.This is not to say that the behavior of the radical wing of the Social Democratic Party in October and November of 1918 did not entail the most frightful consequences for the German people. Without the complete collapse brought on by the revolts in the hinterland and behind the lines, the armistice conditions and the peace would have turned out quite differently. But the assertion that we would have triumphed if only we had held out a short time longer is quite groundless. No less far from the truth is the other myth, which blames the war and so the defeat on capitalism, the economic system based on private ownership of the means of production. It is forgotten that liberalism was always pacifistic and anti-militaristic, that not until its overthrow, which was achieved only by the united efforts of the Prussian Junker class and the Social Democratic working class, was the way opened up for the policy of Bismarck and William II; the last trace of the liberal spirit had first to disappear from Germany and liberalism had to become regarded as a kind of dishonorable ideology before the people of poets and thinkers could become a weak-willed tool of the war party. It is forgotten that the German Social Democratic Party had unanimously supported the war policy of the government and that the defection first of individuals and then of ever-larger masses ensued only as military failures showed the inevitability of defeat ever more clearly and as famine became more strongly felt. Before the battle of the Marne and before the great defeats in the East, there was no resistance to the war policy among the German people.
Such myth-making bespeaks a lack of that political maturity that only he who must bear political responsibility achieves. The German had none to bear; he was a subject, not a citizen, of his state. To be sure, we had a state that was called the German Reich and that was praised as the fulfillment of the ideals of St. Paul's Church. Yet this Great Prussia was no more the state of the Germans than the Italian kingdom of Napoleon I had been the state of the Italians or the Polish kingdom of Alexander I the state of the Poles. This empire had not arisen from the will of the German people; against the will not only of the German people but also of the majority of the Prussian people, hanging behind its conflict-minded deputies, it had been created on the battlefield of Königgrätz. It also included Poles and Danes, but it excluded many millions of German-Austrians. It was a state of German princes but not of the German people.
Many of the best people never reconciled themselves with this state; others did so late and reluctantly. Yet it was not easy to stand aside bearing a grudge. There came brilliant days for the German people, rich in outward honors and in military victories. The Prussian-German armies triumphed over imperial and over republican France, Alsace-Lorraine became German again (or rather Prussian), the venerable imperial title was restored. The German Empire assumed a respected position among the European powers; German warships plowed the oceans; the German flag floated over—rather worthless, to be sure—African, Polynesian, and East Asian possessions. All this romantic activity was bound to captivate the minds of the masses that gape at processions and court festivities. They were content because there were things to admire and because they were satiated. At the same time German prosperity was growing as never before. These were the years when the wonderful opening up of the remotest territories through development of modern means of transportation was bringing undreamed-of riches to Germany. That had nothing to do with the political and military successes of the German state, but people hastily judge post hoc ergo propter hoc.
The men who had filled the jails before the revolution of March 1848 and who had stood on the barricades in 1848 and then had to go into exile had in the meanwhile become old and feeble; they either made their peace with the new order or kept silent. A new generation arose that saw and noted nothing but the uninterrupted growth of prosperity, of the size of population, of trade, of shipping, in short, of everything that people are accustomed to call good times. And they began to make fun of the poverty and weakness of their fathers; they now had only contempt for the ideals of the nation of poets and thinkers. In philosophy, history, and economics, new ideas appeared; the theory of power came to the fore. Philosophy became the bodyguard of throne and altar; history proclaimed the fame of the Hohenzollerns; economics praised the socially oriented kingship and the gap-free tariff schedules and took up the struggle against the "bloodless abstractions of the English Manchester School."
To the statist school of economic policy, an economy left to its own devices appears as a wild chaos into which only state intervention can bring order. The statist puts every economic phenomenon on trial, ready to reject it if it does not conform to his ethical and political feelings. It is then the job of state authority to carry out the judgment pronounced by science and to replace the botch caused by free development with what serves the general interest. That the state, all-wise and all-just, also always wishes only the common good and that it has the power to fight against all evils effectively?this is not doubted in the slightest. Although the views of individual representatives of this school may diverge in other respects, in one point they all agree, namely, in disputing the existence of economic laws and in tracing all economic events to the operation of power factors. Böhm-Bawerk masterfully evaluates this doctrine in "Macht oder ökonomisches Gesetz," Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, vol. 23, pp. 205-271. The statist school of German economics has indeed reached its high point in the state theory of money of Georg Friedrich Knapp. What is notable about it is not that it has been set forth; for what it taught had already been believed for centuries by canonists, jurists, romantics, and many socialists. What was notable, rather, was the book's success. In Germany and Austria it found numerous enthusiastic adherents, and basic agreement even among those who had reservations. Abroad it was almost unanimously rejected or not noticed at all. A work recently published in the United States says regarding the Staatliche Theorie des Geldes: "This book has had wide influence on German thinking on money. It is typical of the tendency in German thought to make the State the centre of everything." (Anderson, The Value of Money [New York: 1917], p. 433 n.) Against economic power the state can set its superior political-military power. For all the difficulties that confronted the German people at home and abroad, the military solution was recommended; only ruthless use of power was considered rational policy.
These were the German political ideas that the world has called militarism. In Germany the opinion is very widespread that foreign countries understand by militarism the fact of strong military armaments; it is pointed out, therefore, that England and France, which have maintained powerful fleets and armies on water and land, have been at least as militaristic as Germany and Austria-Hungary. That rests on an error. By militarism one should understand not armaments and readiness for war but a particular type of society, namely, the one that was designated by pan-German, conservative, and social-imperialistic authors as that of the "German state" and of "German freedom" and that others have praised as the "ideas of 1914." Its antithesis is the industrial type of society, that is, the one that a certain line of opinion in Germany during the war scorned as the ideal of "shopkeepers," as the embodiment of the "ideas of 1789." Compare Herbert Spencer, Die Prinzipien der Soziologie, German translation by Vetter (Stuttgart: 1889), vol. 3, pp. 668-754. In the elaboration and contrasting of the two types there exists a considerable degree of agreement between Germans and Anglo-Saxons, but not in terminology. The assessment of the two types is naturally not agreed on. Even before and during the war there were not only militarists but also antimilitarists in Germany and not only antimililarists but also militarists in England and America.
Nevertheless, the formula that attributes the World War simply to the machinations of this militarism is wrong. For German militarism does not spring, as it were, from the violent instincts of the "Teutonic race," as the English and French war literature says; it is not the ultimate cause but the result of the circumstances in which the German people has lived and lives. Not too much insight into how things are interrelated is needed to recognize that the German people would have desired the war of 1914 just as little as the English, French, or American people did if they had been in the position of England, France, or the United States. The German people trod the path from the peaceful nationalism and cosmopolitanism of the Classical period to the militant imperialism of the Wilhelministic era under the pressure of political and economic facts that posed quite other problems for them than for the more fortunate peoples of the West. The conditions under which it has to proceed today toward reshaping its economy and its state are, again, thoroughly different from those under which its neighbors in the West and in the East live. If one wants to grasp these conditions in all their specialness, one must not shrink from looking into things that seem only remotely related.
That gold was used as money in the past is merely a historical fact. But the fact that gold was a form of private money, and thus not easily manipulated for government schemes, made it a target of countless intellectual and governmental assaults.
Original Article: "They Don't Hate Gold Because It's Gold. They Hate It Because It's Not Government Money."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
I’d like to consider some criticisms of anarcho-capitalist theories of property acquisition raised by Jesse Spafford in his article “Social Anarchism and the Rejection of Private Property,” included in The Routledge Handbook of Anarchy and Anarchist Thought, edited by Gary Chartier and Chad Van Schoelandt (Routledge, 2021). Spafford, a research fellow at Trinity College Dublin, is a “social anarchist,” who rejects private property rights.
Spafford appeals to a plausible moral intuition shared by most people, certainly including anarcho-capitalists. By “intuition,” I don’t mean a hunch or guess but rather a judgment about a case, not based on an explicit moral theory. An often-cited example of such as intuition is “torturing babies for fun is wrong.” Philosophers who use appeals to moral intuitions start with intuitions that seem plausible and try to draw controversial conclusions from them. Other philosophers reject this procedure as too subjective and unsystematic.
The plausible intuition that Spafford starts from is that the use or threat of force requires justification. Suppose that you think that smoking is bad for people and on that basis use force to prevent people you know from smoking. To most of us, it seems to that you aren’t justified in doing this. The anarcho-capitalist philosopher Michael Huemer uses examples like this to bring into question the legitimacy and authority of the state. If you can’t do this, why is it all right for the state to do it? What is the difference?
Spafford suggests that arguments like Huemer’s can be used to bring private property rights into question. If you have a property right in something, you have the right to exclude anyone else from using it without your permission. If you use force against someone to exclude them, why isn’t this wrong? Spafford offers this example:
Consider the case of a cruise ship that docks at a previously undiscovered island. The passengers are excited to spend the day exploring the island, but, before they have a chance to disembark, one passenger runs to the end of the gangplank and declares, Sorry, but I have decided that this island is for my personal use only! I forbid any of you from setting foot on it—unless, of course, you pay me $50 and take off your shoes before getting off the boat. When the first passenger in line ignores this edict and walks onto the island, the declaration-issuer’s friends rush over and seize the “trespasser” and begin binding her wrists and ankles. She struggles a bit, but after they spray sunscreen in her eyes, she stops resisting and is carried back onto the ship and locked in one of the cabins until she agrees to stay off the island.
Isn’t it reasonable to think that the passenger does not have the right to appropriate the island and exclude others? If so, where does this leave property rights?
The answer to this is obvious, and Spafford anticipates this answer; but I do not think he is able to counter it. Defenders of property will say that the passenger hasn’t met the correct conditions for acquiring property. If the ship had docked on an island that someone owned, why wouldn’t the owner have had the right to force the passengers to leave the island?
Stafford answers that the standard Lockean accounts of property acquisition don’t work. He uses some examples from the philosopher Ed Feser, who at one time held a Lockean view:
According to Feser, a person gains rights over previously unowned natural resources by either (a) gaining control of or (b) sufficiently modifying those resources. Thus, a homesteader who tills the soil of some unowned patch of land or builds a sizeable fence around its perimeter would thereby come to own that land. However, consideration of other cases casts doubt on Feser’s proposal. Consider, for example, the case of a person who deliberately starts a wildfire that scorches an entire forest, blackening thousands of acres of trees and earth. Suppose that a hiker then tries to enter the forest to survey the damage. May the fire-starter have the hiker imprisoned or threaten to shoot her if she does not leave the burned area? Surely not. Thus, the mere modification of land and objects seems insufficient to render coercive.
But, if we agree with Spafford that burning down the forest doesn’t establish ownership of it, this hardly invalidates all claims that doing something to unowned resources is sufficient for acquiring them. Spafford will then demand to know what are the conditions that do result in property acquisition, and specifying them is no easy task. All I claim here, though, is that Spafford hasn’t given us a general reason to doubt that there are legitimate ways to acquire property. What, for example, is wrong with owning your house or your car?
Spafford deploys a bad argument against property rights. He says,
Note that the use of force to control some resource is only necessary if non-coercive forms of control prove inadequate—i.e., one has not established control of the resource through non-coercive means alone. In other words, even if one grants that the non-coercive control of resources entails the permissibility of coercive control of those resources, any use of coercion entails the absence of such non-coercive control. Thus, there can be no instance of coercive exclusion that is permissible in virtue of there being prior non-coercive control of the resource.
This argument has at least two things wrong with it. If you use force against someone who is trying to take your car away from you, it is trivially true that you aren’t while you are struggling with the thief in control of the car. But the relevant fact is that you gained ownership of the car without coercion. Spafford has wrongly carried over intuitions from a case where someone claims ownership while pushing other claimants away to all cases of initial acquisition of property.
A second problem with the argument is that a right to exclude others from using your property does not entail that at every moment while you have this right you are exercising it by coercing others. Your right to exclude means that it is permissible for you to exclude others, not that you are actually excluding them. Spafford has trouble seeing the distinction between your right to something and the activities you engage in in exercising that right. In another example, he says, discussing a case in which a mechanic has worked on your car, that while the work is being done, you have waived your exclusion right over the car. This isn’t correct. The mechanic is using the car with your permission, but you haven’t waived any of your rights. You can tell him at any time to stop work on the car.
Spafford faces a problem that confronts many critics of Lockean appropriation. What is the justification for his own account of the morally proper use of resources? He assumes without argument that people have an equal right to use all resources, so long as they respect the equal rights of others. He is firmly committed to this position, and at one point, he says something incredible. He first suggests that some social anarchists would allow certain kinds of coercive exclusion of others from resource use. He says,
Consider the case of two castaways stranded on an island lush with peanut plants. One castaway is allergic to peanuts but good at catching fish, whereas the other lacks the arm strength and coordination needed to catch fish. The net result of these differences is that the two are able to live equally good lives, one fishing and sleeping on the beach while the other forages for food inland. However, suppose that one day the allergic castaway begins clearcutting the densest area of peanut plants so that she has a place to play soccer. Further, suppose that the destruction of these plants would impose a great hardship on the uncoordinated castaway, as she would then have to spend many more tedious and difficult hours each day foraging for the scarce peanuts that remain. Given these stipulations, would it be permissible for the uncoordinated castaway to use coercion to prevent the allergic castaway from destroying the plants on which her quality of life depends? Some egalitarian anarchists might answer in the affirmative, contending that the permissibility of the coercion is grounded in the fact that it is necessary to ensure that the uncoordinated castaway doesn’t live a worse life than her companion (due to no fault of her own).
He now gets to the incredible part. He says,
Some social anarchists might reject the intuition that coercion is permissible in the peanut case. Given this rejection, they would insist that the coercive control of resources is always impermissible, except when it has been consented to by the victim or, perhaps, when such control is necessary to avoid some sort of moral catastrophe. This position imposes stricter limits on what forms society can permissibly take. Specifically, it would sanction only two forms of resource management, each with its own drawbacks, but both of which avoid the coercion that is omnipresent in regimes of private property (and that persists in a more limited form in the egalitarian anarchist society).
(I don’t think it’s necessary for our purposes to describe these two forms.)
A society where the division of labor is subject to a constant threat of interference would be vastly less productive than a market economy. But never mind this—equal access to all resources must be preserved!
Expanded Second Edition Foreword by Jeff Deist Congratulations! You hold in your hands one of the best collections of essays from one of the most vital and challenging thinkers on the planet. This book is a compendium of sorts, a cross section of Professor Hans-Hermann Hoppe’s best work across several decades arranged in one accessible volume. It originally was published by Laissez Faire Books in 2012, but languished without the audience it deserved. This volume rejuvenates that work with no less than six new chapters and more than a hundred new pages not found in the earlier version, along with some much-needed publicity and promotion.
Academics and social scientists today tend toward hyperspecialization, but Dr. Hoppe does not make this mistake. In this approach he joins a long line of important thinkers who did not confine themselves to a narrow academic discipline and did not care to “stay in their lane.” We forget that many twentieth century economists, for example, capably applied knowledge in history, philosophy, logic, anthropology, sociology, epistemology, politics, and ethics to their work—including Ludwig von Mises, Hoppe’s inspiration, and Murray N. Rothbard, Hoppe’s mentor. In that very important sense Hoppe continues and builds on the work of both men.
If you are new to Hoppe’s work, this is an excellent introduction and survey to his syntheses of history, anthropology, property, ethics, and state. If you already know and enjoy Hoppe, you will find here a “Hoppe reader”: many of his best and most representative articles across a range of topics in one accessible volume. Consider it almost a reference guide, from which readers can guide themselves back to his lengthy books and articles. But this book has something for everyone, from his rigorous yet often overlooked implications of capitalism and socialism to his broadside against democracy on property rights grounds. Even the new or casual reader will come away with an excellent understanding of Hoppe’s work and worldview.
The title of course comes from Claude-Frédéric Bastiat, the great nineteenth-century French economic journalist and liberal. Bastiat gave us “The Great Fiction” to describe the government mechanisms by which people attempt to live at the expense of others. The state is always present in Hoppe’s work, whether front and center or lurking in the background. Hoppe’s subtitle, Property, Economy, Society, and the Politics of Decline gives an unsubtle clue as to what readers should expect: a damning indictment of the political world and its twenty-first-century managerial superstates. In Hoppe’s world, the state is a wholly decivilizing institution: a predator rather than protector, a threat to property and peace. Markets and entrepreneurs produce goods, governments produce “bads”: taxation (theft), regulation (semi-ownership, thus semi-socialism), devalued money (central banks), war (defense), injustice (state courts and police), and the ruinous effects of high time preference (democracy). Like Bastiat, Hoppe has no patience for obscuring or soft pedaling the realities of our political world.
Part one of the book deals with the development of human society and the concomitant rise of two often opposing forces, namely property and states. Here Hoppe explains civilization rising against a backdrop of greater productivity enabled by the painfully slow shift from nomadic to agrarian living. Once sufficient calories could be yielded from land, concepts of family and ownership come into greater focus. The Enlightenment and Industrial Revolution create more and more prosperity, a proto-middle class, while feudal and monarchical arrangements face pressure from subjects developing greater wealth and literacy. This pressure explodes in the nineteenth century, as groups of largely decentralized kingdoms, principalities, territories, and city-states come under the full sway of national boundaries and governments. The twentieth century ushers in the era of full democratic government in the West: the Great War washes away the last vestiges of Old Europe, while growing economic and military power places the United States squarely at the helm of an international order.
Hoppe, of course, does not accept at face value the notion of the twentieth century as “liberal,” and in fact finds much of it illiberal. A particular favorite from part one is a chapter from Democracy: The God That Failed titled “On Democracy, Redistribution, and the Destruction of Property.” This essay beautifully encapsulates all of his fundamental critiques of modern mass democracy, namely that it produces bad, shortsighted politicians who care nothing about their nation’s capital stock; bad, shortsighted voters who care nothing about future generations; bad, expansionary economic and foreign policy; and bad, central bank money to pay for it all. Citizens, unlike subjects of yesteryear, enjoy the illusion that government is “us.” But an illusion is all it is, and Hoppe enjoys slaying this most sacred of cows.
Part two focuses on the hugely important but often overlooked relationship between money and the state. While kings and sovereigns once enjoyed debasing money to line their pockets, modern central banks turn seigniorage into something far more systemic and harmful. Fiat money enables politicians to fund welfare and warfare programs unimaginable in previous generations, increasing state power at every turn. It also distorts virtually every economic decision made across society, resulting in gross inefficiency and malinvestment. Society suffers, purchasing power erodes, but an undeserving and state-connected banking class benefits from all the new money. The quintessential Hoppean explanation for this sordid process, namely power, is nicely presented in chapter 9, “Why the State Demands the Control of Money.”
Part three forays into Dr. Hoppe’s economic theory, particularly in the area of method. Much of what we consider to comprise modern economics is wrong, and in particular wrong because it subverts the role of theory with empiricism, statistics, math, and modeling. Human actors apply deeply subjective values to all economic goods, values which change almost constantly. They are not atoms or vectors to be studied by testing hypotheses with data, but volitional beings to which we must apply axiomatic deductive reasoning. Hoppe gives readers a crash course in certainty, uncertainty, and probability, to show their uses and more importantly their limitations in economics.
Part four considers the important subject of intellectual history in the context of the broad Austro-libertarian movement, and includes a truly heartfelt speech from Hoppe on his friend and colleague Rothbard which is sure to move you. It also includes a typically Hoppean critique of Friedrich von Hayek’s political theory, which in Hoppe’s view compares very unfavorably to his work in monetary policy and the knowledge problem. This section finishes with the text of Hoppe’s sweeping talk titled “The Libertarian Quest for a Grand Historical Narrative,” a marvelous narrative about where we have been and where we might be going.
Finally, part five is a collection of interviews with Dr. Hoppe and autobiographical essays, including one conducted by yours truly. These interviews give a better sense of Hoppe as a person and thinker, and greater insight into his development both personally and professionally. Readers will find plenty of intellectual ammunition here, along with answers to many of the simplistic challenges posed to Hoppe’s idealized conception of a private law society.
Reading Hans-Hermann Hoppe is always a pleasure and never a chore, because both the subjects and Dr. Hoppe’s command of them quickly win the reader’s attention and even admiration. Most academic writing is almost unbearable; and as alluded to earlier it is designed to appeal only to a tiny group of PhDs who work in a very limited area or subfield. Hoppe, by contrast, produces academic treatments of much broader and foundational issues which manage to hold appeal for intelligent lay audiences. The footnotes, the diamond-sharp deductive logic, the references to earlier works and thinkers—all the hallmarks of academic journals are there—without the tedium and hubris.
Hoppe is the rare intellectual who never preens or bores, and never loses the plot. He keeps things close to the bone, one might say: not quite sparse but never ornate or superfluous. There are no twenty-page detours into some faintly related topic merely for show, a habit even the best of academics sometimes fall prey to. Not Dr. Hoppe. His work inevitably strips out the nonessential and gets to the root of the issue at hand. Sometimes that essential and unadulterated focus comports with popular sentiment and thinking; oftentimes it does not. Hence his controversial reputation in certain emotive circles. But Hoppe, like any good social scientist, has an obligation to seek truth and help us understand the world. Thus he never appeals to the reader’s existing pretensions or prejudices, but instead always demands we follow the praxeological path of understanding human actors as they really are.
In other words, truth—unadorned and uncomfortable as it may be—is the end goal of any good social scientist. Thus, Dr. Hoppe is an unflinching advocate for reality and logic, and one you cannot ignore.
Recently Tim Poole alluded to the so-called “shopping cart theory” of why self-governance is impossible. Specifically, because people can’t even bother to take back the shopping cart when this is clearly the socially right thing to do, we can’t hope to have a system relying on everyone’s good nature. Bob explains what’s wrong with this argument.
Mentioned in the Episode and Other Links of Interest: The blog post for the “Adventures in Pacifism: Louis CK edition” contest.Ben Powell on SomaliaBob’s book Chaos Theory, his article on libertarian law and military defense, his lecture on the market for security, and his lecture on military defenseThe Federalist No. 51 For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Lawyer and libertarian theorist Stephan Kinsella joins the show to discuss the middle chapters of Hoppe's Democracy, The God That Failed—in particular dealing with "desocialization" of collective property, immigration, and free trade. These are the most controversial and widely-discussed parts of the book, and Kinsella provides a fascinating analysis of property vs. wealth, the problems with public ownership and forced integration, and the concept of rule-setting for state property. And don't miss the final part of the show for his explanation of "Hoppephobia."
Kinsella's article on LewRockwell.com: "A Simple Libertarian Argument Against Unrestricted Immigration and Open Borders"
Read Stephan Kinsella's Against Intellectual Property at Mises.org/KinsellaBook
Use the code HAPOD for a discount on Democracy: The God That Failed from our bookstore: Mises.org/BuyHoppe
With an ugly presidential election just three weeks away, we dive into Hans Hoppe's classic Democracy: The God That Failed to puncture some of the myths surrounding democracy and voting. Jayant Bhandari joins the show to discuss Hoppe's controversial thesis concerning monarchy and democracy, time preference and its manifestation in the two systems, the forces constraining monarchs, and the terrible incentives created for democratic rulers. This is a must-listen show for anyone interested in Hoppe's most famous work and its application to the problems western states face today.
Find more from Jayant Bhandari on his website (JayantGhandari.com) and his Twitter account (@JayantBhandari5).
Use the code HAPOD for a discount on Democracy: The God That Failed from our bookstore: Mises.org/BuyHoppe
“Taking back the streets” ought to mean privatizing them and enabling property owners to defend their property. This would be the surest way to end the riots.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Original Article: "How Government-Owned Streets Prevent Effective Law Enforcement".
Advocates for looting are now claiming that looting doesn't really hurt anybody but evil corporations. In truth, looting is a disaster for many families, business owners, and the neighborhoods themselves.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "It’s Not "Just Property": How Looting Destroys Lives and Low-Income Neighborhoods".
Homeowners believe their property rights extend far beyond their property lines. They want to dictate who lives near them, how much money their neighbors make, and what the houses in their neighborhood look like.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Why Homeowners Hate Real Estate Developers"
The case for the privatization of roads has much to recommend it if only in terms of how it would affect the power of the police to detain us, search us, and seize our property.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "How Government Roads Expand Police Power in America".
[This interview with Jeff Deist and Hans Hoppe will appear in the upcoming issue of The Austrian (March–April 2020).]
JEFF DEIST: Your recent talk in Vienna mentioned growing up happy but poor, the son of East German parents who had been driven west during the Cold War by the Soviets. Can you elaborate on the lasting impact their experience had on you, in terms of how you view state power and its attendant evils? Are you in some ways still influenced by their “eastern” roots?
HANS-HERMANN HOPPE: The fact that my parents were both refugees, ending up in the West by the accident of WWII, driven away and separated from their original homes in Soviet-occupied East Germany, played a huge role in our family life. In particular the expropriation of my mother’s family and its expulsion from house and home by the Soviets, in 1946, as so-called East Elbean Junkers, was a constantly recurring topic at home and assumed even more importance after the collapse, in 1989, of East Germany and the following German “reunification.” My mother, as many other victims of communist expropriations, then sought and hoped for the restitution of her property—in which case I would have been set for life. However, as I already knew and correctly predicted by then, this was not going to happen. There was to be no justice. But my parents were shocked and outraged.
The numerous trips we took to visit various relatives in East Germany confirmed my parents’ judgment of the Soviet system. Shortages, waiting lines, empty stores, inferior products, and lousy services. All around controls, spies, and informants. Everywhere grey ugliness and decay. A prison wall built around the whole country to prevent anyone from escaping. And commie-proles droning on endlessly about the great successes achieved under their leadership.
Yet as a little boy and a teenager I did not understand the reason for all this mischief and misery. Indeed, the East German experience did little if anything to shake my own leftist convictions at the time. East Germany, I thought, was just the wrong type of socialism, with the wrong people at the helm.
Apart from their anticommunism, my parents, as most people of their generation, were highly guarded or even timid regarding political pronouncements. Germany had lost a devastating war, and the German population was subjected to a systematic, American-led reeducation campaign, a Charakterwaesche (character-wash), as I was to realize only many years later, of truly enormous proportions, which involved a complete rewriting of history from the victor’s viewpoint, essentially portraying Germans as congenital villains. This made it all the more difficult to finally discover the fundamental importance of private property rights and the evil of statism and so-called public property.
As far as any genuine “eastern” influences are concerned, I am skeptical. Far more important in any case was the fact that my parents were impoverished refugees who eagerly wanted to recover from their losses, get ahead in life, and instill their own will to succeed also in their children. (In fact, empirical studies later on demonstrated the comparatively greater professional success of refugee children as compared to their nonrefugee peers.) However, in the German context you may count my Protestant—Lutheran—upbringing and the character traits typically associated with it, i.e., the “Protestant ethic,” as described by Max Weber, as somehow eastern.
JD: You also mentioned your time at university, studying philosophy under the direction of left-wing critical theorist Jürgen Habermas. Although your political philosophy differs radically from his, discuss his influence on you and your development of “Austrian” class analysis. Is he purely a malign figure, or can we learn from him?
HH: Looking back, I can certainly say that Habermas has been a largely malign figure. He became Germany’s most famous and influential intellectual, and as such played an important role in Germany’s gradual but steady move leftward, both economically and culturally. Indeed, he can be regarded as the high priest of historical and political correctness, of social democracy, and of political centralization.
Nonetheless, my relationship with Habermas, while not close, was cordial, and I learned quite a bit from him, especially from his earlier works such as Erkenntnis und Interesse (Knowledge and Interest). (Since the late 1970s I essentially stopped following his work, as it was increasingly tedious and murky.) In any case, it was Habermas who introduced me to the Anglo-Saxon tradition of analytic philosophy and the philosophy of language. He helped me understand “methodological dualism,” i.e., that the study of objects with which we can communicate (and communicative action) requires different methods than those appropriate for the study of noncommunicative objects (and instrumental action). And contra all empiricist and relativist claims, Habermas always defended the notion of some sort of synthetic a priori truths.
As far as my work on class analysis and the theory of history is concerned, however, it owes nothing to Habermas, who had actually little interest in economics and political economy, but instead to my earlier study of Marx. I wrote the original paper on the subject for a Mises Institute conference on Marx, and I tried to show how, by only substituting State for Business Firms and Taxes for Wages, Marx’s exploitation theory and his theory of history would make perfect sense.
JD: Your speech titled “Coming of Age with Murray” in New York City two years ago reveals much about your personal relationship with the late Murray N. Rothbard. In fact you moved to New York primarily to work with him. Looking back, are you glad to have left Germany for America? Would your career and work look very different had you remained at a European university?
HH: Oh yes, that move was about the best and most important decision I ever made. Given my views at the time, i.e., my Misesian-Rothbardian outlook, an academic career in Germany, even if not entirely impossible, would have been extremely difficult, even with stellar academic credentials. I might have become depressed and given up. Certainly, without constant encouragement such as I would receive from Rothbard in America, I would have written less and then mostly in German, which no one but Germans read.
In the meantime, thanks to the growing influence and worldwide internet presence of the Ludwig von Mises Institute in Auburn, the situation has significantly changed. It is still difficult, but nowadays you can also have a successful academic career in Europe even as an Austrian (but you will have to write in English).
JD: Rothbard remains relevant and controversial today. Why is he so consistently misunderstood? Given your long history with him, both in New York and at UNLV, what do his critics fail to grasp? Was he warm and convivial as his supporters contend, or acerbic and mercurial as per his detractors? Does his work in social theory overshadow his work as an economist?
HH: Rothbard was a genius of the first order. He ranks among the greatest economists, but he was not and did not want to be a mere economist-economist. He was also a great philosopher, sociologist, and historian, and as such became the creator of a grand, integrated intellectual system. Anyone familiar with Rothbard’s entire oeuvre can only stand in awe before his achievement. But there also lies the problem. The sheer volume and the interdisciplinary character of Rothbard’s work makes it difficult for anyone but the most dedicated and talented student to give a full and fair account of his work. Moreover, especially economics, the centerpiece of Rothbard’s system, is a rather dry, technical field with very limited sex appeal. Much easier, then, for the envious, lazy, and talentless to engage in nit-picking. And easier still not to talk about Rothbard’s scholarly work at all, but reduce him to the libertarian activist (that he also was, if only in his spare time and for his own amusement).
As far as Rothbard the man is concerned there is something to both seemingly contradictory statements about his personality. You certainly did not want to become the target of one of Rothbard’s many written missives. As a writer, Rothbard could be merciless and devastating, ready to go in for the argumentative kill. On the other hand, as a person, in social gatherings, he was a softy: warm, convivial, charming, and entertaining.
JD: Rothbard frequently defended you and your work, charging critics with “Hoppephobia.” What did this mean to you as a young scholar? Why does loyalty and gratitude seem so scarce in academia generally, and in libertarian circles?
HH: If you write and take a clear and unambiguous stand on highly contentious issues, you should expect some heat. Otherwise, if you don’t like the heat, stay out of the kitchen. Given what I wrote or said in public (or the way I said or wrote it), I knew that I would be a controversial figure; and as a young man I took a good deal of delight from provocation and vigorous intellectual debate. Nonetheless, I had no idea how downright personal, nasty, and even defamatory and libelous some critics and criticisms could get. In such situations, then, Rothbard’s coming forward in my defense was a welcome relief and gave me a great boost of confidence. After some years in academia, however, I developed quite a thick skin and learned that many a critic and criticism were not worth my attention and best ignored.
As for loyalty and gratitude, it is necessary that a person recognizes and admits that he owes something to another person; that this other person has done something of value for him that deserves to be acknowledged. I tend to agree with your assessment of academia and certain libertarian circles as ranking rather low in this regard. And in both cases I suspect the prevalence of egalitarian ideas to be responsible for this outcome. The typical or “modal” libertarian, as described by Rothbard, is an egalitarian, respect-no-authority guy, with little knowledge of history and world affairs. He fancies himself to have come up with everything he has and knows on his own, as a self-made man, and as such thinks that he owes no one any gratitude or special respect.
The egalitarianism of academia, or more precisely that part of it that is principally concerned with writing and speaking (rather than doing, such as engineering, for instance), is of a different kind. Let’s call this group the intellectuals. Intellectuals generally suffer from an inflated ego. They consider intellectual work and hence themselves as more important than mundane or manual work and workers. In their eyes, then, the fact that they are all subsidized today and kept financially afloat by nonintellectuals is only how things should be anyhow. No need to be thankful for what is self-understood, as far as they are concerned. In this regard, intellectuals are elitists. Vis-à-vis each other, however, they are typically egalitarians. They all equally write and speak, and who is to say that this writing is better or more original than that. True enough, their salaries and their standing in academia may be quite different. However, such differences are solely the result of bureaucratic procedures and criteria that have nothing to do with truth or beauty. Nor does popularity matter as far as truth and beauty are concerned. No need, then, for an intellectual to ever feel less of an intellectual than anyone else.
JD: You mention sharing with Rothbard a profound interest in religion and the sociology of various faiths despite being an agnostic. Have you changed your perspective on Christianity and its influence on the West? Is the post-Christian West going to be a nasty and tribal place, contra the assurances of secularists?
HH: Whether you are a believer or not, there is no way of denying that religion has played a hugely important role in human history and that it is the West, i.e., the part of the world shaped by Latin Christendom in particular, that has surpassed all other world regions both in terms of its material as well as its cultural achievements, and that among its superior cultural achievements in particular is also the idea of natural human rights and human freedom. The Christian notion that each person is created in the image of God contributed to the uniquely Western tradition of individualism and was instrumental in abolishing, at long last, the institution of slavery within the Christian orbit (all the while it lingered on outside the West, even until today). And the institutional separation and jealous competition for social recognition and authority in the West between the Christian church and its hierarchy of popes, cardinals, bishops, and priests, on the one hand, and all worldly power with its hierarchy of emperors, kings, nobles, and heads of households on the other contributed greatly to the uniquely Western tradition of limited (as opposed to absolutist) government.
This happy, power-limiting arrangement began to crumble already in the sixteenth and seventeenth centuries with the Protestant Reformation and the Counter-Reformation following. Today, the various Christian churches are essentially appendices of the state. As such they promote even the mass importation of people of rival faiths into formerly Christian lands, thus further undermining whatever authority they may still possess in public opinion and strengthening at the same time the power of the all-secular, post-Christian state.
JD: Democracy: The God That Failed remains perhaps your best-known and most controversial book. Nearly twenty years later, give us your thoughts on the book’s legacy. Are you happy with its notoriety and impact, or do you wish your work on socialism, property, and ethics was better appreciated?
HH: Indeed, of all of my major writings Democracy has been the bestseller, and it is no exaggeration to say that the book in the meantime has exerted some notable influence in helping desanctify the institution of democracy (majority rule) in public opinion. Naturally, I am quite happy about this. The book has a certain “sex appeal,” if you will. It is interdisciplinary and not too technical, and it offers some new, original, and provocative theoretical theses and insights, combined with alternative, revisionist historical vistas and perspectives. It may be the only major work of mine a person reads and associates with my name. But then, I always hope, there may also be other people to whom it opens the door to some other, possibly more important if less sexy, works of mine.
JD: Both your fans and critics seized on a passage in Democracy arguing that individuals with goals and lifestyles at odds with a libertarian social order would be “physically removed” from that community. Since then you have clarified how this phrase functions as an adjective, not a verb. In other words, people at odds with the agreed-upon terms of a private community simply should live elsewhere, just as one town is physically separate from a nearby town. What are your thoughts about the controversy today?
HH: This harks back to your earlier question concerning Hoppephobia. The whole affair, most likely initiated by one of the usual left-libertarian suspects from the DC beltway, was a deliberate attempt to smear and malign me personally and with that also the program of a realistic or right-libertarianism first outlined in the book.
Essentially, I did not say anything more controversial or scandalous in the short passage than that anyone insisting on wearing a bathing suit on a nude beach may be expelled from this beach (but be free to look for another one), just as anyone insisting on nudity may be expelled from a formal dinner party (but be free to look for another party). In my example, however, it was not nudes but homosexuals that figured. I wrote that in a covenant established for the purpose of protecting family and kin, people openly displaying and habitually promoting homosexuality may be expelled and compelled to look for another place to live. But in some “woke” circles, mentioning homosexuality and expulsion in one and the same sentence apparently leads to intellectual blank-out and a loss of all reading comprehension.
Ultimately, the entire smear campaign failed and even backfired, only increasing my own popularity and the influence of the book.
JD: At your Property and Freedom conference in Turkey you have spoken on the process of “de-civilization,” whereby positive law overtakes natural law under the domination of a monopolized state actor. Property rights and adjudication of conflicts fall under the grasp of this monopoly power. We like your conception of the opposite: a social order emerging from “justice principles,” taking the form of a private-law society—entirely voluntary—more in harmony with simple natural order. It sounds better and more reasonable than anarchism to ordinary people! Are anarcho-capitalism and resulting private “covenant communities” actually far less radical than commonly thought? Are they in fact outgrowths of natural law concepts that many people already accept?
HH: Indeed, yes, and yes again. Even if it appears to be little more than a shift in semantics, for the reasons you mention I have long preferred the terms “private-law society” and “natural order” to “anarcho-capitalism.” Because everyone is familiar with the basics of private law. From our everyday lives, we know what property is and implies and how it is acquired and transferred (and how not). As well, we know what an exchange, an agreement, and a contract are (and what is not to count as such). There is nothing difficult or especially demanding about the natural law of property and contract. Indeed, in many small villages people live by these laws, without the presence or pressure of any outside government police or judge. There is self-policing. Yet whoever polices is subject to the same rules as everyone else. And if need be, in the case of conflict, there is self-arbitration and self-adjudication. But whoever acts as judge or arbiter, too, is subject to natural private law.
The emergence of a natural order ruled by private law, then, is not difficult to explain. What is difficult to explain is the emergence of a state. Why should there be anyone, any institution, not subject to private law? Why should there be someone who can make laws? Why should there be an institution that can exempt itself from the rules applied to everyone else? Why should there be some policemen who cannot violate the law or some judges who cannot break the law? Why, indeed, should there be any ultimate and final judge, exempt from any and all prosecution? Certainly, all of this cannot be the result of an agreement or contract, because no one in his right mind would sign on to a contract which stipulated that in any conflict that might arise between you and me, you will always have the final word.
JD: Let’s turn to immigration. You propose contractual admission of immigrants, with sponsors (or immigrants themselves) funding a bond or liability insurance to pay for any criminal or civil cost imposed on existing taxpayers. Immigrants remain in their new home conditionally for an initial period, subject to revocation of admission for contractual violations. They do not receive “welfare”; citizenship and voting rights come much later. You refer to this system as satisfying the “full cost principle.” In many ways this is far more “open” than open borders proposals, because it requires no checkpoints or intake centers or vast border police agencies. It uses contracts and market forces to shape immigration, rather than political machinations. This seems far more humane and practical, yet you are assailed as anti-immigration. What explains this?
HH: As already touched upon, in some circles the mere mention of two words in one sentence—this time “immigration” and “restriction”—is sufficient to trigger a blank-out. No need to read any further and try to comprehend. First homophobe, then xenophobe. In fact, I have never met a serious advocate of “no immigration, period!” Nor have I ever taken a stand that could be described as anti-immigration. Instead I have always argued for the commonsensical approach of selective immigration.
Ideally, with all pieces of land and everything on them privately owned, there would be a huge variety of entrance requirements, i.e., of degrees, respectively, of openness and closedness. I have described this, for instance, in my piece “Natural Order, the State, and the Immigration Problem.” Airports, roads, shopping malls, hotels, etc., would be rather open, whereas residential associations, private retreats, clubs, etc., might be almost completely closed. In any case, however, all migration would be by invitation and invariably the full cost principle would apply. Either the inviting host or the invited guest or both jointly would have to pay the full cost associated with the guest’s presence. No cost could be shifted and externalized onto third parties, and the inviter and/or invitee would be held liable for any and all damage resulting from the invitation to the property of others.
If and as long as there is a state with so-called public property in place, as happens to be the case in today’s world, then the best one may hope for is an immigration policy that tries to approach this ideal of a natural order. You have mentioned some possible measures in this regard. But to advocate, under current conditions, the adoption of a “free immigration” policy—every foreigner can come in and move and stay around the entire country, no questions asked—is certainly no way to achieve this goal. To the contrary, it would make forced integration and cost-shifting ubiquitous, and quickly end in disaster. Only people devoid of all common sense could possibly advocate any such policy.
JD: In your exchanges with Walter Block about immigration, he argues that all government property ought to be subject to open homesteading by immigrants. Your response is often characterized as “taxpayers should own taxpayer-funded public goods.” But in fact your argument applies only in the context of Block’s argument, to disprove the notion that public property should be viewed as “unowned.” If we must have public property, state agents at least ought to act as trustees of that property on behalf of the taxpayers who fund it. Accurate?
HH: Accurate. Let me only add that in today’s world the sometimes mentioned “wilderness” of mountaintops, swamps, tundra, etc., is no longer truly wild and thus ready to be homesteaded. There is no inch left on earth today that is not claimed to be the “property” of some government. Whatever wilderness there is, then, it is wilderness that has been barred and prevented by some government, i.e., with taxpayer funds, from being homesteaded by private parties (most likely by neighboring property owners). If anyone, it is domestic taxpayers who are the legitimate owners of such wilderness.
And quite apart from this, even if some wilderness were opened for homesteading, it would be neighboring, domestic residents, who had been most immediately and directly barred from doing so before, who should have the first shot at homesteading, well before any distant foreigner.
JD: Hoppean argumentation ethics remains a subject of rigorous debate, most recently between (economist) Robert Murphy and (legal theorist) Stephan Kinsella. How important is a purely logical justification for human liberty, as opposed to Rothbard’s normative natural law arguments or Mises’s utilitarianism? Is the shared human experience of physical personhood the best starting point for arguments against the initiation of violence, i.e., arguments against the state?
HH: There are some questions that can be answered definitively by the performance of a simple experiment. For many others that is not possible. Sometimes we are satisfied with answers that sound plausible or appear convincing on intuitive grounds. But to the curious mind, some questions are of such great importance as to ask for more than just plausibility or intuition.
Transcendental arguments are designed to satisfy this desire for more, i.e., for logical certainty or ultimate justification. They are answers to the skeptic who denies that there is any such thing as ultimate justification and a priori truths. They try to establish, by means of self-reflection, what the skeptic must already presuppose as given and true simply in order to be the skeptic that he is, i.e., to make his skepticism possible. One has reached certainty about something, then, if one can show that even a skeptic must admit to it, if only in order to meaningfully express his very own doubt.
The ethics of argumentation is the answer to the ethical relativist, i.e., to any one person claiming—as a proponent vis-à-vis an opponent in argumentation—that there is no such thing as a rational or objective ethics.
In response to the relativist proponent it is essentially pointed out that by virtue of his own engagement in argumentation he has already effectively rejected his own thesis, because argumentation is an activity, a special, conflict-free form of interaction between a proponent and an opponent with the specific purpose of clarifying and possibly coming to a mutual agreement concerning some rival truth claims. As such, it presupposes the acceptance as valid of such norms or rules of human conduct as make argumentation itself possible. And it is impossible, then, to argue against and deny the validity of such norms without thereby running into a performative or dialectic contradiction.
The praxeological presuppositions of argumentation, then, are twofold—and we all know them from personal experience more generally also as the conditions and requirements of peace and peaceful interactions: first, each person is entitled to exclusive control or ownership of his physical body (that he and only he can control directly, at will) so as to act independently of others and come to a conclusion on his own. And secondly, for the same reason of mutually independent standing or autonomy, both proponent and opponent must be entitled to their respective prior possessions, i.e., the exclusive control of all other, external means of action appropriated indirectly by them prior to and independent of one another.
Rothbard immediately accepted my proof. In fact, he hailed it as a major breakthrough. As for the various criticisms I have encountered, I have not been impressed, to put it mildly.
JD: Are you generally optimistic or pessimistic about the future of the West? Do you think sclerotic, bureaucratic states will yield to happier and more decentralized political arrangements? Or do you think Washington, DC, Brussels, et al. will repeat the terrible mistakes of the twentieth century: aggressive foreign policy, unrestrained central banking, and political globalism?
HH: In the short and medium run, I am pessimistic. True, our living standards have gone up and technological progress allows us to do things not long ago thought impossible, but at the same time the coercive powers of the state have continuously expanded, and private property rights and personal freedom have been correspondingly diminished. The process of political and monetary centralization has proceeded unabated. Central banks create more money and credit out of thin air than ever before. Government debt and obligations have risen to exorbitant heights, so as to make some future default a virtual certainty. All the while taxes and regulations have brought economic growth to a standstill. It is clear, then, that a severe economic meltdown is in the making.
At the same time, throughout most Western countries the populations have been thoroughly dehomogenized by immigration policies favoring multiculturalism. And migration into the West by non-Westerners has been massively increased still as a fallout of the endless US wars and military adventures in the Middle East and elsewhere. Most Western countries now contain within their own native cultures large pockets and clusters of people of not just different, but rival and even hostile cultures.
Combined with a major economic crisis, this makes for an explosive mixture, the ingredients of a civil war.
It is amazing how the ruling elites have so far managed to keep the show running. But there can be no doubt that the day of reckoning must eventually come, and when it does I see two likely scenarios of how to escape the danger of civil war. The first one is the strong man variant, an authoritarian regime that tries to hold all things together by means of centralized, dictatorial powers. And the second variant is that of decentralization: of secession, separation, and disaggregation so as to approach the ideal of a natural order. Naturally, the second variant is the one favored by libertarians (and recommended by Mises). Yet to make this variant win, libertarians have to prepare the ground. The public must be educated about the economic and social advantages of small, competing political units, and it is necessary to find and nurture potential charismatic leaders for the various decentralist and secessionist causes.
JD: Finally, how does living in Turkey affect your perspective? Are old notions of East and West breaking down, and should we consider looking East for allies in the fight for civilization and property?
HH: As mentioned before and emphasized also by Mises, the idea of liberty is originally a Western idea, created by white Western males, and although it has lost some strength there, it is still most prominent and widespread in the West. That does not mean that it is restricted to the West or only accessible to Western minds, however.
If there is anything I have learned from living in various countries and from my many travels, it is that there exists far more sociocultural variety and variance on earth than the typical Westerner might imagine: not just the variety of different countries, but even more so the regional and local variations within each country. Almost everywhere you can find a few libertarians or classical liberals, and you should look out for them wherever they are, of course. But just as we must learn in our private dealings with other individuals how to distinguish between potential converts on the one hand and hopeless cases on the other, so as not to waste our time and effort to no end, so, and for the same reason, we must also learn in our search for allies how to distinguish between hopeful, less hopeful, or even hopeless countries, regions, and localities. And we must realistically recognize that different places offer hugely different and unequal prospects and potential in this regard.
ABSTRACT: This article first explains the key libertarian insight into property and orthodox libertarianism’s philosophical confusion. It suggests making and applying distinctions among abstract liberty, practical liberty, moral defences, and critical rationalism. The two dominant (‘Lockean’ and ‘Hobbesian’) conceptions of interpersonal liberty are explained. A general account of libertarianism as a subset of classical liberalism is provided, and defended from a narrower view. Two abstract (non-propertarian and non-normative) theories of interpersonal liberty are developed and defended, and practical implications for these are derived and compared. This positive analysis is briefly related to morals. It is conjecturally concluded that this new paradigm of libertarianism solves the problems of the old paradigms.
“It’s an amazing fact that the nature of liberty is one of the least-discussed topics in what libertarians like to call ‘the literature of liberty’.” Irfan Khawaja (2009, 155)
J. C. Lester (jclester@gmail.com) is an independent scholar. This essay has benefitted from the critical input of Mark Brady, David McDonagh, and an anonymous referee.
INTRODUCTION The issue here is ‘liberty’ (from a Latin root), or ‘freedom’ (from an Anglo-Saxon root). But it is not ‘liberty’ in its most general sense: for that also applies outside the social realm, including to such matters as arise in physics and engineering (as any internet search shows; and it can be hard to preclude such references when one is not interested in them). The issue here is only social or interpersonal liberty: the liberty that people have in relation to each other. This essay will sometimes refer to ‘interpersonal liberty’ and sometimes simply to ‘liberty’, but the former is always what is meant.
There is a philosophical approach to libertarianism that is very different from the mainstream, or orthodox, varieties.Three main types are distinguished in Mack (2018, 1): “the natural rights approach, the cooperation-to-mutual-advantage approach, and the indirect utilitarian approach.” It has two principal differences: an abstract theory of interpersonal liberty (i.e., non-propertarian and non-normative); and critical-rationalist epistemologyFor detailed explanations of critical rationalism see, for instance, Popper ([1963] 1978) and Miller (1994). (i.e., no attempt to provide ‘supporting'Supporting justifications' entail circularities, infinite regresses, or dogmatic assumptions. As critical rationalism explains, all observations, arguments, explanations, and even logical inferences rest on, and thus logically amount to, assumptions. They thereby cannot offer support that transcends their assumptions (but those assumptions are either true or false, depending on the external facts). However, they can be criticized and tested—all within a framework of assumptions, of course (and presumably reality will tend to aid true assumptions to withstand criticisms and tests better than false ones, and true ones should resurface even if mistakenly rejected). justifications’This is emphatically not to object to ‘justification’ used in the completely different sense that means explaining a conjecture and squaring (justifying) it with any known criticisms or ostensible counterexamples by adequately responding to them (which cannot, of course, offer any support to the conjecture: it merely appears to remain unrefuted so far). or ‘foundations’).It would be possible to accept the abstract theory of liberty but reject or ignore critical rationalism. But all the logical problems of attempting to support theories are unavoidable. This heterodox philosophical paradigm remains largely unknown and otherwise largely misunderstood. In general attempts to explain different types of libertarianism it is typically completely absent.It is absent in, for instance, Mack (2018), Vossen (2019), Zwolinski (n.d.), and Boaz, (n.d.). This is a factual observation, not a complaint. If for no other reason, therefore, it would seem worthwhile to attempt to explain and defend it in outline; and that is one purpose of this essay. However, this is also an attempt to do this with more clarity, precision, and context than hitherto; and this has prompted some new arguments, explanations, and conjectures.This is partly intended to be a better version of the attempts that were Lester (1997; 2014, ch. 10). The result is still very far from being a pellucidly clearSome typical, and thereby useful, misunderstandings that arise in one anonymous review will be dealt with in footnotes at various points. and completely settled account. It would undoubtedly benefit from greater critical scrutiny if only in order to clarify it further, and it might even be significantly corrected or utterly refuted. But regardless of how right or wrong this theory is, it poses questions and problems that the orthodox varieties do not and which need to be answered and solved.
THE KEY LIBERTARIAN INSIGHT AND ITS CONFUSED ORTHODOX INTERPRETATIONS Whatever the various libertarian theories are stated to be, there appears to be one key insight that is behind them all. This is the realization—if only at an intuitive level—that property rights tend to protect and promote two very important things at once: some sense of interpersonal liberty as people not interfering with, or initiating constraints on, each other’s lives (sometimes generally expressed as ‘live and let live’); and maximal productivity, or economic efficiency, that benefits one and all (sometimes generally expressed as ‘a rising tide lifts all boats’). However, as we shall see, this insight remains philosophically confused in the various orthodox forms of libertarianism: there is no clear analysis and clarification of the distinguishable parts. Instead, there is a conflation of certain kinds of deontological rights, good consequences, property rights, and ‘supporting justifications’; and all the while being oblivious to the (absurd and ironic) fact that there is no explicit theory of interpersonal liberty to explain any of this.Two classic examples are Nozick (1974) and Rothbard ([1973, 1978] 2006). But see virtually any mainstream libertarian text. The philosophical sophistication of the Nozick text obscures the fact that it is at the same time ultimately superficial as regards some of the issues raised in this essay. At the same time, these orthodox positions are often perceived and presented by advocatory texts as being crystal clear and completely cogent.A good short example is Long (2014). And see the critical response that is Lester (2014, ch. 6) Critical texts cite real philosophical problemsFriedman (1989, ch. 41, 42). And see the critical response that is Lester ([2000] 2012, 71-123).,“For Nozick, … there is justice when there is no restriction on freedom. But freedom is then itself defined in terms of non-violation of rights, and the result is a tight definitional circle and no purchase either on the concept of freedom or the concept of justice,” Cohen (1995, 61).,See Sobel (2012, 2014). but they are usually answered with, unwittingly, ad hoc maneuvers.E.g., Block (2011). And see the response that is Lester (2014, ch. 8). The problem is that both the best criticisms and the best defences are fatally flawed insofar as they incorrectly assume, as they usually do, that something approximating to the current orthodox philosophical assumptionsSelf-ownership, homesteading, just property, and either deontologism or consequentialism are somehow ‘foundational’ to libertarianism—and all without an explicit theory of liberty. is necessary and sufficient to explain libertarianism and that supporting justificationsI.e., “supporting justifications” as such, not of any particular assumptions. A review overlooks or misunderstands the references to critical rationalism and asks, “Supporting justifications of what?” are possible. General problems with the orthodox assumptions will be explained in what follows. More-detailed criticisms can be found in the texts cited in the various footnote references. But this essay is primarily a short explanation of the heterodox paradigm.
A CLEARER APPROACH: SEPARATING DISTINCT ISSUES An adequate philosophical theory of libertarianism needs to make the following distinctions:
1) An abstract theory of interpersonal-liberty-in-itself that is independent of any type of property (i.e., ownership), or normativity.It will later be explained how Hobbes’s account in Leviathan is not adequate.
2) The practical and contingent, derived, objective applications of the abstract theory.
3) The separate moral and value defences of the abstract theory and its objective applications.
4) At every stage the abandonment of ‘supporting justifications’ in favour of critical rationalism, which explicitly uses conjectures and criticisms.
That these distinctions are needed should become clearer as this explanation proceeds. This approach appears to be sufficiently radical to amount to a different philosophical paradigm of libertarianism. And this is a fortiori true if also combined with the extreme version of the, implicit, classical-liberal/libertarian compatibility conjecture: there is no systematic practical clash between interpersonal liberty (or the libertarian ideology) and want-satisfaction welfare (or preference-utilitarian morals). Some general philosophical explanations of this compatibility will be suggested at various points, but there cannot be a comprehensive social scientific defence of this conjecture here. The following account attempts a new, short, explanation of just such theories of liberty and libertarianism.
INTERPERSONAL LIBERTY There are various competing conceptions of interpersonal liberty. But there are only two dominant conceptions in both common sense and in political or social philosophy. They are not negative liberty and positive liberty, as might be supposed. Rather, they are both types of so-called ‘negative liberty’. One conception is that of people not initiating constraints on each other. This is something that could, as far as is practical, be universally observed: everyone could have maximal such liberty at the same time. This is more or less the conception that John Locke (1632–1704) uses in his Second Treatise of Government (1690).For instance, in section 57: “Liberty is freedom from restraint and violence by others; and this can’t be had where there is no law. This freedom is not—as some say it is—a freedom for every man to do whatever he wants to do (for who could be free if every other man’s whims might dominate him?); rather, it is a freedom to dispose in any way he wants of his person, his actions, his possessions, and his whole property—not to be subject in any of this to the arbitrary will of anyone else but freely to follow his own will, all within whatever limits are set by the laws that he is under.” However, as we shall see later, bringing in “property” and “law” at this stage is partly what prevents this account from being the abstract theory of liberty that will be argued to be necessary. The other conception is that of people not being constraints in any way on each other. And this is something that will, in practice, be a universal zero-sum game: someone can gain such liberty only at the expense of someone else’s loss of such liberty. This is more or less the conception that Thomas Hobbes (1588–1679) uses in his Leviathan (1651), but here restricted only to interpersonal constraints—which Hobbes does not do.For instance, in chapter xxi. Of the liberty of subjects, “Liberty, or FREEDOME, signifieth (properly) the absence of Opposition; (by Opposition, I mean externall Impediments of motion;)” (“Liberty What”); and “A FREE-MAN, is ‘he, that in those things, which by his strength and wit he is able to do, is not hindred to doe what he has a will to’” (“What It Is To Be Free”). And so we see that Hobbes’s account relates to zero-sum action. Neither conception is usually explicitly, clearly, and abstractly theorized, even by libertarian philosophers. Consequently, people sometimes switch between one and the other, or conflate the two, without realizing that this is what they are doing.Such due, general, acknowledgements to Locke and Hobbes are not intended to imply that what follows is about the details or implications of their specific theories of liberty.
LIBERTARIANISM ‘Libertarianism’, in the social or political sense, is a modern name for a long-existing subset of classical liberalism:For instance: “political philosophy that takes individual liberty to be the primary political value. It may be understood as a form of liberalism ….” (Boaz n.d.) “full-fledged libertarianism, as opposed to more moderate forms of classical liberalism.” (Zwolinski n.d.) “Depending on the context, libertarianism can be seen as either the contemporary name for classical liberalism, adopted to avoid confusion in those countries where liberalism is widely understood to denote advocacy of expansive government powers, or as a more radical version of classical liberalism.” (Conway 2008, 295–98). that which advocates maximum interpersonal liberty and either a minimal ‘night watchman’ state (minarchy) or no state (anarchy).On anarchism, see especially Molinari ([1849] 1977), and Bastiat ([1850] 2007). But there are also Jakob Mauvillon (1743–94), Julius Faucher (1820–78), and various others. Hence libertarianism (avant la lettre) seems to have long been be a type of classical liberalism, contra S. Freeman (2001). It is less clear that the politically-correct “liberalism” defended in that essay is entirely a version of classical liberalism. The version of interpersonal liberty that libertarianism tends to assume is no-initiated-constraint liberty. This will be the primary focus here. However, it sometimes assumes no-constraint liberty. A clearer and more explicit theory of each can avoid much philosophical confusion and solve many related philosophical problems. This is useful not only for libertarianism; it will also apply to the common-sense conceptions whether or not they are being used by libertarians.
Some self-described libertarian texts make the characterisation of ‘libertarianism’ more precise. They assume that libertarianism involves “foundational philosophical commitments”“Most of the libertarian theories we have surveyed in this article have a common structure: foundational philosophical commitments are set out, theories are built upon them, and practical conclusions are derived from those theories.” (Zwolinski n.d.) to some combination of certain deontological rights,The most well-known being Nozick (1974). or self-ownership,Which even “left libertarianism” makes foundational. See Vallentyne, Steiner, and Otsuka (2005). or the non-aggression principle (or axiom),For instance, Block (2003). or ‘just’ (i.e., ‘libertarian’) private property, etc. This mightOr, therefore, it also might not. This is not to imply, as a JLS review incorrectly supposes is intended, that all foundationalists would reject this as a form of libertarianism. However, some responses appear to do so; not least, Block (2019) which, for instance, calls “private property rights, the be-all, and end-all of libertarianism, along with the NAP” (p. 142). Reply in progress. be seen as implying that the overall approach taken here is ‘not, real, libertarianism’. Such a position would appear to be somewhat like a Catholic rejecting Protestantism as ‘not, real, Christianity’. It would be dogmatism rather than precision. As what follows is explained as a heterodox paradigm of libertarianism in which abstract liberty is explicitly theorized and very similar practical implications are derived, it would seem perverse to deny that it is a form of libertarianism. If anything, it appears to be more coherently libertarian than the mainstream varieties.
AN ABSTRACT THEORY OF INTERPERSONAL LIBERTY The Philosophical Problem and Its Intuitive but Incorrect Solutions
A ‘practical theory of interpersonal liberty’ can be explained as an attempted account of what interpersonal liberty involves in contingent practice as regards rules and consequences. This can be done by using an intuition that implies a tacit theoryA quoted JLS review comment with interspersed replies: This “suggests that intuitions about liberty are based on tacit theories of interpersonal liberty”. Yes, intuitions that rules and consequences can be categorized as fitting or not fitting liberty in practice thereby imply possession of some sort of theory, however muddled or protean, of abstract liberty to sort them. However, the far more important—non-psychological—matter here is that the possibility of an explicit, abstract theory of liberty is implied by such categorization. “But it isn’t clear that such theories have to be based on complete theories of interpersonal liberty”. It is clear that they rarely are; they are usually inchoate and tacit. Why next mention “in particular theories of libertarian rights”? Why bring in rights at this stage? Before one can coherently assert “libertarian rights” one must first determine what is non-normatively libertarian (what factually fits liberty); whether there is a right to that is a separate, later, and normative question. “Someone might, […] if Popper is right, have some theory in mind, but it might not be a worked-out but tacit complete theory of interpersonal liberty.” Of course it isn’t “worked-out” or “complete”. It would hardly be tacit if it were. of interpersonal liberty; and this is what most orthodox accounts of libertarianism do. But if we are explicitly to derive these rules and consequences, then we first need to have an explicit, abstract theory of interpersonal liberty. An ‘abstract theory of interpersonal liberty’ can be explained as an attempted account of what interpersonal liberty is in itself before any contingent practical applications.
How is an abstract theory of the liberty of libertarianism—and thereby also of the relevant dominant common-sense conception—to be understood? To have a theory of liberty that inherently involves particular property rules and particular moral rights is not to have a clearer and stronger theory. Rather, it is to attempt to have an unfalsifiable or uncriticisable theory. And that, as Karl Popper explained, is not clearer and stronger: it is really to avoid saying anything substantive at all. It is certainly to have no proper theory of liberty. Instead, it is in effect to assume the legitimacy or morality of certain rules or rights and then stipulatively or persuasively—and thereby vacuously—define those rules or rights as ‘libertarian’ and their flouting as ‘unlibertarian’ (or even ‘aggression’The idea that libertarianism is about the absence of aggression, or the Non-Aggression Principle (NAP), or Non-Aggression Axiom—as found in Block (2003), for instance—means, it is explained, that one should “not initiate (or threaten) violence against the person or legitimately owned property of another.” Even if we interpret “violence” to mean only ‘violations’, this raises two crucial problems. 1) How do we know that any so-called “legitimately owned property” actually fits interpersonal liberty (after all, not all property rights fit liberty) unless we have an explicit abstract theory of liberty? 2) If “non-aggression” is absolute (as “non” ipso facto implies), then how can any ‘boundary crossings’, such as even the smallest pollution, be allowed or otherwise dealt with? Rothbard and his followers attempt answers (see, for instance, Block (2011, esp. 2.2–2.5); but they do not work (see in response, Lester [2014, ch. 8, esp. 2.2–2.5])., or—still worse—‘coercion’The narrow, plain-English meaning of ‘coercion’ is “the use of force to persuade someone to do something that they are unwilling to do” (https://dictionary.cambridge.org/dictionary/english/coercion), or “[a]ctual or threatened force for the purpose of compelling action by another person” (https://en.wiktionary.org/wiki/coercion). In this sense, legitimate coercion is not a contradiction in terms. A libertarian society would use legitimate coercion to defend liberty (and sometimes coercion is contractual or even the whole point of some libertarian interaction: boxers are using coercion on each other). However, libertarian texts sometimes use ‘coercion’ to mean any action that is ‘unlibertarian’ or flouts ‘libertarian’ property rights. For instance, “…liberty is by definition an absence of coercion…”; Machan (1998, 184).). Texts that are critical of libertarianism often note this. Therefore, it is better not to tie a theory of interpersonal liberty to specific property rules or to specific moral rights. Then it can be used independently to assess and explain whether any property rule or any moral right is in accord with liberty. Moreover, it is necessary that some such abstract theory is possible. For it is always coherent to ask whether, and how, some property rule or moral right is compatible with interpersonal liberty as a factual matter—rather than by some ideological definition of ‘liberty’ or ‘libertarianism’.A quoted JLS review comment followed by a reply: “This assumes that in order to answer the question, one must have a theory of interpersonal liberty. But couldn’t one attempt to answer the question by pre-theoretical intuitions about liberty?” No, “pre-theoretical intuitions about liberty” cannot explain “whether, and how, some property rule or moral right is compatible with interpersonal liberty as a factual matter”. At most they can assign an intuitive libertarian category to the “property rule or moral right”. And if mainstream libertarianism—of all ideologies—cannot give a coherent answer to such a question, then it is in a state of philosophical confusion that is acutely ironic: it cannot; it is. In any case, the correct eleutherology (philosophical study and theorizing concerning interpersonal liberty) is a fundamental philosophical problem—not only one for libertarians. It is surely no less important than the correct epistemology, for instance. Therefore, if the following account is not the correct abstract theory of interpersonal liberty, still there must be such an abstract liberty to be correctly theorized and it is important that it be attempted.
Is it possible to formulate a libertarian theory of interpersonal liberty that is sufficiently abstract such that it is both non-propertarian and non-normative? First consider the dominant ‘Lockean’ conception. Conceptually, liberty is always about the absence of some kind of constraints on something. Here it is about the absence of some kind of constraints on people by people: interpersonal constraints (it is not about intrapersonal constraints—limits within a person—or the constraints of the natural world). More precisely here, it must be some sense of the absence of people initiating—whether intentionally or not—relevant constraints on each other in some way: a purely reactive or defensive constraint would preserve interpersonal liberty; a proactive or offensive constraint would reduce interpersonal liberty. But what, in the most abstract sense, is it about a person that cannot be proactively constrained by other people if he is to have his interpersonal liberty? This is the key question.
As we have seen, it cannot be either his property or his rights as such—however intuitive such answers may appear.What is currently intuitive for holders of any theories may change for them in the light of a perceived better alternative. It may, of course, be some of, or all of, or only his property or rights where these are compatible with liberty. But that brings us back to the problem. Without an independent, explicit, and abstract theory of liberty, we cannot determine with any clarity what is compatible with liberty. The other main intuitive contender is actions. That also runs into clear difficulties. Proactive constraints on possible actions that someone does not want to perform may not be cared about, or even noticed; so they will not be in any way oppressive (felt as constraining). And some proactive constraints on wanted actions will be perceived as much more oppressive than others in a way that cannot be explained merely in terms of actions. Moreover, sometimes it is not an action but some other wanted state of affairs that might be being constrained; and, again, in a way that admits of theoretically unexplained degrees of oppression. Therefore, abstract interpersonal liberty also does not appear to be about the absence of proactive constraints on actions as such.
The Counter-Intuitive but Correct Solution
So what is being relevantly constrained? The clues are in the references to people’s wants. It is the proactive constraining of the satisfaction of wants. This is the most general description of what we do not want others to proactively constrain with respect to ourselves. And, therefore, it seems to fit what is required for the abstract theory of liberty, despite being a counter-intuitive answer for most orthodox libertarians. Hence we can theorize such ‘libertarian liberty’ as ‘the absence of interpersonal proactively-imposed constraints on want-satisfaction’ (or ‘preference-satisfaction’: as no distinction is made here). Ex hypothesi, this rules out both proactively imposing wants themselves (by—ipso facto unwanted—violent threats, fraud, secret drugging, etc.) and want-satisfactions that themselves would proactively constrain another person’s want-satisfactions (for constraints on them would not be proactive but reactive). Otherwise, the wants may be indefinitely many, heterogeneous in nature, sometimes apparently incommensurable, varying in intensity and importance, biological necessities, or entirely contingent and transitory.
A focus on—and aggregation of ostensibly disparate types of—want-satisfactions ought not to seem too strange. Such want-satisfaction is fairly well understood in economics and in utilitarianism: whatever diverse things people actually want, they must in some sense be obtaining ex ante utility (or usefulness) from them; and people do make some kind of utility-maximising trade-offs among all of their own very different types of wants. Want-satisfaction, in itself, is even one interpretation of ‘utility’ in economics and in preference utilitarianism. Preference utilitarianism is distinguished from the other types by not necessarily having a positive conscious sensation as an effect or a goal. It has only a conscious ‘utility’ as a cause or motive: at the thought of achieving whatever is wanted (even if that is never experienced or known to come about by the person who wants it to be). Consequently, happy delusions are ruled out—unless those happen to be what someone spontaneously does want. Hence preference-utility (or want-satisfaction) is part of what helps us to make sense of the abstract conception of liberty and also of liberty’s ultimate congruence with maximizing one conception of human welfare. For human welfare is rightly perceived as the other main social desideratum, but wrongly perceived as often in serious and systematic conflict with liberty.As already stated, this conjecture cannot be defended here in social scientific terms. That is primarily a task for economists.
A possible—even likely—criticism may be that this is, therefore, really some strange variety, or subset, of utilitarianism being presented as libertarianism. But positively promoting utility is no part of this abstract theory of liberty, let alone using some people for the benefit of others. The theory solely rules out proactive interpersonal constraints on individuals achieving their (non-proactively-constraining) goals. Utility does not even need to be mentioned. However, it is sometimes convenient to speak in terms of utility in order to explain the congruence of liberty with free-market economics and preference-utilitarian welfare.
A further criticism may be that, nevertheless, there are still some interpersonal-utility comparisons implied by this theory, and that this is—at the very least—problematic. And here it has to be conceded that an element of interpersonal-utility comparison is indeed implied. It appears to be theoretically unavoidable for the abstract theory. However, as we shall see later, it is only necessary to make the plausible assumption that people are very broadly similar in their responses to certain very fundamental choices. This is not to suppose, or require, or imply either complete homogeneity or any cardinality of people’s want-satisfaction responses.At this point a review makes a somewhat muddled intervention: “if rights and non-aggression are just contingently related to liberty, how is it that wants are intrinsically connected to liberty in a way rights are not? Unless ‘wants’ and ‘liberty’ are equivalent, the inherent connection between the two calls out for an explanation that is not given.” A reply is best given in stages. 1) It is always best to accurately quote rather than to assume that a paraphrase is accurate. 2) To make a conceptual distinction between two things is not to imply that they are only “contingently related” (any particular number is conceptually distinct from mathematics as a subject, but they are necessarily related). 3) A positive theory of interpersonal liberty and what it entails in practice appears to be conceptually separable from a normative theory of “rights and non-aggression” and what they entail in practice. 4) It is explained in the text how wants relate to an abstract (non-propertarian and non-normative) theory of interpersonal liberty. 5) Rights are either propertarian or normative, and so cannot be part of any such abstract theory.
Now that the abstract theory of interpersonal liberty has been theorized as “the absence of interpersonal proactively-imposed constraints on want-satisfaction”, it may be convenient to abbreviate this unwieldy expression. “No” is shorter than “the absence of”; we are unlikely to forget that it is “interpersonal”, so that can usually be omitted; but “proactively” is crucial here, so best included (usually, at least); “constraints on” someone’s “want-satisfaction” (from what it otherwise would have been) is an ‘imposed cost’ to him (in the sense of the opposite of a merely withheld benefit). Therefore, the full formulation can conveniently be abbreviated to ‘no proactively-imposed costs’ (or more briefly, ‘no proactive impositions’). Ten words have been reduced to four (or three). Whenever an abbreviated formulation is used, the full theory will be implied. Thus any alleged ‘proactively-imposed cost’ must in principle be translatable into the longer formulation. But none of these particular words really matter. The same abstract theory of liberty might be expressed in a different way, as long as the general idea is understood. (And it is now possible simply to add—by analogy with all of the foregoing explanation—that the no-constraint, ‘Hobbesian’, theory of interpersonal liberty will be ‘no impositions’.)
Note that this verbal formulation is not a definition of the word ‘liberty’. It is a philosophical theory about the nature of the abstract liberty that libertarianism, and common sense, presupposes or entails. Definitions attempt to provide the meanings of words (whether by usage or by stipulation). Theories attempt to provide descriptions of the world. And the world includes the realm of all abstractions (which is also inhabited by all the entities of logic and mathematics). It is very remiss to fail to make, or fail to grasp, this crucial distinction. It is part of the philosophical philistinism of common sense when philosophy is seen as “merely arguing about words.” Indeed, one orthodox response to what is being discussed here is that it is mere semantics that does not really contradict or correct anything in mainstream libertarianism.Private communication. Name withheld to protect the guilty. As ought to be clear, that response does not bear serious philosophical scrutiny.A review asks, “How is it that the meanings of words and descriptions of the world are so separate?” Put as simply as possible, to define what a word means (“God”, “phlogiston”, “Yeti”) is not to assert that the definition describes a real thing. Here we appear to have a real abstract thing—a tacit theory of abstract libertarian liberty—and we are attempting to provide an explicit theory that accurately describes it.
This may still appear to be too unlike any theory of what libertarian liberty plausibly could be. But we have seen that orthodox libertarianism has no proper abstract theory of liberty, and that abstract liberty cannot be explained in terms of property, or rights, or actions. That mainstream libertarianism does not have an explicit abstract theory of interpersonal liberty is as strange and scandalous as it would be if utilitarianism were to offer no explicit abstract theory of utility (in fact there are several). It might also be thought that this unorthodox account has not been given a, sufficient, ‘supporting justification’. And that is correct. For, as critical rationalism explains, ‘supporting justifications’ are logically impossible. Nevertheless, it would still be possible to further explain and defend this abstract account of interpersonal liberty at an abstract level. But rather than do that in this new, short, explanation, it will now be applied to the apparent contingent circumstances of the world. Will it produce the results that libertarianism requires? If it does, then that should itself help to explain and defend it.
HYPOTHETICAL DERIVATIONS OF SELF-OWNERSHIP AND EXTERNAL PROPERTY As initially stated, the focus has been on the no-initiated-constraint—‘Lockean’—view of interpersonal liberty. But there are self-described ‘Hobbesian’ libertarians.Such as Hillel Steiner and Jan Narveson. It should be illuminating to show how both of the main abstract theories of interpersonal liberty explained here can be applied to derive practical conclusions. These are hypothetical derivations concerning what the application of abstract liberty factually, or positively, entails; they are not advocatory, or normative. Then there is also the issue of whether these approaches are in any way different in their practical outcomes.
Applying No-Proactive-Imposition Liberty
Here interpersonal liberty is interpreted as being free from peoples’ proactively-imposed constraints on our want/preference-satisfactions; that is, people are not initiating interferences—whether intentionally or not—on our having what we want. If no one is proactively constraining us in this way, then we have full interpersonal liberty. If Adam initiates any control on—interferes with—Eve’s body against Eve’s preferences, then that is a proactive constraint on Eve: the body that, contingently, Eve more or less is. We can imagine a world where a person (understood as a unitary consciousness with appropriate capacities) does not care about control of their body or is not physically attached to a particular body (and can easily move to a different one). In either case, liberty might have different practical implications. But in the reality we seem to observe, for Adam to flout Eve’s preferences as regards her body is not for Adam to exercise his own interpersonal liberty—as here conceived—but to exercise power over another person. And if Eve manages to prevent this, then she is not, significantly, proactively imposing on Adam (except, for instance, to the trivial, and reciprocal, degree that her body comprises natural resources that Adam might otherwise have usedTherefore, even this example does have some conflict in applying pure liberty. In which case it is immediately clear that all that can be achieved is the more libertarian option (maximising liberty) and not perfect liberty. Another example might be the non-trivial disutility proactively imposed on Adam by Eve’s existence and rejection of him versus the extreme disutility of Eve if Adam were to force himself upon her to reduce his disutility.) but reactively defending herself.A quoted JLS review comment with interspersed replies: “The author plausibly conjectures that the disutility to an individual from allowing interferences with his body will normally outweigh the utility gained by someone who interferes with it.” That utilitarian comparison may be true, however what fits abstract liberty is not calculated by what is utilitarian. The correct abstract libertarian comparison is that the proactively imposed disutility on person A of interferences with A’s body by person B far outweighs any proactively imposed disutility on B by his being required not thus to interfere. However, the basic idea can also be explained intrapersonally: it is far less of a proactively imposed cost to be required not to interfere with other’s bodies than it is to be required to suffer their interference with yours. This “seems very plausible for two-person cases, but […] what if one person, or the members of a small minority, is hated by a vast number of people and elimination of the hated would increase the utility of the majority?” Or, rather, what if it would decrease the proactively imposed disutility of the majority that the existence of one person, or a minority, causes? This is somewhat similar to one of the many criticisms dealt with in Lester ([2000] 2012): “A Critic of Religion” (pp. 66–69) (not all of those criticisms and replies could be incorporated into this relatively brief exposition). However, to reply directly but briefly, consider the universalized and long-term effects of institutionalizing a rule that a sufficiently hated person, or minority, can be put to death to minimize the proactively imposed cost that their mere existence causes. This would universally undermine toleration and stoke up hatred and fear. No one would dare to become too well known in case that somehow turned to infamy. To even express an opinion in public might become a serious risk. Therefore, such a rule would appear to allow more proactive impositions that not allowing it. Expressed individually, it is a lesser proactively imposed cost by far to know that someone you hate continues to live (even though you never need to see him or hear anything about him: if you choose to find out about him—or choose to experience media that might mention him—then that is not proactively imposed on you) than it is to live in fear that you, or any one of the many individuals that you value, can be killed if enough people somehow come to feel sufficient hatred. Hence, having ultimate control of one’s body normally follows from having (more strictly, maximally applying) such liberty. This factual and contingent consequence is before needing to assume the legal institution of property (or needing to assume morals either). However, in order better to protect this ultimate control of one’s body, it is efficient to institute self-ownership (which can be done with spontaneously-arising lawOr ‘natural law’, but only in the same sense that there are natural languages. rather than by state commandSee, for instance, Benson (1990).).
With external resources (that is, resources external to people’s bodies) it might be supposed that, logically, we at least need to derive self-ownership first and proceed from that. This does not appear to be the case, for the explanation runs independently: self-ownership does not need to be mentioned, or presupposed, or implied. In fact, a living human body can be thought of as simply one type of resource; just one that contingently happens to be tied to a particular person (intellectually conceived) with very strong and stable fundamental wants or preferences about controlling it. However, because bodies are more or less what we are, and external resources are not, the situation with external resources is somewhat different.
Once we have begun to useThere need be no labor-mingling. It is possible to find a use for something by its remaining as it was found: a beautiful tree outside our abode, or the sunlight that falls daily on us. Neither need labor-mingling be using something: to walk across mud is to mix one’s labor of walking with that mud, but not thereby to use the mud (which is, we may suppose, a mere nuisance). Hence, it is use that is fundamental. a natural resource for some purpose, then it typically proactivelyA review asserts that “no account of what ‘proactively’ means or describes is adequately given”. Why is this needed? ‘Proactive’ is in most dictionaries; it is the antonym of ‘reactive’. Perhaps the review means ‘proactively imposed’. However, a little above in the text that expression is explained as “initiating interferences”. And earlier still the text explains “a purely reactive or defensive constraint would preserve interpersonal liberty; a proactive or offensive constraint would reduce interpersonal liberty”. Can this be made plainer? The basic idea is more generally expressed simply as an ‘interference’. But rather than belabor this point further, it is probably easier to deal with specific examples as they arise. imposes a significant cost on us if someone takes that resource from us or uses it in a way that flouts our purposes. By possessing and controlling it we might proactively impose a cost on other people too; but this is mainly to the, usually small and reciprocal, extent of the unmodified resource’s want-satisfaction value to them. For to be denied a benefit that someone else has somehow produced—such as a wooden cabin—is not in itself to be proactively imposed on.However, to simplify matters, this ignores discussions of costs relating to envy, frustrated desire, lost status, ‘utility monsters’, and other mainly ‘self-inflicted’, or moral hazard, or reciprocal examples: all of which it would, at least overall and in the long term, proactively impose more to allow to limit ultimate control by initial use and subsequent voluntarily agreed transfer. But see the index of Lester ([2000] 2012) for relevant discussions of such things.,A review asserts that “the claim that ownership does not proactively frustrate the non-owners’ preferences is ad hoc at this point.” Several responses are relevant. 1) Accurate quotation is better than inaccurate attempted paraphrase. 2) There is no such assertion or implication. 3) This is “at this point” about ultimate control and not about “ownership”. 4) It is stated in the main text that “we might proactively impose a cost on other people too; but this is mainly to the, usually small and reciprocal, extent of the unmodified resource’s want-satisfaction value to them.” 5) It is stated in the footnote that “to simplify matters, this ignores discussions of costs relating to envy, frustrated desire, lost status, ‘utility monsters’, and other mainly ‘self-inflicted’, or moral hazard, or reciprocal examples …” (and a reference to discussions of such issues is given). 6) There is a severe limit on how much detail is possible in this relatively short explanation. Therefore, it appears that the least proactiveA review asserts that “it is not clear how degrees of proactivity are even relevant at this point.” It is not about “degrees of proactivity” but ‘degrees of proactively imposed cost’. It has already been explained how these can be on both sides with both a person’s body and external resources. In all such, ubiquitous, cases liberty can only be maximized. imposition on people’s preference-satisfactions is usually to allow ultimate control to the initial user,But exceptions can be imagined, such as where this monopolizes a vital natural resource that other people would themselves have discovered. and thereafter control by voluntarily agreed transferA review asserts that the “conclusion on this point is insufficiently supported”. This is, again, to overlook, or reject without explanation, the assumed epistemology that is cited and outlined earlier. It would only be relevant to produce a criticism that is inconsistent with the text. (as mentioned above, these interpersonal comparisons plausibly assume only that people are very broadly similar in their responses to certain fundamental choices). Assuming the theory of liberty, this entails that it usually maximally observes, or instantiates, liberty to have personal ultimate control of external resources where one has initiated a use (or subsequently received them by voluntarily agreed transfer). This factual and contingent consequence is also before needing to assume the legal institution of property (or needing to assume morals). However, in order better to protect liberty, it is efficient to institute property rights in such resources.A review asserts that “the notion that property and trade maximize liberty (and not merely want satisfaction) […] requires both [1] data to show that property and trade do satisfy wants more than the alternatives and [2] an explanation of how those satisfied wants are indeed of the type that are included in the theory of liberty.” Replies to both points follow. 1) This is philosophy and not social science, so empirical “data” cannot usually be more than background assumptions. Assuming critical rationalism (as this essay does), which includes falsificationism, no amount of “data” can “show” (i.e., support or justify) anything. What has here been called the “classical-liberal/libertarian compatibility conjecture” cannot be defended here apart from a few passing philosophical aspects. 2) A philosophical explanation has been provided of the fundamental relationship between want-satisfaction and the property and trade that is implied by applying the abstract theory.
In short, we can derive both self-ownership and external private property (usually arising from initial use and thereafter voluntarily agreed transfer) because, contingently (for we can imagine worlds where this is not so), they maximally observe such interpersonal liberty. They are not what interpersonal liberty is in abstract theory, but what maximum interpersonal liberty entails in practice (hence they are not, philosophically, the ‘foundational’ assumptions of libertarianism—as is often supposed). And once self-ownership and such property are thus derived from maximally observing abstract liberty, we can use them as strong, prima facie, positive rules as to what is ‘libertarian’: that is, factually maximally liberty-instantiating in practice. Therefore, we have arrived at the two main rules that libertarians intuit to fit liberty, but now with an explicit, non-propertarian, non-normative, abstract theory of liberty to explain that intuition.
Such ‘rule libertarianism’ (but non-moral at this stage) is analogous with rule utilitarianism. This may sound odd mainly because orthodox libertarianism jumps straight to normative rules without any explicit non-normative, act-libertarian, abstract theory. It might even seem that this abstract theory necessarily implies act-libertarianism. But that seems to be as mistaken as the view that utilitarianism necessarily implies act-utilitarianism instead of rule-utilitarianism.If the compatibility conjecture is true, then libertarian rules are also utilitarian rules. Now that these practical property rules are derived, it is only necessary to go back to the abstract theory of interpersonal liberty in problem cases or to answer further philosophical questions.
However, there is an immediate and obvious problem that has already been touched on with respect to deriving self-ownership and external-resource ownership. Very often a near-absence of proactive impositions is impossible because there is a significant reciprocal clash. For instance, either you suffer the smoke-pollution from my fire or I suffer going without warmth and cooking: both the allowance and the disallowance of the fire will proactively impose, but on different people (confused criticisms of deontological or rule libertarianism often see only the allowance of pollution as imposingFor instance, Zwolinski (2015). And see the reply that is Lester ([2011] 2016, ch. 31).).Either of us could move our dwelling places, of course. But that would be, we may assume, an even greater proactive imposition on whichever side did this. In such cases it is impossible to achieve anywhere near perfect liberty or to apply any plausible interpretation of the so-called ‘non-aggression principle’, for liberty can only be maximized as best as is practical; and this might involve compromise or compensation. It is important not to misunderstand this point. Dealing with inevitable clashes by maximising liberty might appear to be collectively consequentialist (in some non-moral sense at this stage, at least). But that can’t be right; for no one’s liberty is curtailed in order to promote the maximum liberty of other people in general. It is simply that maximisation is all that is possible when specific liberties conflict. These specific liberties might include indefinitely large groups of indeterminate people (‘the public’), and be best dealt with by a class, or representative, law suit. But even such ‘collective’ minimising of proactively imposed costs on indeterminate people is not ‘collectivist’ in any way that overrides libertarian individualism in principle. As a consequence, applying this theory of liberty inherently internalizes externalities (but in a pre-propertarian sense) as far as is practical and thereby tends to be economically efficient. And this is one significant philosophical link between liberty or libertarianism and want-satisfaction or preference-utilitarianism.
Once all this is understood, it is possible to apply the abstract theory of liberty to derive relatively precise and clear implications for an indefinite variety of other issues within libertarianism. For instance, intellectual property, restitution and retribution, emergency situations, etc.As found throughout Lester ([2000] 2012, [2011] 2016, 2014). But none of this can be attempted here.
Applying No-Imposition Liberty
As we have seen, a straightforward no-constraint-on-actions approach to interpersonal liberty is in itself more or less zero-sum: if you have more interpersonal liberty, then someone else has just that much less. By this conception, a slave-owner qua slave-owner has more liberty where, and to the exact extent that, his slaves have less: whatever he can enforce that the slaves cannot prevent. Such zero-sum interpersonal liberty cannot in itself be maximized or protected; it can only be competed over or redistributed for some non-liberty reason—such as utility or equality. Therefore, it cannot be the liberty required by most versions of libertarianism (and one common-sense conception). Yet some libertarian texts do seem to accept it. They usually opt for something along the lines of ‘maximum like (i.e., similar or equal) [valuable] liberty for all’—the word ‘valuable’ often being implicit.For instance, “every man may claim the fullest liberty to exercise his faculties compatible with the possession of like liberty to every other man” and “each has freedom to do all that he wills provided that he infringes not the equal freedom of any other”; Spencer (1851, ch. 4, sec. 3). More recently, “everyone has an equal right to the most extensive liberty compatible with the like liberty for all”; Rawls (1971, sec. 11). Hence, in these theories, liberty-in-itself cannot be the criterion or the goal that is to be maximized or protected. They have the rather different criterion or goal of valuable liberties that all can share equally.
However, if the subjective intensities of interpersonal impositions are taken into account, then this does allow for a liberty-maximising interpretation. Adam might prefer to have ultimate control of Eve’s body. And Eve prefers that Adam doesn’t. In the event of such clashes of no-imposition liberty, the most ‘libertarian’ (i.e., liberty-instantiating) approach is to have whichever option is the lesser constraint.With the possibility of compensation in certain cases. Perhaps where there is no similar reciprocity, for instance. Almost universally, it is a greater constraint on one’s preference-satisfactions to have any aspects of one’s body under someone else’s ultimate control than it is to be denied any similar control of another person’s body (or to have any other system of bodily control). Therefore, no-imposition liberty is maximally observed if people have ultimate control of their own bodies. This factual consequence is before the legal institution of property (and also before morals) needs to be assumed. However, an efficient way to protect this ultimate control of one’s body is then to institutionalize this as the property right of self-ownership.
A similar type of argument also applies to the control of all other resources. It is typically a greater constraint on our preference-satisfactions for other people to deny us ultimate control of the resources we already use (and thereafter receive by voluntarily agreed transfer), than it is to be denied access to resources that others are already using. Etc., etc.A review asserts that “[1] The argument of [this section] seems to apply equally well to the author’s argument, [2] for the author never shows that want satisfaction is a non-zero-sum game, [3] nor does the author make a convincing case that interpersonal liberty, as defined by rights or some other criteria, is actually zero sum.” There appears to be confusion here. 1) This section shows how it is possible to avoid the zero-sum-game interpretation of ‘Hobbesian’ liberty “if the subjective intensities of interpersonal impositions are taken into account”. 2) This essay’s main theory is not about mere want-satisfaction but the absence of proactive constraints on want-satisfaction. 3) Interpersonal liberty as somehow “defined by rights” may very well not be zero-sum. But, for the reasons explained, that cannot be an abstract theory of liberty (which does indeed use “some other criteria”).
Do These Two Theories Have Any Different Practical Outcomes?
In light of these two explanations of interpersonal liberty, one important question immediately arises: are they fully equivalent in terms of what they entail in practice? Both conceptions of interpersonal liberty appear—at least initially—to have the same practical implications. Thus one could explain interpersonal liberty using either. With the no-imposition approach, we still have to say that a slave-owner is having his liberty lessened if his slaves are freed without his consent; just not as much liberty as his slaves gain by being freed. Similarly, a would-be murderer has less liberty if his target-victim escapes; just not as much as his target-victim preserves his liberty by escaping that intended murder. This seems to be a coherent account. However, it is not how people mainly think about interpersonal liberty—either as self-described libertarians or otherwise. People typically think that when someone escapes proactively-imposed slavery he gains liberty; but his previous master has lost only his power over him. And the would-be murderer does not have his liberty lessened if his target-victim escapes him; his target-victim’s liberty is simply preserved. Thus the no-imposition view fails to capture the intuitions that people usually have (as a matter of fact: this is not to advocate anything here) that there is a real causal and also moral difference between withholding a benefit and proactively imposing a cost even when the outcomes are the same. Consider a well-known example in the philosophical literature: coming across a drowning child in a shallow pond. Not saving the child will usually be viewed as morally reprehensible and despicable, but it is not usually viewed as causally or morally equivalent to pushing a child into the pond so that he drowns: to the equivalent of murder.Matters would be different if one were contractually employed as a lifeguard: then not saving the child would be proactively imposing by breaking one’s contractual duties (on deriving contracts see Lester ([2000] 2012, 80–85). Hence it is closer to the main libertarian, and also more popular, approach to view abstract interpersonal liberty as the absence of people’s proactively-imposed constraints on our preference-satisfactions. And that fact possibly means that it is more stable and less costly to preserve. If so, other things being equal, more liberty should result. Thus that may be one important practical difference, after all.
Nevertheless, there are—as mentioned—some self-described “Hobbesian” libertarians (although they would probably not give the same account as here). And there are also anti-libertarians that take a Hobbesian approach to liberty. Therefore, it is useful to be able to explain both of these two approaches. It is also possible that one of these approaches is in some way logically incoherent or in some other way unfixably faulty. In which case, it is good to have the other to fall back on. But if they are both logically incoherent or unfixably faulty, then that would mean starting again. For it seems that there must be a tacit, non-propertarian, non-normative, abstract conception of interpersonal liberty that distinguishes between those rights, property rules, and activities that instantiate (or fit) liberty and those that do not. And so an explicit account of that conception should be possible.
LIBERTARIAN MORALS An abstract theory of interpersonal liberty and of what it entails in practice has now been broadly explained. Orthodox libertarianism brings morals into the picture before this has been done. But it seems that only after this has been done can it be fully coherent to ask ‘how does liberty and what it entails relate to morals?’ Given—as seems to be the case—that there cannot be any supporting justifications, it can only be a bold conjecture that such abstract and practical libertarianism is morally preferable to any alternative. This conjecture needs to be defended in the light of any criticisms that arise. It can be explained and defended how there does not appear to be any significant clash between libertarianism and the most defensible versions of various morally desirable things: rights and duties, justice, social justice, a social contract, human flourishing, human welfare, etc. But this does not mean that libertarianism is thereby morally supported by any of these things (or any combination of them). It remains a separate conjecture that libertarianism is morally desirable, and all moral criticisms are potential refutations that require adequate responses.A review suggests, without any explanation (or ‘justification’), that this short section should be omitted. Perhaps the implied reason is that it is better to say nothing about libertarian morals rather than to fail to produce a scholarly length ‘justification’ of what is being explained here. But to say nothing may leave it mysterious to many readers how morals are supposed to relate to libertarianism with this theory. Or it may be thought that morals are still what will give it a ‘supporting justification’. Or it may be supposed that morals are implied to be not needed.
CONCLUDING CONJECTURES This philosophical essay is, ineluctably, more than averagely broad and speculative. Consequently, even if it were not assuming critical rationalism, it is not being presented as completely clear and convincing. However, it would be remiss not to conclude with some boldA JLS review notes the Popperian approach to bold conjectures but suggests that “it does not follow from accepting this methodology that one must make bold and extravagant comments about the value of one’s conjectures”. However, no specific examples are quoted or explained to be “extravagant”. And none of the comments ought to be read as intentionally “extravagant”, although a sound criticism may reveal them to be so. conjectures that ought to be eminently criticisable. As regards interpersonal liberty, the abstract theory captures and explains it. As regards libertarianism, a “paradigm shift”To put it in the terms used and popularized by Thomas Kuhn. is required. The fundamental philosophy involved with mainstream libertarianism is a refuted and “degenerating research programme”.To put it in the terms used by Imre Lakatos. Referring to Popper, Kuhn, and Lakatos might seem to be epistemologically promiscuous and inconsistent. However, the different expressions seem to capture important phenomena. Also, Kuhn’s approach can be interpreted as more sociological than epistemological. And Lakatos did not see his own work as contradicting Popper’s basic epistemology. The philosophy involved with this new paradigm is an unrefuted and highly fruitful one. It offers a clearer understanding, better and more comprehensive solutions to problems, and more convincing replies to criticisms. However, despite its radical and important differences, the new paradigm is not fundamentally ideologically at odds with libertarianism itself—although that is sometimes the mainstream perception. For it reaches more or less the same conclusionsIt deals precisely with any exceptions in a principled way where mainstream libertarianism is either unable to answer or is forced to make ad hoc assumptions. but with greater philosophical clarity and cogency.
So far, this heterodox paradigm has been largely unnoticed or ignored. Where it has occasionally been subjected to criticismFor instance, Gordon and Modugno (2003), Frederick (2013, 2105). it appears to have been misunderstood.Replies to the critical texts listed in the previous footnote can be found here: Lester (2014, ch. 9, 10; 2017). Links to other replies to reviews: http://www.la-articles.org.uk/lwa.htm. This is only to be expected. It is sufficiently radically different from the current orthodoxy to confuse most mainstream libertarians, even philosophers.As illustrated by the review quoted throughout. It is still ‘axiomatic’ to them that self-ownership, ‘just’ property, and some version of morality are somehow ‘foundational’ to explaining and ‘justifying’ libertarianism philosophically (and all without an explicit, abstract theory of liberty), despite the increasingly obvious problems with such assumptions. It will only slowly become clear that it is necessary to make the philosophical distinctions of abstract liberty, applied liberty, and moral defenses, while using critical-rationalist epistemology.A review objects that this essay “has provided nowhere near the argument necessary” for its concluding conjectures. Of course, conjectures cannot be supported by arguments: only explained and defended. However, there have been short explanations of 1) the fundamental philosophical problems with mainstream libertarianism, and 2) how an alternative approach can solve those problems. The review has offered no sound criticism of any part of these explanations. Hence it “has provided nowhere near the argument necessary” as a criticism to refute the concluding conjectures.
Quarterly Journal of Austrian Economics 22, no. 2 (Summer 2019) full issue. ABSTRACT: One of the fundamental conditions for overcoming the economic disaster in Venezuela and being sure that a new government could not snatch away economic freedom again, is the desocialization of the economy. Following Rothbard (1992), we propose one of the required steps to achieve a real free market economy in a post-socialist Venezuela. In this paper we analyze, based on previous experiences, how to desocialize enterprises in this country, as well as the historical skepticism that socialist politicians, media, and economic elites have created against the capacities of Venezuelans to manage their own property. In addition, we provide a draft of a privatization law that minimizes the presence and control of government in this process, a requirement because of the historical trend of corruption and cronyism of all Venezuela’s governments. Also, we provide a general description of our proposal of distributing among Venezuelans by birth and legal age, all special taxes and royalties that oil enterprises have to pay to governments in such a way as to starve the government and consolidate its fiscal dependence with citizens to strength democracy and liberty. Finally, we conclude that even though it is fundamental, it is not enough just to desocialize enterprises, but also to apply other radical free-market policies oriented to increase the individual liberties and minimize as much as possible the State.
privatization — socialism — venezuela JEL Classification: B53, E32, E42, E58, G21 I. INTRODUCTION Venezuelans have become accustomed to the view whereby oil and all natural resources belong to the citizens. The mercantilist and socialist media has broadcast and instilled this false idea. The educational system also espouses this erroneous narrative. However, Venezuelans have neither received the proceeds from oil extraction, royalties, taxes and dividends nor been allowed to possess equity shares in the business. On the contrary, because Petróleos de Venezuela Sociedad Anónima (PDVSA, Venezuela’s oil company) is a state-owned company, governments are the only direct recipients of those benefits, which confers upon them a tremendous economic power and considerable independence from Venezuelan tax payers.
State ownership of the commanding heights of the economy is not an original policy created in the Chávez-Maduro regime, but an exclusionary economic institution resulting from an increasingly dominant combination of democratic socialism and mercantilism implemented by elites in power decades before the advent of Chávez (Faría and Filardo 2015). With such a huge economic power concentrated in the hands of political and economic elites, representatives of “the socialism of the 21st century” have been able to promote a varied array of destabilizing activities abroad and to increase their power hold in the country, which has morphed into an internationally recognized tyranny. Hence the prescience of Mises’s wisdom:
If control of production is shifted from the hands of entrepreneurs, daily anew elected by a plebiscite of the consumers into the hands of the supreme commander of the ‘industrial armies’ or of the ‘armed workers’, neither representative government nor any civil liberties can survive. (Mises 2008).
This paper, which is also inspired by (Rothbard 1992), abides by the principles of not confiscating people’s money, keeping taxes as low and simple as possible, and not allowing government ownership of firms. Furthermore, following the general approach to the privatization process argued in (Acevedo 2018), we present a proposal to desocialize not only PDVSA but all Venezuela’s state-owned companies and assets.
We understand that this process is difficult but not impossible to apply. In 2017 Transparencia Venezuela reported 526 state-owned companies. Therefore, other structural reforms necessarily have to accompany such property devolvement from the state domain to the private sphere; nonetheless, we will develop them in separate papers: monetary freedom, freedom to trade, rule of law and independence of the judicial system, flexibility of labor laws, minimization of government expenditures, and the systematic privatization of public services, among others.
In this paper, we explain the relevancy of desocializing enterprises in Venezuela and propose a desocialization law. In a nutshell, firstly, we discuss the historical skepticism on the capacities of Venezuelans to enjoy total economic freedom and be real shareholders of the enterprises currently run by the state. Secondly, we analyze the historical process of desocialization in countries with characteristics similar to those of today’s Venezuela. Thirdly, we propose a desocialization law justified with the socialist rhetoric that claims Venezuelans are the owners of the companies, thus to convert this fiction into reality, putting an end to deceptive and self-serving socialist narratives.
In addition, this paper provides a preliminary exploration of the issue of equally distributing among Venezuelans taxes and royalties that corporations in the oil sector are today legally forced to transfer to the government. The final goal is to starve the government constraining it to live off the people, a necessary condition for the firm establishment of the rule of law and democracy, contributing to replace the currently perverse practice whereby the people live off the government (Faría 2008).
Finally, we conclude that it is better to distribute shares among all Venezuelan citizens by birth aged eighteen years or older, while selling a relevant stake to foreign and domestic investors to attract managerial expertise. We contend that our proposal is better adapted to Venezuela’s institutional fragility than if we were to adopt other well-known alternatives implemented by Eastern European countries and England under the Thatcher government.
II. SKEPTICISM ON THE CAPACITIES OF VENEZUELANS: A HISTORICAL CURSE? In this section, we explore the roots of the belief, mainly disseminated by politicians and certain scholars, that Venezuelans are not capable of handling their own freedom and wealth in a proper manner. It is important to understand the origin of that stance because when we publicly state our proposal on the effective distribution of shares among all Venezuelan citizens by birth, aged eighteen years or older, we have faced hard skepticism, based upon an alleged lack of knowledge or ability of the average people.
Such underestimation is widespread and not only an exclusive characteristic of politicians and other elites. On social media, the lack of trust concerning how beneficiaries would manage their shares is commonly expressed. The populist rhetoric, implemented since 1958, has instilled a strong bias, to the point that there are people who do not believe in the power of healthy incentives and individual freedom but do believe in bureaucrats and other elitist groups deciding on behalf of all citizens. Nevertheless, this situation has a historical root since politicians and power elites have always undervalued the ability of Venezuelans.
After a brief review of Venezuela’s history, it is relatively easy to understand that the bulk of the independence heroes did not embrace liberal or libertarian ideas at all. The father of the nation, best known as the “Liberator,” Simón Bolívar, stated “Generally speaking, our fellow citizens are not yet ready to take on the full and independent exercise of their rights, because they lack the political virtues marking the true citizen of a Republic” (Bolívar [1812] 2003a, 6)
Nonetheless, that was not the only sentence expressing reluctance to believe in his fellow countrymen which the Liberator stated in his life. “Until our compatriots acquire the political skills and virtues that distinguish our brothers to the north, entirely popular systems, far from being favorable to us, will, I greatly fear, lead to our ruin” (Bolívar [1815] 2003b, 23). He also said:
Freedom, says Rousseau, is a succulent food but hard to digest. Our weakened citizens will have to strengthen their spirits mightily before they succeed in digesting the healthful nourishment of freedom. Their arms and legs numbed by chains, their sight dimmed in dark dungeons, and stricken by the plague of servility, will they ever be capable of marching with firm steps toward the august temple of Freedom? (Bolívar [1819] 2003c, 34)
Another sentence attributed to Bolívar, showing the dawn of this “historical curse,” is: “these gentlemen believed that they were in Greece, building air republics that are not consistent with the situation and reality of the Venezuelan people, not prepared for the supreme good of freedom” (Acevedo and Andrade 2018, 1). In this statement, Bolívar referred to the people who wrote the first constitution of Venezuela in 1811, which was—by the way—federalist and “inspired in the US constitution and the politic liberalism of that moment” (Acevedo and Andrade 2018, 1).
Aguiar (2018, 1) argues that Bolivar’s sentence in Cartagena in 1812, “the Venezuelan people, not prepared for the supreme good of freedom,” has been used and applied in the political context in Venezuela in at least two specific moments, 1959 and 1999. Venezuelan politicians and power elites have used—and keep using—the same phrase to justify the need for a “big, powerful and indulgent dad”—represented by a big state, and a person—the president—whom people have to trust and let decide everything on behalf of everybody.
It was in 1821 when, finally, the independence of Venezuela was reached. Nevertheless, as Faría and Montesinos (2016, 214) state “…while Americans founders wanted freedom, Venezuelan generals (caudillos) wanted independence from Spain…. Venezuela’s independence was established in 1821 by European descendants and for European descendants.”
From 1821 to 1957, Venezuela did not embark on a “real” democracy as it did from 1958—with all of its weaknesses and defects. Before this year, many caudillos—who took power and control of the nation through revolts and/or incipient forms of democracy—ruled the country. Other particular characteristics of this term were political and constitutional uncertainties—25 constitutions were “made to cover the desires and needs of the “caudillo” who ruled the country… federalism was increased and decreased depending on the interests of the government” (Acevedo and Andrade 2018, 1). Nevertheless, in the first half of the 20th century, Venezuelans tasted just one part of freedom, Acevedo and Cirocco (2017, 5) state, about the 1914 to 1957 timeframe:
…during those years, of the five presidents we had, four were dictators and generals of the army. Our civil and political rights were restricted. We didn’t have freedom of the press, for example; we didn’t have universal suffrage. But, while we lived under dictatorships, we could at least enjoy high levels of economic freedom.
When Rómulo Betancourt, a Social Democrat, won the presidential election in December 1958, the democratic era started in Venezuela. For the first time, citizens enjoyed civil and political rights that did not exist before, nevertheless, such “gifts” of democracy came along with a cost, economic freedom. Acevedo and Cirocco (2017, 6) said about Betancourt that “he started destroying the economic institutions we had by implementing price controls, rent controls, and other regulations we hadn’t had before. On top of that, he and his allies created a new constitution that was hostile to private property.” The worst of all this is that, currently, Betancourt’s admirers and a great number of social media influencers still justify those policies, saying that Venezuelans were not prepared to enjoy total freedom.
In addition to the politicians and elites’ arrogance that underestimates the capacities of Venezuelans, we found other potentially limiting factors for the implementation of our proposal, which involves embracing high levels of economic freedom: cultural factors such as trust in othersSee Arrow (1972). and the gap between individualism and collectivism;See Heine (2018). the historical origin of the country’s laws;See La Porta, Lopez-de- Silanes, and Shleifer (2008). and the legacy of human capital.See Faría and Montesinos (2016) and Bennett et al. (2017).
Faría and Montesinos (2016, 225) argue about the importance of the above-mentioned factors. First, trusting others is necessary to embrace economic freedom, but “Venezuela is among the countries of the world with the lowest trust level.” With regard to the gap between individualism and collectivism, these authors state that individualistic societies privilege natural rights while collectivistic societies create a population characterized by conformity and “discourage individuals from dissent and standing out.”Individualistic cultures prefer rules applied to everyone, whereas collectivistic cultures emphasize friendship for the administration of justice, see Bennett et al. (2019). Not surprisingly, on measuring individualism, Venezuela is located in the lowest quartile among the rated countries. The origin of a country’s legal system can explain the level of state meddling: French civil legal tradition allows more interventionism than the English common law system. Venezuela, these authors say, “can be construed as an extreme case of a country with a legal system originating in French civil law” (Faría and Montesinos 2016a, 226). There is “strong evidence suggesting that cognitive skills, a proxy for the quality of education, have a systematic positive effect on the quality of economic institutions” (Faría and Montesinos 2016, 227), which represents another serious problem because, as they also state, “Lamentably, a great misfortune still plagues Venezuela’s educational quality… Venezuela within Latin America ranks next-to-last in translating years of schooling into cognitive skills, as measured by international test scores” (Faría and Montesinos 2016, 227).
Finally, the context explained in this section cannot be omitted: the bias against freedom and the distrust regarding individual capacities that the historical and political processes have created, with the intent to preserve an omnipotent, interventionist and socialist state assuring the monopolistic management and control of power and of the commanding heights of the economy.
HOW TO DESOCIALIZE ENTERPRISES IN VENEZUELA At this moment (circa March 2019), Venezuela is one of the most commented news stories around the world. President Trump’s administration in the US and at least 30 more countries are leading efforts to help Venezuelans recover freedom. Nonetheless, this attempt seems to just focus on the “political freedom” arena, because the recovery of “democracy” is apparently the unique objective. Sadly, Venezuela has experienced that just democracy is not enough for long-run prosperity. Indeed, Venezuelans enjoyed such a political system for more than 40 years, but rooted in an omnipotent state, overwhelmingly independent of its citizens in fiscal terms and considered the “big dad” (Acevedo and Cirocco 2017, Faría 2019). In our view, this has been the main cause of the progressive deterioration leading to the current tyranny, a cause that will continue even in the case of a potential change of the rulers.
Since the main objective of this paper is to propose a privatization program—based upon the Austrian School’s view, to the best extent possible—it is important to start our theoretical framework by reviewing the specialized literature on this matter. Rothbard (1992, 66) shows the guidelines that we have adapted after considering the particular situation of Venezuela. He argues that “you cannot plan markets” in a desocialization strategy and that the only thing you can do is “set people free so that they can interact and exchange, and thereby develop markets themselves” (Rothbard 1992, 66). He explains the impossibility of planning capital markets, as occurred in the failed attempts of some Western economies to develop stock exchanges. For these reasons, Rothbard (1992, 66) explains “stock markets cannot be planned… you cannot have markets in titles to capital if there are still virtually no private owners of capital in existence.”
Nevertheless, the history of Eastern European countries demonstrated that some privatization programs have succeeded. For example, the Georgia case, after a Social-Democrat government and some attempts of privatization involving a lot of corruption, cronyism, and political influences, the new real pro- free market government started a privatization program headed by Bendukidze. To the best of our knowledge, it is one of the most successful ones that we have researched during the writing of this proposal. Some other attempts of desocializing enterprises, with relative success, are not difficult to find in recent history. The privatization program headed by Lewandowski in Poland, with all its pros and cons, is another clear example that when rulers let free markets rule, things go right.
For the sake of brevity, in this research, we just address the main issue of desocializing the enterprises currently owned and managed by the government. Nevertheless, we develop proposals for similar processes that should take place in other areas, such as taxes and money, in separate papers. We are quite conscious that this is not an isolated action and that, on the contrary, it should be implemented as part of a general plan which minimizes or prevents government’s meddling in critical economic issues.
Problems Desocialization of Enterprises Will Face
In this paper, we try to cover the most relevant privatization topics of Venezuela’s enterprises, based upon its current situation; nevertheless, the literature on this matter is wide and varied. Since Venezuela would be in a breakpoint by the moment of a potential implementation of this proposal,We admit that the only chance our proposal has to be implemented is that a new real pro-free market government be established. Nevertheless, the political history and the current closeness of the Interim President, the fact that his political party belongs to the International Socialist, and the highly publicized Keynesian “The Morning After” plan, best known in country as “Plan País,” make it almost impossible for our desocialization proposal to be considered in the short run. Our hope is that someday, as in Georgia, the free-market principles win not only the battle of ideas but also the political war taking place in Venezuela. we need to analyze the historical problems and failures of such a complex action as privatization. The people and the government implementing our program might understand that desocializing—in any economy—“is almost never painless” (Kikeri and Nellis 2002, 20). Strictly speaking, some attempts at privatizing in other countries have ended in tremendous failures,See (Li, Wang, Cheung, and Jiang 2011). because as Carter (2013, 108–09) argues, “privatization involves changing institutional archetypes which structure the governmental, societal, and economic arrangements and behaviors; it can be both challenging and problematic.” However, those failures are the proof of what Rothbard (1992) stated: the bulk of Western economists who were consulted on how to desocialize and build a free market economy had to handle not only the obstruction of bureaucrats but also their own confusions and misunderstandings about how real free markets function.Rothbard (1992) says: “Western economists have accepted the view that there is no calculation problem under socialism.” For this reason a great part of them have failed in their wrong attempts to set up a real free market economy.
Therefore, when a country is breaking the chains of socialism or communism and wants to desocialize, it is not only important to transfer the ownership from the public sector to private hands, but to really implement a free-market economy as well. In a general context, we understand a real free-market economy as one in which the state is limited and minimal, totally dependent on citizens, and unable to intervene in the economy, where natural rights are constitutionally enshrined and highly protected, and where private property and wealth—well created and acquired—are sacred. With such an economy, we are confident that our proposal will overcome the possible cons of privatization that Goodman and Loveman (1991, 4) argue. These authors say, “Neither public nor private managers will always act in the best interests of their shareholders,” nevertheless free markets will give managers the incentive to be efficient or, otherwise, competition will push them off the market. Following these authors’ reasoning, when the new privatized enterprises have free competition, the presence of other companies will be an excellent factor “to discipline managerial behavior” (Goodman and Loveman 1991, 4). Nonetheless, if a free-market economy is not implemented, although Venezuela’s rulers apply any proposal of privatization, “continued governmental involvement will likely be necessary” (Goodman, and Loveman 1991, 5)
Other problems that privatization processes bring along with them are corruption and cronyism. The example of Uganda in the 1990s is representative. The government controlled the complete privatization process, and, although the International Monetary Fund (IMF) and the World Bank (WB) argued that this African country was a great example of economic recovery, and—as Venezuelan Keynesians expect to have—these institutions provided Uganda with hard financial support.“The Morning After Plan” or “Plan País” involves borrowing at least 100 billion US$ from the IMF to finance the recovery of state-owned enterprises, subsidies to producers, and other Keynesian strategies which just represent more state interventionism. Some economists who are also deputies of the National Assembly—belonging to the opposition faction—have declared that public expenditures will not be decreased but exponentially increased to “re-activate” the economy. Haussman, the “father of this plan,” is a former Minister of the Central Planning Economy Office of the second term of Carlos Andrés Pérez, and currently Director of the Center of International Development (CID) at Harvard. He has publicly declared that the way he sees the Venezuelan economy now is analogous to a taxi driver who has his car but no money to buy gasoline, so with his plan he will be “given” the gasoline for free. We accept that, at this moment, the critical conditions of Venezuela require the implementation of some social helps, but we would agree if such helps were provided through direct subsidies; in other words, by subsidizing the demand and not the supply. In a nutshell, this plan is just the second chance of a failing plan applied by Keynesians in Venezuela in the 1980s, according to which the state will continue to be the great owner of the commanding heights, boost the economy through public expenditure financed with more debt, monopolize the monetary market, have the power to control and intervene, and promote a false free-market economy. The Keynesian plan mainly aims at solving short term problems associated with the business cycle, while paying little attention to the economic institutional quality which determines whether the economy experiences high and sustained economic growth (Cirocco, Faria, Morales, and Navarro 2019). Despite funds and advice provided by international donors, the lack of transparency and ability to check the “government divestiture decisions, privatization could be a highly manipulative process” (Tangri, and Mwenda 2001, 118). As the cited authors state, the lack of punishment in corruption and cronyism cases has left the door open for politicians to continue with this improper behavior. “Discriminatory and corrupt privatizations have been common because political leaders have wanted public companies to be divested to their favored clients” (Tangri and Mwenda 2001, 118).
Nevertheless, Uganda is not the only example of these vices. We admit that it is almost impossible to totally eradicate corruption and cronyism from post-socialist and post-communist economies immediately, which is a reason why limiting the independency and management of the state is needed in the process. We briefly comment on the transition of the former Soviet Union, and some Central and Eastern European privatization processes (perhaps, the biggest in history) to understand the problems they faced. (Kaufmann, and Siegelbaum 1996, 419–20) counted the terrific number of 188,000 among small, medium and large scale enterprises privatized, but they also stated that “corruption has reached endemic levels in the transition economies.” In Georgia, the privatization process started after its independence in 1992; nevertheless, corruption and cronyism surrounded it up to the “Rose Revolution,” when the political fight was won by Mikheil Saakashvili, who assigned Kakha Bendukidze as Minister of Economy (Burakova and Lawson, 2013).
However, history demonstrates that desocializing a country involves facing some problems. But there are also good examples of how to succeed with the lowest—or null—state interventionism, support of the rulers, and “setting their subjects free, as fast and as completely as it takes to unlock their shackles” (Rothbard 1992, 66). Briefly, our desocialization proposal will face some problems, but they will be overcome with the implementation of a real free-market economy and by minimizing the presence, influence and management of the state in the process. This is an indispensable condition to succeed in any desocialization plan for Venezuela, as Rothbard (1992, 66) indicates “freeing only a few areas at a time, will only impose continuous distortions that will cripple the workings of the market and discredit it in the eyes of an already fearful and suspicious public.”
Why Desocialize Enterprises?
A devastated economy is the worst thing people can live through. The latest statistics and indicators show that in Venezuela the scarcity of products have risen to 80 percent, hyperinflation forecasts by the IMF reached the 10 million percent level for 2019 (IMF, 2018), and the humanitarian crisis is internationally recognized. When basic goods and services are not affordable for citizens, they start to think about how to solve that problem and, believe it or not, most of the people find the answer in a phrase attributed to Rothbard: Privatize Everything!
Why is it so important to privatize? (Rider and Zajicek 1995, 135) explain a paramount advantage: firms “become more efficient and more responsive to their customer’s needs.” There is no doubt that private management is far better than governmental management, and “the stimulus that private ownership gives to innovation” (Rider and Zajicek 1995, 135) is important to overcome the problems that a post-socialist country will come across. Another reason is to reduce the size of the state and stop interventionism in the economy;See Rider and Zajicek 1995, Carter 2013, Lewandowski 1996, and Brooks 2004. indeed, this should be the most important goal of any post-socialist or post-communist country.
Hoppe (2011) suggests that privatization is required even to avoid all conflicts among people, given scarcity, and that the consequent private property must be clearly defined for such purpose. Hazlitt (1996, 210), in turn, indicates that public wealth derives from property in private hands, used for the production of goods and services for the market, and it serves people “just as much as—in fact, far more effectively than—if it were owned and operated by the government.”
As we pointed out, transferring the property of enterprises owned and managed by governments to private hands is a process sensitive to corruption, cronyism and other problems, which can be minimized if appropriate actions are followed. But if prosperity, efficiency and the total dependence of the government on its citizens is the path a country wants to go through, privatization is one of the most important plans to be performed.
Which Is the Best Method to Desocialize Enterprises?
Another great problem involved in this process is how to privatize, which we decided to analyze in a different section. As we have argued before, the literature in this field is wide; nevertheless, we focused our efforts and research on the current situation of Venezuela. This is why we do not include some experiences, although the United States, Canada, the United Kingdom, and other institutionally better countries around the world have great examples of how governments manage and head the privatization processes.See McDavid (1985), Moore (1992), Brooks (2004), Brunsdon and Corssmit (1998), David (1988), McMeekin (1999), and Goodman and Loveman (1991). Venezuela is very far away of the reality and context where those examples succeeded. Countries included in this paper are the closest to the social, political, and economic conditions of Venezuela.
Rothbard (1992, 73) explains the egalitarian handouts method, meaning that each “citizen receives in the mail one day an aliquot share of ownership of various previously state-owned properties,” but he does not agree with this procedure because “the number of people would be too much and shares too few to allow every person to have a share” (Rothbard 1992, 73). He also comments about the voucher system in which “each citizen receives basic certificates, which could be exchanged for a certain number or variety of shares” (Rothbard 1992, 73). However, Rothbard does not agree with this method either, but proposes and supports the homestead principle that states “assets are to devolve, not upon the general abstract public as in the handout principle, but upon those who have actually worked upon these resources: that is, their respective workers, peasants, and managers” (Rothbard 1992, 73). Another method Rothbard analyzes is the public auction, according to which the government sells everything to the highest bidder; nevertheless, he immediately asks, “Why does government deserve to own the revenue from the sale of these assets?” (Rothbard 1992, 75). Finally, the fourth principle analyzed in his paper is returning all stolen—or nationalized or expropriated—properties to their legitimate owners, but he says that for many reasons, “there are no owners to identify” (Rothbard 1992, 75).
Following (Rider and Zajicek, 1995), there are at least six common methods of privatization in post-socialist or post-communist economies. The voucher method, explained above; it has been implemented with some varieties like mutual funds and freedom to trade vouchers. Notwithstanding, this method should be highly popular among population, it faces some cons. It does not report any profit to the government—which is a strength in our view—and populist politicians—and interest groups—argue that it is acceptable to scam people who do not have any financial knowledge and who would value a couple of coins more than a share. Nonetheless, the National Mutual Funds applied by Lewandowski in Poland,See Hunter and Ryan (2004), Rider and Zajicek (1995), and Lewandowski (1996). and other proved settings in different countries—like the non-tradable condition for a couple of years—have demonstrated that it is possible to overcome those problems.
The public auction is one of the best methods to privatize small enterprises, but the great problem is that transition economies are vulnerable to be corrupted by revealing relevant information and directly assigning to favorite bidders. Nonetheless, there is nothing that transparent auction systems and solid free market institutions cannot overcome. Georgia, after its independence in 1992, began a privatization process but, as Lawson, and Powell (2018) say, it “was mostly corrupt and limited. Comprehensive privatization did not begin until 2004, when Kakha Bendukidze declared that ‘everything was for sale except Georgia’s honor.’” Bendukidze started a public auction with no limitations or restrictions; everybody could bid for any asset, even Russians with the resentments that Georgians could have against them. Everyone was able to check out on the www.privatization.ge website who bid, how much, and what the last bid was. Under Bendukidze’s leadership, privatization was a complete success because he eradicated corruption and cronyism (Lawson and Powell 2018).
The third method that Rider and Zajicek (1995) present is employee privatization, which falls under the homestead principle supported by Rothbard (1992). The problem with this method is that if the privatization is only to employees, the “desocializers” might consider that the bulk of the beneficiaries would be former communists—or socialists.Even people who supported or committed human right crimes, or foreigners from “friendly countries” of the former governments, i.e. in Venezuela there are a lot of Venezuelan military personnel, and Cuban military personnel, and civil employees who are employees and managers from many years ago in some “strategic enterprises” such as the oil industry and others. Do they deserve—more than the rest of Venezuelans—to be the new owners of enterprises such as PDVSA or some other multi-billion dollar company? In other words, the great part of the employees in a former socialist or communist country belonged to the former government. The fourth method is the Initial Public Offering, which allows government to raise funds, but the results have been “massive oversubscription… it is a costly and time-consuming procedure… high transaction costs and public discontent” (Rider and Zajicek 1995, 138), and finally, those who really benefit from this method are “insiders and a few professional speculators” (Rider and Zajicek 1995, 138).
The Liquidation and the (direct) Sales to Foreign Investors are the last methods that Rider and Zajicek (1995) explain. Despite some advantages of these mechanisms (for example, liquidation allows to divide and sell the entity in several parts and foreign investors have “deeper pockets than domestic residents” (Rider and Zajicek 1995, 139), the disadvantages—mostly related to cronyism and corruption—and then, bad experiences related to them are greater than the pros.
The proposal that we formalize in this paper follows Acevedo’s (2018) plan, which encompasses minimum state intervention, the impossibility for the government to vote, seventy per cent of the shares delivered to Venezuelans, special conditions for the expropriated people, certain limitations on the percentage of shares owned, and a special restriction of three years on selling or transferring shares for all Venezuelans who previously received them as part of the process.
We agree with the four general recommendations that Rothbard (1992) provides about desocialization processes: 1) drastic reduction in taxes, government expenditures, and government employment; 2) returning property of the assets owned by the government to the original expropriated owners or their heirs, or granting shares to productive workers and peasants who had worked on these assets; 3) honoring complete and secure property rights in the sense of providing complete freedom to transfer property; and 4) depriving the government the power to create new money. However, for reasons of applicability due to the current situation of the country—one of chronic widespread corruption, at extreme levels, particular cultural characteristics, and the fact that industries were effectively bought by the government when they were nationalized—and in light of previous experiences of other countries undertaking similar privatization processes, some restrictions are included in our proposal, especially concerning points 2) and 3) of Rothbard’s paper. Moreover, if expropriated owners were fully compensated, then it is natural that the legitimate owners should be the Venezuelans.
THE DESOCIALIZATION OF ENTERPRISES LAW PROPOSAL This paper is aimed at proposing a desocialization of enterprises law in light of the current situation of Venezuela. After analyzing relevant experiences in former communists and socialist countries, we have developed this draft of law with the intent to overcome some errors captured in its previous attempts, as in Acevedo (2018). It is worth remarking that this program just encompasses desocializing enterprises and assets currently managed by the government, although the desocialization of other fundamental pillars of the Venezuelan economy is of paramount importance as well. Gradual steps towards this ultimate goal of desocializing an economy are not effective. On the contrary, as Rothbard (1992, 69) argues, those steps “…could, and should, be instituted immediately and all at once.”
Circa March 2019, Venezuela is going through serious economic problems and aiming at potentially getting rid of a socialist and tyrannical regime and at establishing a new government that will surely fall into the “charms” of a democratic socialism with total control of the commanding heights of the economy, once again. From a humanitarian perspective, a change in the Venezuela’s political arena would be a gain, since the current humanitarian crisis would be relieved. Nonetheless, our desocialization proposal will continue to be seen—we greatly fear—as the work of some promoters of freedom who intend to lead the country towards a real path of prosperity, but not taken into consideration.
A Draft of the Desocialization of Enterprises Law
Generalities
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The scope of this law involves all State-Owned Enterprises (SOE) and State-Owned Assets (SOA).
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The Beneficiaries (B) are all Venezuelans by birth and aged at least 18 years at the moment when the desocialization process takes place, residents or not in Venezuela. They will have to enroll in the private national or international financial institution of their preference, which will represent them throughout the process.
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The Desocialization Board (DB) will head the process.
3.1 The DB will be formed as follow: one (1) representative per financial institution having at least 4 percent of the total Venezuelans enrolled in the process; one (1) representative per branch of the state: executive, judicial and legislative.
3.2 All representatives have “voice” in the process, but just financial institutions’ representatives have the right to vote in a proportion defined by the number of Venezuelans they represent.
3.3 If a financial institution does not represent 4 percent of the total Venezuelans enrolled in the process, it can delegate its representation functions to another institution.
3.4 All official and unofficial meetings of the DB will be broadcast live, recorded, and published, for transparency purposes.
3.5 All communications among the representatives will be considered public and will have to be recorded.
- A Financial Rescue Fund (FRF) will be created as a fund managed by the DB to rescue some SOEs and pay liabilities. Funds will come from the process itself.
Classification
- The DB will categorize the SOEs and SOAs into six groups:
5.1 Desocialization Group: those SOEs fulfilling the desocialization process requirements.
5.2 Rescuable Group: those SOEs that can reach the requirements of the Desocialization Group upon following this process.
5.3 Public Auction: those SOEs that this process could not rescue and SOAs not classified as Clearance Assets.
5.4 Clearance Assets: all SOAs totally depreciated or in junk conditions.
5.5 Expropriated Assets or Enterprises: all those enterprises and/or assets expropriated or nationalized against the will of their former owners.
5.6 Social Assets: all those assets related to social programs given to citizens with no full property.
Procedure
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The Present Value of all certified reserves of natural resources of each SOE and/or SOA will be included in their respective accountability.
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For Social Assets: the DB will immediately transfer, along with the corresponding tenure, the full property of the asset to the citizens, without restrictions in the rights to sell, mortgage, build, or rent. Citizens will not pay any fee for the property transfer process.
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For Expropriated Assets or Enterprises: The DB, based upon consistent proofs, will proceed as follows
8.1 If the governmental administration indemnified the former owner by paying a price lower than the real value of the asset at that moment, the DB will transfer the property back to the former owner. The former owner will return the surplus resulting from the difference between the current value and the received amount minus the difference between the value at the moment of the expropriation and the received amount; if that final difference is negative the DB will transfer the property immediately to the former owner with no fees, and the difference will be paid through the FRF.
8.2 If the administration did not indemnify the former owner for the expropriated assets or enterprises, the DB will immediately transfer the property to their former owners. If the difference between the current and past value is negative, the DB will pay such difference through the FRF.
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For Clearance Assets: the DB will open a public sale process, using a technological system based on blockchain, and sell these assets in batches. The system will be transparent, with full public access to information about prices, buyers, and sale conditions. Up to 25 percent of the raised funds will be destined to pay the fees and other expenses associated with this process, including those related to the DB. The DB will deposit the rest of the funds in the FRF.
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For Public Auction: the DB will auction each SOE and SOA through a technological system based on blockchain. The system will be transparent, with full public access to information about prices, buyers, and sale conditions. Up to 12.5 percent of the raised funds will be destined to pay the fees and other expenses associated with this process, including those related to the DB. The DB will deposit the rest of the funds in the FRF.
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For the Rescuable and Desocialization Group: the DB will establish a desocialization date for each one and estimate liabilities for each company, even considering the human resources liabilities, and including them in the balance sheet up to the date of the property transfer.
Desocialization Process
- For companies with Total Assets greater than Total Liabilities, by 30 percent or more: the DB will capitalize liabilities and transfer the property as follows
12.1 Through a liabilities-equity swap, each creditor, and employee, will obtain an exact amount in shares than the enterprise owes them.
12.2 70 percent of the rest in identical parts to B, in the form of shares.
12.3 The new Board of Directors of the enterprise, elected by the new shareholders through their legal representatives, will sell the remaining 30 percent of the equity with a premium no more than 30 percent, considering the initial restriction in point 16 below. Up to 10 percent of the raised funds will be destined to pay the fees and other administrative expenses associated with the process, including those related to the DB. The DB will deposit the rest of the funds in the FRF.
- Companies with Total Assets less than Total Liabilities or Total Assets higher than Total Liabilities by less than 30 percent, even 0 percent:
13.1 The DB will determine if creditors can be proportionally paid, with no more than 30 percent of the available FRF at the moment, an amount sufficient to make Total Assets greater than Total Liabilities, by 30 percent or more. The procedure described in point 12 will be followed then.
13.2 If the DB determines that more than the 30 percent of the available FRF is required and that there is at least another SOE classified in the desocialization group, then the DB will have to wait up to the end of the process to analyze if this SOE can be rescued through the FRF. If, at the end of the process, this is the last SOE classified in the Rescuable Group and there are enough funds in the FRF, then the DB will use those funds required to accomplish the proportion of Total Assets and Liabilities described in point 13.1. If there are not enough funds in the FRF to accomplish the proportion of Total Assets to Total Liabilities described in point 13.1, and to rescue the last SOE classified as Rescuable, the DB will re-classify it into the Public Auction Group.
Remainder of the Financial Rescue Fund
- If the desocialization process ends and the FRF still has funds, the DB will proceed as follows:
14.1 It will pay a desocialization process premium, in proportion to the represented B, to each member of the DB of the financial institutions. The grand total of this bonus will not be more than the 10 percent of the available funds.
14.2 The rest of the funds will be distributed proportionally among all SOEs that followed point 12 up to the amount of the premium that point 12.3 establishes.
14.3 If, after following point 14.2, the FRF still has funds, the DB will distribute them in equal parts to B.
Final Considerations
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The property of all SOEs and SOAs that this desocialization program encompasses will include the property of the corresponding soil and subsoil.
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For a term of 3 years, after the day of the official desocialization, neither any person nor any company can buy and/or hold more than 3 percent of the equity of any SOEs desocialized through point 12. Nevertheless, a person or institution can represent, through a legal power, more than 3 percent of the total equity.
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There is no other limitation to foreigners than the one stated in this law.
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New shareholders will be able to immediately transfer, back debts or sell their shares. Nevertheless, those shares given to B following point 12.2 will be non-negotiable and non-transferable for 3 years from the day that B receives them.
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Immediately after the desocialization day of each enterprise, new owners and employees will privately bargain new rules and laws of their labor contract. They can establish new private deals and rules considering or not the national’s labor legal framework.
Taxes and Royalties from the Oil Sector Distributed among All Venezuelans
Following Faría and Filardo (2015) and Faría (2019), the main objective of our proposal is to “starve the government” and make it completely dependent on its citizens. So a crucial and complementary part of our proposal encompasses letting all the oil proceeds, paid in US dollars to governments as taxes and royalties by the transnational companies for the activities they carry out in country, be deposited directly into the accounts of Venezuelans by birth and of legal age. A measure of such nature would reduce the economic power of governments and would force them to come to their citizens to negotiate the tax rate levied on those proceeds. The civil society, in turn, would have more power to demand services of higher quality, and one of the fundamental bases of a long-lasting democracy would have been established: a government with an absolute fiscal dependence on its people.At present, the government is more than 50% independent of its people because it directly receives oil proceeds.
The delivery of all oil proceeds to Venezuelans confers upon them power and responsibility since it limits the state, on preventing it from directly receiving money which does not result from the efforts of its people; the state, in turn, would only survive by applying a reasonable tax burden to citizens.
We will cover this specific aspect of the reform, in more detail, in a separate paper about desocializing taxes.
CONCLUDING REMARKS Although it might seem unorthodox, mainly due to some restrictions imposed, our proposal results from considering the current economic and social conditions prevailing in Venezuela, as well as previous privatization experiences in other countries. Certain aspects of this work are still being explored and/or revisited, so it could be subject to change in the future.
We think that two of the most critical points of discussion are associated with the initial restrictions imposed: 1) the impossibility for a new shareholder to sell his/her shares during the first three years, and 2) the impossibility for a private company or person to purchase more than 3 per cent of the equity.
Previous experiences in other countries, where citizens felt cheated by the new private approach, exchanged their shares for food or alcohol right after obtaining the stock, and started blaming the program before the performance of the privatized companies stabilized, were the main reason to impose the constraint of not allowing selling during the first three years. Nevertheless, it has to be emphasized that this restrictive measure is applicable just to shares received according to point 12.2 of our law proposal. Other forms of acquisition are not affected by this temporary sell restriction (i.e. if employees receive shares as part of their labor benefits).
On the other hand, the impossibility for an institution or person to acquire more than 3 percent of the total equity is another restriction of the proposal, imposed with the intent of avoiding cartelization at the early stages of the privatization process. According to point 16 of the law, besides, any person or institution can represent more than 3 percent of the total assets.
Selling shares in batches to different buyers, selling under futures contracts, actively participating in the company (in the board of directors, for instance), or transferring their voting rights to institutions are options available for the new shareholders, so restrictions should not represent a significant problem.
As stated before, we are still working to cover other aspects of the privatization of the Venezuelan state-owned assets, so this proposal might be subject to change; restrictions could be eliminated or re-adapted as part of the research process.
Our present work should be framed in a more general approach embracing the deregulation of the labor markets, a radical simplification of the taxation system, the elimination of the minimum wage, the opening of the economy, and the eradication of the state’s monopoly of money, among others. At Econintech.org, we are working on all of those margins as well.
Nationalism, globalism, cosmopolitanism, and immigration are heated topics today—but Mises systematically addressed them 100 years ago, in his seminal work Nation, State, and Economy. What is a nation, and what does the nationality principle mean for liberalism? Mises argues that nations arise spontaneously, predating governments. Liberal nations exist to the extent they respect self-determination, peace, and international trade. But illiberal nations produce war and privation, discriminate against minorities, and distort natural migration. So how do we deal with aggressive nationalism?
Economist Ryan McMaken, editor of Mises.org, joins Jeff Deist to wrestle with this important and relevant book. Don't miss their great discussion of immigration toward the end of the podcast, referencing Professor Ben Powell's recent paper "Solving the Misesian Migration Conundrum". And use the code HAPOD for a discount on Nation, State, and Economy from our bookstore.
Bob talks with Stephan Kinsella about the basis of libertarian law, and how we could have justice without a coercive State. They then discuss Stephan’s pathbreaking work making the case that property must be in tangible things, rendering “intellectual property” an incoherent and dangerous concept.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Our in-house economist and editor Ryan McMaken joins the Human Action Podcast for a deep dive into Mises's seminal 1927 book Liberalism. This is the definitive podcast on the definitive book on liberal society: its foundations, what it means for property, freedom, peace, economic policy, and immigration.
Readings Liberalism: In the Classical Tradition by Ludwig von Mises"Was Mises a Neoliberal?" by Jeff Deist"Immigration Roundtable: Ludwig von Mises" by Jeff Deist
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[Chapter 19 of The Conquest of Poverty (1996)]
The socialists and communists propose to cure poverty by seizing private property, particularly property in the means of production, and turning it over to be operated by the government.
What the advocates of all expropriation schemes fail to realize is that property in private hands used for the production of goods and services for the market is already for all practical purposes public wealth. It is serving the public just as much as—in fact, far more effectively than—if it were owned and operated by the government.
Suppose a single rich man were to invest his capital in a railroad owned by himself alone. He could not use this merely to transport his own family and their personal goods. That would be ruinously wasteful. If he wished to make a profit on his investment, he would have to use his railroad to transport the public and their goods. He would have to devote his railroad to a public use.
And unlike a government agency, the private owner is obliged by self-preservation to try to avoid losses, which means that he is forced to run his railroad economically and efficiently. And also unlike a government agency, the private capitalist is nearly always obliged to face competition—which means to make the services he provides or the goods he sells superior or at least equal to those provided by his competitors. Therefore the private capitalist normally serves the public far better than the government could if it took over his property. Looked at from the standpoint of the service they provide, the private railroads today are worth vastly more to the public than to their owners.
Though socialists chronically fail to understand it, there is nothing original in the theme just stated. It was hinted at in Adam Smith:
Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.Adam Smith, Wealth of Nations, 1776, Bk. IV, Ch. II.
At another point Adam Smith was even more explicit:
Every prodigal appears to be a public enemy, and every frugal man a public benefactor. … The principle which prompts to save, is the desire of bettering our condition. … An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. … And the most likely way of augmenting their fortune, is to save and accumulate some part of what they desire. … [The funds they accumulate] are destined for the maintenance of productive labor. … The productive powers of the same number of laborers cannot be increased, but in consequence either of some addition and improvement to those machines and instruments which facilitate and abridge labor; or of a more proper division and distribution of employment. In either case an additional capital is almost always required.Ibid., Bk. II, Ch. Ill.
Productive Use of Henry Ford's Income One of them was George E. Roberts, director of the U.S. Mint under three Presidents, who was responsible for the Monthly Economic Letter of the National City Bank of New York from 1914 until 1940.
An example often cited by Roberts was Henry Ford and his automobile plant. Roberts pointed out in the July letter of 1918 that the portion of the profits of Henry Ford's automobile business that he had invested in the development and manufacture of a farm tractor was not devoted to Ford's private wants; nor was that portion which he invested in furnaces for making steel; nor that portion invested in workingmen's houses.
If Henry Ford had exceptional talent for the direction of large productive enterprises the public had no reason to regret that he had an income of $50,000,000 a year with which to enlarge his operations. If that income came to him because he had a genius for industrial management, the results to the public were probably larger than they would have been if the $50,000,000 had been arbitrarily distributed at 50 cents per head to all the [then, 1918] population of the country.
In brief, only that portion of his income which the owner spends upon his own or his dependents' consumption is devoted to him or to them. All the rest is devoted to the public as completely as though the title of ownership was in the State. The individual may toil, study, contrive and save, but all that he saves inures to others.
In the history of economic thought, however, it is astonishing how much this truth was neglected or forgotten, even by some of Smith's most eminent successors. But the theorem has been revived, and some of its corollaries more explicitly examined, by several writers in the present century.
But the Ford Motor Company, from the profits of which the original owner drew so little for his own personal needs, is not a unique example in American business. Perhaps the greater part of private profits are today reinvested in industry to pay for increased production and service for the public.
Let us see what happened, for example, to all the corporate profits in the United States in 1968, fifty years after George Roberts was writing about the Ford Company. These aggregate net profits amounted before taxes to a total of $88.7 billion (or one eighth of the total national income in that year of $712.7 billion).
Out of these profits the corporations had to pay 46 percent, or $40.6 billion, to the government in taxes. The public, of course, got directly whatever benefit these provided. Corporate profits after taxes then amounted to $48.2 billion, or less than 7 percent of the national income.
These profits after taxes, moreover, averaged only 4 cents for every dollar of sales. This meant that for every dollar that the corporations took in from sales, they paid out 96 cents—partly for taxes, but mainly for wages and for supplies from others.
But by no means all of the $48.2 billion earned after taxes went to the stockholders of the corporations in dividends. More than half—$24.9 billion—was retained or reinvested in the business. Only $23.3 billion went to the stockholders in dividends.
There is nothing untypical in these 1968 corporate reinvestment figures. In every one of the six years preceding 1968 the amount of funds retained for reinvestment exceeded the total amount paid out in dividends.
Moreover, even the $25 billion figure understates corporate reinvestment in 1968. For in that year the corporations suffered $46.5 billion depreciation on their old plant and equipment. Nearly all of this was reinvested in repairs to old equipment or to complete replacement. The $24.9 billion represented reinvestment of profits in additional or greatly improved equipment.
And even the $23.3 billion that finally went to stockholders was not all retained by them to be spent on their personal consumption. A great deal of it was reinvested in new enterprises. The exact amount is not precisely ascertainable; but the U.S. Department of Commerce estimates that total personal savings in 1968 exceeded $40 billion.
Thus because of both corporate and personal saving, an ever-increasing supply is produced of finished goods and services to be shared by the American masses.
In a modern economy, in brief, those who save and invest can hardly help but serve the public. As Mises has put it:
In the market society the proprietors of capital and land can enjoy their property only by employing it for the satisfaction of other people's wants. They must serve the consumers in order to have any advantage from what is their own. The very fact that they own means of production forces them to submit to the wishes of the public. Ownership is an asset only for those who know how to employ it in the best possible way for the benefit of the consumers. It is a social function.Ludwig von Mises, Human Action, 3rd Rev. Ed., Chicago: Henry Regnery Co., 1966, p. 684.
The Most Effective Charity It follows from this that the rich can do most good for the poor if they refrain from ostentation and extravagance, and if instead they save and invest their savings in industries producing goods for the masses.
F. A. Harper has gone so far as to write: "Both fact and logic seem to me to support the view that savings invested in privately owned economic tools of production amount to an act of charity. And further, I believe it to be—as a type—the greatest economic charity of all.""The Greatest Economic Charity." Essay in symposium On Freedom and Free Enterprise, Mary Sennholz, ed., Van Nostrand, 1956, p. 99.
Professor Harper supports this view by quoting from, among others, Samuel Johnson, who once said: "You are much surer that you are doing good when you pay money to those who work, as a recompense of their labor, than when you give money merely in charity."James Boswell, The Life of Samuel Johnson, Boston: Charles E. Lauriat Co., 1925, Vol. II, p. 636.
So, saving and sound investment may be the most important benefit that the rich can confer on the poor.
This theme has found expression in this century by a deplorably small number of writers. One of the most persuasive was Hartley Withers, a former editor of the London Economist, who published an ingratiating little book in 1914, a few weeks before the outbreak of the First World War, called Poverty and Waste.Hartley Withers, Poverty and Waste, London: Smith, Elder, 1914; 2nd Rev. Ed., John Murray, 1931. The contention of his book is that when a wealthy man spends money on luxuries he causes the production of luxuries and so diverts capital, energy, and labor from the production of necessaries, and so makes necessaries scarce and dear for the poor. Withers does not ask him
to give his money away, for he would probably do more harm than good thereby, unless he did it very carefully and skilfully; but only to invest part of what he now spends on luxuries so that more capital may be available for the output of necessaries. So that by the simultaneous process of increasing the supply of capital and diminishing the demand for luxuries the wages of the poor may be increased and the supply of their needs may be cheapened; and he himself may feel more comfortable in the enjoyment of his income.Ibid., p. 139.
Yet in spite of the authority of the classical economists and the inherent strength of the arguments for saving and investment, the gospel of spending has an even older history. One of the chief tenets of the "new economics" of our time is that saving is not only ridiculous but the chief cause of depressions and unemployment.
Adam Smith's arguments for saving and investment were at least partly a refutation of some of the mercantilist doctrines thriving in the century before he wrote. Professor Eli Heckscher, in his Mercantilism (Vol. II, 1935), quotes a number of examples of what he calls "the deep-rooted belief in the utility of luxury and the evil of thrift. Thrift, in fact, was regarded as the cause of unemployment, and for two reasons: in the first place, because real income was believed to diminish by the amount of money which did not enter into exchange, and secondly, because saving was believed to withdraw money from circulation."Vol. II, p. 208.
An example of how persistent these fallacies were, long after Adam Smith's refutation, is found in the words that the sailor-turned-novelist, Captain Marryat, put into the mouth of his hero, Mr. Midshipman Easy, in his novel by that name published in 1836:
The luxury, the pampered state, the idleness—if you please, the wickedness—of the rich, all contribute to the support, the comfort, and the employment of the poor. You may behold extravagance—it is a vice; but that very extravagance circulates money, and the vice of one contributes to the happiness of many. The only vice which is not redeemed by producing commensurate good, is avarice.
Mr. Midshipman Easy is supposed to have learned this wisdom in the navy, but it is almost an exact summary of the doctrine preached in Bernard Mandeville's Fable of the Bees in 1714.
Now though this doctrine is false in its attack on thrift, there is an important germ of truth in it. The rich can hardly prevent themselves from helping the poor to some extent, almost regardless of how they spend or save their money. So far from the wealth of the rich being the cause of the poverty of the poor, as the immemorial popular fallacy has it, the poor are made less poor by their economic relations with the rich. Even if the rich spend their money foolishly and wastefully, they give employment to the poor as servants, as suppliers, even as panderers to their vices. But what is too often forgotten is that if the rich saved and invested their money they would not only give employment to just as many people producing capital goods, but that as a result of the reduced costs of production and the increased supply of consumer goods which this investment brought about, the real wages of the workers and the supply of goods and services available to them would greatly increase.
What is also forgotten by the defenders of luxury spending is that, though it improves the condition of the poor who cater to it, it also increases their dissatisfaction, unrest, and resentment. The result is envy of and sullenness toward those who are making them better off.
From Malthus to Bernard Shaw The first eminent economist who attempted to refute Adam Smith's proposition that "every prodigal appears to be a public enemy, and every frugal man a public benefactor" was Thomas R. Malthus. Malthus's objections were partly well taken and partly fallacious. I have examined them rather fully in another place;The Failure of the "New Economics," Van Nostrand, 1959, pp. 40–43 and 355–362. and I shall content myself here with quoting a few lines from the answer that a greater economist than Malthus, David Ricardo, made at the time (circa 1814–21): "Mr. Malthus never appears to remember that to save is to spend, as surely as what he exclusively calls spending. … I deny that the wants of consumers generally are diminished by parsimony—they are transferred with the power to consume to another set of consumers."Notes on Malthus (Sraffa edition), p. 449 and p. 309.
It remained for a few influential modern writers to launch an all-out attack on saving. One of them was Bernard Shaw. In a shamelessly ignorant and silly book,George Bernard Shaw, The Intelligent Woman's Guide to Socialism and Capitalism, Brentano, 1928, p. 7. Shaw actually argued that net saving in a community was not even possible—because food does not keep! "The notion that we could all save together is silly. … Peter must spend what Paul saves, or Paul's savings will go rotten. Between the two nothing is saved. The nation as a whole must bake its bread and eat it as it goes along. … When you see the rich man's wife (or anyone else's wife) shaking her head over the thriftlessness of the poor because they do not all save, pity the poor lady's ignorance, but do not irritate the poor by repeating her nonsense to them."
Shaw's statement is nonsense compounded. He talks as if men and women, in the Britain and America of 1928, existed at the level of the lower animals, and lived by bread alone. It might have occurred to him that in a modern society food production and food consumption form only a small fraction of total production and consumption. In the United States today, food and beverages account for only 13 percent, or about one eighth, of the gross national product. It should further have occurred to Shaw that even though each individual crop is harvested only during a few weeks of the year, the food supply must be at least sufficiently conserved to last a nation the year round.
And even in the most primitive agricultural societies some food has to be saved even beyond a year, if the society is to survive. The tribe that consumes that part of the corn that it should be setting aside as seed for next year's crop is doomed to starvation.
But neither in a modern nor in a primitive society is it primarily food that is saved from year to year. So far as the individual is concerned, what he nominally saves is money. (This used to consist of the precious metals, gold and silver, which kept extremely well, and did not constantly lose their value like today's universal paper currencies.) What the individual really saves is the consumption goods and services he refrains from demanding, so releasing labor and other resources for the production of more and better capital goods. The great bulk of primitive as of modern savings went into improving housing, land, and tools.
Shaw's argument falls into a reductio ad absurdum when it proves that there can be no net saving at all by the nation as a whole. What would Shaw make of the present U.S. Department of Commerce figures showing that there is in fact net national saving every year? (In the five years 1967—71 gross private domestic investment averaged annually about 14 percent of the U.S. gross national product.) If Shaw had merely looked around him, he would have seen how saving went into enlarging and improving the nation's productive equipment and into an increase in each decade in labor's productivity and in real wages.
Shaw threw himself into economic controversy all his life; but he never condescended to look up the facts and never understood even some kindergarten economic principles.
We have yet to discuss the views of the most influential opponent of saving in our time—John Maynard Keynes.
It is widely believed, especially by his disciples, that Lord Keynes did not condemn saving until, in a sudden vision on his road to Damascus, the truth flashed upon him and he published it in The General Theory of Employment, Interest, and Money in 1936. All this is apocryphal. Keynes disparaged saving almost from the beginning of his career. He was warning his countrymen in a broadcast address in January, 1931, that "whenever you save five shillings, you put a man out of work for a day." And long before that, in his Economic Consequences of the Peace, published in 1920, he was writing passages like this:
The railways of the world which [the nineteenth century] built as a monument to posterity, were, not less than the Pyramids of Egypt, the work of labor which was not free to consume in immediate enjoyment the full equivalent of its efforts.
Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand the laboring classes accepted from ignorance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority and the well-established order of Society into accepting, a situation in which they could call their own very little of the cake that they and Nature an the capitalists were cooperating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice. The duty of 'saving' became nine-tenths of virtue and the growth of the cake the object of true religion. There grew round the nonconsumption of the cake all those instincts of puritanism which in other ages has withdrawn itself from the world and has neglected the arts of production as well as those of enjoyment. And so the cake increased; but to what end was not clearly contemplated. Individuals would be exhorted not so much to abstain as to defer, and to cultivate the pleasures of security and anticipation. Saving was for old age or for your children; but this was only in theory—the virtue of the cake was that it was never to be consumed, neither by you nor by your children after you. (Pp. 19–20.)
This passage illustrates the irresponsible flippancy that runs through so much of Keynes's work. It was clearly written tongue-in-cheek. In the very next sentences Keynes made a left-handed retraction: "In writing thus I do not necessarily disparage the practices of that generation. In the unconscious recesses of its being Society knew what it was about," etc.
Yet he let his derision stand to do its harm.
If we accepted Keynes's original passage as sincerely written, we would have to point out in reply: (1) The railways of the world cannot be seriously compared with the pyramids of Egypt, because the railways enormously improved the production, transportation, and availability of goods and services for the masses. (2) There was no bluff and no deception. The workers who built the railroads were perfectly "free" to consume in immediate enjoyment the full equivalent of their efforts. It was the capitalist classes that did nearly all the saving, not the workers. (3) Even the capitalist classes did consume most of their slice of the cake; they were simply wise enough to refrain from consuming all of it in any single year.
How to Bake a Bigger Cake This point is so fundamental, and both Keynes and his disciples have so confused themselves and others with their mockery and intellectual somersaults, that it is worth making the matter plain by constructing an illustrative table.
Let us assume that in Ruritania, as a result of net annual saving and investment of 10 percent of output, there is over the long run an average increase in real production of 3 percent a year. Then the picture of economic growth we get over a ten-year period runs like this in terms of index numbers:
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(These results do not differ too widely from what has been happening in recent years in the United States.)
What this table illustrates is that total production in Ruritania increases each year because of the net saving (and consequent investment), and would not increase without it. The saving is used year after year to increase the quantity and improve the quality of existing machinery or other capital equipment, and so to increase the output of both consumption and capital goods.
Each year there is a larger and larger "cake." Each year, it is true, not all of the currently produced cake is consumed. But there is no irrational or cumulative consumer restraint. For each year a larger and larger cake is in fact consumed; until even at the end of five years (in our illustration), the annual consumers' cake alone is equal to the combined producers' and consumers' cakes of the first year. Moreover, the capital equipment—the ability to produce goods—is now 12 percent greater than in the first year. And by the tenth year the ability to produce goods is 30 percent greater than in the first year; the total cake produced is 30 percent greater than in the first year, and the consumer's cake alone is more than 17 percent greater than the combined consumers' and producers' cakes in the first year.
There is a further point to be taken into account. Our table is built on the assumption that there has been a net annual saving and investment of 10 percent a year; but in order to achieve this, Ruritania will probably have to have a gross annual saving and investment of, say, twice as much, or 20 percent, to cover the repairs, depreciation and deterioration taking place every year in housing, roads, trucks, factories, equipment. This is a consideration for which no room can be found in Keynes's simplistic and mocking cake analogy. The same kind of reasoning which would make it seem silly to save for new capital would also make it seem silly to save enough even to replace old capital.
In a Keynesian world, in which saving was a sin, production would go lower and lower, and the world would get poorer and poorer.
In the illustrative table I have by implication assumed the long-run equality of saving and investment. Keynes himself shifted his concepts and definitions of both saving and investment repeatedly. In his General Theory the discussion of their relation is hopelessly confused. At one point (p. 74) he tells us that saving and investment are "necessarily equal" and "merely different aspects of the same thing." At another point (p. 21) he is telling us that they are "two essentially different activities" without e'ren a "nexus."
Let us, putting all this aside, try to look at the matter both simply and realistically. Let us define saving as an excess of production over consumption; and let us define investment as the employment of this unconsumed excess to create additional means of production. Then though saving and investment are not always necessarily equal, over the long run they tend to equality.
New capital is formed by production combined with saving. Before there can be a given amount of investment, there must be a preceding equal amount of saving. Saving is the first half of the action necessary for more investment. "To complete the act of forming capital it is of course necessary to complement the negative factor of saving with the positive factor of devoting the thing saved to a productive purpose.Eugen von Böhm-Bawerk, Positive Theory of Capital, 1891, South Holland, Ill.: Libertarian Press, 1959, p. 104. … [But) saving is an indispensable condition precedent to the formation of capital.Ibid.
Keynes constantly deplored saving while praising investment, persistently forgetting that the second was impossible without the first.
Of course it is most desirable economically that whatever is saved should also be invested, and in addition invested prudently and wisely. But in the modern world, investment follows or accompanies saving almost automatically. Few people in the Western world today keep their money under the floor boards. Even the poorer savers put their money out at interest in savings banks; and those banks act as intermediaries to take care of the more direct forms of investment. Even if a man deposits a relatively large sum in an inactive checking account, the bank in which he deposits, trying always to maximize its profits or to minimize losses, seeks to keep itself "fully loaned up"—that is, with close to the minimum necessary cash reserves. If there is insufficient demand at the time for commercial loans, the bank will buy Treasury bills or notes. The result in the United States, for example, is that a bank in New York or Chicago would normally lend out five sixths of the "hoarder's" deposit; and a "country bank" would lend out even more of it.Of course, to repeat, a saver can do the most economic good, both for himself and his community, if he invests most of his savings, and invests them prudently and wisely. But–contrary to the message of the mercantilists and the Keynesians—even if he "hoards" his savings he may often benefit both himself and the community and at least under normal conditions do no harm.
Three Kinds of Saving To understand more clearly why this is so it may be instructive to begin by distinguishing between three kinds of ( or motives for) saving, and three groups of savers—roughly the poor, the middle class, and the wealthy.
Let us call the most necessary kind, which even the poorest must practice, "rent-day saving." Men buy and pay for things over different time periods. They buy and pay for food, for the most part, daily. They pay rent weekly or monthly. They buy major articles of clothing once or twice a year. A man who earns $10 a day cannot afford to spend $10 a day on food and drink. He can spend on them, say, not more than $6 a day, and must put aside $4 a day from which to pay out part at the end of the month for rent, light, and heat, and another part for a winter overcoat at the end of six months, and so on. This is the kind of saving necessary to ensure one's ability to spend throughout the year. "Rent-day saving" can symbolize all the saving necessary to pay for regularly recurrent and unavoidable living expenses. Obviously this kind of saving, sustained only for weeks or a season, and varying in time as among individuals, can in no circumstances be held responsible for business depressions. It is utter irresponsibility on the part of the Bernard Shaws to ridicule it.
The next kind of saving, which applies especially to the middle classes, is what we may call "rainy-day saving." This is saving against such possible though not inevitable contingencies as loss of a job, illness in the family, or the like.
It is this "rainy-day saving" that the Keynesians most deplore, and from which they fear the direst consequences. Yet even in extreme cases it does not, except in very special cyclical circumstances, tend to bring about any depression or economic slowdown.
Let us consider, for example, a society consisting entirely of "hoarders" or "misers." They are hoarders or misers in this sense: that they all assume they are going to live till 70 but will be forced to retire at 60; and they want to have as much to spend in each of their last ten years as in their 40 working years from 20 to 60. This means that each family will save one fifth of its annual income over 40 years in order to have the same amount to spend in each of its final ten years.
We are deliberately assuming the extreme case, so let us assume that the money saved is not invested in a business or in stocks or bonds, is not even put in a savings bank, earns no interest, but is simply "hoarded."
This of course would permit no economic improvement whatever. But if it were the regular permanent way of life in that community, at least it would not lead to a depression. The people who refrained from buying a certain amount of consumers' goods and services would not be bidding up their prices; they would simply be leaving them for others to buy. If this saving for old age were the regular and expected way of life, and not some sudden unanticipated mania for saving, the manufacturers of consumer goods would not have produced an oversupply to be left on their hands; the older people in their seventh decade would in fact be spending more than similarly aged people in a "spending" society, and the unspent savings of those who died would revert to the spending stream. Over a long period, year by year, there would be just as much spent as in a "spending" society.
Let us remember that money saved, in an evenly rotating economy, where there is neither monetary inflation nor deflation, does not go out of existence. Savings, even when they are not invested in production goods, are merely deferred or postponed spending. The money stays somewhere and is always finally spent. In the long run, in a society with a relatively stable ratio between hoarders and spenders, savings are constantly coming back into the spending stream, through old-age spending or through deaths, keeping the stream at an even flow.
What we are trying to understand is merely the effect of saving per se, and not of sudden and unanticipated changes in spending and saving. Therefore we are abstracting from the effects produced by unexpected changes in spending and saving or changes in the supply of money. If even a heavy amount of saving were the regular way of life in a community, the relative production and prices of consumers' and producers' goods would already be adjusted to this. Of course, if a depression sets in from some other cause, and the prices of securities and of goods begin to fall, and people suddenly fear the loss of their jobs, or a further fall in prices, this may lead to a massive and unanticipated increase in saving (or more exactly in non-spending) and this may of course intensify a depression already begun from other causes. But depressions cannot be blamed on regular, planned, anticipated saving.
Some readers may contend that I have not yet imagined the most extreme case of saving—a society, say, all the members of which perpetually save more than half as much as they earn, and keep saving, not for old age, or for any reasonable contingency, but simply because of a "religion" of saving. In brief, these would be the cake nonconsumers of Keynes's satire. But even such an imaginary society involves a contradiction of terms. If the members of that society intended always to live at their existing modest or even mean level, why would they keep exerting themselves to produce more than they ever expected to consume? That would be pathologic to the point of insanity. Keynes's allegory of the extent of supposed nineteenth-century thrift was purely an hallucination.
We come finally to the third type of saving—what we may call "capitalist" saving. This is saving that is put aside for investment in industry—either directly, or indirectly in the form of savings bank deposits. It is saving that yields interest or profits. The saver hopes, in his old age or even earlier, to live on the income yielded by his investments rather than by consuming his saved capital.
This type of "capitalist" saving was until recently confined to the very rich. Indeed, even the very rich were not able to take advantage of this type of saving until the modern development of banks and corporations. As late as the beginning of the eighteenth century we hear of London merchants on their retirement taking a chest of gold coin with them to the country with the intention of gradually drawing on that hoard for the rest of their lives.F. A. Hayek, Profits, Interest and Investment, London: George Routledge, 1939, pp. 162–163. See also the numerous cases mentioned in G. M. Trevelyan's English Social History, David McKay, 1942. Today the greater part even of the American middle classes, however, enjoy the advantage of capitalist saving.
To sum up. Contrary to age-old prejudices, the wealth of the rich is not the cause of the poverty of the poor, but helps to alleviate that poverty. No matter whether it is their intention or not, almost anything that the rich can legally do tends to help the poor. The spending of the rich gives employment to the poor. But the saving of the rich, and their investment of these savings in the means of production, gives just as much employment, and in addition makes that employment constantly more productive and more highly paid, while it also constantly increases and cheapens the production of necessities and amenities for the masses.
The rich should of course be directly charitable in the conventional sense, to people who because of illness, disability or other misfortune cannot take employment or earn enough. Conventional forms of private charity should constantly be extended. But the most effective charity on the part of the rich is to live simply, to avoid extravagance and ostentatious display, and to save and invest so as to provide more people with increasingly productive jobs, and to provide the masses with an ever-greater abundance of the necessities and amenities of life
Titus Gebel lays out a model of private companies competing to provide protection of life, liberty, and property. He explains how services like internal and external security, legal and regulatory systems, and independent dispute resolution could be implemented, and he addresses the problems that a social order like this must face.
Narrated by Scott R. Pollak.
Download the complete audiobook (28 MP3 files) here. This audiobook is also available on Soundcloud, Apple Podcasts, Google Podcasts, and via RSS.
Dr. Joe Salerno will address the annual Students for Liberty conference this week on the topic of his seminal article, "Mises on Nationalism, the Right of Self Determination, and the Problem of Immigration." While Mises had plenty to say about nation states and liberalism, he wrote relatively little about immigration per se. Dr. Salerno and Jeff Deist discuss Mises's conception of nation and state, breakaway movements, borders, and self-determination in polyglot societies. Nationalism and immigration are the most contentious political issues today, and Mises's perspectives remain remarkably fresh and relevant.
Editor's note: our immigration roundtable is a series of articles presenting the views of prominent Austrian and libertarian thinkers. By necessity each article provides only a basic overview of those views, with links to original sources.
Our goal is to present each thinker's views on immigration by excerpting his or her writings on the subject.
Earlier articles in this series addressed the views of Ludwig von Mises and Murray N. Rothbard. This article discusses the views of Dr. Walter Block.
Professor Block has written several substantial academic and popular articles on the topic of immigration, beginning in the 1980s and extending into the 2010s. Dr. Block is probably the best-known pure "open borders" advocate among Senior Fellows at the Mises Institute; and while his primary arguments are robustly deontological he does not shy away from addressing pragmatic questions raised by critics. And unlike Mises and Rothbard in the main, Block from the outset extends the doctrine of laissez-faire movement of workers and goods from the context of economics into normative libertarian philosophy.
His 1998 article in the Journal of Libertarian Studies titled "A Libertarian Case for Free Immigration" begins with characteristic Blockean bluntness:
I shall contend that emigration, migration, and immigration all fall under the rubric of “victimless crime.” That is, not a one of these three per se violates the non-aggression axiom. Therefore, at least for the libertarian, no restrictions or prohibitions whatsoever should be placed in the path of these essentially peaceful activities.
Immigration across national boundaries should be analyzed in an identical manner to that migration which takes place within a country. If it is non-invasive for Jones to change his locale from one place in Misesania to another in that country, then it cannot be invasive for him to move from Rothbardania to Misesania. Alternatively, if migration across international borders is somehow illegitimate, this should apply to the domestic variety as well. As long as the immigrant moves to a piece of private property whose owner is willing to take him in (maybe for a fee), there can be nothing untoward about such a transaction. This, along with all other capitalist acts between consenting adults, must be considered valid in the libertarian world. Note that there is no freedom of movement of the person per se. This is always subject to the willingness of property owners in the host nation to accept the immigrant onto their land.
Block continues this approach in making perhaps his best-known argument for free immigration: homesteading of previously unowned land:
The case is equally clear for allowing immigrants to settle on unowned land. When there is virgin territory, there is no legitimate reason for immigrants (or domestic citizens) to be prevented from bringing it into fruitful production. States Rothbard: “Everyone should have the right to appropriate as his property previously unowned land or other resources.” “Everyone,” presumably, includes immigrants as well as citizens or residents of the home country.
And here Block addresses the "paleo" argument regarding public or common real property and buildings, property ostensibly owned and definitely controlled by government:
Take the case of the bum in the library. What, if anything, should be done about him? If this is a private library, then the plumb-line or pure libertarian would agree fully with his paleo cousin: throw the bum out! More specifically, the law should allow the owner of the library to forcibly evict such a person, if need be, at his own discretion. Cognizance would be taken of the fact that if the proprietor allowed this smelly person to occupy his premises, he would soon be forced into bankruptcy, as normal paying customers would avoid his establishment like the plague.
But what if it is a public library? Here, the paleos and their libertarian colleagues part company. The latter would argue that the public libraries are per se illegitimate. As such, they are akin to an unowned good. Any occupant has as much right to them as any other. If we are in a revolutionary state of war, then the first homesteader may seize control. But if not, as at present, then, given “just war” considerations, any reasonable interference with public property would be legitimate. The paleos or postponement libertarians take a sharply divergent view: one should treat these libraries in as close an approximation as possible to how they would be used in the fully free society. Since, on that happy day, the overwhelmingly likely scenario is that they will be owned by a profit maximizer who will have a “no bums” policy, this is exactly how the public library should be treated right now. Namely, what we should do to the bum in the public library today is exactly what would be done to him by the private owner: kick him out.
Block alludes to arguments made by Professor Hans-Hermann Hoppe and others that proper ownership (and thus decisions about access) of taxpayer-funded property resides with taxpayers, who presumably would treat "their" property like any private owner. But he does not agree that imperfect present conditions, i.e., government ownership of land and buildings, warrant restrictions on immigration any more than imperfect conditions with respect to welfare or public schools warrant illibertarian approaches:
There are difficulties with this stance. First, as we have already seen, it is extremely likely that in the fully free society, virtually all immigrants would be taken in by a landowner in the host country. Therefore, if the paleos are to remain consistent with their own position, they should eschew all legislated immigration barriers. Secondly, and even apart from this consideration, the postponement libertarian perspective is vulnerable to rebuttal by reductio ad absurdum. If we should not allow unrestricted immigration until we have achieved the free society, but instead should curtail immigration in an effort to approximate what would take place under a fully libertarian society, let us apply this insight to other realms of controversy.
Public schooling is a disaster. Certainly, in the present journal, there is no need to document such a claim. That being the case, the libertarian position is clear: get rid of public education, forthwith, even if we have not attained complete liberty in other sectors of society.
The U.S. welfare policy is a disaster. The libertarian position is once again crystal clear: abolish welfare forthwith, no matter what the status of the remainder of the economy. But the paleo or postponement libertarians are once again precluded from embracing so clear, just, and simple a solution.
Dr. Block is equally adamant on the question of immigrants voting for more government or more welfare, insisting the core issue of voting should be the focus:
The real difficulty here concerns promiscuous voting, not immigrants who might vote “incorrectly.” The problem, even apart from new entrants to our country, is that those who are already citizens now have the “right” to vote on, not whether or not, but how much of other people’s property they can legally steal through the ballot box. This is the real threat to liberty. In a free society, all the wrong-thinking immigrants in the world would be powerless to overturn (what is left of) our free institutions, for there would be no possibility of voting to seize other people’s property.
Block concludes his paper with a rhetorical flourish about the anti-immigration policies of Left and Right — but note the Blockean proviso regarding property and sponsorship of migrants:
Are libertarians moderates or extremists on the issues of emigration, migration, and immigration? The libertarian position on migration does not constitute a compromise in that it is indubitably an all-or-none proposition: either migration is totally legitimate, in which case there should be no interferences with it whatsoever, or it is a violation of the non-aggression axiom, in which case it should be banned, fully. I have argued in this paper that the former position is the only correct one. But libertarianism constitutes a compromise position on this issue in two other senses. First, immigration is allowed if and only if there are property owners willing to sponsor (presumably for a fee, but not necessarily so) the new entrants, and not otherwise. Second, there are people on both right and left who oppose borders totally open to peaceful settlement (Chavez, Buckley), and libertarians find themselves safely on the other side of this unholy alliance.
Fast forward to 2011, and Dr. Block continues to advocate "free movement of goods, capital" in another seminal Journal of Libertarian Studies article titled "Hoppe, Kinsella, and Rothbard II on Immigration: A Critique." Here he attempts to rebut certain arguments made by the aforementioned Dr. Hoppe, libertarian legal theorist Stephan Kinsella, and the late Dr. Rothbard — in particular the argument that the free movement of goods and capital requires a different analysis than the free movement of people. In some cases he responds to rebuttals put forth by Hoppe and Kinsella regarding his JLS article quoted at length above. "Rothbard II" as used by Dr. Block refers to Rothbard's later writings, especially the article "Nations by Consent."
Block starts by questioning Rothbard's claim that full privatization of real property would entirely resolve the question of immigration:
It is tempting to think that the private ownership of all streets, (plus every other single solitary square inch of land) would resolve the immigration issue, at least among libertarians. Alas, not even this is so. Worse, there is also the question of whether or not, given circumstances as they presently are with regard to land ownership, the government is justified in interfering with the free movement of people.That is, it cannot be denied that at present, such a salutary state of affairs (complete private ownership of all property) simply does not exist. To wit, there are vast land holdings on the part of the government (streets, parks, forests, etc.), and, further, there are other vast tracts that have need been so much as trod on by a human foot (mainly in Alaska, Nevada, and other western states).
He also dismisses Rothbard's concern, in the wake of the Soviet Union's collapse, that artificial languages and cultures might be imposed by mass and sudden immigration:
There is simply nothing incompatible with libertarianism and destroying “cultures and languages,” provided only that the latter is done without the initiation of violence. And this goes not only for Latvia and Estonia, but for the U.S. as well.
The point is, there is no such thing as anyone’s “own country.” This is a notion incompatible with libertarianism. What happened to the doctrine of allowing free competition in all matters? Certainly, this should apply to languages and cultures.
He then goes on to quote Hoppe's argument that long-suffering taxpayers in a country, not recent immigrant arrivals, have the highest and most just claim to control government property or "unowned" common areas:
Given Block’s undeniable credentials as a leading contemporary theoretician of libertarianism, it is worthwhile explaining where his argument goes astray and why libertarianism requires no such thing as an open-door policy. Block’s pro-immigration stand is based on an analogy. “Take the case of the bum in the library,” he states.
What, if anything, should be done about him? If this is a private library, ... the law should allow the owner of the library to forcibly evict such a person, if need be, at his own discretion. ... But what if it is a public library? ... As such [libraries] are akin to an unowned good. Any occupant has a much right to them as any other. If we are in a revolutionary state of war, then the first homesteader may seize control. But if not, as at present, then, given “just war” considerations, any reasonable interference with public property would be legitimate. ... One could “stink up” the library with unwashed body odor, or leave litter around in it, or “liberate” some books, but one could not plant land mines on the premises to blow up innocent library users.
The fundamental error in this argument, according to which everyone, foreign immigrants no less than domestic bums, has an equal right to domestic public property, is Block’s claim that public property “is akin to an unowned good.” In fact, there exists a fundamental difference between unowned goods and public property. The latter is de facto owned by the taxpaying members of the domestic public. They have financed this property; hence, they, in accordance with the amount of taxes paid by individual members, must be regarded as its legitimate owners. Neither the bum, who has presumably paid no taxes, nor any foreigner, who has most definitely not paid any domestic taxes, can thus be assumed to have any rights regarding public property whatsoever.
Block responds with reference to Rothbard, and an expansion of the "unowned" public library example into the idea of homesteading vast tracts of open land:
First, the position I took is not really all that remarkable. Indeed, this was roughly Murray Rothbard’s position for many years. Second, while Hoppe is undoubtedly correct in mentioning that I do indeed rely on the bum in the library analogy, this by no means exhausts my arguments. Let me briefly mention a few of them before returning to the analogy, as none of these others have been so far addressed by Hoppe. To wit: what about the vast open spaces in the Rocky Mountains and Alaska that no one has ever settled. What aspect of libertarianism could an immigrant possibly violate if he somehow catapulted himself to any of this terrain and began subsistence farming? Or, trading with other such immigrants, among themselves. Or, trading with the rest of us, on a totally voluntary basis?
What rights would pre-existing inhabitants, say Robinson Crusoe, have to bar newcomers in such a scenario? Block answers:
The analogy is a pretty airtight one. Crusoe, and extant Americans, were here first. Friday, and the would-be immigrant who Hoppe wants to bar from this country, are attempting to come here second. If Crusoe (present occupants) bars Friday (would-be immigrants are not allowed to settle in unused dessert and mountainous regions of the U.S.), then he is in Rothbard’s analysis, claiming more than homesteading would justifiably entitle him to. Crusoe is the illegitimate aggressor against Friday. No less is true of the present occupants of the U.S.; by adopting the Hoppe analysis, they are preventing entirely innocent people from going about their lawful business of homesteading empty territory.
Now, Hoppe could reply that the only reason these mountainous and dessert areas are not presently occupied is due to the fact that the U.S. government forbids its citizens to do so, and/or illegitimately occupies these lands itself through its agencies such as the Bureau of Land Management. There are two responses to any such defense. One, Hoppe must then acknowledge that the courageous immigrants, and not the docile citizens, had the ability to ignore these unjust governmental institutions. Two, land, happily, is a superfluous factor of production, compared to labor. Thus, at any given time, there will be sub-marginal land, precisely the territory that looks so attractive to the hypothetical immigrants we are now considering. But, with the advent of these people, the margin shifts. Terrain that was previously sub-marginal, before their arrival, becomes supra-marginal with their arrival. This means that before these new people came on the scene, there is a reason in addition to governmental proscriptions why the mountains of Wyoming and the tundra of Alaska was not homesteaded and settled; it was previously sub-marginal, even though it is no longer so under our assumptions.
And what about the children of current inhabitants, who burst on the scene much like immigrants? Should we worry about their propensity to grow up and consume welfare or engage in criminal activity?
What about immigrants from the “country” of Storkovia? That is, how does the Hoppe theory handle newborns? My claim here is that anything this author can say about an immigrant I can say concerning a brand new baby, with a lag of some 18 years, perhaps. If the one will commit crimes, so will the other, in a decade or so. Ditto for welfare. And it is the same for being allowed onto the roads of the nation. If illegal immigrants should not be allowed onto the highways, why should it be licit for a citizen of, say, Texas, to enter a road in Louisiana? Hoppe might reply that parents are responsible for their children in a way that does not apply to employers of immigrants. But this only gets him so far. Remember that time lag! After 15–18 years or so, parents are no longer liable for the evil doings of their children. Given the analogy, there is no justification for treating employers any differently. Hoppe says that anyone, such as an employer who invites an immigrant to this country must obligate himself to financially support them. But this is erroneous, since it would be unjustified to impose any such obligation on parents, for their newborn children.
And Block disagrees that taxpayers, in Hoppe's view the rightful owners of government property, should be accorded more say in the control of such property than immigrants:
Let us return, for a moment to an illegal immigrant seizing a bit of Yellowstone Park, which Hoppe and I agree has been stolen from the taxpayers of America. This act, in splendid isolation from everything else, must necessarily be justified. It is a necessary precondition to returning it to its rightful owners. But Hoppe would object. What reason does he offer? That I confuse de facto and de jure? That since this land is in justice really owned by the long suffering taxpayers, it is illegitimate for anyone else, a third party, to even so much as touch it? This will not do.
To return to the illegal immigrant who is now perched on a part of Yellowstone Park and refuses to give it back to a taxpayer, the rightful owner. In like manner we may say of him that he really should return this property to its proper owner. However, we may also say that of the two options, one the status quo where the evil state retains this property, and the other where the robber is relieved of his illicit gains, the latter is certainly a better second best scenario. Thus, illegal immigration, Hoppe to the contrary notwithstanding, is justified on libertarian grounds not only for unowned property, but also for that stolen from the taxpayers of the country.
My response is that I do not at all claim that property such as government roads or libraries is “unowned.” Rather, I claim these holdings were stolen. I agree that the state now possesses them; I argue, only, that this is unjustified. And, yes, I insist, the same libertarian analysis can be applied, in this context, to virgin and stolen land. Why? This is because for the libertarian, at least as I construe him, stolen land is de jure virgin land, ready for the next homesteader to seize it (on the assumption that the rightful original owner cannot be located, or he acquiesces in the state’s seizure, or that, arguendo, we can ignore this rightful owner.)
Dr. Block also responds to arguments made by Kinsella regarding the complexity of free immigration in a situation where government owns and controls so much land and infrastructure. Quoting Kinsella:
Coming back to immigration, let’s take the case of the federal government as owner-caretaker of an extensive network of public roads and other facilities. If the feds adopted a rule that only citizens and certain invited outsiders are permitted to use these resources, this would in effect radically restrict immigration. Even if private property owners were not prohibited from inviting whomever they wish onto their own property, the guest would have a hard time getting there, or leaving, without using, say, the public roads. So merely prohibiting non-citizens from using public property would be one means of establishing de facto immigration restrictions. It need not literally prohibit private property owners from having illegal immigrants on their property. It need only prevent them from using the roads or ports — which it owns.
Given this reality, what sort of rules for access and use should libertarians support? Quoting Kinsella:
It seems to me establishing rules as to how public roads are to be used is not inherently unlibertarian. Even libertarians who say the state has no right to make any rules at all regarding property it possesses — even speed limits etc. — really advocate the following rule: allow anyone to use it, and/or return it to the people. This is a way of using a piece of property. But most libertarians don’t seem to have a principled opposition to the very idea of rule-setting itself.
What rules, then, are defendable? It's an impossible question to answer, according to Block:
Kinsella is saying, if I may paraphrase him, that government is our caretaker. As such, it must perforce set up reasonable rules. The state should act as if it were a (perhaps bumbling) private owner. In this way the people from whom the money to finance the swimming pool was stolen may at least get some services in return. But this is a fatally conservative outlook. The radical alternative is that the “rules” of the pool should be fashioned so as to eliminate these enterprises from governmental control. For example, everyone, anyone, should be “allowed” to walk off with the water in the pool, even the very bricks of which it is composed.
And Block goes further in opposing the "caretaker" or rightful owner argument:
It seems to me decidedly unlibertarian to advocate these sorts of “reasonable” rules. A more libertarian stance would be to welcome actual chaos on all property statists steal from victims. The likelihood is that pure bedlam and pandemonium on all such terrain would deter the thieves from their evil deeds.
All I can say is that majority vote is no litmus test of libertarianism. Most Americans also favor minimum wage laws, taxes, government, affirmative action, yet no one would assert that these policies are therefore libertarian. I certainly support Kinsella’s contention that “99% of my fellow taxpayers would … prefer some immigration restrictions.” This might well enhance restitution, as he contends, but, as I have argued, restitution is a far less important libertarian concern than stopping the violence that lead to the need for the restitution in the first place.
Ultimately, Dr. Walter Block is a vociferous and prolific defender of the stateless society — and thus brooks no restrictionist immigration arguments regarding state-owned property, voting, or the welfare state. His open borders position, however, is built on an unstinting foundation of private property rights, Lockean homesteading, and the full privatization of everything government does or owns.
Read more of his immigration perspectives here, here, and here.
[Next: Hans-Hermann Hoppe]
Whether racially motivated or not, land expropriation in South Africa is just another episode of state-forced wealth redistribution — with disastrous effects. Narrated by George Pickering.
Read the original article.
[The Square and the Tower: Networks and Power, and the Freemasons to Facebook by Niall Ferguson, Penguin Press, 2018.]
Niall Ferguson has impeccable credentials as a member of the “Establishment” (a word that comes, he tells us, from the historian A.J.P. Taylor). He has taught history at Oxford, Cambridge, Harvard, and NYU and is also a consultant to a global hedge fund. As one might expect, he is not a libertarian. Nevertheless, he has often challenged conventional opinion in a way libertarians will find congenial. In The Pity of War, for example, he argued that the British ought to have stayed out of World War I, despite the prevailing orthodoxy that the Crusade against Kaiser Bill was a “good thing.” In The Square and the Tower, he continues and expands his challenge to prevailing leftist dogmas.
Ferguson finds a unifying theme that he applies to a great many historical episodes: a conflict between hierarchies and networks. Hierarchies are “vertically structured organizations characterized by centralized and top-down command, control and communication.” Networks, by contrast, are informal channels of communication among individuals. Ferguson complicates matters by contending that “far from being the opposite of a network, a hierarchy is a special kind of network,” one in which one “always adds nodes downwards, but never connect nodes laterally.”
This means that people at the same level in a hierarchy communicate only with those above or below them, not those at the same level. (Is this always true?) Ferguson often complicates matters unduly, and his learned references to Euler’s solution to the Königsberg Bridge Problem and his many mathematical diagrams and reports of research on networks in various fields do not contribute to his accounts of historical events. His scholarly range is impressive, though he unaccountably fails to cite Harrison White, one of the most influential sociologists writing on networks.
The real contrast that the book illuminates is not between top-down organizations and other networks: it is rather the clash between state coercion and people’s free activities. The book moves from prehistoric times to the present, and always the malign effects of the state are unmistakable. Ferguson cites the great historian Sir Ronald Syme, who in “his classic study The Roman Revolution ... argued that the Republic had ... been run by a Roman aristocracy whose feuds had allowed Italy to descend into civil war. ... It was by building his followers into a ‘Caesarian party’ that Augustus was able gradually to concentrate power in his own hands while nominally restoring the Republic. ‘In certain respects,’ wrote Syme, ‘his Principate was a syndicate.’”
Ferguson has become an even more resolute revisionist about World War I than in his earlier book. “Russia appeared intent on exploiting the Bosnian crisis with a view to the permanent weakening, if not the dismemberment, of Austria-Hungary. ... If any individual deserves to be blamed for the systemic failure that occurred [after the assassination of Archduke Franz Ferdinand], it was the British Foreign Secretary, Sir Edward Grey. Britain was supposed to be the balancing power in a crisis such as this.” Blundering and rash actions by those at the top of the hierarchies of the European Great Powers led to catastrophe.
The success of the Bolshevik Revolution, Ferguson holds, stems in large part from a state-sponsored conspiracy. “Yet the one German plot that worked proved to be so successful that it very nearly revolutionized the whole world. This was the plot to send the Bolshevik leader Vladimir Ilyich Lenin, then living in Switzerland, back to Russia, in the wake of the February 1917 Revolution that overthrew Tsar Nicholas II. ... The German government supplied Lenin not only with a railway ticket from Zurich to Petrograd ... but also with lavish funds to unseat the new provisional government.”
In his account of the rise of Nazism, Ferguson shows how worship of a political movement can lead to disaster. “To many observers, it seemed like a religious awakening. ... The Nazis developed a self-conscious liturgy, with 9 November (the date of the 1918 Revolution and the failed 1923 Beer Hall putsch) as a Day of Mourning, complete with fires, wreaths, altars, blood-stained relics and even a Nazis book of martyrs.” Ferguson has here rightly drawn from Eric Voegelin, who is incorrectly called a Catholic.
Ferguson ardently admires Henry Kissinger, but even those of us who do not share his favorable view of this Machiavellian intriguer will gain much from Ferguson’s extensive research on how Kissinger propelled himself to the summit of power. Ferguson puts his account of networks to good use: “The hypothesis must be that Kissinger’s influence and reputation were products not only of his influence and industriousness, but also of his preternatural connectedness. ... The network was the precondition for his ‘chain reaction’ diplomacy. ... That was what justified the claim that ‘Kissinger [probably] had more impact than any other person in the world.’”
Opponents of the free market sometimes argue that the internet came about through the expansion of a program sponsored by the Defense Department. Ferguson does not agree. After describing the governmentally sponsored Advanced Research Projects Network (ARPANET), he says, “It therefore mattered greatly that what became the internet was not designed that way, but rather arose more or less spontaneously and organically, with academics and private sector computer engineers rather than military planners taking the lead.” Both here and in his earlier book The Ascent of Money, Ferguson ignores the Austrian theory of the business cycle, but he has no illusions about the role of the Federal Reserve System in provoking the financial crisis of 2008: “The Federal Reserve allowed monetary policy to be too loose between 2002 and 2004. ... [Even after the Lehman bankruptcy.] Incredibly, however, staff economists at the Federal Reserve saw no reason to anticipate a recession.”
Ferguson mordantly criticizes the role of the state in the modern economy. “The federal government has degenerated into what has been called an ‘administrative’ or ‘managerial’ state, hierarchical and bureaucratic in its mode of operation, dedicated to generating ever more complicated regulation that had precisely the opposite effect of that intended. ... The administrative state has found an easy solution to the problem of increasing the number of public ‘goods’ without making commensurate increases in taxation, and that is to finance current government consumption through borrowing. ... Yet all these expedients of the administrative state impose burdens on the private sector that ultimately reduce the rate of growth and job creation. ... In short, the administrative state represents the last iteration of political hierarchy: a system that spews out rules, generates complexity, and undermines both prosperity and stability.”
Given his powerful case against the state, it is disappointing that Ferguson ends by calling for stronger state hierarchies. These are needed, he thinks, to combat future cyber warfare and Islamic jihad. This is not the first time that an author has failed to draw the correct lessons from his own book, and readers of The Square and the Tower would be well-advised to benefit from the author’s insights into the evils of the state while they ignore his conclusion.
Quarterly Journal of Austrian Economics 20, no. 1 (Spring 2017)[Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers by Walter E. Block and Peter L. Nelson]
This collaboration between Block (free-market economist) and Nelson (free-market engineer) offers a little bit of anarcho-free-market-everything with which to engage the interested reader. Block, as always, brings his combative spirit and formidable reasoning abilities. He is ready to take on all comers including, at one point in the book, his own co-author! Nelson’s interesting case-studies highlight particularly well what happens when property rights and market forces are suppressed — whether on land or on water.
The book is a fusion of two complementary tomes, a circumstance that can often make for choppy reading. At times, it is hard going. But the pilgrim who perseveres will in time be rewarded with many interesting insights, as well as a glimmer of what a consistent free-market water-rights regime would (or should) look like.
The first half of the book is a theoretical section of sorts, laying down the case for free-market economics in a property-rights context. This is followed by several interesting case studies that reinforce the theoretical discussion at the tract’s beginning. A marvelous list of provocative topics is covered (albeit briefly for most of the topics). These mostly pertain to water-rights issues, but often the range broadens and discussion strays into more generalized property issues (e.g. the shameful treatment of Cliven Bundy [re. p. 40]). Here also is where the authors re-state their free-market roots, adding a second crucial concept: the problem of “government failure” which waxes in importance as the case studies are reached. These authors are not bamboozled by the sight of bureaucrats bringing gifts to the private sector, and they also understand about free lunches.
Chapter One sets the tone with a ringing call to “Privatize oceans and all other bodies of water!” A primary purpose of the chapter is to suggest that, in a free-market system, it is almost always possible to find successful policy solutions in/on water (and elsewhere) without resorting to the use of government force (e.g., ch. 9). One simply needs to be creative and have an honest desire to try to solve problems sans government. To get the discussion rolling, the authors spar with an imaginary skeptic about the book’s message.
For additional emphasis, the authors throw in a generic argument for free markets, originating from Aristotelian thought and also based also on the idea that young children from a very early age recognize property rights. The authors see private ownership as natural and appropriate to humankind. Accordingly, they say, the socialists who claim “property is theft” are literally, exactly, and morally wrong. In such a way are the decks cleared for thinking about the morality of markets without entering an extended debate with the inevitable socialist critics.
The authors are very optimistic — likely too much so — with their claim that privatization of the Earth’s waters will necessarily bring about, in effect, a new Golden Age on Earth (your reviewer’s term, not the authors’). Sure, we will do better in developing our watery resources if we apply hefty doses of capitalism to the problem (e.g., pp. 3–4; and pp. 22–25). But these thoughts seem to this reviewer to be largely beside the point. Having to work in water or on water — as opposed to dry land — is a significant “tax” on productive watery activities. We are land creatures, not “Aquamen.” In general, it is considerably more expensive for us to conduct production operations in watery environments (whether it is in a murky swamp, or on the sea-bottom, hundreds of feet down). The authors do not take too seriously this important factor. I would say that they understate the problem. Instead, they assume rather breezily that there is no such “tax” on watery productive activities. Down a few pages, the authors seem to recognize this issue. However, it still seems to this reviewer that the authors understate the difficulty of what they are proposing. This reviewer, therefore, is skeptical.
Chapter 2 asks the reverse of the question in Chapter 1: Why privatize anything? The authors first “school” us readers a bit more regarding free-market arguments to make sure we are prepared for the discussions to come. The morality of free markets, with its non-coercive principle, is seen as superior to coercion (on land or on water). Free-market institutions have dominated collectivist ones whenever and wherever the two systems have competed. Everywhere we look, better-managed resources are to be found where private-property models are allowed to take root. These are sentiments that many a free-market social scientist can endorse with gusto.
As for the land, so for the waters: Ethically, privatization is everywhere peaceful, ethical, and according to the authors, the best system to resolve disputes. Even better, productivity will be higher if there is private-water ownership.
Chapter 5 takes on these issues of privatization, homesteading, and abandonment. Rules are suggested for watery abandonment of derelict (abandoned) properties; plus other interesting suggestions. Surprisingly, the chapter is not “pragmatic,” but philosophical as it seeks ways to solve the various problems discussed in Chapter 5’s material.
Chapter 6 works through several mundane problems involving the existing law governing the seas: Admiralty Law, Law of Salvage, and also of interest: a brief discussion of free-market salvage rules that might work well. It might have better, perhaps, to combine the discussion of the Law of the Sea into a single chapter.
This chapter lays out a part of the authors’ theory of private property. Water rights, as well as their opposite — the harmful existing law governing much of the seas. The Lockean theory will be familiar to most free-market readers of this book; the Law of the Sea, perhaps less so. Chapter 6 also covers abandonment of homesteaded property.
Chapter 7 is where the authors begin to unfold the core of their case for the privatization of those waters currently “in government hands.” The fundamental argument is the homesteading one. Property rights are (or should be) established by a homesteader who substantially mixes his labor with available natural resources (thus claiming the right to control those resources). In a proper society, the authors suggest, water rights would not be established by a global centralized bureaucracy (or, alternatively, a local one). Instead, such rights would be earned mainly by the sweat of the brow. There is both a practical and moral aspect to this argument (as the authors argue above).
In Chapter 7, the authors bring interesting hints and suggestions that ought to help bring more free-market thought into the mainstream. For example (extrapolating from the authors [see p. 56]), specialists might envision designed GPS-enabled buoys that might be used to track especially-high value fish (such as BluefinTuna and Swordfish. Meanwhile, underwater electric fences might keep those fish safely penned up.
In this Brave New World of water-entrepreneurship, the authors seem to suggest that maintaining effective control over a three-dimensional “water plot” might be relatively easy — if the legal framework were there to support it, and if society saw the virtues of such an approach. The next steps would be effective education and advocation in favor of such a legal framework. The authors’ vision extends to fully operational underwater electric fish pens. Gated underwater plots of large size would be maintained to hold them. Such hopeful speculations make for interesting reading!
Next, the authors set down before us crucial questions that they seem to accept as representative of the large numbers of many similar questions that would need to be resolved if a fully-self contained water rights regime were to come to pass. These are watery property-rights-related questions that need to be answered successfully, in the context of water rights, in order for a successful rules-based consistent market society is to grow and take root.
Many of these “watery rights” questions have been solved on land. They are to be thought of as difficult questions, not yet resolved, but which are crucial in solving any attempt to make a consistent property-rights-based system on the waters (or on land). Now the challenge would be to extend the reasoning on land so that “land law” can be can be appropriated to this more aggressive application.
Some reasonable answers to these kinds of questions are provided by the authors. Other questions are posed in a way that makes manifest the difficult challenge inherent in asking these questions. The results of these “thought-experiments” are sometimes quite provocative (e.g, discussion of the possibility of ownership/control of different depths of waters). It begins to look like some of these questions are quite interesting, likely answerable, and, even more, worth answering.
Turning to other matters: problems, such as the “water cycle,” (i.e., water evaporating into clouds and later dropping as precipitation at random spots, thus making assignment of property rights to water extremely difficult) are discussed at some length in Chapter 7. The problem, as the authors see it, is that this poses difficulty for those trying to tag every “piece” of water as being “mine” or “yours” causing problems for market forces. Also, there is considerable discussion of the concept of defining oceanic ownership and how it could be defined, and unfortunately not much in the way of solutions.
Chapter 8 is a rather long chapter focusing mainly on property issues of rivers. It addresses an interesting case (p. 76–77) where an owner’s access to his property is blocked from all sides by adjacent property owners (e.g., he has ownership in midstream but he lacks a legal access point to his “plot”). To make things a bit more challenging, let us assume that his not-so-friendly neighbors are unwilling to negotiate an access point. What, then, would then ensue? Our authors, armed with confidence in market forces, would expect creative solutions by the “players” in the “game” in finding an appropriate access point.
Other issues discussed are property rights in a situation where the course of a river is altered — how would a successful compromise ensue? Strategies for protection from floods in many cases could include something as simple as placing structures on stilts (as in the U.S. Gulf Coast). This long but informative chapter finishes up with discussion of free-market fishing rights and the consequences of erosion.
Chapter 9 covers free-market lakes and related topics. It is interesting chiefly because it concerns actual private ownership of lakes and happily, the discussion here seems less speculative and more concrete. We have, after all, numerous examples of successful management of small lakes.
As a lake community develops, it is particularly interesting in this chapter to see how the authors, starting with a small virgin lake with little commerce and with only-sketched-out property rights, takes the reader forward to a situation where well-defined, sophisticated property rights regimes. Other topics in this chapter include a discussion of fishing rights in rivers and the divvying up costs of erosion between interested injured parties; and the relatively rare case of changes of river course and how it might be managed.
Chapter 10 addresses the control and care of aquifers that often involve damage by one party to another where one party pulls out enough water to negatively and significantly affect a second party’s aquifers. This is another “tragedy of the commons” scenario, sporting technical problems with a public good tilt. In a free market situation, first arriving parties should have priority.
Chapter 11 sketches out the mainstream perspective on ocean management, the so-called “CITES” approach based on the Convention on International Trade of Endangered Species of Wild Fauna and Flora. The authors strongly rebut, citing cases where on land where such models have far worsened conditions of flora and fauna living under these policies. They also present free-market alternatives. Overall, this is an engaging chapter.
Chapter 12 discusses the history of piracy. The authors are cautiously optimistic that the market and private property can solve the problem.
Chapter 13 presents six quite interesting case studies. Case A: This discusses water rights in the lower portion of the Florida peninsula. The authors argue that one of the primary complications stem from poorly-laid-out-private-property water rights. Case B covers efforts in flood protection going back to the 1880s. The authors emphasize the hidden subsidies in such a policy and a libertarian alternative. Case C analyzes a severely damaging 2014 chemical spill on the Elk River. The authors question whether or not regulatory relief would really be likely to prevent another such a disaster. Why should it? In contrast, in a fixed free-market property rights regime, the party responsible would be strictly accountable to all injured parties. Regulation would be unnecessary. Case D concerns California’s Central Valley Aquifer. The authors argue that the problem is too little capitalism, not too much. The authors point out that property rights are a muddle in the aquifer area, creating severe “tragedy of the commons effects.” Case E: Canada, with tremendous water reserves, refuses to treat their water supplies as an economic good. Water in Canada is not privately owned. The authors explore this strange feature of the “Canadian Mind,” which has a very strong aversion to the sale of water to parched areas elsewhere. Case F concerns Somalia, Yemen, and the Gulf of Aden, and how the introduction of strong property rights in the Gulf of Aden would substantially reduce piracy and other problems in this fairly “wild” area.
Other interesting features of the book are: delightfully thorough references, a written debate between the authors (an unusual twist), a critique of a number of several other popular free-market books featuring a focus on water rights, which the authors see as straying too far from the free-market vision that the authors emphasize; and last but not least, a very pretty cover.
Michael R. Montgomery (michael.montgomery@umit.maine.edu) is Associate Professor of Economics at the University of Maine.
Dr. Hoppe's book The Economics and Ethics of Private Property is among the most important modern contributions to libertarian thought. Hoppe, like Rothbard, connects laissez-faire economics to normative libertarian theory with laserlike precision and inexorable logic. Property isn't just a social construct determined by legislative fiat, but rather a necessary component of self-ownership and the foundation of a free society. Hoppe details many of the arguments made in the book during a talk entitled "A World Without Theft", delivered at a Mises Institute event in 2006. This is a fantastic talk you won't want to miss.
Does liberalism require "open borders"? Is nationalism compatible with individual rights? Is democratic majoritarianism a form of colonialism, with predictably bad outcomes for minority populations? And, can mass immigration be reconciled with self-determination?
Dr. Joe Salerno recently addressed these questions in a comprehensive article entitled Mises on Nationalism, the Right of Self-Determination, and the Problem of Immigration. It's a very important piece, and one that every liberty-minded person should read.
In this studio interview, Jeff and Joe discuss Mises's writings on these perennially-timely topics.
Competition as a social price policyThe political organization and legal institutions of all nations, in their treatment of private property and the rights of citizens, involve various social price policies. The term "social price policies" is used here in contradistinction to the individual price policies of private enterprisers. Our own economic order known as capitalism, with its complex system of laws, traditions, and business practices, assumes the policy of competition as the general rule. Competition is rivalry, the seeking of the same desired end by two or more living beings. Even plants compete for their places in the sun and a chance to live. Competition may be contrasted with co-operation, which is the seeking of the same end or two or more creatures working together without rivalry but with the intention of sharing the fruits of their efforts. All gregarious animals, even wolves which hunt in packs, co-operate in some degree among themselves at the same time that they compete against other groups of animals. In human society men both co-operate in their various group activities and compete as individuals or as groups in other activities.
Economic competition, in particular, is the process by which men, individually and in groups, are given the opportunity to earn their living by producing desirable things and performing useful services, and by selling them for what others will pay. More and better goods, lower prices made possible by the steady march of science and technological invention, material progress constantly shared by the masses of the people — these are the ideal social purposes of competition.
In the main, Anglo-Saxon institutions, as they developed through the centuries out of feudalism, not only permitted but more and more encouraged free competition in the choice of occupations, in the exchange of goods and services, and in the management of private business. This general trend continued till near the end of the nineteenth century. However, social price policies always have been and still are a mixture of competition and other features more or less monopolistic and restrictive of free market relations. Let us consider first the competitive aspect.
Economic conditions for effective competitionIn order that economic competition may be effective, three essential conditions must be united in some degree at certain times and places: (1) ability, (2) choice, and (3) freedom.
Ability on the part of a seller to compete means the capacity to perform the service, or to produce or procure the goods that are to be sold. On the part of a buyer it means the possession of sufficient purchasing power. One who cannot play a musical instrument cannot effectively compete for a place in an orchestra, nor can a blacksmith effectively compete for a watchmaker's job. An enterpriser's ability depends on his possessing proper personal and technical qualifications — physical strength, intelligence, education, practice, experience, prestige, character — the necessary material equipment of various kinds, and sufficient financial means.
Combined with ability must be choice, or willingness to do, in order that there shall be effective competition. Many a man is better able to do a certain kind of work than are those whom he employs to do it for him, but he prefers to do something else — or nothing. Many a merchant could perform the duties of janitor, bookkeeper, sales clerk, or delivery man as well as or better than his employees do, but he can hire them for less than his services are worth for managing the business. If one who has the ability to compete chooses not to do so, it shows that his alternative valuation (the opportunity cost considered in the last chapter) of his own services and capital is greater in some other occupation. The explanation of this situation in the special case of international trade is known as the doctrine of comparative advantage.
Ability and choice to compete are the two essential economic conditions to competition, but in order that competition may be effective another condition is necessary which is primarily political, in character — freedom to compete.
Custom and caste as restrictions on freedom to competeIn human society the individual is free to act only within more or less definite limits set by his fellow men. Individual action is restricted partly by formal law and partly by numerous other subtle influences of custom, caste, status, tradition, training, beliefs, superstition, religion, and individual and class interests. In most savage tribes certain kinds of goods and some offices and occupations are tabu or forbidden to all but privileged members of the tribe. Rules and institutions are maintained and enforced by public opinion with penalties of social disapproval; the extreme is social and economic ostracism, banishment, and sometimes death for the offender. As was the case in many ancient highly-developed societies, so in India today many occupations are the hereditary monopolies of certain castes. Even now in some advanced countries of Europe the conception of social status is such that a talented individual can only with great difficulty rise above the station in life to which he was born.
Modern extralegal restrictions on freedom to competeEven in our society, limitations of a similar sort are temporarily and deliberately created by some groups for their own purposes. These groups foster prejudices and hatreds against competing persons and groups of workers or of employers, and coerce them by epithets, social ostracism, picketing, and boycotts. Driven further by passion as the mob spirit grows, as, for example, during strikes by laborers, various groups frequently embroil the whole community and disturb all civic relations by threats and by violence to property and to persons. The modern "racketeers" in American cities, sometimes disguised as leaders of organized labor, sometimes merely criminal gangsters, have levied tribute on all honest citizens. In degrees varying from the least to the greatest, such conditions restrict the economic freedom of men to compete. Those who act in this way create a sort of State within the State, usurp and for a time exercise the normal political powers of government, justifying their conduct on the ground of necessity. It is plain, however, that under these conditions free and therefore effective competition is impossible.
Competition legally regulated in the public interestThe basic function of government is to prevent competition by brute force, and in this connection it should be remembered that economic competition is only one of many species of competition between men. Organized government places restrictions upon competition in many legal and orderly ways: by the common law, by statute laws, by executive agencies of enforcement, and by courts which interpret the statutory and common law.
Governmental action in relation to competition is of two distinct types. The first merely determines the scope, methods, and kinds of competition that the community desires, leaving prices to be adjusted by competition. The second directly fixes or manipulates prices, instead of leaving the forces of legalized competition to operate.
The extent to which economic competition is regulated by government is rarely recognized. We hear much loose talk about laissez faire as a policy of keeping hands off competition; but no government has ever followed such a policy to its extreme. Governments are constantly seeking to limit economic competition to honest and peaceful efforts in producing and selling goods. The whole body of business law regulating contracts; much of the criminal law punishing crimes against persons, and preventing fraud, embezzlement and gambling; and all laws punishing crimes against property are designed to eliminate certain sorts of competition deemed to be uneconomic and to retain only those peaceful activities which are deemed to be economically beneficial to the community.
The nature of fair competitionOf recent years the term "fair competition" has been increasingly used to designate the economic competition that is limited to actions in accord with prevailing standards of integrity and legality. Fair competition is the only kind that society desires because it is the only kind that confines rivalry in business to acts which tend toward greater production and service. Bribing a competitor's employees to betray his business secrets, hiring ruffians to dynamite a competitor's factory, and a thousand other such reprehensible or downright criminal acts, are not fair economic competition. Criminal injury of competitors and unfair competition are not economic competition, as is often assumed; rather they make it impossible. The purpose and nature of such behavior is usually monopolistic, that is, it prevents capable and willing competitors from competing. These have been among the most telling methods by which the present monopolistic organization of industry has been brought about.
Fair competition has been too narrowly understood as applying to the behavior of competitors toward each other, rather than toward the buying public. Such a view of competition, however, stresses the means or the methods of economic activity rather than its main purpose — the furthering of the public welfare. There is some tendency for the courts to broaden the meaning of fair competition, and it is to be hoped that they will do so. In the discussion of the N.R.A. in the years 1933–1935, the term "unfair competition" was often curiously twisted to mean any competition that tended to lower prices against the will of the dominant monopolistic interests.
The nature of monopoly; limited monopolyThe root meaning of monopoly is unified selling, and the term is applied to a person or group of persons acting in unison in the sale of all the units of an important class of goods offered in a market. Such a single seller could withhold a part of the supply and thus greatly enhance price. But such a complete, or absolute, monopoly is an extremely rare condition. The far more frequent case is partial, or limited, monopoly. The limitation may be in respect to the proportion of the whole supply under a single control. Or it may be in respect to place, time, kinds, and qualities of goods, urgency of desires, and the possibility of meeting these desires by the substitution of other goods. The theory of monopoly has to explain how monopolistic power, however limited, may operate to raise prices above the level that would result from effective competition.
A single seller controlling a small portion of the total stock of goods in a free market could often for a brief time cause the price of his goods to rise by refusing to sell. But only his competitors would profit by this, while the withholder forfeits his usual profit on the unsold goods and the unused capacity of his enterprise. However, one seller or a unified group of sellers may control such a large fraction of all the goods of a certain kind produced in a single market, that he or they will gain more by raising prices than will be lost through limiting production. If by the use of any of the devices of collusive, criminal, and unfair competition sellers are able to force others to limit their production, the total monopolistic gain may be much greater than otherwise would be the case. In some instances monopoly is inclusive. This is the case when there are agreements and common action to restrict sales. In other instances monopoly is exclusive in that it compels others to restrict their sales partially or completely.
Monopoly may be defined as follows: It is unified control by sellers over such a proportion of the whole supply of certain goods or classes of goods in a market that a net gain may result by withholding or excluding from sale some goods that would be offered for sale if ownership were not unified. A similar unification on the side of demanders, a comparatively rare occurrence, is often called buyers' monopoly.For this type of monopoly the name of monopsony has been suggested as being in accord with the meaning of the Greek roots.
Demand and supply in monopoly priceWhen the conditions determining sellers' valuations were considered in the preceding chapter, it was seen that all sellers competitive as well as monopolistic, charge what the traffic will bear. The true contrast between competitive and monopolistic valuations is that where competition is effective, the traffic usually will not bear so much as under monopolistic conditions. It is misleading to say that the contrast lies in the fact that monopoly prices are fixed or determined solely by demand, whereas competitive prices are fixed by the equilibrium of demand and supply. The essential contrast is this: In the case of exercised monopoly power, the supply is restricted by common action below what would result from independent competitive action. When monopolistic sellers find that they can get more by restricting supply, they raise their reserve valuations accordingly. Monopoly price is determined by the equilibrium of demand and supply. But while demand is competitively unrestricted, supply is artificially restricted.
Monopolistic sellers may effect the restriction in several ways. They may by collusion reduce their own sales, or they may use either rewards or punishments to induce competitors to reduce their sales in whole or in part, or they may persuade some public authority to limit or exclude possible competitors. In all these ways and by numberless devices, supply is more or less manipulated in many industries today, according to favoring conditions.
Crude monopoly priceA distinction may be made between crude and net monopoly prices. Crude monopoly price is that which yields the maximum receipts (units sold times unit price) rather than, necessarily, the greatest net gain. The aim is to obtain the maximum receipts when goods are either costless (as might be the case with some agents of production) or are perishable, as are some foods in the markets on Saturday night or before a holiday, or where for temporary gain some part of the existing stocks of goods is destroyed without regard to first costs or to replacement valuations.
Suppose that at various prices the supply of and demand for certain goods correspond with the latent valuations as set forth in the following table:
At the true competitive market price of $5, there will be 50 units sold and the receipts will be $250. If, however, all the sellers unite and restrict production to 45 units, price will rise to $6 and receipts to $270, which is the maximum possible, Further restriction of supply to 35 units would raise unit price to $7 but receipts would fall to $245. This is shown in Figure XVII.
Elasticity of demand and supplyElasticity of demand means the extent to which changes in price initiated by active changes of supply are followed by passive inverse changes in demand. This is usually expressed as a ratio of the rate per cent of the demand change to the rate of price change, the two rates having opposite signs, plus or minus. For example, if the price falls 10 per cent and as a result the demand rises 10 per cent, the rate of elasticity of demand at that point is unity. But if a fall of price from 10 to 9 (10 per cent) is followed by a rise of demand only from 100 units to 105 (5 per cent), the rate of elasticity is .50.
Figure XVII. Crude, Uniform Monopoly PriceElasticity of supply is similar in nature to elasticity in demand but varies directly with price changes, supply rising passively as prices rise and falling as prices fall.See Chap. XVIII on passive and active changes in latent valuations.
Drawn on the same scale, a graph of more elastic demand (or supply) is more nearly horizontal, and one of less elastic demand (or supply) is more nearly vertical.
Inelastic demand makes monopoly easierConsider a situation, as in Table VIII, in which the latent demand at higher prices is somewhat less elastic than in Table VII, for example:
Under these conditions, if the monopolistic group has 50 units on hand which will sell for only $5 if all are offered, it will pay them to destroy 20 units, if that is necessary to make sure that the remainder may be sold at $10 per unit. This sort of waste and destruction of goods has often been practiced, as for example, when East Indian spices were sunk in European ports— a case made famous by Adam Smith — and when certain foodstuffs were occasionally dumped into the waters of New York harbor.
Figure XVIII. Monopoly Uniform Price with Less Elastic DemandThe foregoing examples involve the assumption (1) that the monopolist controls the whole supply; (2) that the monopoly price is uniform to all buyers without discrimination, and (3) that actual costs and alternative valuations are disregarded. Let us consider how a difference in each of these conditions might influence the result.
Limited monopoly; influence of partial competitionIf a considerable fraction of the supply remains outside of the monopolistic agreement, the control of price is more difficult. If competitors (in Table VIII) supply 10 units at the competitive price, and the monopoly group supplies 40 and then cuts down its supply by 10 units, the monopoly group would be selling 30 units, and its competitors 10 at a price of $7. Its receipts at the competitive price would be $200 (40 X 5); at the $7 price they would be $210. There is therefore a gain of $10 for the monopoly if it restricts production and obtains the $7 price. But if the monopoly restricts its output by 20 units to raise the price to $10, it would then sell only 20 units, and its receipts would be only $200.
Tendency of monopoly to overreach. — Theory and abundant practical experience unite to show that under such conditions the other competitors would be likely to increase their outputs, while new forces would be set into operation by the higher prices, causing substitution of goods, stimulation of new competitors near and far, and the discovery of new methods. In all cases of limited monopoly the long-time gains of restrictions are certain to be smaller than they appear in the short-time view, and large immediate gains sometimes turn ultimately into large losses.
The history of monopoly is full of evidence that it usually overreaches itself in the exercise of newly acquired powers over prices. Notable recent examples are the British policy of restricting rubber production by which the price of rubber was driven up to about $1.50 a pound, to fall later to 5 cents a pound; the copper monopoly which drove copper up to 24 cents a pound, to see the price collapse to 5 cents, the lowest in all history; and the efforts since 1933 to fix American cotton prices, which have stimulated competition in cotton growing in many parts of the world where it threatens to continue even at prices lower than those at present, with disastrous results to our Southern farmers.
But this is not to say that the problem of monopoly always solves itself, or that monopoly power is always temporary, or that it usually is unprofitable to the monopolists, or that no one is injured by its exercise, or that the public may safely follow a policy of laissez faire toward the monopoly problem.
Discriminatory monopoly pricesIn practice, uniform monopoly price is unusual and theory makes it clear why this must be so. Except when demand is highly inelastic, the gain from uniform monopoly prices is likely to be limited. It has been observed that with rare exceptions monopoly power is not complete but is partial and limited. The most general limitation of monopoly power is the newly aroused competition which it has to meet at each successive higher level of prices. To meet such competition by a uniform lowering of its price would compel the monopoly to give up some of the monopolistic gains derived from those buyers that are already fully within its power. But if monopoly can find a way to classify the buyers, even roughly, and make those in each class pay a price approximating their reserve valuations, it can gain much more than it can from a uniform price.
Price discrimination is nonuniform treatment of customers by making a difference in the price of goods without a corresponding difference in quality, service, or conditions in the terms of sale. When the monopoly discriminates against such buyers as are within its power by charging them higher prices while it sells at lower prices where competition must be met, it succeeds in accomplishing the proverbially impossible — "it eats its cake and has it too."
The price discriminations practiced by a monopoly are often at certain geographical points or market area boundaries. Or again they are found in certain grades and kinds of goods and services. Or they may be seen in the methods of making sales to certain persons. The monopoly may undercut certain competitors' prices while continuing to charge its other customers monopolistic prices. So discrimination takes manifold forms, but it always means nonuniformity in the prices exacted from buyers by the sellers.
Monopoly gains from discrimination. — In Table IX total receipts at a uniform price of $7 would be only $245; but they may be increased to $330 by discriminating prices down to the normal competitive price of $5, as follows:
Table IX
Price Units Salable at Various Discriminatory Prices Receipts
$7 35 $245 6 10 additional 60 additional 5 5 additional 25 additional __________ ____________Total 50 $330
In a similar manner the effect of further discrimination by creating a higher price class would be as follows:
Table X
Price Units Salable at Various Discriminatory Prices Receipts
$10 30 $300 7 10 additional 70 additional 6 5 additional 30 additional 5 5 additional 25 additional __________ ____________Total 50 $425
Cutthroat discriminationDiscrimination in prices, while it wears the guise of competition, is, in fact, the most potent instrument of monopoly. A strong combination or monopolistic association, when discriminating by lowering prices, need not stop at a truly competitive price level which yields a normal profit. It can and often does go lower, even accepting a loss, for the purpose of warning, disciplining, forcing into the monopolistic group, or driving into bankruptcy any smaller competitor who is interfering with the price plans of the monopoly. This is cutthroat competition in the proper sense of that often misused term. It is much more agreeable and profitable to a monopoly if competitors can be made to restrict their production than for the monopolists, by cutthroat means, to do it themselves. In that way, a monopoly gets all the gain and the would-be competitors bear the losses along with the consumers.
The practice of cutthroat competition is much easier for a financially powerful corporation than it is for a smaller competitor. It is particularly easy for a large combination owning a number of plants in various geographical areas and turning out a large variety of products. It can cut prices on some products by the use of "fighting brands," and in some localities by the use of "fighting mills," while continuing to charge higher prices and to earn ample profits from its other products and plants. On the other hand, it is financially impossible for a comparatively small independent enterprise with a single plant, no matter how efficient it may be technically or how able to meet fair competition, to compete against its large competitors by the use of cutthroat prices. It can only cut its own throat in that way.
Without a clear understanding of discriminatory prices there is no hope: for effective public control of monopoly.
Monopoly profit above costs; net monopoly pricesCases of crude monopoly price are comparatively rare. Much more frequently the aim of a going concern is to get the maximum price over the costs of replacement — the greatest net monopoly price. In the continuous production and sale of goods, costs have to be considered — that is, the alternative valuations of indirect agents. Normal competitive prices of goods contain an element of profit both on fixed and variable costs necessary to attract and to keep enterprisers in the business. The normal competitive price contains no additional profit above this: costs and prices are, or tend to be, just equal. Assume the competitive price to be $5 (as in Table VIII; the fixed costs (including a fair profit) to be $150; and the variable costs (also including a fair profit) to be $100 (receipts $250, costs $250). Under these conditions costs, prices, and normal profits would be in equilibrium, as shown in Figure XIX.
Figure XIX. Costs and Competitive Price Showing Also Possible Additional Pure Monopoly Profits Through DiscriminationNow if the monopoly reduces its production from 50 to 30 units, fixed costs would be unchanged at $150; variable costs would be $60 (3/5 of $100); and total costs (including normal competitive profit) would be $210. As the receipts are $300, there is a pure monopoly profit of $90 over and above the normal profit which investment would give under competitive conditions. These figures are illustrative of the fact that a monopolistic increase of competitive prices increases the profits of monopoly in greater proportion than it does the total receipts. This is shown in Figure XX.
Figure XX. Pure Monopoly Profit Above Costs, With Uniform PriceExpressed generally net monopoly price: is that price which maximizes the remainder left after subtracting from the total receipts the costs of production. The many complexities in the calculation of costs according to whether they are constant, increasing, or decreasing per unit, or total, go beyond the scope of our treatment.
Public or legalized monopoliesThe innumerable and varied monopolistic controls over prices in modern business may be broadly classified as public and private. Public monopoly is that which is legalized, including direct public ownership and operation of enterprises. Monopoly power is also exercised by private persons, organizations, and industries acting under authority of patents, copyrights, charters, and statutes which confer special or exclusive privileges on them.
The professed public motive in all these legalized forms of monopoly is to advance the general welfare, but frequently they are determined by the private and class interests of "pressure groups" acting upon legislators and executive or judicial officials. Organized groups of citizens are constantly seeking the authorization and grant of monopolistic powers for themselves with the plea that this is the best way to help the public. The "bootstrap doctrine" of economic welfare became known as mercantilism from its wide exercise by governments on behalf of the merchant class in the seventeenth century. It has been followed in the United States through extensive grants and subsidies to railroads, water carriers, and other industries, and in tariffs to favored groups of manufacturers, farmers, and owners of natural resources such as coal, iron, lumber, oil, copper. In these and many other ways, the power of taxation exercised by local, state, and Federal authorities has been diverted from its primary purpose of raising public revenues to promote the general welfare, to that of making gifts to private citizens, on the apparent assumption that somehow these gifts will filter through their pockets back to the taxpayers, magnified by some magic power in the process.
Restrictive tariffs and monopolyA peculiar case of monopoly by public action is presented by so-called protective tariffs on imports, more accurately called restrictive tariffs. The purpose of such protective tariffs is not to raise revenue for the government but to restrict imports and thereby to raise the prices which domestic producers may receive from domestic users. Inasmuch as domestic producers are thus relieved practically or wholly from the competition of foreign products with their own, this is a monopolistic measure. This is true even though domestic producers are not thereby authorized to unite in monopolistic selling but are expected to compete actively with each other. If they do so compete, they may reduce the rate of profits in their industries to the general level of other industries. Nevertheless prices almost certainly will remain higher than they would be with free importation (with the possible exception of bona fide infant industries). The higher domestic prices due to restrictive tariffs are in many cases reflected back to the natural resources involved in the manufacture of the product. These natural resources would often be much less valuable if imports were free. Tariffs are thus the source of large private fortunes. Though it is extreme to say that "the tariff is the mother of trusts," it can hardly be doubted that the exclusion of foreign goods facilitates the formation of domestic monopolistic agreements. Moreover, domestic monopolistic industries such as oil, lumber, copper, and cement have been able to exert a peculiarly strong pressure to procure higher tariffs on their products.
Public utility monopoliesThe enterprises known as public utilities present a special problem of monopoly. The chief enterprises of this type have appeared somewhat in this historical order: ferries, toll turnpikes and bridges in private hands, water- and gasworks, railroads, streetcar lines and interurban trolleys, electric power and light, and telegraph and telephone companies. A public utility, as the name indicates, is an industry which, with the progress of society, is deemed necessary to the public welfare. But so are many other industries that have developed in the last century and a half. In contrast with industries supplying such products as textiles, iron and steel, cement, gasoline, or automobiles, the really distinctive character of a public utility lies in technical conditions which call for the extension of physical lines of rails, pipes, poles, wires, and other apparatus into the particular locality, and usually into each home or factory, to be served. It is impossible for this to be done unless these industries are granted (by charter or franchise) special legal privileges not accorded to citizens generally. These usually include the right to occupy, cross, excavate, and use the public highways for their rails, pipes, conduits, wires, and other equipment, and the power to exercise the right of eminent domain. By this right a public utility can compel others to sell their property at an appraised valuation, even against their will. Hence such enterprises are quasi-public, for they enjoy not merely the ordinary rights of private business but become in some respects public agencies exercising public rights.
Experience soon showed that it was physically impossible and financially wasteful to multiply the physical equipment of rails, pipes, wires, poles, and so on, in each locality so that the buyers of services could choose and shift back and forth among competing bidders. Under these conditions local monopolies were inevitable, however limited they might be on the geographical margins and by substitution of goods such as candles and kerosene for gas or electricity. The term "natural monopolies," often used loosely, may with some reason be rightly applied to such industries. The public did not, as is sometimes assumed, purposely create them as monopolies. But it soon discovered that they inevitably had become monopolies. Therefore the public undertook by regulation to keep their prices down to what prices supposedly would be if competition were possible. The purpose of regulating such industries is not to create monopoly, but to remove the clement of extortion. Public utility rates, as fixed by commissions, are attempted copies, or estimates, of competitive rates. Thus far, however, they have been pretty crude imitations of the real thing.
Private industrial and commercial monopoliesMany of the monopolistic forces in our present economy are not derived from, or sanctioned by, public authority, as are those described in the preceding sections. The commodities and services sold by most commercial and industrial enterprises, unlike those of public utilities, can be distributed to every part of the land by the aid of common carriers. Thus they may come into continual competition in many localities and in many ways with the commodities of other enterprises. Buyers may shift at any moment from one seller to another, under the inducement of lower prices. As long as production and distribution were much decentralized and shared by large numbers of small enterprises (a condition continuing substantially until after 1865 in this country), competition and uniform prices to buyers at each mill or market were the general rule. But since that time there has been a steady trend toward larger production in single plants, and greater centralization of industries at certain localities. In the process many neighborhood factories have disappeared.
Concentration of control facilitating monopolyMuch more important in facilitating monopoly has been the concentration of ownership of factories and stores in the same industry, sometimes in the same locality, sometimes widely distributed geographically. This great unification of ownership ensures complete unification of price policies of formerly competing companies, and often gives a dominating position in matters of price policy over the remaining so-called independents. In many great industries such as steel, other metals, cement, machinery and implements, the principal kinds of building materials, and in many tariff-protected industries, some one great corporation or friendly group of smaller corporations has become known as the market leader. In industries where concentration had not proceeded so far, trade associations have been organized in great numbers since 1912 ostensibly to deal with unfair competitive practices between independent enterprises but chiefly to make possible collusive agreement on more or less monopolistic prices and practices. Under these conditions monopolistic influences have penetrated into nearly every corner of the price system.
The foregoing brief discussion of monopoly theory suggests the devices by which prices can be monopolistically controlled and also the methods by which such practices could be prevented and corrected. A growing body of evidence indicates that the capitalistic system, whose basic assumption is free markets and a free price system, cannot continue to work with an ever-widening range of prices fixed by monopolies.
Rigid and flexible pricesWhenever monopoly by agreement is possible in periods of normal business, it becomes effective in boom times. When all producers are well booked up with orders, and buyers' reserve valuations are unusually high, it is easier than at any other time to get competitors to agree to restrict production in order to raise prices. But it is more difficult to maintain such price agreements when business falls off and factories are running below capacity. Then the enterprisers that are in greatest need of orders are tempted to break away and reduce prices, and this precipitates fierce retaliation by the dominant corporation or group in the industry. In any industry, but especially in one that has been pegging its prices at a high level, price reductions serve to stimulate orders to increase production, and to give employment to more workers, and thus somewhat to alleviate the depression.
Rigid monopoly prices in depression periodsIn recent decades, spontaneous, competitive lowering of prices in depression periods has not occurred promptly nor in many industries. This tends to throw the price system further out of equilibrium. Competitive industries reduce their prices, while industries that are monopolistically organized peg their prices. The whole burden of readjustment in getting production, employment, and exchange started again is thrown upon those industries and occupations in which prices and wages are already most deflated. In the world depression beginning in 1929, this contrast between rigid and flexible prices (or sticky and fluid prices) has been more noticeable than ever before. Rigid, or inflexible, prices are pretty closely correlated with monopoly, partly because of the increasing number of prices fixed on static principles by public authority (as public utility commission rates), and partly by the multiplying controls of private monopoly of various kinds over wages and commodity prices. There is much reason to believe that this rigidity tends first to induce depressions, and then to prolong and to increase their severity by keeping excess capacity unused and by aggravating unemployment. If only a few industries peg their prices, in defiance of the ordinary competitive motives to reduce prices when there is unused capacity and unemployed labor, they may gain at the expense of the rest of the community, which behaves differently. But as price fixing during a depression becomes more and more the general practice, even the monopolists lose more in the end than they gain. The remedy for monopoly is not more monopoly but the policy of competition impartially applied.
Figure XXI. Comparison of the Behavior of Prices and Production in Agriculture (Competitive) and Industry (Now Largely Monopolistic) in the Depression Period 1929–1934. While Employment in Industry Greatly Decreased, the Number of Farm Operators Actually Increased by More Than 500,000.Overhead costs and rigid pricesApologists for monopoly, while not denying the growing practice of artificial price rigidity in many industries regardless of changes in demand, have lately sought to justify it as the necessary result of overhead costs because of the heavy investment of capital in durable plants. They say that the prices of the products must provide a fair return on invested capital, including any interest on bonded debt (an actual cost); also a return on stockholders' actual investment at the rate the management expected to get; and finally a return at the same rate on watered stock issued as promoters' profits in forming combinations and reorganizations. These together constitute a heavy burden of so-called overhead costs, which, it is said, the industries are justified in shifting to the public in the form of higher prices, regardless of the general collapse of business conditions. This argument assumes the validity of the erroneous theory that cost prices of indirect agents cause and determine product prices, instead of the reverse.
Those who argue that rigid prices are the normal and justifiable result of overhead costs admit that overhead costs did not so dominate industry in the past. But they maintain that this was because such costs are essentially a new feature in modern industry. In fact, however, overhead costs are at least as old as the practice of expressing the capital value of the investment in durable agents such as machines, buildings, and lands. Every farmer has a large burden of overhead costs, yet the products of agricultural industry (except for recent public measures) are usually sold under competitive conditions at flexible prices.
It is monopoly power, not overhead costs, which make it possible today for some industries to maintain their prices at monopolistic levels regardless of changes in competitive conditions. Industries without monopoly power (such as most kinds of agriculture) have to forget overhead costs, and they continue to produce and sell at any price they can get that covers their actual out-of-pocket outlays. A price system of rigid, or monopoly, prices is not truly a system, for it is out of balance and cannot easily recover. It is the function of market price changes to restore demand and supply to equilibrium, and only a competitive price system can do this.
Summary and conclusionsThis chapter carries the study of the price system further into the region of reality where free exchange between individuals in accordance with their own valuations is so often and in manifold ways restricted and controlled either by some public authority or by private monopoly.
The true nature of fair competition in business must be carefully studied to determine what limitations must be placed upon it to ensure the general welfare. Monopoly is essentially unified action by sellers to restrict production artificially and thereby to cause buyers to bid up prices above the competitive norm. Discrimination by monopolistic sellers, that is, charging different classes of buyers nonuniform prices, enables monopoly still further to evade marginal competition and to increase prices and profits above the competitive level.
Grave questions of public policy are involved in the artificial control of prices by public ownership and by special public favors to private industries in various ways, as by means of restrictive tariffs to some, and by special franchises to other industries known as public utilities. Another outstanding present problem is industrial monopoly, which is not legally authorized but is definitely outlawed, yet which in defiance: of law has been steadily growing in power. The influence of monopoly in making prices more rigid, especially in periods of business depression, throws a disproportionate burden upon those other classes of citizens who are competing in their occupations. Monopoly even threatens to undermine the existing system of free industry and private property.
The student should, at this point, try to get a clear and consistent picture of the price system as a whole, by retracing the line of thought running from first to last through these four chapters. The starting point in the explanation of prices is in the differing choice and valuations of individuals. Exchange of goods, beginning in the simplest forms of barter and developing into a complex system of markets and agencies of trade, widens the range of individual choice and increases the wealth of the community. Market prices are mutually related through many ties. Monopoly gains involve the injury of others. A free price system is the essential condition of economic freedom. A true theory of price under actual conditions of mingled competition and monopoly is a necessary prerequisite to the shaping of sound, social price policies.
Suggested ReadingsBerle, Adolph A., Jr. and Means, Gardiner C. The Modern Corporation and Private Property. The Macmillan Co. New York. 1933. Reissue, Pp. xiii, 396.
Chamberlin, Edward H. The Theory of Monopolistic Competition. Harvard University Press. Cambridge, Mass. 1933. Pp. x, 213.Fetter, Frank A. The Masquerade of Monopoly. Harcourt, Brace and Co. New York. 1931. Pp. xii, 464.
——. "Big Business and the Nation." Facing the Facts. (James G. Smith, ed.) G.P. Putnam's Sons. New York. 1932. Pp. xvi, 372. See especially Chap. VII.
Keezer, Dexter M. and May, Stacey. The Public Control of Business. Harper and Brothers Publishers. New York. 1930. Pp. xi, 267. A clear view of the real nature of industrial monopoly.
Laidler, Harry W. Concentration of Control in American Industry. Thomas Y. Crowell and Co. New York. 1031. Pp. xvi, 501. The facts regarding concentration.
Means, Gardiner C. "Growth in the Relative Importance of the Large Corporation in American Economic Life." The American Economic Review. March 1931. Vol. XXI. Pp. 10–42. Factual account.
Mund, Vernon A. "Prices Under Competition and Monopoly: Some Concrete Examples." The Quarterly Journal of Economics. February, 1934. Vol. 48. Pp. 288–303.
Viner, Jacob. "Objective Tests of Competition Applied to the Cement Industry." The Journal of Political Economy. February, 1925. Vol. 33. Pp. 107–111.
Wormser, I.M. Frankenstein, Incorporated. McGraw-Hill Book Co., Inc. New York. 1931. Pp. ix, 242. A lawyer's analysis of ominous corporate abuses.
Questions and Problems1. What general social price policy is assumed in our political and legal institutions?
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What is competition? Co-operation? For effective competition what three essential conditions are necessary? Explain.
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What two types of action in relation to competition may the government take?
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Give some examples of unfair competition. Can you suggest ways to eliminate such acts or practices?
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What is the root meaning and definition of the word "monopoly"? Distinguish between absolute and limited monopoly; between inclusive and exclusive monopoly.
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What is the essential difference in the determination of monopoly price as compared with the determination of competitive price? Explain.
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Explain the way in which monopoly may be used to obtain higher prices from purchasers.
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What is the nature of crude monopoly price? Under what conditions would a monopolist charge this type of price?
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What is meant by discrimination in prices? Do monopolists usually practice discrimination? Why or why not?
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Define cutthroat competition. Why, and by whom, is it usually practiced?
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How would you characterize net monopoly price? Under what conditions does a monopolist aim at this type of price?
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Give examples of public (Iegalized) monopolies. Are public monopolies in the United States more prevalent than private monopolies?
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Why does private monopoly always involve a restriction of supply? What are other economic results of private monopoly?
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How does monopoly tend toward rigidity of prices?
We’ve lived through another election season, and this year, as with every years, the candidates competed to tell us about all the ways they were going to use the power of government to make our lives better. Unfortunately, many voters appeared quite sympathetic to the idea that government action can improve living standards and generally make markets work better.
That’s the bad news. But, there are also trends at work right now that are bigger than any single election cycle, and while the candidates this year provided little reason for optimism, the voters themselves may be growing skeptical of just how much the government can solve all their problems.
Nevertheless, one of the most important things we can do is really explain and understand how markets, and not government intervention, are our best hope for an orderly and prosperous society.
To Change Politics: Public Opinion Must ChangeAs Ludwig von Mises and Frédéric Bastiat point out, economic policy, for good or bad, is ultimately determined by public opinion. That can give us cause for pessimism or optimism, because although a widespread misunderstanding of how markets work translates into bad policies, public opinion can, and often does, change. Until a half-century ago, arguments such as, “We need more housing, therefore government should provide housing,” or “We need more affordable housing. Therefore government should put price controls on housing,” were common. Today, few people seriously make such claims. When even the median voter in Massachusetts can understand the problems with and vote to eliminate rent control, there is hope about the spread of economic ideas.
Still, arguments such as “We need to reduce fraud. Therefore government needs more regulations” or “Risk is a problem. Therefore government should assume and manage risk” are much more accepted than they should be.
Although faith in government is still widely held, it may be passing its apex and declining. Surveys have found that in the late 1960s about 75 percent of Americans said they trusted “the government in Washington all or most of the time,” whereas today the number is only 20 percent. A 2013 survey by Gallup found that a “record high in the U.S. say big government is the greatest threat” to the country, and Pew in 2013 reported that a “majority views government as a threat to personal rights.” People are also abandoning faith in politicians, and today only 9 percent have a favorable view of Congress.
An Alternative to Politics?But, these doubts about government intervention do not necessarily translate into support for voluntary markets.
Part of the reason that the public have skepticism toward markets is they have little understanding of how markets work. Nor do they understand how markets can work to provide order and governance in everyday life.
Among many voters, there is a fear that without governments to intervene, society cannot be structured and orderly.
This has never been the case, and in my book Private Governance: Creating Order in Economic and Social Life, I look at how governance can be achieved without what we normally call “government.”
Private governance is created wherever private institutions create order and enforce rules when governments are either unable or unwilling to do so. Time and time again, markets can be found to work even when government is not underpinning them. The standard belief that government is necessary to enforce contracts or allocate goods — to name two examples — is belied by numerous examples throughout history.
Private governance can be found, of course, in the rules imposed by any private club. But private governance is also employed to govern complex institutions, as it was first used by the founders of the London and New York stock exchanges. Similar institutions and rule-making are used today to govern electronic commerce.
In fact, once we begin to contrast the voluntary marketplace with government institutions, we find that the rules of the market are much more orderly, stable, and potentially enduring than rules from a monolithic bureaucracy.
Moreover, although progressives worry about corporate power, market-based rules and private governance allow for more choice and are markedly more liberal than government impositions and regulations.
Allowing people to voluntarily opt into, or out of, different systems, markets, and communities lets people find the rules that benefit them. In The Constitution of Liberty, Friedrich Hayek explains why this is so. “There is an advantage in obedience to such rules not being coerced,” Hayek begins,
not only because coercion as such is bad, but because it is, in fact, often desirable that rules should be observed only in most instances. ... It is this flexibility of voluntary rules which in the field of morals makes gradual evolution and spontaneous growth possible, which allows further experience to lead to modifications and improvements.
Hayek goes on to note that non-coercive governance — such as that found in the marketplace — is more likely to allow for the sort of change that leads to economic progress:
Such an evolution is only possible with rules which are neither coercive nor deliberately imposed. ... Unlike any deliberately imposed coercive rules, which can be changed only discontinuously and for all at the same time, rules of this kind allow for gradual and experimental change. The existence of individuals and groups simultaneously observing partially different rules provides the opportunity for the selection of the more effective ones.
Widely desirable structures of private governance will become profitable and encourage others to mimic them without any need for coercive “harmonization.” In other cases, variety across different markets is a good thing. Just as it does not make sense for the corner store to comply with the listing requirements of the New York Stock Exchange or recreational sailors to comply with the rules of the America’s Cup, a market for private governance allows people to select from different structures that make sense for them. In contrast to government institutions that apply rigid rules universally, the market allows people to opt into different rule-enforcing clubs and institutions in different areas of their lives in various ways they like.
Politics, of course, represents very much the opposite of the flexibility and variety found in private governance. We just spent most of the year hearing from politicians about all the things they were going to do to force markets to behave themselves. But, in spite of what the politicians tell us, the fact remains that order in markets is as attributable to government as much as good literature is attributable to the Government Printing Office.
Longaberger can't sell its basket-shaped headquarters. As Peter Klein explains, resources in a modern economy are complex and specific — which is why we need free markets.
Peter Klein is the Mises Institute's Carl Menger Research Fellow.
Jörg Guido Hülsmann joins Jeff Deist in studio this weekend to discuss the ongoing migrant crisis in Europe. They consider what Mises, Rothbard, and Hoppe have to say about borders, migration controls, organic nations, and culture. Dr. Hülsmann also explains the critical difference between nation and state, and why so-called "public property" should be controlled for the benefit of taxpayers.
Are the arguments for the free movement of goods necessarily applicable to immigrants? Are libertarians overly dismissive of culture arguments, narrow-mindedly seeing individuals as bound to each other only by market exchange? And is the modern version of open borders just a big-government construct?
In its most basic application, the TANSTAAFL principle is a simple statement of reality: everything of value has a cost. The TANSTAAFL principle can also be interpreted as a mandate for a policy of full-cost pricing. In a world where resources are scarce, everything has a cost. Scarce resources are used most efficiently when the price paid by the final user reflects all costs, including waste disposal, harm from pollution, and depletion of non-renewable resources.
Author Edwin G. Dolan is a leading environmental economist and academic. This 40th anniversary edition includes the full original text along with a new introduction and extensive commentaries on each chapter by the author. The commentaries explore aspects of environmental issues that have changed over time, for example, the arrival on centre stage of climate change, something that merited only a few words in the 1971 edition. They also discuss things that have not changed: for example, the tendency of government to play the role of villain at least as often as that of hero when it comes to protecting environmental values. As the author repeatedly emphasizes, it is as important today as in the past to apply the TANSTAAFL principle: the polluter must pay.
The other day I was having coffee with a new friend, a retired businessman who had customized luxury cars in California. I mentioned I had recently retired from owning an investment firm and had studied economics for many years, especially Austrian economics.
Like so many people, he said, “I really don't understand economics and always have been confused by it.”
To which I surprised him with, “Of course you understand economics; it is the thought process you use every day to deal with three things: scarcity, property, and relationships.”
His eyes got big and he said, “Whoa! Say that again.”
“OK,” I said, “Everything in human life is organized around how we make decisions about three things: scarcity, property, and relationships.
“First let’s talk about scarcity which you’ve known about all of your life — you notice when something is missing or about to be missing; it is how you decide when it’s time go to the grocery store, do your laundry or whether you should drive your car faster so not to be late for an appointment.
“Every human being is an expert in the decision process of scarcity. It is something we all naturally do whenever we act and choose — which, by the way, we are doing all the time, every day, all day long.”
I smiled, “I could go on and on. You want more?”
“Sure,” he smiled back.
“All humans make action and choice decisions that automatically weigh the following factors. Knowledge: what do we know? Risk and uncertainty: what is our estimate of the risk we can foresee? What do we not know? Time and priority: when do I want or need this? And, how important is this to me right now in relation to other options? Value: what am I willing to give up to have this thing right now?
“This is the personal way you understand economics; it’s the decision process that every human being goes through every time they act and choose, even if it is only for me, alone.
“But there is another important way you already understand economics, which is how we interact with others. That is why I mentioned property and relationships because here is where the decision process I outlined above takes into account other people.
“Economics is also about how we decide how we will think about — and therefore organize — our property and our relationships.”
After a long pause my new friend then said, “Wait a minute. You haven’t talked about money. Even I know that economics is the study of money.”
To which I said, “The study of money and monetary exchange is the most applied use of economic theory. And this is to be expected.
“Why? Because of property.
“You probably already know that money is a medium of exchange. But what are we exchanging? We are exchanging property, your property for my property.
“It is most valuable to think that there are two conversations happening during every monetary — or property — exchange.
“The first conversation is the one I am having with myself; when I give $3 for this fancy cup of coffee I am saying, “I value that coffee more than the $3 in my pocket.”
“The second conversation is the one the café owner is having with himself. He is saying, “I value your $3 more than the coffee I have for sale.”
“Money is the handiest form of property so I don’t have to try to exchange a fish or a chicken for a cup of coffee, for example.”
I continued, “the real use of economics is in the conversation of how we organize ourselves in groups. Do we peacefully respect each other’s property? Do we peacefully cooperate with a shared sense of peaceful-values or is it that fearful-values are forced on us by some Single Dictator, as in a single person, or a Group Dictator, which is otherwise called democracy, by the way.”
At this point my new friend was squirming and said, “So, really economics is based on politics.”
I said, “Actually, it’s the other way around. If you like, I can send to you a great little essay written in 1850 that clarifies this. The writer’s name is Bastiat and he explains that economic architectures precede political architectures.
“In other words, if you look at politics as simply an argument of how we should organize ourselves, then it becomes obvious that it really boils down to how we know, or don’t know, what property is and how we should deal with it as we relate to each other in life and living.
“This is what I was referring to when I said that economics is also about relationships. The connection between economics and politics is how we organize our relationships and whether our ‘shared values’ assume we can have (and want to have) a society based more on peaceful cooperation — or not.”
As all conversations go, it became apparent that it was time to wrap this up, so I said, “Well, there you go. I have been studying this for a long time. If you would like to learn more I can direct you to learn about these things in a step-by-step way.”
To my surprise, he said, “No, let’s continue. This is very interesting. But one thing bothers me. Are you also saying that humans don’t need rules and laws and that our so-called ‘self interests’ are enough to keep us humans interacting in a more peaceful way? The news is too full of the horrors of humanity to swallow that one.”
I replied, “Well, it is true that the media is mostly reporting bad news. And there are definitely places and times throughout the world where the balance was and is greater violence of man against man.
“But it is also true that this exists against a backdrop of a pretty darn peaceful world overall. On any average day, you are more likely to end the day peacefully in bed than being the victim of some violent or unfortunate occurrence.
“There are many, many examples of shared peaceful values that we — the world over — rely on in our daily life, that show this to be true. My favorite is the freeway. Here we move along at speeds that easily can kill us and yet we all — mostly and most of the time — peacefully cooperate.
“But let’s talk next time about whether we need to organize ourselves around an assumption that the only way people will peacefully cooperate is via some agency being given the exclusive use of force or whether there are other ways that we can both have rules, laws, and remedies and — at the same time — a higher order of peace, prosperity, and freedom.
“Because there is a way.”
Last Friday’s terrorist attacks in Paris has forced the world’s attention away from causes such as the plight of “white privilege” on college campuses and back to the consequences of blowback in the Middle East. The political response to these atrocities have been predictable — calls for nationalism, more war, fewer civil liberties, and greater power for the government that failed to protect its citizens. Even those politicians whose rhetoric calls for greater humanitarian efforts for ISIS’s most vulnerable victims still manage to stand in the way of private individuals who wish to help their fellow man.
Of course, the true battle of the day is greater than ISIS or any other single organization.
As Mises wrote in Human Action, “To defeat the aggressors is not enough to make peace durable. The main thing is to discard the ideology that generates war.”
As long as the ideology of statism, militarism, and interventionism maintain its hold on the world, civilization will suffer from its consequences. The desire for power and control will eclipse concern for human life. Only those guided by an ideology of peace and prosperity can offer hope for the world.
On Mises Weekends, Louis Rouanet joins Jeff Deist to discuss the fallout from Paris. Rouanet, a former Mises Fellow who studies in the French capital, talks about how his country’s government has reacted to the attack and the willingness of his countrymen to trade liberty for the theater of security.
And in case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
European Borders May be Redrawn as Europe Embraces Nationalism by Ryan McMakenBlowback: The Washington War Party's Folly Comes Home to Roost by David StockmanISIS May Be Our Ally Some Day by Ferghane AzihariWhite "Privilege" Has Nothing on State Privilege by Tho BishopOpen Borders Are an Assault on Private Property by Llewellyn H. Rockwell Jr.Paris Attacks Are Just Part of the Game for Global "Leaders" by Greg MorinThe Long History of French Military Intervention in the Middle East and Africa by Ryan McMakenState-Provided Security and Market Incentives by Jeff DeistParis: More Bombs Will Not Solve the Problem by Ron PaulHey Big Spender: France's Robust Military Spending by Ryan McMakenA Private Solution to the Syrian Refugee Crisis by Tho BishopWhere the Left Goes Wrong on Foreign Policy by Murray RothbardWar and Strategic Socialism by Matt McCaffreyIs an Interest Rate Hike Overdue? by Randall HolcombeStudent Loans and Uncle Sam by Jonathan NewmanEssential Reading on Entrepreneurship by Matt McCaffreyBaylor University PhD in Entrepreneurship by Peter KleinGilmore and Sugrue On American History by David Gordon
This talk was delivered at the Mises Circle in Phoenix, AZ, on November 7, 2015.
Whether we’re talking about illegal immigration from Mexico and Central America, or birthright citizenship, or the migrants coming from the Middle East and Africa, the subject of immigration has been in the news and widely discussed for months now. It is an issue fraught with potentially perilous consequences, so it is especially important for libertarians to understand it correctly.
This Mises Circle, which is devoted to a consideration of where we ought to go from here, seems like an opportune moment to take up this momentous question.
I should note at the outset that in searching for the correct answer to this vexing problem I do not seek to claim originality. To the contrary, I draw much of what follows from two of the people whose work is indispensable to a proper understanding of the free society: Murray N. Rothbard and Hans-Hermann Hoppe.
Some libertarians have assumed that the correct libertarian position on immigration must be “open borders,” or the completely unrestricted movement of people. Superficially, this appears correct: surely we believe in letting people go wherever they like!
But hold on a minute. Think about “freedom of speech,” another principle people associate with libertarians. Do we really believe in freedom of speech as an abstract principle? That would mean I have the right to yell all during a movie, or the right to disrupt a Church service, or the right to enter your home and shout obscenities at you.
What we believe in are private property rights. No one has “freedom of speech” on my property, since I set the rules, and in the last resort I can expel someone. He can say whatever he likes on his own property, and on the property of anyone who cares to listen to him, but not on mine.
The same principle holds for freedom of movement. Libertarians do not believe in any such principle in the abstract. I do not have the right to wander into your house, or into your gated community, or into Disneyworld, or onto your private beach, or onto Jay-Z’s private island. As with “freedom of speech,” private property is the relevant factor here. I can move onto any property I myself own or whose owner wishes to have me. I cannot simply go wherever I like.
Now if all the parcels of land in the whole world were privately owned, the solution to the so-called immigration problem would be evident. In fact, it might be more accurate to say that there would be no immigration problem in the first place. Everyone moving somewhere new would have to have the consent of the owner of that place.
When the state and its so-called public property enter the picture, though, things become murky, and it takes extra effort to uncover the proper libertarian position. I’d like to try to do that today.
Shortly before his death, Murray Rothbard published an article called “Nations by Consent: Decomposing the Nation State.” He had begun rethinking the assumption that libertarianism committed us to open borders.
He noted, for instance, the large number of ethnic Russians whom Stalin settled in Estonia. This was not done so that Baltic people could enjoy the fruits of diversity. It never is. It was done in an attempt to destroy an existing culture, and in the process to make a people more docile and less likely to cause problems for the Soviet empire.
Murray wondered: does libertarianism require me to support this, much less to celebrate it? Or might there be more to the immigration question after all?
And here Murray posed the problem just as I have: in a fully private-property society, people would have to be invited onto whatever property they traveled through or settled on.
If every piece of land in a country were owned by some person, group, or corporation, this would mean that no person could enter unless invited to enter and allowed to rent or purchase property. A totally privatized country would be as closed as the particular property owners desire. It seems clear, then, that the regime of open borders that exists de facto in the U.S. and Western Europe really amounts to a compulsory opening by the central state, the state in charge of all streets and public land areas, and does not genuinely reflect the wishes of the proprietors.In the current situation, on the other hand, immigrants have access to public roads, public transportation, public buildings, and so on. Combine this with the state’s other curtailments of private property rights, and the result is artificial demographic shifts that would not occur in a free market. Property owners are forced to associate and do business with individuals they might otherwise avoid.
“Commercial property owners such as stores, hotels, and restaurants are no longer free to exclude or restrict access as they see fit,” writes Hans. “Employers can no longer hire or fire who they wish. In the housing market, landlords are no longer free to exclude unwanted tenants. Furthermore, restrictive covenants are compelled to accept members and actions in violation of their very own rules and regulations.”
Hans continues:
By admitting someone onto its territory, the state also permits this person to proceed on public roads and lands to every domestic resident’s doorsteps, to make use of all public facilities and services (such as hospitals and schools), and to access every commercial establishment, employment, and residential housing, protected by a multitude of nondiscrimination laws.It is rather unfashionable to express concern for the rights of property owners, but whether the principle is popular or not, a transaction between two people should not occur unless both of those people want it to. This is the very core of libertarian principle.
In order to make sense of all this and reach the appropriate libertarian conclusion, we have to look more closely at what public property really is and who, if anyone, can be said to be its true owner. Hans has devoted some of his own work to precisely this question. There are two positions we must reject: that public property is owned by the government, or that public property is unowned, and is therefore comparable to land in the state of nature, before individual property titles to particular parcels of land have been established.
Certainly we cannot say public property is owned by the government, since government may not legitimately own anything. Government acquires its property by force, usually via the intermediary of taxation. A libertarian cannot accept that kind of property acquisition as morally legitimate, since it involves the initiation of force (the extraction of tax dollars) on innocent people. Hence government’s pretended property titles are illegitimate.
But neither can we say that public property is unowned. Property in the possession of a thief is not unowned, even if at the moment it does not happen to be held by the rightful owner. The same goes for so-called public property. It was purchased and developed by means of money seized from the taxpayers. They are the true owners.
(This, incidentally, was the correct way to approach de-socialization in the former communist regimes of eastern Europe. All those industries were the property of the people who had been looted to build them, and those people should have received shares in proportion to their contribution, to the extent it could have been determined.)
In an anarcho-capitalist world, with all property privately owned, “immigration” would be up to each individual property owner to decide. Right now, on the other hand, immigration decisions are made by a central authority, with the wishes of property owners completely disregarded. The correct way to proceed, therefore, is to decentralize decision-making on immigration to the lowest possible level, so that we approach ever more closely the proper libertarian position, in which individual property owners consent to the various movements of peoples.
Ralph Raico, our great libertarian historian, once wrote:
Free immigration would appear to be in a different category from other policy decisions, in that its consequences permanently and radically alter the very composition of the democratic political body that makes those decisions. In fact, the liberal order, where and to the degree that it exists, is the product of a highly complex cultural development. One wonders, for instance, what would become of the liberal society of Switzerland under a regime of “open borders.”Switzerland is in fact an interesting example. Before the European Union got involved, the immigration policy of Switzerland approached the kind of system we are describing here. In Switzerland, localities decided on immigration, and immigrants or their employers had to pay to admit a prospective migrant. In this way, residents could better ensure that their communities would be populated by people who would add value and who would not stick them with the bill for a laundry list of “benefits.”
Obviously, in a pure open borders system, the Western welfare states would simply be overrun by foreigners seeking tax dollars. As libertarians, we should of course celebrate the demise of the welfare state. But to expect a sudden devotion to laissez faire to be the likely outcome of a collapse in the welfare state is to indulge in naïveté of an especially preposterous kind.
Can we conclude that an immigrant should be considered “invited” by the mere fact that he has been hired by an employer? No, says Hans, because the employer does not assume the full cost associated with his new employee. The employer partially externalizes the costs of that employee on the taxpaying public:
Equipped with a work permit, the immigrant is allowed to make free use of every public facility: roads, parks, hospitals, schools, and no landlord, businessman, or private associate is permitted to discriminate against him as regards housing, employment, accommodation, and association. That is, the immigrant comes invited with a substantial fringe benefits package paid for not (or only partially) by the immigrant employer (who allegedly has extended the invitation), but by other domestic proprietors as taxpayers who had no say in the invitation whatsoever.These migrations, in short, are not market outcomes. They would not occur on a free market. What we are witnessing are examples of subsidized movement. Libertarians defending these mass migrations as if they were market phenomena are only helping to discredit and undermine the true free market.
Moreover, as Hans points out, the “free immigration” position is not analogous to free trade, as some libertarians have erroneously claimed. In the case of goods being traded from one place to another, there is always and necessarily a willing recipient. The same is not true for “free immigration.”
To be sure, it is fashionable in the US to laugh at words of caution about mass immigration. Why, people made predictions about previous waves of immigration, we’re told, and we all know those didn’t come true. Now for one thing, those waves were all followed by swift and substantial immigration reductions, during which time society adapted to these pre-welfare state population movements. There is virtually no prospect of any such reductions today. For another, it is a fallacy to claim that because some people incorrectly predicted a particular outcome at a particular time, therefore that outcome is impossible, and anyone issuing words of caution about it is a contemptible fool.
The fact is, politically enforced multiculturalism has an exceptionally poor track record. The twentieth century affords failure after predictable failure. Whether it’s Czechoslovakia, Yugoslavia, the Soviet Union, or Pakistan and Bangladesh, or Malaysia and Singapore, or the countless places with ethnic and religious divides that have not yet been resolved to this day, the evidence suggests something rather different from the tale of universal brotherhood that is such a staple of leftist folklore.
No doubt some of the new arrivals will be perfectly decent people, despite the US government’s lack of interest in encouraging immigration among the skilled and capable. But some will not. The three great crime waves in US history – which began in 1850, 1900, and 1960 — coincided with periods of mass immigration.
Crime isn’t the only reason people may legitimately wish to resist mass immigration. If four million Americans showed up in Singapore, that country’s culture and society would be changed forever. And no, it is not true that libertarianism would in that case require the people of Singapore to shrug their shoulders and say it was nice having our society while it lasted but all good things must come to an end. No one in Singapore would want that outcome, and in a free society, they would actively prevent it.
In other words, it’s bad enough we have to be looted, spied on, and kicked around by the state. Should we also have to pay for the privilege of cultural destructionism, an outcome the vast majority of the state’s taxpaying subjects do not want and would actively prevent if they lived in a free society and were allowed to do so?
The very cultures that the incoming migrants are said to enrich us with could not have developed had they been constantly bombarded with waves of immigration by peoples of radically different cultures. So the multicultural argument doesn’t even make sense.
It is impossible to believe that the US or Europe will be a freer place after several more decades of uninterrupted mass immigration. Given the immigration patterns that the US and EU governments encourage, the long-term result will be to make the constituencies for continued government growth so large as to be practically unstoppable. Open-borders libertarians active at that time will scratch their heads and claim not to understand why their promotion of free markets is having so little success. Everybody else will know the answer.
At our Dallas-Ft. Worth Mises Circle, we discussed the dangers of authoritarian PC culture and the infantilization of American universities. This past week, this issue was driven to the forefront of national conversation. Cheered on by their absurdly leftist professors, we have watched a movement sparked by claims of racial intolerance devolve into petulant demands for more free stuff and explicit attacks on free speech. If there is a silver lining, hopefully these campus demonstrations will awaken more people to the importance of eliminating the state from education altogether.
Dr. Thomas DiLorenzo joined Jeff Deist this week to discuss what is happening on American campuses today. DiLorenzo shares his experiences from behind enemy lines in leftist academia. Are Americans waking up to the decaying state of modern universities?
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
No, the Military Has Not Withered Away Under Obama by Ryan McMakenPope Francis Contradicts Himself on Religious Liberty and Capitalism by Roy CordatoSocial Security: The Long Slow Default by Kirby CundiffFour Ways to Build a Free Society by Jeff DeistWhen You're Popular, You Don't Need Freedom of Speech by Andrew Syrios"There, There, Work With Us, And We'll Cut You In" by Hunter LewisSummer Fellowships: Excellent Research Opportunity by Jonathan NewmanAcademic Welfare Queens by Tho BishopWorld War I as the Triumph of Progressive Intellectuals by Murray RothbardNew York State Bans Fantasy Football by Mark ThorntonThe War on Cash Grows More Painful by Joseph SalernoCalifornia and New York Are Poorer than You Think by Ryan McMakenCan You Find the Crisis? by Carmen Elena DorobățGovernment Shutdown Averted: Record-Breaking Spending to Continue by Ryan McMakenTry The New Mises Boot Camp!
While visiting the White House on his first day in the United States this year, Pope Francis made a strong plea on behalf of religious liberty, which he pointedly directed at President Obama. This came shortly before he made an unscheduled visit with the Little Sisters of the Poor, who are suing the Obama administration over their own right not to include artificial contraception as part of their health insurance plan, which is mandated by Obamacare regulations. Catholic teaching views the use of artificial contraception as sinful. The connection between his comments to the president and his visit with the Little Sisters was apparent.
This laudable and welcome stance comes from a Pope who has, out of a concern for the poor, famously made several misguided statements that are quite critical of capitalism. Combined, these two positions, while seemingly unrelated, represent a profound contradiction in the Pope’s thinking.
In reality, the only socio-economic arrangement that guarantees the rights of all people to exercise their religious beliefs freely is free market capitalism, which emphasizes the rights of people to own and use property as they wish and to contract freely with others on any mutually agreeable terms.
It is a system that is based strictly on voluntary cooperation and that de-legitimizes the use of force and fraud. (As an aside, I personally think that, for this reason, it is the system most consistent with Christianity.) Under such institutional arrangements, there would be no need for specific legal or constitutional protections for religious liberty. These liberties are inherent in the system itself.
Consider, for example, the contraception mandate that is being challenged by the Little Sisters of the Poor. This directly conflicts with one of the most basic rights under capitalism: the right to trade and make contracts freely with others.
Under laissez-faire, or as some are calling it, “unfettered” capitalism, what is covered by any health insurance policy purchased by the Little Sisters of the Poor would be a private matter among the Little Sisters, their insurance company, and possibly any employees who would also be covered under the plan.
If the health insurance plan that was being offered by the insurance company was unacceptable to the Little Sisters, for whatever reason, they would be free to walk away from it or negotiate different coverage with the insurance company. And if the health insurance offered by the Little Sisters to any of their employees were an unacceptable part of their compensation package, they too would be free to walk away and find employment elsewhere or forgo the employer-provided insurance and purchase a separate plan of their own choosing. This might occur as part of an exchange with the Little Sisters, their employers, for a higher wage. All of this would happen without a need for any specific discussion about religious liberty. The Little Sister’s religious freedom and their freedom to make mutually agreeable contracts are one in the same.
Beyond this the right to worship as one chooses would be pretty hollow without the right to own or contract for the rental of physical property. The right to worship implies the right of a religious organization to have physical space to assemble and to worship in that space as they see fit. Without this fundamental property right, which is only guaranteed without question under capitalism, the right to worship freely as one chooses is tentative at best and nonexistent at worst.
The right to deny religious liberties stems from the power of government to deny the right to use property freely. When the USSR wanted to shut down the Catholic Church in Ukraine it confiscated its property, i.e., the churches. The Soviets understood quite well that the right to freely worship was the right to freely own.
This does not end with religious liberties. Indeed, property rights and free exchange are at the heart of one’s ability to exercise civil liberties more generally. The right to freedom of speech and press and the rights to freely assemble, protest, boycott, etc., are all automatically guaranteed under capitalism.
This is because capitalism guarantees our right to disagree with one another, which is really what is being protected when all of these liberties are recognized. In this regard it would be useful for Pope Francis to pay attention to the words of a rather famous atheist, Ayn Rand, who noted that:
The right to agree with others is not a problem in any society; it is the right to disagree that is crucial. It is the institution of private property that protects and implements the right to disagree.
Holy Father, religious liberty is nothing more than the right to disagree.
Recorded at the Mises Circle in Phoenix, Arizona, on 7 November 2015. Special thanks to CMI Gold and Silver, Inc., for making this event possible.
Free speech is not something that people would normally see as a realm of economics, but in many ways, an economic understanding of the support and opposition to free speech can shed a lot of light on what’s happening now in the West.
The first thing that needs to be noted is that the left is winning the culture war. Even though more people identify as “conservative” than “liberal” in the United States, more people now identify as “liberal” than in the past by a substantial margin. Attitudes toward gay marriage shifted extremely quickly toward the left while support for legal abortion stayed mostly steady. And obviously the media, academia, and Hollywood are far to the left as a study by the non-partisan political analytics firm Crowdpac found (and as anyone who watches anything other than Fox News can tell after about five minutes).
Now, some of this is certainly good, such as the shifting views on marijuana legalization. Some is troubling, such as the growing popularity of socialism.
Regardless though, the left, having ascended to cultural dominance, is no longer in need of free speech. After all, no one ever got in trouble for agreeing with the conventional wisdom. As Noam Chomsky said, “Even Goebbels was in favor of free speech he liked.”
On the other hand, the right is behind the eight ball in the culture wars and thereby supports the concept of free speech because they need it lest their very opinions be outlawed. In an economic sense, this could be called the “diminishing marginal utility of free speech.”
The law of diminishing marginal utility states that while keeping consumption of other products constant, there is decline in marginal utility that a person derives from consuming an additional unit of that product. In this case, the product is free speech. New leftists may have proposed unfettered free speech back in the early 1960s, but that was just because the right was the one in power culturally at the time. Free speech had a high utility to the left at the time and low utility to the right.
Now the situation has reversed. The right is at the disadvantage so it appeals to free speech. The left is ahead and no longer needs free speech, so it has discarded it.
If that statement sounds hyperbolic, just think of all of the campus speech codes and the ever expanding list of mostly trivial microagressions that can be taken for “hate speech.” Here is just a small sampling of examples to illustrate how absurd this has become:
Brendan Eich was forced to resign as CEO of Mozilla after a massive backlash for having opposed gay marriage.A candidate in the European elections was arrested in Britain for quoting a passage from Winston Churchill about Islam.Gert Wilders, a politician in the Netherlands, was tried on five counts including “criminally insulting Muslims because of their religion.”Conservative radio host Michael Savage was banned from the airwaves in Britain.Both Mark Steyn and Ezra Levant were dragged in front of the Canadian Human Rights Commission on charges of being “Islamophobic.”A man was fired because someone eaves dropped on his joke about dongles and caused a fuss about it on social media.A group called Color of Change applied enough pressure to get Patrick Buchanan fired from MSNBC for expressing politically incorrect opinions in his book Suicide of a Superpower.The “Pickup Artist” Julien Blanc was barred from entering Britain for making sexist comments.A student at Purdue University was found guilty of “racial harassment” for reading (yes, reading) a book called Notre Dame Vs the Klan in which — it should be noted — the Klan is the bad guy.Indeed, the list goes on endlessly, and is perhaps best summed up by the almost unconscionable lack of self-awareness required by University of Manchester feminists who recently censored the anti-feminist columnist Milo Yiannopoulos from participating in a debate on — you guessed it — censorship.
Of course much of this is just social pressure or the decisions of private institutions, which is permissible (albeit not condoned) under a libertarian framework. But much of it does involve outright government force, or the longing to use it. For example, Adam Weinstein wants to literally “Arrest Climate-Change Deniers.”
Indeed, while many believe that the youth of today are the most politically tolerant in history, they are actually the least. As April Kelly-Woessner notes, “political tolerance is generally defined as the willingness to extend civil liberties and basic democratic rights to members of unpopular groups.” Which groups are unpopular, is not the question being asked.
So, for example, someone who believes that a man should be able to marry his pet goat is not necessarily politically tolerant. What would make him tolerant in this sense is whether he is willing to recognize the rights (particularly regarding speech) of those who disagree with him and his marital proclivities.
In this respect, political tolerance has declined substantially. For the first time since it was measured, the political tolerance of young people has fallen below that of their parents and as Kelly-Woessner again notes, “… is correlated with a ‘social justice’ orientation,” at least for those under forty.
Indeed, the inability to tolerate political views that run counter to one’s own, particularly on the left, has become so ridiculous to be comical. Just take, for example, Judith Shulevtiz’s description of the “safe space” set up at Brown University because of a debate between the feminist Jessica Valentia and Wendy McElroy where McElroy was likely to criticize the term “rape culture.”
The safe space … was intended to give people who might find comments “troubling” or “triggering,” a place to recuperate. The room was equipped with cookies, coloring books, bubbles, Play-Doh, calming music, pillows, blankets and a video of frolicking puppies, as well as students and staff members trained to deal with trauma.
Well, at least they actually let the debate happen.
But the left has not always had a monopoly on anti-free speech thought and legislation. Nor does the right seem to be opposed to it when it can push such things through today. Helen Thomas was fired from the White House Press Corps for saying “The Jews should get the Hell out of Palestine.” Shirley Sherrod was fired for allegedly anti-white statements, a Kansas woman was fired for a fifty-word Facebook post that was considered anti-American-soldier, and the right went into a fervor over Jeremy Wright’s “chickens coming home to roost” comment.
Whereas liberals want to ban words such as “slut” and, at least in Sheryl Sandberg’s case, “bossy” too, conservatives used to all but ban those “seven words you couldn’t say.”
When the right had more cultural authority, alleged communists were being dragged in front of the House Committee on Un-American Activities, Civil Rights activists were harassed, and the Motion Picture Production Code banned Hollywood directors from showing things such as miscegenation.
But that was then and this is now. As the pendulum of cultural prominence swung from one side to the other, the left and right swapped their support for free speech.
Nevertheless, I don’t want to draw a false equivalence here and say the right would be just as bad as the left if they were winning the culture wars. Much of the ideology on the left, at least the far left, is derived from the likes of Herbert Marcuse and other cultural Marxists who explicitly wanted to limit the free speech of “oppressor classes.”
Discerning what exactly free speech is can sometimes be challenging, as in cases of libel, slander, and direct threats. But these are really not the issues at heart here. The vast majority of speech being “regulated” today is simply that of an unpopular opinion. Yes, many ideas are bad. And they should be refuted. Moreover, resorting to the use of political force to silence adversaries is a sign of the weakness of one’s own position. But, in using force to silence others, anti-speech crusaders are making another argument. They’re arguing that political force can and should be used to silence people we don’t like. What idea could be worse than that?
For decades, Ludwig von Mises (1881–1973) was the leading spokesman for the Austrian school of economics. An advocate of free markets and a critic of government interference, he stood for peaceful and voluntary cooperation. Whenever possible, he spoke out for individual freedom. Yet he grew up in Europe when socialism was on the rise and people wanted government to regulate “profiteering” capitalists who “exploited” workers. How did Mises, schooled in such an environment, acquire free market ideas?
Mises was born in pre-World War I Austria-Hungary and raised in Vienna. As a young man Ludwig surely had a healthy interest in fun and games, but he was also a conscientious student. At seven, he was already reading newspapers and collecting extra newspaper editions. His early interest was in history. But when he read Carl Menger’s Principles of Economics (1871) and encountered the subjective, marginal utility theory of value, he realized that economics was not history but a science of reason and logic. As Mises wrote later, reading Menger made him an economist.
While still at the Gymnasium, the equivalent of high school, young Ludwig adopted a motto from Virgil, “Do not yield to the bad, but always oppose it with courage.” Menger’s explanation that subjective values guide the actions of individuals enabled Mises to recognize that the “good,” for which he would strive “with courage,” was whatever promoted freedom from individuals to seek their subjective values. And anything that prevented individuals from pursing their personal subjectively-chosen goals was the “bad” to which he would refuse to yield. Thus an understanding of subjective value theory made Mises an advocate of individual freedom.
With the realization that everyone’s actions were always guided by his or her subjective values, permitted Mises to explain all economic phenomena as the results of what people do in the attempt, as Mises put, to “relieve some felt uneasiness.” Prices, wages, the division of labor, barter, media of exchange, trade, interest rates, even markets themselves, evolve as countless individuals, act, adapt, and readapt as he or she thinks best given the circumstances, each hoping to attain his or her various personal goals. Thus the economic phenomena we assume as “given and on which we base our actions are the unintended consequences of countless purposive actions of individuals.
I once asked Mises what original idea he had contributed. His reply: “Everything I have written and said I learned from someone else.” True, no doubt. But the genius of Mises, like that of an inventor or entrepreneur, rests on creating something new and original by further developing something already known. By adding something to earlier theories, he made at least three major contributions. First, he developed economics as a logical science and integrated it with all other knowledge. Second, he pointed out that a socialist society, without private property owners competing with one another, would not be able to discover where, when, and how best to use property in production. And third, by reasoning from Knut Wicksell’s theory that a “natural interest rate” prevails on the market among would-be borrowers and lenders, Mises explained the trade cycle as due to interest rates forced down artificially, distorting the “natural interest rate,” disturbing the loan market and causing widespread business ups and downs.
By recognizing that all individuals, everywhere and always, act on the basis of their subjective values Mises explained not only economic phenomena but also how individuals adapt and adjust when non-market forces disturb and distort market phenomena. Thus, Mises built on subjective value theory and added to knowledge. This was Mises’s genius!
The term “Sagebrush Rebellion” is again showing up in newspapers across the American west as states seek more control over federal lands within their own boundaries. As with the original Sagebrush Rebellion of the 1970s and 1980s, several western states, where the federal government owns well over one-third of land within the states, have begun to look to more local control of lands as an answer to federal indifference, mismanagement, and outright hostility. In at least one case — Utah — the state has initiated a lawsuit in an effort to wrest more control of lands out of federal hands.
The Los Angeles Times, in the socio-economic basket case known as California, dismissed the idea outright in an unsigned editorial, declaring the idea to be an affront against unfairly maligned federal supremacy. The Denver Post, meanwhile, offered last month a more evenhanded assessment, suggesting that the cost to the state of maintaining public lands — in the form of fire-fighting, forestry, and more — is too high to be worth it.
Why Now?Federal control of lands within states has long been a source of contention between states and the federal government.
Prior to the adoption of the 1787 Constitution, there were few provisions in law that allowed for direct federal control of lands within states. The new constitution, however, was a coup for centralizers who wished to assert more direct federal control over lands in the west. The Louisiana Purchase further strengthened control over western lands by placing huge swaths of land under federal control.
Throughout most of the nineteenth-century, though, it was accepted that virtually all of this land should eventually be handed over to states and to settlers. In the second half of the century, this was mostly done through various homestead acts and by large land grants to the railroads.
The far west and Rocky Mountain west offered new problems, however, because those lands did not lend themselves to homesteading in the way imagined by the Congress. Much of the west is too dry to allow for workable homesteads on the small plots allowed under federal law at the time. Thus, the only way such lands could be profitable was if much larger amounts of land were allowed to single owners.
Politically, however, this did not work either, since the Progressive movement opposed ownership of large plots by corporate mining operations, or by other owners who did not fit the romanticized image of the self-sufficient homesteader. Over time, the federal government took over these lands permanently, refusing ownership to states which were portrayed by Progressives as being in the pockets of corporate interests.
In more recent times, this has led to conflicts in which local economic interest conflicts with federal plans for lands, and in which federal control of lands has actively hurt local economies. For example, to please environmentalists, the federal government continues to close off roads in federal lands that have long been used by local residents for a variety of purposes. Moreover, the federal government collects taxes and fees on lands that state governments would rather tax themselves.
But the most memorable recent examples probably occurred in 2013 when the federal government shut down national parks and other federal lands frequented by tourists. The federal government dispatched federal agents armed with assault rifles who forcibly ejected visitors from the allegedly “public lands.” Meanwhile, nearby towns that rely on tourists for the local economy were powerless to open the parks themselves. State officials, who are far more sensitive to local economic needs than members of Congress or the White House, were also powerless to do anything.
Eventually, after much political pressure was applied, the federal government kindly allowed states to pay millions to the federal government to open the parks again.
But, at that point, the political damage had been done. Many states realized that if they were going to have to pay the federal government to access their own lands, there may be a problem with the arrangement.
And finally, when dealing with the federal government, it’s important to remember that only immense political and corporate interests generally have much chance of influencing federal policy. Because of the cost of doing business with the feds in Washington (it’d be much higher than the cost of influencing state or local governments), federal lands are primarily a battleground between large, well-funded environmental groups and huge corporate organizations. Small companies, landowners, or conservation groups have little-to-no hope of influencing how lands are controlled or owned.
Can States Afford to Take Over Federal Lands?Even those who are sympathetic to the decentralization of federal lands have long questioned whether or not states would want to assume the cost of managing them. Even if states took over federal lands, in most western states, there is little danger of those lands being privatized. Coloradans, for example, like their “public” forests just fine, and would be in no rush to hand them over to the Ted Turners of the world. This means that the states (i.e., the taxpayers) would have to pay for intervention in forest fires, road maintenance, erosion control, and other expenses associated with managing public lands.
Those who think the transfer would be too costly cite a study of Utah’s public lands which claims that a transfer of federal lands to the Utah government would cost the state’s economy $280 million annually, plus $150 million in federal salaries.
Now, it should be remembered that studies like these are pretty sketchy. They take all of the federal monies spent on jobs related to federal lands and then declare that all that money would disappear if the federal government were removed from the equation. They do not consider that, if states were allowed to control these lands, they might manage them better, increase fee income, allow greater levels of economic growth, and avoid local economic disasters like the federally-mandated closing of parks.
The Problem of Direct TaxationBut the biggest hole in this analysis is the fact that all of these states ignore the tax revenues that states like Utah and Colorado pay to the federal government. Federal taxes collected in Utah in fiscal year 2012, for example, totaled $15.6 billion. At the same time, according to several sources, Utah is a net taxpayer state, which means its citizens pay more in federal taxes than the state received back in federal spending. In Utah’s case, the federal government spends 66 cents for every dollar in federal taxes collected from the state. Thus, we could conclude that the IRS collects $5.6 billion more in taxes than the state receives back. And this happens year after year.
That allegedly “lost” $280 million doesn’t look quite so big compared to the $5.6 billion extracted from the state by the feds every year. Were that money allowed to remain in Utah, there is no question as to the ability of the state to manage public lands.
Similarly, in Colorado, which is also a net taxpayer state, the IRS collected $41.2 billion in tax revenues. But, the federal spending in the state totals only 64 cents for every federal tax dollar spent. This means that, every year, Coloradans pay about $15 billion more in taxes than is spent by the feds within Colorado.
One Colorado official has claimed that, without federal spending, one major forest fire would “obliterate” the state budget. That’s a pretty vague term, but given that Colorado only collects $12 billion in state taxes compared to the federal take of $41 billion, the biggest potential drain on Colorado productivity isn’t exactly wildfires.
From a legal perspective, of course, it’s useless to discuss any of this. Ever since the rejection of the Articles of Confederation, and the adoption of the new Constitution, it is quite clear in federal law that the federal government can directly tax citizens without any regard whatsoever for state and local governments, or apportionment among the states. Apportionment, which was a halfway measure that attempted to even out tax burdens among states, was essentially eviscerated shortly after the Constitution was adopted when early Supreme Court decisions declared that apportionment didn’t apply if it was an inconvenience to federal tax collectors. The Sixteenth Amendment, while not creating the phenomenon of direct taxation, merely strengthened the federal government’s hand considerably.
So, today, the states themselves are financial bystanders when it comes to federal spending and the ability of states to control taxes, spending, and resources within their own borders. The perpetual drain on state wealth in net taxpayer states is routinely ignored. The federal government can now extract $15 billion more — net — than it spends in a state, and then claim it is making a fabulously generous gift to the state when it does spend a fraction of what it has already taken. Utah and Colorado may get lucky and be able to somehow take control of federal lands. But, lessened federal spending in the state won’t translate into a lower tax bill for anyone.
Last month, the United States Supreme Court declined to take up a case involving Arizona’s and Kansas’s attempts to require proof of citizenship to vote in federal elections. The two states sought SCOTUS review in an attempt to overturn a prohibition imposed by lower federal courts. Had the two states been allowed to impose more stringent citizenship requirements, the effect on the voting population would have likely been small, but the overall legal effect of the court’s decision is significant.
The refusal of the Supreme Court to hear the case yet again sends a message to state and local governments that the federal government shall continue to centrally direct election and immigration law. As noted in The Hill:
“This is a very big deal,” Rick Hasen, a University of California Irvine law professor, wrote on his election law blog. “Kobach had the potential to shift more power away from the federal government in administering elections toward the states.”
Centrally Planning Immigration PolicyThe Arizona and Kansas voting restrictions had been efforts to affect national immigration policy via state laws. But, as has been the trend over the past century, the federal government has repeatedly asserted itself as the last word in policymaking in citizenship and immigration matters.
Indeed, the Federal Courts explicitly declared the states powerless to attempt to control immigration within their own borders when Federal Judge Mariana Pfaelzer struck down California’s voter-approved Proposition 187 in 1994 and wrote:
California is powerless to enact its own legislative scheme to regulate immigration. It is likewise powerless to enact its own legislative scheme to regulate alien access to public benefits.
Naturally, this decision sent the message nationwide that states should not bother to limit access to taxpayer-funded amenities (with public education being a central issue) because the federal government will simply declare such efforts illegal.
Thus, through these cases, federal courts have made it clear that no state (or anyone other than the feds) can meaningfully prevent participation by non-citizens in political activities such as elections, nor can the states limit the ways in which immigrants can access government benefits, even when those benefits are locally-funded.
The net effect is an imposition of a migrant subsidy scheme across all states regardless of the local economic and demographic realities, while ignoring the fact that residents of certain states bear a greater tax burden in subsidizing migrants.
The Answer Is Not More Government InterventionAt this point, it is important to note that the antidote to government subsidies (i.e., government intervention) is not more intervention. If the federal government insists that the taxpayers subsidize the immigrant population, then the proper response is to simply eliminate the subsidy. This is exactly what voters had attempted to do with Proposition 187 (and Arizona Proposition 200).
This correct approach is to be contrasted with the draconian methods employed by other states which have centered on punishing employers and landlords (and the immigrants themselves, of course) for engaging in private contracts and non-violent market transactions.
Such efforts only expand the size and scope of government, and they ultimately involve federal agents raiding private establishments and combing through lease agreements and payroll documentation to make sure that workers and renters bear an arbitrarily-assigned status as “legal” immigrants.
When states turn to these methods, we end up with the worst of both worlds, since not surprisingly, federal courts have been relatively tolerant of state and local efforts to punish local businesses and employers while at the same time remaining steadfast in opposition to efforts to limit the scope of government programs.
The Answer Is Decentralization and Smaller GovernmentThus, while states and local government are given a small space to act around the edges of immigration policy, all regions and states are tethered to a single national policy on citizenship and immigration. However, we can guess that, if they were given greater leeway to do so, states would offer a very diverse array of immigration-related policies.
In research conducted by Huyen Pham and Pham Hoang Van, the authors attempt to measure the legal “climate” for immigrants for all fifty states by evaluating state and local legislative and legal efforts to limit (or encourage) immigrant activity in each state. The authors unfortunately do not distinguish between efforts that restrict private property (i.e., employment restrictions) and efforts that restrict government growth (i.e., limiting health care benefits). In the following chart, we find Pham’s and Van’s rankings:
Source: Immigrant Climate Index from “Measuring the Climate for Immigrants: A State by State Analysis,” by Huyen Pham and Pham Hoang Van The legislative and legal climates differ broadly, and this suggests that ideology, economics, and demographics produce some areas (i.e., California and Illinois) that tend to favor and subsidize immigration while other areas (i.e., Arizona and Virginia) would thoroughly limit subsidies.
If we took this a step further and gave states and localities the power to determine all eligibility to both state and federal benefits, such measures by themselves (assuming benefits were not transferrable across state lines) would serve to place the burdens of subsidized immigration onto the states that mandate it.
And, of course, there’s nothing to say that the state level is the optimal level of decentralization. As with any truly laissez-faire proposal, the ultimate goal is complete privatization of immigration policy. That is, the ability of immigrants to relocate to a community would be dependent on the dispersed and individual decisions of employers and other property owners who can decide on their own to employ or house migrants in the community. This is, of course, the democracy of the marketplace described by Mises in which individual persons — by making decisions about whom to employ or sell property to — collectively determine who is a member of each community. Any employer who wished to fully staff his operation with so-called illegal immigrants would be legally free to do so, and his decision would be subject to approval or veto by his customers, not by arbitrary government fiat.
But even in the absence of this ideal, movement toward more locally-focused immigration policy gives existing residents greater choice in where to reside and place their property. Without decentralization, the taxpayers (many of whom will want to live in jurisdictions with laissez-faire attitudes toward conducting business with migrants) are powerless to make meaningful choices in this matter without completely uprooting his life and leaving the country.
The Problem with Imposing Top-Down PolicyThe goal of laissez-faire immigration policy is to both diminish the availability to taxpayer-funded programs for immigrants (on the way to eliminating these programs overall) while also avoiding anti-private-property regulations that prohibit owners from freely contracting with immigrants in general.
As we have seen, there is no technological or practical barrier to decentralizing this effort immediately. As is so often the case, however, there is significant ideological and legal opposition.
Among those who insist on a single nationwide policy are those who assert that the best way to ensure the protection of property rights (for both property owners and migrants) is to impose it from above.
Unfortunately, we’ve seen this movie before on other issues ranging from eminent domain to drug policy. In each case, however, the more practical, enduring, and least-risky solutions come from decentralization.
Following the Supreme Court’s Kelo decision in 2005, for example, many advocates for free markets condemned the court for not issuing a top-down prohibition on certain types of eminent domain. As Lew Rockwell pointed out, however, Kelo was one of the few cases in which the court was actually correct in deferring to local control. Even when the central government agrees with us, political decentralization remains the prudent choice:
We are … opposed to top-down political control over wide geographic regions, even when they are instituted in the name of liberty.
Hence it would be no victory for your liberty if, for example, the Chinese government assumed jurisdiction over your downtown streets in order to liberate them from zoning ordinances. Zoning violates property rights, but imperialism violates the right of a people to govern themselves. The Chinese government lacks both jurisdiction and moral standing to intervene. What goes for the Chinese government goes for any distant government that presumes control over government closer to home ...
There are several reasons for [this position].
First, under decentralization, jurisdictions must compete for residents and capital, which provides some incentive for greater degrees of freedom, if only because local despotism is neither popular nor productive. If despots insist on ruling anyway, people and capital will find a way to leave. If there is only one will and one actor, you cannot escape ...
This is certainly true in the case of immigration policy. Those states that turn to raiding employers and fining landlords as “solutions” to perceived problems with immigrants will lose their most productive citizens and property owners to states that shy away from such interventionism. Moreover, those states that choose to heavily subsidize immigration will also suffer the loss of many of their taxpayers.
In such a system, would some states still indulge in massive redistribution schemes and other unsustainable public policies? There is no doubt that would occur, but it’s best to limit the damage to a handful of states than to impose the same fate on everyone nationwide.
The release of the encyclical Laudato Si by Pope Francis last week had the predictable result of winning the Pontiff plaudits and huzzahs in the world’s press, and another round of bewildered head-shaking among observant Catholics. Whether in his formal remarks or his off-the-cuff observations, Pope Francis repeats many of the common objections to (and caricatures of) the market economy, objections we might encounter in the writings of any of the leftist thinkers who dominate the Pope’s Jesuit order.
Meanwhile, so-called progressives in the Church, not normally so deferential to authority, triumphantly proclaim that matters of economics have been definitively settled and that the faithful ought to shut up and obey.
The antidote to all this, released just this year, is the tenth anniversary edition of Tom Woods’s book The Church and the Market: A Catholic Defense of the Free Economy, which won first prize in the books division of the Templeton Enterprise Awards shortly after its release a decade ago.
Tom’s thesis and its rapid spread have put Church liberals almost hysterically on the defensive — be sure to read Tom’s entertaining and relentless takedown of a left-wing Catholic conference warning the faithful of the terrible dangers of libertarianism — and has blasted open a discussion that progressives have been so eager to insist is closed. Before I explain what makes this book especially original, unique, and valuable, let me note that what it contains is of the greatest interest and importance no matter what, if any, religious convictions the reader may hold. It is the perfect book to read between Henry Hazlitt’s Economics in One Lesson on the one hand and advanced Austrian treatises like Mises’s Human Action and Rothbard’s Man, Economy and State, on the other.
Tom begins by explaining praxeology, the Austrian method of economics, and shows how Austrians derive the concept of costs, value scales, supply and demand schedules, and the law of diminishing marginal utility, all from the simple proposition that human beings act, and that they use scarce means to substitute a more preferable for a less preferable state of affairs. If you’ve ever wondered exactly how Austrians employ the “action axiom” to arrive at robust economic conclusions, you’ll understand after reading this chapter.
The rest of the book covers a vast array of topics, the misunderstanding of which has led to gross moral confusion: labor unions, wage rates, the “just price,” banking, money, inflation, business cycles, interest, monopoly, foreign aid, the welfare state, distributism, and a great deal more. The tenth anniversary edition contains a new introduction and an extra chapter. That extra chapter amounts to an overall defense of the book’s thesis, and takes the form of a systematic reply to a critic you almost feel sorry for.
In other words, the book makes an extremely vigorous and persuasive case for Austrian economics as a science and the market economy as an economic system. I guarantee you will be better able to defend both after reading it, and that you’ll enjoy every page of Tom’s unrelenting presentation.
When the book came out, it caused instant controversy. Catholic leftists and even some traditionalists denounced it. But Tom had plenty of supporters, among them Fr. Martin Rhonheimer of the Pontifical University of the Holy Cross in Rome; Crisis magazine; Fordham University’s James Lothian (writing in Homiletic and Pastoral Review); Sam Bostaph, chairman of the department of economics at the (conservative Catholic) University of Dallas; and even a scholar who had a hand in drafting a previous papal encyclical.
The key thesis of the book that caused controversy among Catholics, the majority of whom never read the book and caricatured its argument, was as follows. A Catholic looks to the Church on matters of faith and morals. The technical details of particular academic disciplines, on the other hand, lie beyond the Church’s competence.
For example, whether a particular medicine works or has side effects of varying degrees of intensity is a matter for physicians and medical researchers to say. If this medicine can be produced only by tearing the hearts out of living human beings, the Church may of course say that the use of the medicine is morally unacceptable.
The Church may say that church architecture ought to draw the mind toward the contemplation of God, and be built in such a way as to stand the test of time. But churchmen would be going beyond their competence to describe the technical methods that are most suitable for this purpose.
Likewise, it is all well and good to say that the welfare of the family, the building block of society, is of great importance. It is quite another to take sides regarding the precise, technical means of securing that welfare, as if the edifice of economic reasoning of the past 200 years did not exist. Demands for a “living wage” would of course be destructive to the family.
Tom’s uncomprehending critics pounced. How dare Woods insist that the Church may not speak on economic matters! But Tom was not saying that at all, as we’ve already seen. There’s no reason Church authorities cannot make general statements about moral issues that happen to intersect with economics. What Tom did say — quite correctly, of course — was that the qualitative propositions of economic science, being facts of reality, lie conceptually beyond moral critique.
In other words, if wage rates rise in a particular way, no amount of moral exhortation can make them rise another way. If the constraints of a finite world mean we can enjoy A only at the expense of B, no amount of pious mockery of the market system can eliminate this brute fact. We don’t condemn Avogadro’s number, or set down moral exhortations to change it.
Some of the traditional Catholics who now object to Pope Francis’s encyclical Laudato Si were first in line to condemn The Church and the Market for its alleged dissent from other papal encyclicals. But the grounds on which these Catholics object to Laudato Si are in good measure the ones on which Tom pointed out difficulties with earlier documents. If we begin with faulty presuppositions drawn from misunderstandings of secular disciplines, any subsequent moral reasoning based on them is sure to be equally distorted. Quadragesimo Anno (1931) of Pius XI could look at the Great Depression and blame it on greed, and even the otherwise conservative Benedict XVI responded to more recent economic problems with what Tom has called “platitudinous warnings about materialism and greed.” As Tom wonders in the book, why is there no room in all this moral reckoning for even one mention of the moral problems of central banking?
Developed thoroughly in The Church and the Market, Tom applied this analysis to Pope Paul VI’s Populorum Progressio (1967), which highlighted poor living conditions in the developing world. He jumped from a perfectly natural desire to improve those conditions to the wild non sequitur that state-led development aid programs, funded by the West, were the solution. He further expressed his belief in the Singer-Prebisch thesis, that a secular decline in the terms of trade — e.g., that the prices of commodities, which Third World countries tended to produce, were moving downward, while manufactured goods, produced by more advanced countries, saw their prices on the rise — meant that a liberalization of international trade couldn’t solve the developing world’s problems.
At the time, economist Peter Bauer was warning in vain against development-aid programs. First, he said, they are unnecessary: if poverty were really a vicious circle, every country would still be in the Stone Age. When the right cultural attitudes and political and economic conditions are in place, funding for domestic projects will freely flow from abroad. Second, these programs would lead to bloodshed, as antagonistic groups clawed at each other for a share of the grant money. Such violence did indeed occur in about a dozen countries. Third, these programs subsidize evil, by allowing vicious government thugs to continue their destructive predations without having to face their full economic consequences.
All of these predictions by Bauer came true as spectacularly as one could ask for. Even the New York Times, international agencies, and the Clinton administration were at last forced, albeit reluctantly, to admit that the programs had been a grotesque failure. But who, they pleaded — as if Peter Bauer had never existed — could have known?
Even the empirical grounding of Paul VI’s case crumbled in the face of closer examination. Subsequent research found that there had been no secular decline in the terms of trade after all, so the major basis on which Paul VI proceeded to base his moral judgments was simply incorrect — a perfect illustration of Tom’s warning about the fate of moral judgments with which potentially faulty empirical claims or scientific understanding are intertwined.
Tom notes that this embarrassment could have been avoided easily enough, had Paul VI enunciated general principles, as opposed to trying to pinpoint precise technical solutions on a matter on which he personally possessed no expertise, and to which the authority Catholics ascribe to the pope did not extend.
Tom first explored this topic all the way back in 2002, in a paper for the Mises Institute. When the feedback was enthusiastic, he decided to write a whole book on the subject. We invited him to deliver our Lou Church Lecture in Religion and Economics in 2004, and his book was published the following year.
Now Tom has written a dozen books, to be sure, ranging from The Politically Incorrect Guide to American History, which spent a dozen weeks on the New York Times bestseller list and sent both the neocons and the establishment into a frenzy — Tom’s book was the subject of a signed editorial on the New York Times editorial page — and Meltdown, Tom’s 2009 bestseller, featuring a foreword by Ron Paul, that diagnosed the financial crisis from an Austrian, free-market perspective.
But in terms of his most lasting contributions to Austrian or libertarian thought, The Church and the Market is Tom’s masterpiece. It has forever changed the nature of the discussion of Catholic social teaching, and it ranks among the most compelling and effective short presentations of the ideas of Austrian economics I have encountered. Treat yourself to a copy of this vigorous polemic.
In a world of private property rights, where the contracts that derive from those rights must be honored, there would be no controversy about the rights of corporate “stakeholders.” Owners of capital resources pool them and delegate day-to-day control to corporate management as their agents. The only stakeholders those delegated agents agree to represent are the owners of those resources (i.e., the shareholders).
However, stakeholder theory has made major inroads into firms’ fiduciary obligations to owners in recent decades. In consequence, shareholders have been increasingly demoted from owners with decision rights over their own assets to just one of many groups, all of whose desires must be incorporated into management decisions. That makes it worth revisiting the stakeholder approach to corporate management, as its growing influence increasingly insulates it from serious consideration.
Transaction Costs and Social CooperationOne of the great benefits of clearly defined property rights is that they specify who parties must reach agreement with — everyone whose legitimate property rights would otherwise be violated. The consent of other parties, who have no authority to say “no” to others’ arrangements, because that extends beyond the reach of their property rights, need not be acquired. The result is far lower transactions costs. That enables far more mutually beneficial specialization and exchange, and the massive increases in production and wealth that results.
One consequence of the clear definition of corporations as acting in the interests of those whose resources formed them — stockholders — is that it vastly increases their ability to raise large sums to benefit from economies of scale and scope. It also increases the liquidity of investments, decreasing the risks to owners involved, by making exchanging ownership claims far less costly. In contrast, if stakeholder theory was generally applied to corporations, it is hard to imagine efficiently conducting almost any large-scale or complex production process, involving vast numbers of contractual arrangements, as massive transactions costs would overwhelm the potential gains.
Shareholders’ Interests Take Other Legitimate Stakeholders into AccountFormer GE head Jack Welch once criticized the shareholder interest model of the firm as “the dumbest idea in the world.” He asserted that employees, customers, and product quality deserved priority over shareholders. But it is not a choice between employees, customers, and product quality versus advancing shareholders’ interests.
But attention to employees, customers, and quality in an unhampered market (as opposed to crony capitalism, from which GE benefited immensely), is the means to advancing shareholder interests. Share prices reflect gains from better utilizing and motivating employees’ skills and abilities, from better developing and serving customers, and from product improvements that users value more than they cost. All those stakeholders’ interests, derived from their property rights and the requirement of voluntary, mutually beneficial cooperation, are aligned with those of profit-seeking shareholders.
In other words, other valid stakeholders’ interests are reflected by shareholders’ interests, not trampled by them. Workers have to voluntarily agree to their terms of employment. So firms will consider everything that workers or potential workers care enough about to offer the potential for a beneficial alteration in the terms of employment. But no party is ever allowed to escape the constraint of the need for others’ voluntary cooperation.
Suppliers and venders are considered in a similar way. Any alteration that costs a firm less than it saves suppliers could receive mutual agreement. Consumer interests are also clearly taken into account, as they are the ultimate “enablers” of what is profitable and survivable, versus what is unprofitable and unsurvivable. Explicit, enforceable contracts spell out the terms some agree to. Powerful reputation and reliability mechanisms also put up what amounts to a bond to ensure reliability — the present values of future profits from ongoing “good” behavior, put at risk by poor present performance.
As a further example, consider how professional sports teams consider fans. Those teams are certainly interested in making higher profits. So they care about those who go or might go to games, and all the things that might swing their decisions. They care about those who buy or might buy team hats, jerseys, etc., in a similar way, as well as those who might or might not listen on radio or watch on television (through ad revenues, subscription services, or broadcast right sales, etc.). They even care about those who do none of those things, but talk about the team around their water coolers at work, which can influence others’ revenue-generating behavior. Such fans need no direct power over team decisions in order to have their desires reflected in those decisions.
Divergences Between Stakeholders’ Interests and Shareholder InterestsAs we have seen, many stakeholders’ interests are consistent with advancing shareholders’ interests, including workers, suppliers, customers, and even fans, are all incorporated in shareholders’ interests because they must be induced to cooperate on mutually agreed terms. If this was all stakeholder claims represented, stockholders would not object to stakeholder claims. But they often object strongly. What does that tell us? Those claims require imposing someone else’s decisions in place of owners’ decisions in an involuntary manner, which requires coercion against them. The coercion involved is also revealed by falling market capitalizations when campaigns for new “social responsibility” requirements target them. Further, even though “benefit corporations” can now be formed to advance specified stakeholder interests as well as stockholder interests, they have remained relatively uncommon, due to the difficulty of finding investors who agree both on their desires to advance the same stakeholder interests and the trade-offs they are willing to make between those ends and profits. That would not be the case if the stakeholder approach was generally superior in the eyes of those whose rights are involved.
The coercion necessary to impose stakeholder obligations in violation of stockholders’ property rights, in turn, explains why stakeholders turn to government actions or threats to advance their claims. It is also why stakeholder claims play greater roles in more heavily regulated industries. Stakeholders’ ability to exercise political clout over government decisions can then more effectively be used to extort firms (e.g., banking, where permission to open new branches or make other transactions can be subject to “community” support or opposition).
Ex Ante versus Ex PostStakeholder claims beyond those enabled by pre-existing property rights can often be best understood as ex post (after the fact) theft or piracy. They wait until something valuable has been created by others’ voluntary relationships, then try to deal themselves into leverage or power over subsequent choices, even when they had no appreciable role in causing its creation or growth. That makes their role as “benefactors,” because it is funded with other people’s resources, all benefit and no cost for them — self-defined social nobility for free. It is reminiscent of where people live in neighborhoods that “grew” in place of earlier citrus groves, but who then blockade others’ rights to do exactly the same thing with their land, in the name of protecting the community.
Stakeholder Claims Are AsymmetricalIt is important to note that stakeholder attempts to leverage new power are also asymmetrical. Those non-shareholders who claim they should be given a say in firm decisions do not propose granting outside stakeholders rights to similar influence over their actions.
If “community groups” are to be enabled to dictate firms’ choices because they are stakeholders, shouldn’t firms have similar powers over community decisions, because they are substantial stakeholders in the community? If a firm’s current workers should have decision-making power over it because of their stake in its policies, shouldn’t a firm have similar decision making power over those workers? After all, just as workers have a stake in not having their pay cut, the firm that employs them (and its customers) has a stake in workers’ pay not being jacked up.
The history of political power also shows that it is most commonly utilized to support the already politically powerful. A good illustration is plant-closing legislation, which represented the politically powerful interests of local workers who are outcompeted by others who are not politically influential, but would offer consumers better terms. Similarly, anti-takeover laws were widely enacted to protect rather than prevent inefficient management teams, by insulating them from the threat of losing their jobs due to takeovers whose profitability lay in increasing efficiency and benefits to customers.
The Stakeholder Approach Reduces the Accountability of ManagementAnother important problem of stakeholder theory is that it wipes out clear criteria — profitability — to evaluate managers, instead substituting ambiguous and often mutually inconsistent criteria, with no way of determining agreed-upon trade-offs. While this will serve stockholders poorly, it will often serve the interests of managers who would thereby see their constraints eased. That is a major reason why many managers support the stakeholder approach. It not only allows them to survive inefficiency and poor management, diametrically opposed to what stockholders hired them to do, but also gives them the ability to be seen as business statesmen and philanthropists in the process.
ConclusionShareholder control of corporations follows from private property rights and the requirement that delegated agents perform their contractual commitments. In other words, it derives from self-ownership and liberty in economic arrangements. Firms, as agents for shareholders, have to live up to their voluntarily agreed contractual obligations to customers, suppliers, employees, and owners. As a result, they all benefit from those arrangements. Beyond that, a firm’s sole obligation to others is, in Walter Block’s words, “the one we all have to each other: to refrain from threatening or engaging in initiatory violence against them and their rightfully owned property.”
That is why Block described stakeholder claims as “the entering wedge of yet another attack on private property rights.” Given the immense wealth enabled by that arrangement, the costs of undermining it on behalf of self-determined stakeholders are similarly immense. And the process of determining who will qualify as a stakeholder and how large each stake shall be will entail the arbitrary and coercive substitution of politics over voluntary exchange.
FedEx and UPS recently announced they will not ship the “Ghost Gunner,” a specific digital mill (like a 3D printer, but for metals) marketed as capable of fashioning parts without serial numbers.
The present situation is: (1) buying, selling, owning, and using guns without serial numbers is legal, even supposed “assault” rifles; (2) both FedEx and UPS have voluntarily refused to ship the digital mill, because of the threat of government action in the future; and (3) in the past, the federal government has held FedEx and UPS responsible for the legality of the goods they ship. By contrast, the USPS is not responsible for the legality of goods it ships (senders are), and has to get a search warrant to inspect customer packages.
Despite the possible threat of future state interference, the decision by FedEx and UPS is a voluntary one, not commanded legislatively from Washington. Both companies simply made a voluntary choice not to be involved in a controversial matter — and thus they discriminated against certain potential customers by refusing their business.
The term “discriminate” carries some heavy baggage, so let’s unpack it.
First, this author — like virtually everyone in modern western society — is opposed to racial discrimination in the forms most people imagine upon first reading or hearing the term. I would not patronize a business with a “No Blacks,” “No Immigrants,” or “No Jews” sign out front, for example, and I would discourage others from patronizing it as well.
It is worth mentioning, though, that some obvious forms of racial discrimination are considered morally acceptable in certain situations. For example, the casting director for the movie Selma never considered using a white actor to play the role of Martin Luther King, Jr. Movie producers have an ideal physical type and look in mind even when casting fictional characters, like Katniss Everdeen in The Hunger Games movies (a role that never would have been filled by an Asian man).
Casting directors and movie producers discriminate based on race, ethnicity, sex, body type, and facial type because it serves the story or character in question. There is no collective uproar against this sort of discrimination because it’s not based on an emotional or hateful prejudice against a group of people, but on common sense and an eye for moviegoers’ (similarly innocent) preferences. We don’t hate racial discrimination categorically — we hate the racially prejudiced mindset behind some instances of discrimination. The intent of the discriminating party matters.
Discrimination in general is the same way. We can’t deny the right of firms and consumers to discriminate, but we can take issue with their reasons why.
Which brings us back to FedEx and UPS. If I am pro-gun and don’t want the state interfering with the growing 3D printing industry, I might prefer that FedEx and UPS tell the government to stick it. Ship the machines for your customers and then fight a legal battle for the right to do so when the time comes!
But you and I won’t bear the risks or the costs of such a fight. Only FedEx and UPS can decide whether they should risk both public pressure (from anti-gun forces) and legal action by choosing to ship 3D printing mills, or any other controversial items. The decision not to do so is their prerogative, not ours.
Discrimination, in the form of choices, is a daily part of every market encounter. And it’s not only a matter of what customers accept, but at what price: FedEx and UPS charge more for heavier packages or faster delivery.
Discrimination, in this sense, is a critical element of all market activity. It allows goods and services to be consumed by those who are most willing to pay for them. This in turn enables labor and capital to be used in the most productive and valuable ways.
Liberty means freedom to discriminate. This statement makes many people on both the Left and Right angry. Yet the right of FedEx and UPS to refuse shipping of controversial material is the same right as a racist store owner’s right to put up a “No Blacks” sign, or a baker’s right not to sell wedding cakes to same-sex couples, or Starbucks’ right to forbid the open carry of handguns in its stores. It is the same right exercised by the fashion magazine editor who hires only beautiful models.
What can be done, then, about the racists, sexists, and other sorts of intolerant people in our society? Are they to be given carte blanche to act upon their prejudices? The answer should make you smile: we can discriminate against them! We can shun and boycott the racist restaurant owner, just as we can shun and boycott FedEx and UPS for caving to the Feds when it comes to shipping 3D mills. The market is not a test of right and wrong, but it can reveal consumer and business preferences for the types of discrimination that are acceptable vs. reprehensible.
While we may boycott a business with a “No Blacks” sign out front, we clearly shouldn’t hold a gun to the owner’s head and say, “Allow blacks in your store or else!” And if we lack the authority to do such a thing, we cannot delegate such authority to someone else — even if they sit in the legislature or wear a badge. We should limit violent responses to violent acts only. Nonviolence is the only proper response to nonviolent acts of discrimination, no matter how ugly and morally wrong such acts are.
Image source: iStockphoto
When it comes to romantic relationships, people ruthlessly discriminate and make an endless number of subjective judgments. Most agree that it is absurd to regulate these relationships while not realizing that the same is true of all business relationships as well, writes Julian Adorney.
This audio Mises Daily is narrated by Robert Hale.
In recent years, claims that “the rich” don’t pay their “fair share” of taxes have been repeated countless times. But that excuse to tax them more to line others’ pockets is blown away whenever the highly disproportionate income tax burdens borne by higher earners are reported. As The Wall Street Journal titled a recent article,“Top 20% of Earners Pay 84% of Income Tax.” In fact, the top 1 percent of American earners earn about one-sixth of total income, but pay nearly as much in income taxes as everyone else combined.
Rather than abandon the electorally valuable false premise that such disproportionate burdens are justified, however, the political left rallies to its cause. They try to rescue it by asserting that other taxes are regressive, so that taxes aren’t really so clearly unjustifiable as income tax burdens reveal. The featured players in that drama are state and local sales and excise taxes and Social Security taxes. Unfortunately, those taxes are also misrepresented to defend “fair share” misrepresentations.
Columnist Michael Hiltzik illustrated the state and local gambit in a tax-day column echoing charges that their sales and excise taxes “disproportionately hammer lower-income taxpayers,” with that alleged regressivity offsetting income tax unfairness.
That claim arises because those with lower current measured incomes spend a larger proportion of them on those taxes. However, as Edgar Browning has noted, “relative to lifetime income, there is very little difference in the percentage of income consumed among income classes.” As a result, apparent regressivity using current incomes is shown instead as “roughly proportional” to income in the more-appropriate lifetime context. Low current-income families also often consume a multiple of their income, largely financed with government transfer payments excluded from income measures. That further exaggerates the share of their incomes going to such taxes.
The Social Security angle was illustrated in a Washington Post story a few days earlier. It argued that since Social Security taxes only apply to earned incomes up to $118,500, “the more money you make, the less your effective Social Security tax rate is, making this tax about as regressive as they come.” However, Social Security treats lower income workers far better than higher income workers.
Rather than being regressive, Social Security taxes are proportional to earned income up to the tax cap. So, for the vast majority of Americans who fall in that range, taxes rise apace with income. Beyond the cap, earnings are not subject to the tax. So for those earners, their average tax rates fall with further income. Only for them can one claim that despite paying more in total Social Security taxes, they pay a smaller percentage.
When one incorporates the fact that a great deal of income for low income households is government transfers that are not counted as official income nor subject to Social Security taxes, the picture changes. Years ago, the Congressional Budget Office (CBO) found that incorporating such unmeasured income actually made Social Security taxes progressive for all but the top 20 percent of earners.
Even more important, Social Security’s supposed regressivity reflects only its taxes. But they generate retirement benefits, and evaluation must incorporate both. Doing so reveals Social Security as progressive.
For example, for a single earner retiring at sixty-five in 1993, Social Security replaced 59 percent of taxed income for low earners, 44 percent for average wage earners, but only 25 percent for an earner at the Social Security tax cutoff. Higher income earners received far smaller return on their contributions than average earners, and less than half that of lower earners. Taxation of benefits for higher income retirees now increases this difference. In terms of lifetime net benefits, in 1992 dollars, a single low earner retiring in 2000 would net $27,983 from the system, an average earner, $14,833, but a high income earner would lose $23,129.
Both approaches show Social Security does not benefit higher earners at the expense of lower earners. It actually redistributes income the other way.
Allegations that higher income earners don’t pay their “fair share” of taxes are a mainstay misrepresentation of the political left. And when facts such as income tax burdens get in the way, they double down with a defense that misrepresents state and local taxes and Social Security, as well. Unfortunately, that illustrates how important taking other peoples’ money is to their agenda and how unimportant the truth is in advancing it.
Image source: iStockphoto
Michel Chevalier (1806–1879) was a very influential French economist during the second half of the nineteenth century. He is still widely known in France for being the architect of the Cobden-Chevalier Treaty of 1860 which was the free-trade agreement between France and Great Britain. Michel Chevalier is, however, less known for his major contribution to the intellectual property debate.Fritz Machlup and Edith Penrose briefly discussed Michel Chevalier in "The Patent Controversy in the Nineteenth Century," Journal of Economic History, 1950. Contrary to Jean Baptiste Say, Gustave de Molinari, and many other French economists, Chevalier fiercely opposed the patent system. As Fritz Machlup remarked: “Among French economists, Michel Chevalier was probably the most emphatic in the joint antagonism to tariffs and patents, declaring that both ‘stem from the same doctrine and result in the same abuses.’”
Taking a fresh look at Michel Chevalier’s major work, Les Brevets d’invention (1878), we find it to be not only a well-written and powerful book, but also has remained impressively relevant. The arguments advanced by Chevalier anticipate the current arguments of the present opponents of intellectual property.
Patents as Contrary to Freedom and Economic ProgressMichel Chevalier argues that patents cannot be justified if they are contrary to freedom, even if beneficial to technological change. For him “From the moment we can make effective the patent only through inquisitorial expedients, violence, and subversion of liberty of labor, it is proof that we must renounce patents.” Chevalier rejects utilitarianism as a sufficient method to justify or refute the patent system. Chevalier’s opposition to patents, however, is not just based on moral arguments but shows the disastrous effects of this system for both foreign trade and the economy in general.
According to Chevalier, patents are of the same nature as privileges and monopolies which were prevalent during the Ancien Régime. They are also comparable in their effects to protectionist policies:
In absolute terms, patents diminish the productive power of nations that recognize them: evident proposition for those who believe that freedom, free competition, is the great lever of industrial progress.
Chevalier goes on to note the conservative and anti-innovation nature of monopolies and gives many examples of monopolies during the Ancien Régime. According to him, the innovators during the Ancien Régime weren’t rewarded, not because of the absence of patents, but because of the corporation guild system which was destroying competition and freedom to entry into markets. Thus, the innovators were constantly sued by guilds and consumers rarely benefited from their inventions. This argument is still relevant today. Indeed, companies protected from competition and government-owned corporations are often less innovative and more subject to conservative measures. Sectors typically run by government such as schools experience very little technological progress. On the other hand, the competitive process of the market gives incentives for the actors to differentiate from the other producers. As Pascal Salin stated, the company which makes the highest profits on a free market is the company which is the best positioned to “invent the future.” The essential virtue of competition is that it encourages producers to innovate in order to better serve the needs of consumers.
As one of his more striking examples, Chevalier examines the case of aniline — a dye and major innovation in the chemical industry — and shows how monopoly, resulting from patents, leads to hampered innovation. His interpretation of the problems caused by patents in the chemical industry at the time is consistent with more recent studies done by Boldrin and Levine in Against Intellectual Monopoly, now the seminal work on the topic.
Innovation as a ProcessChevalier understood that innovation is, above all, a process and that giving privileges to the innovator will destroy this process, leading to less and not more inventions. He wrote:
Every industrial discovery is the product of the general ferment of ideas, the result of an internal work which was accomplished with the support of a large number of successive or simultaneous collaborators in society, often for centuries.
This argument regarding the cumulative nature of innovation is still the most powerful argument against intellectual monopoly today and has also been the theme of several recent studies.See Alberto Galasso et Mark Schankerman, “Patents and Cumulative Innovation: Causal Evidence from the Courts”, NBER working paper, 21 June 2014 ; and also, Alessandro Nuvolari, "Collective Invention during the British Industrial Revolution: The Case of the Cornish Pumping Engine," Cambridge Journal of Economics 28, No. 3 (2004). Similar to Chevalier, Hayek saw innovation as a process and stated that “it is not obvious that such forced scarcity [intellectual property] is the most effective way to stimulate the human creative process.”
In an 1862 debate in the Académe des Sciences Morales et Politiques, Chevalier gave the example of Louis Daguerre, one of the inventors of photography, who didn’t seek a patent for his system of photography. According to Chevalier, the absence of a patent led to necessary improvements of the daguerreotype and fostered its widespread use. His conclusion is the following:
The spirit of man proceeds only by successive trials and repeated attempts. Discoveries do not arrive with a single bound to the degree of perfection or completion, which is reserved for them; there must be renewed, persevering efforts, cut by breaks that allow, so to speak, to breath. … If it is true that the invention must pass through the hands of twenty people before reaching its final state, it follows that the exclusive privilege granted to the first patented, and to each of his followers, prevents this practical result rather than facilitate it.
The Increasing Number of Patents and Negative ConsequencesAlready during the nineteenth century, legal instability and uncertainty challenged the actual efficiency of the patent system and the economists were very much aware of this problem. Chevalier warned that the patent system would lead to legal uncertainty for the companies and would lead the industry back to a guild system where no entrepreneur would dare to enter a market for fear of being sued by patent holders. Chevalier was ahead of his time by denouncing what can be considered the ancestors of today’s patent trolls.
Chevalier concluded his 1862 article by stating: “I think I have said enough to show that the patent legislation has been an eccentricity of the legislator.” He went further in 1863 and added that “[a]ll friends of industrial and social progress must work together to rescue the industry of obstacles, obsolete remains of the past. Patents must disappear first.”Quoted in Eugène Pouillet, "Traité théorique et pratique des brevets d’invention et de la contrefaçon," 1909, pp. x–xi.
Image source: StockMonkeys.com
The battle for the North Pole is snowballing between national governments along the Arctic Circle, as they all have their eyes set on the vast natural resources residing in the Arctic region. Indeed, it’s estimated the Arctic Ocean floor contains 22 percent of all unused oil and natural gas in the world — the largest remaining untapped concentration.
From this year until 2017, the US will hold the chair of the Arctic Council (AC) — an international forum founded in 1996, comprised of member states Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the US.The purpose of the AC is to
“provide a means for cooperation, coordination, and interaction among the Arctic States … [and] Arctic Indigenous communities … [for addressing] issues of sustainable development and environmental protection …”
It will be interesting to see, given recent antagonisms between the US and Russia, how aggressively the AC chair will be wielded and for what purposes. The US government has been receiving criticism for not expressing greater interest in the Arctic — Hillary Clinton in 2011 was the first US secretary of state to attend an AC meeting — but everyone knows a flip-flop is in order the moment Washington perceives a political gain to be had.
Meanwhile, the Russian Federation has been ramping up their propaganda machine with President Vladimir Putin being photographed in a submarine in the Baltic Sea, coinciding with announcing the reopening of old USSR Arctic military bases. During their Arktika 2007 expedition, they executed a PR stunt and planted a Russian flag on the sea bed of the North Pole in order to show symbolically that it’s theirs.
To complicate matters, Denmark petitioned the United Nations last year, calling dibs on 900,000 sq km — an area twenty times the size of Denmark itself! Canada too has been in the propaganda fray since their prime minister declared that Santa Claus is a Canadian citizen.
In fact, every member of the AC is clamoring for ownership of the Arctic, and even some non-member observers are taking a shot.
The Legal Basis for State Control of the ArcticThese claims are based on the United Nations 1982 Law of the Sea Treaty, which set new guidelines for delineating borders on the high seas, with particular relevance to the natural resources beneath. The treaty established the notion of an Exclusive Economic Zone (EEZ), areas over which a state is granted sole rights for exploring, mining, etc. EEZs extend 200 nautical miles off a nation’s coast.
The treaty also formally established the notion of continental-shelf-rights, which allow states whose “borders” extend via continental shelves beyond their EEZ, to claim this distance as well (note: this legalistic definition differs drastically from the geological one). Thus these conflicts are the result of overlapping EEZs. However, if a state can show that this disputed area adjoins their coastal baseline, then they may be able to overrule another state’s EEZ.
Despite former US President Harry Truman being the first to invoke the notion of continental-shelf-rights, the US still hasn’t ratified the Law of the Sea Treaty. It’s the only AC state government, and one of the only governments in the world, that has yet to do so.
Can Rothbard’s Ethics of Private Property Be a Guide?With such widely conflicting, even outlandish claims, a rational system of property rights is required to settle the debate. After all, why should any of these states — which themselves have little to no presence in much of the Arctic — have more of a right to the Arctic frontier than private explorers, industrialists, or natives?
A systematic theory of human-property rights was laid out by Murray Rothbard, in his 1982 classic, The Ethics of Liberty. The ideas set forth in this seminal book shed insight into the Arctic conflict, and really all property disputes that one may encounter.
Rothbard begins by asserting the truth of self-ownership, the idea that everyone has a property right in their own person, and thus a natural right to liberty, by virtue of each individual’s ownership over his own physical, bodily faculties. This control cannot be severed for as long as the person is alive, and the ownership of each person over him or herself is thus inalienable.
Rothbard then proceeds to show how property rights in land or in physical goods follow logically from property rights in one’s own body. The seventeenth-century Enlightenment philosopher John Locke is usually seen as the first to defend this principle of homesteading, which states that by “mixing one’s labor with the soil” — by using and transforming an unowned resource — the object in question becomes the just property of this person, the first user.
These ideas are echoed constantly in colloquial speech, with common phrases like “finders keepers” or “first come, first served.”
Of course everyone owns his or her own body, and common sense suggests that the first person to settle an uninhabited piece of land is the rightful owner of it. Moreover, as Rothbard argues, to deny these ideas is to argue that some people should be allowed to control others (slavery) or that it’s okay to divvy up someone else’s belongings for oneself and one’s friends (robbery).
So then who, if anyone, has homesteaded the Arctic and who are the would-be-usurpers? Except for the areas where there are inhabitants, only a tiny region of the Arctic Ocean and its continental shelf regions have been developed or settled. So, the legal claims being made by various states in the Arctic are not based on any economic realities or any real-world homesteading. That is, many states claim control of the region, but almost nowhere is this being done at the request of true owners. Without this key economic step — according to Rothbard — it is impossible to make a legitimate and moral claim to the Arctic.
The Political RealityThe ethics of liberty provides a map for assessing all of these claims to Arctic territory, but we find little regard for sound ideas of ownership in the region.
How does the homesteading model compare to governmental claims to the Arctic? Well, the state of Denmark isn’t using the 900,000 sq km of Arctic Ocean, or the unexplored, untapped land below it, so surely they have no right to it. The same goes for Russia, Finland, Sweden, or the US. None of them have any reasonable claim to any of it beyond a few tiny areas.
Complicating the matter is the fact that in many coastal areas, there are already indigenous people living in the Arctic, who are using this territory, and who do have claims to it that ought to be respected — without a state proclaiming sovereign-ownership over them.
There have been numerous instances of indigenous peoples, such as the Sami, being forced to pay taxes to multiple governments, despite their declarations of independence. Then there was the High Arctic Relocation of the 1950s (a “solution” to the so-called “Eskimo-problem”), where the Canadian government forcibly relocated Inuit families to the high Arctic in order to use them as “human flagpoles” on disputed territory.
The Likely OutcomeUnfortunately, history shows that governments are almost always more concerned, not with respecting property rights, but with finding fresh people and territory to control by the use of military force: in their eyes, might trumps right.
So whereas the natural law as explained by Rothbard provides a rational basis for peacefully and justly solving all types of property disputes, the governments’ raison d’état for Arctic expansionism is merely that he who holds the biggest guns deserves the loot.
Oppression of Arctic natives, unrecognized rights of explorers and industrialists, even armed conflict between Arctic states — these are the only alternatives to the ethics of liberty; and so long as Rothbard’s arguments are ignored, these are the inevitable outcomes to be expected. This is the twenty-first century after all, so perhaps it’s time to try something new, instead of the worn out, irrational political justifications of the past.
Image source: iStockphoto
Dating is perhaps the freest “market” in the United States today, and its lack of regulation can teach us powerful lessons about the flaws inherent in government regulation.
Most people recognize the absurdity of trying to regulate romantic relationships. What many don’t realize is that this absurdity stems not from the nature of these relationships, but from the nature of state intervention. For the same reasons that regulating dating would be counter-productive, regulating many consumer choices is unwise.
Subjective Value Makes Government Regulation UnjustWhen it comes to dating, we see a wide range of tastes and desires. Some people love dating intellectuals. Others pursue athletes. Some women prefer wealthy, established men; others are attracted to those who pursue physical danger.
Many people talk about what might be termed “objective attractiveness” — someone’s physical score between 1 and 10 that everyone can agree on. The truth is that such objective valuations are fictitious. The woman who John thinks absolutely gorgeous may be viewed by another person with indifference.
“There’s no accounting for taste” isn’t just something one can say to shrug off his buddy’s dating someone he finds unattractive. It’s an explanation of our individuality. In dating, there are millions of unique tastes and subjective valuations. This range of valuations makes regulation inherently unjust, because the perceived value of another person as a romantic partner cannot be quantified.
But the same may be said of most any government regulation. What government agent should have the authority to say that a certain job pays “too little” or is “too dangerous” to be legal? Such decisions must be left up to the people applying for those jobs, who are more familiar with their own situations than a bureaucrat in Washington could ever be. If Cathy badly needs work experience, that job that pays $5 per hour may be perfect for her, even though it would be a poor fit for someone else who is looking to pay his mortgage.
Favoritism Inherent to Government RegulationDefenders of government regulation like to imagine a government that applies the law equally to every person, but such a system has never existed. It never can exist owing partly to the subjective values of those in power and partly to the system of lobbying and bribery that gets them there.
Governments in the United States, for example, have a long history of legal discrimination in romance. Many states banned interracial marriage, for example, until the Supreme Court case Loving v Virginia ruled such laws unconstitutional. As late as 2003, fourteen states had outlawed homosexuality. Moreover, government regulation of divorce has been extensive.
These private relationships have been regulated to reflect the policy goals and values of influential interest groups. At the same time, this discrimination in romance is mirrored in how governments discriminate in favor of their cronies in business.
Companies like Solyndra, for example, with strong government connections, received subsidies that their competitors don’t. On the other hand, new enterprises that compete with incumbent industry players frequently find themselves facing extra regulations, as governments seek to protect established corporations that the disruptors might otherwise outcompete. Uber, for instance, faces regulatory hurdles in many states at the hands of taxicab-sympathetic government agents. In industry, just as in the history of romance, it is in the nature of government to discriminate.
Freedom Isn’t Perfect, but Government Makes Things WorseMany opponents of the free market accuse advocates of promising a utopia — just let the market work, and life will be perfect! Of course, this is a straw man fallacy; serious liberty advocates don’t promise perfection.
Just like every other instance of freedom, the dating “market” isn’t perfect. Many people have had bad relationships. Heartbreak is something most people go through. Not everyone finds someone to marry who makes his or her life brighter.
But this flawed free market is nonetheless much better than it would be with more government intervention. Imagine a government agency whose purpose was to “fix” dating. They might require licenses to date, similar to the licenses required to work in many professions. Just as governments have been known in the past to ban divorce for unapproved reasons, they could move on to banning breakups for new “unjust” reasons, such as a partner’s race.
Such an agency would make dating worse in two major ways. First, it would result in a loss of liberty and privacy, for instance, as government agents could inspect couples on dates to make sure that each has the proper license. Second, it would create unintended consequences. For instance, requiring individuals to acquire costly licenses to date might mean that poorer people, or those without the time to go through a long certification process, would be denied the right to fraternize with members of the opposite sex.
Many people regard things such as “dating licenses” to be absurd, but why are they any more or less absurd than a license to cut someone’s hair?
When considering regulating a market, the question to ask is not whether free markets are perfect (they’re not), but whether government intervention would do more harm than good. Dating is the freest market in the United States today, and as a result, it is a model both for what liberty produces and for why government intervention is so rarely a good thing.
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The Ludwig von Mises Memorial Lecture, sponsored by James Walker. Recorded at the Austrian Economics Research Conference at the Mises Institute in Auburn, Alabama, on 14 March 2015. Includes an introduction by Joseph T. Salerno.
The United States Export-Import Bank is scheduled to expire at the end of June 2015, and the elected representatives of both parties are tripping over themselves to reauthorize it, citing the importance of exports and strong private enterprise to the American economy.
“I’m a very strong supporter of the Ex-Im Bank, because it is a tool for us to be competitive in order to support our businesses exporting,” said Hillary Clinton. “[F]ailure to reauthorize Ex-Im would amount to unilateral disarmament and cost tens of thousands of American jobs,” commented Harry Reid. It would seem that Democrats are eager to claim the mantle traditionally applied to Republicans of “The Party of Business.” But there is a difference between being pro-business and being pro-markets.
In his book, Reassessing the Presidency: The Rise of the Executive State and the Decline of Freedom, libertarian attorney and historian John V. Denson observes, “Many businessmen and bankers believe in private enterprise but do not believe in free enterprise” (emphasis in the original).
It’s an important distinction to make. Free enterprise is the laissez-faire, free-market ideal, with the peaceful interactions between individuals being wholly unregulated by government. Under free enterprise, anyone can trade with anyone else on mutually agreeable terms. Since all interactions are voluntary, all traders necessarily benefit, and both wealth and welfare are free to increase without the imposition of artificial limits.
Private enterprise, in contrast, means merely that business and the means of production are held in private hands, although the government may make any number of demands on how these individuals go about their business. The fascist governments of Europe in the past century maintained a system of private enterprise, while simultaneously exercising near complete control over business operations. Similarly, the Roosevelt economy during World War II was marked by extensive private enterprise serving at the pleasure of government.
This is not to say that private enterprise is bad — it isn’t — but merely that it is insufficient for economic liberty, and prone to be corrupted by the political process. At first glance, one would think that business owners would favor free enterprise. After all, who wants to be pushed around by the government? But in fact, we see just the opposite. James Buchanan, founder of the Public Choice school of economics, was famous for exposing the incentives for private companies to attempt to manipulate government into playing favorites in the marketplace. A free enterprise system benefits everyone who is willing to be productive. Government controls on business, on the other hand, benefit the few at the expense of the many, which means the few who benefit have every incentive to lobby for, and support such a system. Thus, we see everywhere lip service being paid to free enterprise, but an actual promotion of private, unfree enterprise.
The U.S. Ex-Im Bank is a perfect example of this. Founded as part of FDR’s New Deal eighty years ago, the Bank has been providing taxpayer-backed loans to private companies. We are told by supposedly pro-business politicians that the program is needed to stimulate exports, even though competition unhindered by corporate cronyism has always proved a superior economic stimulant. Especially egregious is the fact that most of the money the Bank hands out goes to huge corporations that certainly do not need the government’s help to export their goods.
While defenders of the Bank like to claim most of the Bank’s activity is devoted to helping small business, in fact, 97 percent of the Bank’s loan guarantees go to just ten corporations, with the top two being Boeing and General Electric — hardly mom and pop enterprises that need handouts to keep running. While these companies are not owned by the government, the fact that they are private entities does not justify this kind of interventionism, which stifles competition and creates perverse incentives.
If it is reauthorized, the Ex-Im Bank is estimated to cost taxpayers $2 billion over the next decade. It wastes millions on self-promotion and PR, and, due to specific mandates handed down from the Obama administration, it disproportionately rewards political interests, such as the green energy boondoggle known as Solyndra and foreign companies mired in corruption like Abengoa. It would be hard to imagine a less free market approach toward supporting business. Meanwhile, government guarantees of loans to companies that could not secure them on the open market ensures that the money will be poorly invested, serving special interests rather than sound economics.
This sort of protectionism is perhaps the most seductive and insidious example of the lure of private enterprise at the expense of free enterprise. Despite being thoroughly debunked as effective or wise by virtually all credible economists, protectionist policies have been among the most entrenched and difficult to dismantle. The Ex-Im Bank remains a drop in the bucket compared to other protectionist policies, such as the mammoth farm subsidies Congress cheerfully votes for every few years. But even this relatively small program has proven remarkably hard to kill. Part of the reason for this is that Republicans and Democrats alike can vote for protectionist measures while simultaneously claiming to be “pro-business.” The distinction between supporting business freedom and supporting business directly through government action is rarely made.
Private enterprise is a subset of free enterprise; All free enterprise is private, but not all private enterprise is free. The failure to bear this distinction in mind is what leads to public support of indefensible programs like the Ex-Im Bank. The support of private enterprise at the expense of free markets results merely in corporatism, where business becomes an extension of government instead of the agents of competition and choice.
Image source: iStockphoto
Free markets have provided an abundance of goods and comforts for even low-income households. But constant government intervention in the work, lives, and incomes of the poor continues to create many barriers to economic success, writes Ryan McMaken.
See here, here, and here for more information on how the minimum wage makes low skilled workers legally unemployable.
This audio Mises Daily is narrated by Clay Barnett.
Discussing poverty as an advocate of free markets is tricky business in today’s world. If one takes poverty seriously and points out the very real plight of the impoverished, it is often assumed that one must therefore be advocating for government “solutions” to the problem. The knee-jerk reaction of many defenders of free markets is to simply deny that poverty exists much at all, or that if the poor just try a little harder, or aren’t so lazy, they won’t be poor anymore.
This sort of reaction is natural for one who labors under the mistaken impression that the American economy is a free-market economy. Since the American economy is so free and filled with opportunity, they think, there’s really no excuse for being poor.
But, of course, the American economy isn’t even a mostly free economy. The entire financial sector is heavily subsidized and regulated. The regulatory costs imposed on small businesses are enormous. Trade of all types is regulated, and many goods are prohibited outright. Minimum wages make many entry-level jobs illegal, and one can’t even drive people around for money without facing a bevy of government regulations — and sanctions.
With all these millstones tied around the necks of poor and low-skilled workers, it’s a bit nonsensical to declare that poor people should just try harder. Perhaps they did try, and the government sent them the message loud and clear: “just give it up, because we’ve made everything you’re qualified to do illegal.”
Yes, it’s true that, to the extent markets are still free, they have led to an abundance of conveniences that even the poor can afford: air conditioning, television, household appliances, cell phones, and more. But at the same time, it would be wrong to sit back and say “they have enough” when an even greater abundance is to be had if the poor were simply given the freedom to work and own businesses without navigating a myriad of government requirements and regulations that often pose an insurmountable opportunity cost.
There are several ways that a turn to freer markets would open up a whole world to low-income families and unskilled workers immediately.
End the Minimum WageThis is one of the worst offenders since it renders jobs illegal for the most unskilled workers, and hits the poor the hardest. As explained in the pages of mises.org here, here, and here, the primary effect of the minimum wage is to make the lowest-skilled workers legally unemployable. In other words, if the minimum wage is $10 per hour, and a worker only produces $8 of goods or services per hour, he will never be hired. Naturally, with a little experience, an unproductive (in the economic sense of the word) worker becomes more productive with job experience. But with a minimum wage, how is the worker supposed to get his first job? He can’t. As a result, many workers caught up in this catch-22 become long-term welfare recipients or they turn to black markets where they are branded criminals by the legal system.
Abolish All Income Taxes (Including Payroll Taxes)Even low-income wage earners pay taxes on income. Social Security and Medicare taxes are nothing more than income taxes that go straight to the general fund — the “social security trust fund” does not exist. That claim by Mitt Romney that half the country doesn’t pay income taxes was never anything more than disingenuous political hair-splitting. Payroll taxes are income taxes, and we all know they take a big bite out of our paychecks, at all income levels.
Thus, even the poor pay taxes to finance TARP and various bailouts of the ultra-rich. As if this insult were not enough, the federal government then punishes the poor further with a central bank that punishes them for saving what little they can.
End the FedThe Federal Reserve — and central banks in general — have in recent decades functioned largely to push down interest rates and devalue the currency.
The Federal Reserve — in addition to giving us the gift of the boom-bust cycle — has been key in bailing out huge too-big-to-fail corporations and has facilitated endless government spending on wars, corporate welfare, and social programs. Whether the amount of money poured into low-income households via social programs rivals the amount of money sucked out of them — in the form of devalued currency and below-inflation interest rates for low-income savers — remains to be seen.
What we do know is that the Fed’s commitment to low interest rates has made it almost impossible to save money through savings accounts and other low-risk traditional investments. Once upon a time, it might have been possible to put money in a savings account or CD and receive a respectable amount of interest on those funds, and at least earn an interest rate that exceeded the inflation rate. That certainly isn’t possible today. If you’re poor and try to make any returns off a savings account or CD, you’re out of luck. You’ll be very lucky to get 0.9 percent, and you’ll probably get lower than that. Meanwhile, the official low-ball inflation rate is well above that. So, your savings lose value in real terms constantly. You might as well keep that money in your mattress — where your money will also constantly lose value. On the other hand, if you have $100,000 to put in a CD right now, you might be able to get 1.5 percent at some banks. But poor people rarely have that kind of money lying around. People with more money are able to hire financial advisors and stock brokers and better keep up with an inflationary economy. The poor are just on their own.
Stop Regulating Small BusinessesStarting small businesses are often the preferred way for low-income, non-white workers to find work and build capital. Immigrants often turn to small businesses because they offer flexibility and work for people who are unattractive to larger established operations. While the wages and incomes associated with small businesses are often lower than they are in larger businesses, many turn to small business employment because they offer many non-monetary advantages over other types of income.
Governments work to crush small businesses on a daily basis. Every small business owner must deal with a myriad of government agencies from the IRS, to OSHA, to the EEOC, Obamacare, and beyond. Every new regulation and every new tax makes it harder for a small business owner to make payroll and to turn a profit. The net effect, of course, is to both restrict growth of small businesses and to restrict the number of small businesses. The decrease in competition then lessens benefits for both consumers and wage workers in the communities where these businesses are likely to spring up — in low-income communities. Instead, governments make sure that only large, well-capitalized companies can afford to open new businesses in many cases — probably miles away in higher-income areas.
Legalize PovertyEverywhere the government intervenes to “help” we find not more choice, but less. Not more jobs, but fewer. Do you want to start up your own taxi service by driving people around? Forget about it if you have not obtained all the applicable (and costly) government licenses. Do you want to rent out your converted garage to tenants for cash? Too bad. Zoning laws don’t allow it. Do you want to get a job at five bucks per hour for your teenage son who has no skills? Sorry, that’s illegal too. Do you need a loan, but you’re a high risk borrower? Get lost. We’d have to charge you a high interest rate. That’s usury, and it’s not allowed.
We’re told every day that the only solution to poverty is more government power, more government regulation, more central planning, bigger deficits, and less freedom.
The true solution, however, is better described by a left-wing slogan: “Legalize Poverty.” The left usually says this when homeless people are being thrown off government property, but it’s better applied to the many types of free enterprise that are placed out of reach to the poor by government edicts. So many low-income workers must turn to black markets and low-wage semi-legal work because that’s all that’s open to them. It’s simply illegal for them to find entry-level work in mainstream enterprises, keep all of their meager wages, or start up small enterprises. Needless to say, these assaults on free markets help no one but the government agents paid to enforce them.
Image source: iStockphoto.
Opponents of free markets sometimes describe market competition of dog-eat-dog, but that metaphor has nothing to do with markets and everything to do with politics and war, writes Gary Galles.
This audio Mises Daily is narrated by Dianna Keiler.
Anyone interested in exploring the farthest reaches of anarchist theory must come to terms with this account by Robert P. Murphy. Working within a Rothbardian framework, Murphy takes up the challenge of Hans Hoppe regarding the role of market insurance in property security to extend the analysis to the security of person.
Narrated by Jock Coats.
Download the complete audiobook (four MP3 files) here. This audiobook is also available on Apple Podcasts, Google Podcasts, and via RSS.
Would a libertarian society recognize patents as legitimate? What about copyright? In Against Intellectual Property, Stephan Kinsella, a patent attorney of many years’ experience, offers his response to these questions. Kinsella is altogether opposed to intellectual property, and he explains his position in this brief but wide-ranging book.
Narrated by Jock Coates.
Download the complete audiobook (seven MP3 files) here. This audiobook is also available on Apple Podcasts, Google Podcasts, and via RSS.
Rothbard says that the very existence of the state — the entity with a monopoly privilege to invade private property — is contrary to the ethics of liberty. A society without a state is not only viable; it is the only one consistent with natural rights.
Download the complete audiobook (33 MP3 files) here. This audiobook is also available on Soundcloud, Apple Podcasts, Google Podcasts, and via RSS.
When people want to add extra “oomph” to negative depictions of self-owners acting without coercion — that is, market competition under capitalism — they turn to name-calling. One of the most effective forms is describing such competition as dog-eat-dog. When that characterization is accepted, the mountain of evidence in favor of voluntary social coordination can be dismissed on the grounds that it involves a vicious and ugly process so harmful to people that it outweighs any benefits.
Unfortunately, dog-eat-dog imagery for market competition is entirely misleading. It not only misrepresents market competition as having properties that are absent in truly free arrangements, but those properties are essential characteristics of government, the usual “solution” offered to the evils of dog-eat-dog competition. Further, it frames the issue in a way that precludes most people from recognizing why the analogy fails.
To begin with, dog-eat-dog is an odd way to characterize anything. I have never seen a dog eat another dog. I don’t know anyone who has. In fact, some trace the phrase’s origin back to the Latin, canis caninam not est, or “dog does not eat dog,” which says the opposite (and makes more sense, as an animal may try to protect its feeding grounds against competing predators, but it does not eat those competitors). It is nonsensical to rely on an analogy to something that doesn’t actually happen in animal behavior as a central premise toward condemning market systems as ruthless and hard-hearted.
Market Exchange Is Purely VoluntaryThe dog-eat-dog characterization of capitalist systems is the polar opposite of reality. The private property on which capitalism is based mandates solely voluntary arrangements. Since the weak do not voluntarily consent to aggression that violates their rights, it protects them against coercion based on superior ability to harm others. In Herbert Spencer’s words, it is “an insistence that the weak shall be guarded against the strong,” which stops dog-eat-dog predation, the default setting in the absence of respect for individual rights.
Further, when one sees coercion in the private sector, it represents the failure of government to deliver on the only conceivable means by which it could advance everyone’s welfare — uniting citizens in mutual defense of their property to provide all a more secure basis on which to build mutually beneficial arrangements. As John Locke put it, “the end of government” is “the preservation of property,” protecting all citizens’ rights against predation, including that imposed by government. When force or fraud is enabled, government has rented or sold out this end to the highest political bidder. However, the problem is not in mutually acceptable arrangements, but in government that enables piracy whose prevention is its sole defensible rationale.
“Dog-Eat-Dog” Describes the Non-Market Events Known as War and PoliticsDog-eat-dog can be descriptive of behavior during war, which can cause desperation-induced atrocities. But war is not a market failure. It is aggression by a government or governments against others. In the process, it also involves government aggression against its own citizens through higher taxes, implicit inflation “taxes” and government expropriation of resources and citizens, as with military drafts.
Dog-eat-dog language is also increasingly descriptive of politics. As Bruno Leoni noted, politics has increasingly become used “merely as a means of subjecting minorities in order to treat them as losers in the field,” as in war. In such a world, as Friedrich Hayek noted in The Road to Serfdom, the massive payoffs to political hegemony lead the worst rise to the top. Along the way, we observe continued escalation of what former President Clinton called “the politics of personal destruction,” in scorched-earth electoral marches to Washington.
All of the above abuses can be seen as dog-eat-dog in nature — humans predating on other humans. But they are that way because government made them so, not because they are in any way inherent in freely chosen arrangements.
Despite the dog-eat-dog analogy’s usefulness in describing government behavior, how has it bait-and-switched people into blaming freedom and free markets? By directing attention away from two essential ways that market competition differs from predators in the animal world. The animal kingdom’s competition is a zero-sum fight for fixed resources provided by nature. But that zero-sum fight occurs only because animals do not trade, and therefore do not produce for other animals. But people do produce for others, and all parties can then benefit via trade. That makes market competition an incredibly positive-sum “game” in which each benefits him- or herself by finding ways to benefit others, made necessary by the need to get mutual agreement. As George Reisman noted, the result is very different — “one man’s gain is positively other men’s gain.”
People Exchange Goods Because It Benefits ThemThese core insights are of fundamental importance. And without the distraction of dog-eat-dog and other similarly mischaracterizing language, people paying the slightest attention to economics would not miss them. After all, they are the focus of the second chapter in Adam Smith’s The Wealth of Nations, “On the Principle which gives occasion to the Division of Labor.”
Adam Smith there highlighted individuals’ “propensity to truck, barter and exchange,” as “common to all men, and to be found in no other race of animals.” And what was his illustration? “Nobody ever saw a dog make a fair and deliberate exchange … with another dog.” Other species do not make contracts, nor do they have a means of persuading others by offering or negotiating mutually beneficial voluntary arrangements. But for man, “the greater part of his occasional wants are supplied by … treaty, by barter, and by purchase,” which, in turn, “gives occasion to the division of labor,” and the massive expansion of output that makes massive expansions of consumption possible.
What Smith saw was that the fixed, nature-given resources that inform “dog-eat-dog” imagery are completely overridden by the human ability to create and exchange with others, and the consequent gains from specialization to produce more effectively for others than they can for themselves. And Smith is hardly the only economist to call attention to this. For instance, the textbook I used as an economics principles student — Alchian and Allen’s Exchange and Production — put those issues at the very core of economic analysis.
Dog-eat-dog imagery does offer some insight into understanding war, politics, and the failures of government, all because of their subversion of freedom. But it makes no sense to portray economic freedom, constrained to respect participants’ rights, as creating a desperate battle for survival, where “anything goes.” Such “I win, you lose” behavior traces back to given, limited resources, which is the constraint faced only in the absence of production and voluntary exchange. But that is not at all the case with capitalism, which has done more than any other social “discovery” to replace such behavior with win-win possibilities. As long as people’s ownership of themselves and their production is respected, that is, as long as arrangements are voluntary, production and exchange is the process by which all gain. And humans benefiting one another is a far cry from a dog-eat-dog world.
Image source: iStockphoto.
Recent events surrounding Ferguson, Missouri and the choking death of Eric Garner have brought police misconduct to the forefront. Libertarians rightfully point out that police (unlike private actors) are largely immune from criminal prosecution, civil liability, or even losing their jobs. And because police forces obviously are not subject to market discipline, the incentives are all wrong: the worse crime gets, the more their budgets grow. But the mainstream media fail to understand that police are merely the visible business end of the state: it’s the state itself that’s out of control, and abusive police are but one symptom of this larger problem.
Since neither Left nor Right have a serious answer to police malfeasance, we asked the inimitable Bob Murphy to join us and make sense of how private defense agencies might work in an anarcho-capitalist society.
What do Rothbard and Hoppe have to say about this? How would an insurance model compare to the state’s growth model? And how do we overcome common objections by those who insist that government must have a monopoly over the use of force?
This weekend Jeff Deist welcomes Michael Oliver, and if you like debating Rothbard vs. Rand — or anarcho-capitalism vs. limited government — you’ll really enjoy our show. Michael witnessed the beginning of the modern anarcho-capitalism movement, meeting Rothbard in the early 1970s and writing a graduate thesis based on Murray’s provocative descriptive term for a libertarian society.
That thesis became a book entitled The New Libertarianism: Anarcho-Capitalism. But Oliver was also a dedicated Objectivist, and thus his book attempted to reconcile Rothbardian thought with the work of Ayn Rand — even in presumably thorny areas like natural law, private defense, and pure anarchism. The results are fascinating and provocative.
George Soros is back in the news telling Germany who to bail out this week. Soros is especially sore at Germans for promoting austerity, so it’s a great time to ask: does austerity grow an economy?
Why do we care? Investors want to know whether austerity is good or bad for an economy; whether it’s likely to boost growth or to hasten a recession. And for voters, it’s important to know whether it’s time for more, or less, austerity.
First we want to be sure what we’re even talking about. The word “austerity” is often used to describe two things: either reducing government spending, or raising taxes. These, of course, are opposites: lower spending means fewer resources used by the government, and higher taxes means more. What the two ideas have in common is the question: should we hand fewer resources to government?
Like Aesop’s frog-eating scorpion, Keynesian vote-buyers diligently dig up reasons why vote-buying is good for us all. One of their rallying cries is that we cannot “cut our way to prosperity.” Like all propaganda, such claims are misleading — austerity isn’t about “cutting.” It’s about transferring. Specifically, transferring control over productive resources from bureaucrats to individuals and companies.
Let’s have a look at the vote-buyers’ arguments. Since their goal here is to prove why vote-buying is good for us all, their pet idea against austerity is that government spending creates a “multiplier.” So one dollar of government spending creates, say, two dollars of value. Which would be nice (like unicorns, perpetual motion, and free ice cream forever). And it would mean the Soviet Union’s collapse remains an economic mystery, seeing as it was all shot-through with that productive multiplier.
More precisely, Bob Murphy has nicely demolished this supposed multiplier. In a nutshell, whatever "multiplier" might exist is precisely cancelled by the "negative multiplier" since the resources came from somewhere. If you give one dollar to the government you spend one dollar less at the restaurant. Both dollars had a “multiplier” in opposite directions. They canceled.
So much for the free ice cream.
But, of course, it gets worse: we have great reasons to expect a negative multiplier. That is, government takes a dollar and turns it into, say, 80 cents. Or maybe a nickel. Why? Because governments are very good at wasting resources.
Let's stop and think what an economy actually is — the "microfoundations" as they say. Production doesn't fall out of the sky, like a cargo cult. Rather, production is made up of resources — factories, raw materials, workers and entrepreneurs, concrete, and steel. These things are combined to yield consumption goods, investment goods, or else they’re saved for later. Meaning there are only 3 things you can do with a productive resource — consume it, invest it, or save it for later.
Meanwhile, there are only three categories of people to do any of this consuming, investing, or saving for later. Those are individuals, companies, or governments.
So the question of whether austerity is good or bad is simply a question of whether governments are better custodians of resources. Will government make more productive investments, will they save more prudently, than individuals and companies?
Unless you live under a rock, you already know the answer: governments are astoundingly wasteful. Government “investments” belong in The Onion, and “prudent savings” by governments are in a faraway exotic land.
So if government is a relatively poor steward of resources, it automatically follows that every resource wrenched from the doomed clutches of government makes us richer. Sure, we’ll get fewer wars, less corporate welfare, and less research on robo-squirrels (some of us would pay to lose those particular “investments”). And, instead, those resources go to more productive and prudent investment by people who are spending their own money, who have competent and motivated oversight of how those resources are used.
The core claim of austerity — that resources should be shifted from governments to individuals and companies — is true so long as governments are bad custodians of productive resources. As long as that productivity gap continues — which might be a while — it will remain true that austerity will grow, not shrink, an economy. And so we can merrily liberate our economy, by cutting the government on our way to prosperity.
Image source: iStockphoto.
According to Reuters, two owners of a wedding chapel in Coeur d’Alene, Idaho are suing the city, and asking a federal judge to temporarily bar the city "from enforcing a local ordinance that bans discrimination tied to sexual orientation in businesses that are used by the public." Violators are subject to fines and jail time.
The chapel's owners, who refuse to perform same-sex weddings, are suing on grounds of religious freedom, but they should not have to resort to a religious-freedom argument when an appeal to private property rights would be sufficient in a free society. Without the specious concept of “public accommodation,” disputes like this wouldn’t arise. Only because this category is accepted in the first place can the courts find justification for forcing vendors to service the demands of customers in ways that defy their religious convictions.
Public AccommodationAccording to Congress, “public accommodations” are businesses and facilities open to the general public. The idea first made its way into American law by way of the Civil Rights Act of 1964: Title II of that Act prohibits discrimination in places of “public accommodation.” Specifically, the law reads:
All persons shall be entitled to the full and equal enjoyment of the goods, services, facilities, and privileges, advantages, and accommodations of any place of public accommodation, as defined in this section, without discrimination or segregation on the grounds of race, color, religion, or national origin.
This description is followed by a list of qualifying establishments. These include inns, restaurants, theaters, sports arenas, stadiums, and “any establishment which is physically located within the premises of any establishment otherwise covered by this subsection, or within the premises of which is physically located any such covered establishment, and which holds itself out as serving patrons of such covered establishment.”
Such establishments are prohibited from discriminating on the basis of race, color, religion, national origin, disability, gender or sexual orientation, allegedly on account of their being open to the public.
The ProblemsOn the surface, barring owners of public accommodations from discriminating on the basis of race, color, disability, etc., seems like a nice thing to do. Why would any business owner in their right mind turn away business from someone because of some harmless genetic trait, anyway? But this type of mandate has some serious problems.
First, by defining certain businesses as places of “public accommodation,” the Civil Rights Act of 1964 turned the force of law into a mechanism for social engineering. The Act is based on the premise that discriminating on the basis of race is wrong, and it utilizes the force of law to make business owners behave in accord with this moral dictate. But law is not supposed to engineer social behavior. If this were not so, being mean, rude, hateful, inconsiderate, unpunctual, selfish and/or a bad parent (among many, many other things) should also be illegal. But we don’t all have the positive right to be loved, appreciated, surrounded by selfless people, and/or have great parents. There is a logic to this. Our rights only say what others cannot do to us — not what others should do for us. Public accommodation and the Civil Rights Act pervert this framework, however, and say that business owners must serve everyone, regardless of their religious convictions, thereby creating a positive right to be served at any store open to the public — stores that would not exist had the owner not invested his own capital toward its creation.
Second, the right to be serviced at any place of public accommodation has unenforceable and awkward implications. This is because inherent in the demand for service is the demand for quality commensurate with what other customers received. If Hitching Post Wedding Chapel must marry same-sex couples, is it not implied that its ministers marry the couple with the same attention and quality with which they married other couples? But the obvious problem is that quality is subjective — while the same-sex couple may not be happy with the outcome and allege that the chapel did a subpar job because of their moral qualms with homosexual marriage, the chapel’s owners can just as easily allege that they did the best job possible. Who is to determine whether the wedding (or whatever relevant product or service) is of equal quality to others the chapel has supplied? Are judges and juries to decide whether one product or service is of equal quality to every other products or services of equal price?
For another, more blatant example, consider New Mexico photographer Elaine Huguenin. In 2008, Elaine was forced to pay $6,637.94 in attorney’s fees to a lesbian couple whose wedding ceremony she refused to photograph. She lost her case on the grounds that her photography business was one of “public accommodation,” and therefore subject to the nondiscrimination clauses in the Civil Rights Act of 1964. But if she had agreed to take photos, would the lesbian couple have had grounds to sue if they weren’t of equal quality? Is the jury to examine photographs and determine whether Elaine worked as hard taking one as she did another?
The reality is that this is an illogical law that cannot be enforced equitably and whose transgressors cannot be tried impartially.
Finally, by dictating who business owners must serve, “public accommodation” as expressed in the Civil Rights Act turns business owners into mere managers (instead of owners) of their respective businesses, legally forbidden from determining for themselves which customers they will serve. Their businesses exist at the whims of policymakers, who with the stroke of a pen can direct their business operations toward the fulfillment of some arbitrary social end. But this begs a question: If business owners are not the effective owners of their companies, who is? The answer is government. By mandating that certain businesses serve customers that their owners deem (for whatever reason) unserviceable, government decision-makers become the effective owners. According to the Act’s logic, it is government, after all, that licensed the business to operate in the first place. Government, then, should be allowed to determine who can and cannot patron the business. Public accommodations’ owners’ freedom to engage in commerce is merely an illusion. They are only free as long as they comply with overbearing government regulations.
But this, of course, is no freedom at all.
Of course, some might object and argue that the law should be a means for elected officials to engineer social behavior, or that freedom to engage in commerce really isn’t that important. If this is where you stand, then we have more serious disagreements.
Image source: iStockphoto
Most defenders of the state assume that government services help the poor. And, sometimes, some poor people do benefit financially from government programs. But there’s a hidden cost: taxation and mandatory programs (Social Security, for instance) that hurt the needy by restricting their choices. Government taxes away income that low-income households could invest in improving their lives. At the same time, state-sponsored benefits create incentives that keep the poor trapped in poverty.
Many assume that government barely taxes the poor, but the reality is otherwise. The poorest fifth of Americans pay 16 percent of their incomes in taxes (including federal, state, and local). One in six dollars they earn goes straight to the government. For a family living at the margin, those taxes can be the difference between food on the table and hungry children.
Admittedly, a big chunk of government expenses is for programs designed to help the poor. But even when this money actually helps — and it rarely does — it’s important to note the pernicious effects of taxation. Consider: every dollar of taxes is one dollar that a worker must give to the government first, regardless of whether that dollar could help him feed his family or improve his livelihood. If a poor man is faced with the choice of paying taxes or starting a business, he had best choose the former, otherwise he’ll go to jail.
This is true for the wealthy as well. But poor people live closer to the margin. More of their money is taken up with fixed bills like rent and food. This leaves them less discretionary income to, for instance, invest in a business. Because their pool of discretionary income is smaller, taxes cut deeper into it.
Mandatory government programs, such as Social Security and Medicare, compound the choice-restricting effects of taxation. Social Security, for instance, forces people to save for retirement regardless of whether or not that money could be better spent in another way.
Saving for retirement is generally a good idea; most people anticipate needing a monetary cushion to see them through their golden years. But it’s not the best approach for everyone. The young woman with terminal cancer, for instance, probably won’t be around to enjoy the fruits of Social Security. She can best maximize her happiness by spending that money now, whether it’s on fun experiences, or on taking care of her children, or on better medical treatment. Similarly, for the destitute man who can afford to either save for retirement or feed his children, it takes a heartless bureaucrat indeed to force him to do the former. Yet that is precisely what Social Security does.
Many poor people eventually want to start a business or learn new skills. Both take start-up capital. Imagine that John, a retail worker barely making ends meet, wants to learn to code so that he can find a better job. Most learn-to-code programs, such as Code School, aren’t free. Investing in such a program could significantly increase John’s value and salary, allowing him to improve his finances both now and later. But faced between paying 7 percent of his paycheck to Social Security, or investing that 7 percent in learning new skills to build a career, John has to choose the former or go to jail.
Each individual has his or her unique circumstances. For some, saving for retirement right now might be smart. For others, that money could be better spent on something else. By mandating retirement savings, government robs individuals of the freedom to make their own decisions.
I’ve focused on Social Security, but other government programs have the same effect. Obamacare requires that people buy insurance or pay a fine, even if insurance isn’t in their best interests. Medicare forces the poor to put aside part of their money today to pay for their health care costs in old age — regardless of whether or not that decision is best for the man or woman in question.
But what about programs that give the poor money, like the Supplemental Nutrition Assistance Program and unemployment benefits? Even these programs create perverse incentives, trapping men and women who use them in poverty.
Because government assistance has built-in cutoff points, it creates de facto high marginal tax rates for the poor. If Jane makes $10,000 per year at McDonald’s, she might rely on programs like Medicare and welfare to make ends meet. But imagine she has the option to switch industries and take an entry-level job in a new career (for example, marketing) that pays $25,000 per year. If she takes the new job, she could end up bringing in $2,540 less on net. She might get $15,000 more from her employer, but she’ll lose $17,540 through a combination of higher taxes and reduced government benefits.
For Jane, the economically rational decision is to keep flipping burgers and not move to a new position. Government incentives reward her for staying in a dead-end job. By obeying these incentives, she misses out on all the promise inherent in a real career. People in marketing tend to be in demand in almost every company, and have more choice in where they want to work. They can earn promotions and climb the corporate ladder. These options aren’t available for a fast-food worker. Government programs give Jane the financial incentive to stay in her current position, restricting her long-term options.
Government programs, well-meaning or not, serve to trap the already downtrodden. By contrast, the market creates freedom and options and promotes upward mobility.
Image source: iStockphoto.
Libertarians — and Murray Rothbard in particular — are not pacifists, but reject the killing of innocents and other unjustified forms of military aggression, writes David Gordon.
This audio Mises Daily is narrated by Dianna Keiler.
Rise of the Warrior Cop: The Militarization of America's Police Forces, by Radley Balko, PublicAffairs, 2013
"There is no crueler tyranny than that which is perpetuated under the shield of law and in the name of justice." —Charles de Montesquieu
If there was any silver lining to the horrifying events that took place in Ferguson, Missouri which riled the month of August, it has finally brought the issue of police militarization to the forefront. As outrageous as the police shooting death of unarmed 18-year-old Michael Brown was, the brutal law enforcement response in the form of running roughshod over the First Amendment and resorting to quasi-martial law to mostly peaceful protests by local residents and activists was worse. To many observers, what took place in a Midwest suburb was indistinguishable from scenes out of occupied Iraq.
How did this happen? For an answer, the writings of investigative journalist Radley Balko are an invaluable resource. Perhaps more than any other person, Balko has reported substantially on police militarization and injustice across the country for years.
The full details can be found in his book Rise of the Warrior Cop: The Militarization of America's Police Forces . This important book, which was recently released in its paperback edition, could not have arrived at a better time. Despite going into an intellectually rigorous analysis of law, politics, and history, Balko has a gift for storytelling, which highlights many heartbreaking stories and makes Rise of the Warrior Cop an accessible and gripping read.
In the introduction, Balko begins with the provocative question:
How did we evolve from a country whose founding statesmen were adamant about the dangers of armed, standing government forces — a country that enshrined the Fourth Amendment in the Bill of Rights and revered and protected the age-old notion that the home is a place of privacy and sanctuary — to a country where it has become acceptable for armed government agents dressed in battle garb to storm private homes in the middle of the night — not to apprehend violent fugitives or thwart terrorist attacks, but to enforce laws against nonviolent, consensual activities?
In the first chapter, Balko traces classical history and its lessons on America’s Founders as well their own experiences under British rule. As students of the Enlightenment, they were familiar with how the Roman Republic was overthrown by ambitious military leaders and how the Praetorian Guard in the Empire era, which not only acted as bodyguards for the emperor but also took on many policing roles as well, was responsible for much political intrigue and instability. In the lead-up to the American Revolution, British authorities used the hated writs of assistance to enforce tax laws and to crackdown on contraband in the colonies. This type of general warrant allowed for authorities to “search broad groups of people, for evidence of any number of crimes, sometimes over long stretches of time.” As bad as they were, Balko noted that in contrast to what police can do today, the writs of assistance could not be exercised at night and they required a knock-and-announcement before entry into a private home. Finally, it was the deployment of British soldiers to enforce the law that brought long-simmering tensions to a boil. After the Revolutionary War, with these abuses still fresh on their minds, the Founders framed and ratified a Constitution with a Bill of Rights.
The Fourth Amendment, in particular, was written explicitly to prohibit general warrants and to reinforce the Castle Doctrine, an even older principle carried over from the British common law that can be traced back to antiquity. The Castle Doctrine simply reinforces the timeless idea that "a man’s home is his castle." As explained by Balko:
Implicit in the sentiment is not only the right to repel criminal intruders but also the idea that the state is permitted to violate the home's sanctity only under limited circumstances, only as a last resort, and only under conditions that protect the threshold from unnecessary violence. Thus, before entering without permission, government agents must knock, announce and identify themselves, state their purpose, and give the occupants the opportunity to let them in peacefully. … The announcement requirement under English law was not a formality, as it has become in police raids today. It was elemental. Its purpose was to give the homeowner the opportunity to avoid violence, distress, and the destruction of his property.
Balko also goes into interesting detail regarding the Third Amendment, the "runt piglet of the Bill of Rights," which contains the seemingly antiquated provision that prohibits the quartering of soldiers in private homes. The case law pertaining to the amendment is scant but Balko asks us to consider why the Founders placed such an importance on it. Read in light of the Castle Doctrine, it makes sense that those who revere the principle that "a man’s home is his castle" would not tolerate their homes being occupied by soldiers. But most importantly, "the amendment was a placeholder for the broader aversion to a standing army. … It represented a long-standing, deeply ingrained resistance to armies patrolling American streets and policing American communities."
Until the Civil War and Reconstruction, active duty troops were rarely if ever used for domestic law enforcement. In the early American republic, law enforcement was left mostly in private hands. Close-knit communities with shared values relied mostly on social stigma and shaming to maintain order. Professional full-time prosecutors didn’t exist, and it fell upon crime victims themselves to initiate the charges before a grand jury, a panel of private citizens who had the power to indict. The citizen militia was called out for only the worst cases that required force. But as urbanization advanced and an increasingly diverse population grew, it brought the need for changes.
One particularly interesting historical fact noted by Balko is that after the fall of Rome, centralized metropolitan police forces were not to be formed for almost another two millennia. In places that developed strong civil liberties traditions such as England and the American republic, people remained suspicious of standing armies, martial law, and powerful executives. In the United States, the New York Police Department (NYPD) was not formed until 1845. Modeled after London’s famous "bobbies," political leaders had to wage major public relations campaigns to win over the trust of citizens. Major efforts were taken to distinguish the police from soldiers, and to ensure they were responsive to elected officials and the public. But in many jurisdictions, the police became a little too responsive to politicians, acted as corrupt henchmen for anyone who won office, and oppressed minorities and outsiders. The issue of police corruption was serious enough that it became a plank in the progressive movement by the early twentieth century. Reformers introduced the concept of professionalism which "transformed the job of police officer from a perk of patronage to a formal profession with its own standards, specialized knowledge, and higher personnel standards and entry requirements." Although it helped address the problem of corruption, this new policy began to subtly separate the police from the communities they supposedly served and protected.
The meat of Balko’s story focusing on police militarization began in the 1960s. During this time, the civil rights, antiwar, and counterculture movements became very active while the overall crime rates soared. As the liberal Warren Court expanded the rights of the accused in a number of notable rulings, the law-and-order types became greatly alarmed that society was falling apart. As his critics on the right continued their attacks that he was "soft" on crime, President Lyndon B. Johnson oversaw the creation of two government institutions to fight crime that would have huge future ramifications:
the Bureau of Narcotics and Dangerous Drugs (BNDD), which eventually would become the modern Drug Enforcement Agency (DEA), the leading government agency fighting the War on Drugs.the Law Enforcement Assistance Administration (LEAA), to "stream the federal funding, equipment, and technology to state and local law enforcement agencies."This would go on to set a large precedent for future programs like Byrne grants and the Pentagon’s 1033 program as "Johnson’s successors would quickly discover that introducing a funding spigot like LEAA, then threatening to pull it away, was an effective way to persuade local police agencies to adopt their preferred polices."
The modern War on Drugs would officially begin under President Richard Nixon after winning on a law-and-order campaign and appealing to the “Silent Majority.” The focus of the Nixon’s administration’s anticrime effort would be on drugs, which they thought was the common denominator among racial minorities, the counterculture, and the antiwar movement that alienated “ignored America.” The Nixonites pushed for massive funding for the BNDD and LEAA, demanded no-knock warrants for federal drug agents, and even temporarily shutdown the U.S-Mexican border in Operation Intercept. In 1969, the first SWAT raid was carried out in Los Angeles against the Black Panthers. Despite the raid being a disaster "practically, logistically, and tactically," it was a major success in public relations and SWAT teams would spread to nearly every city in America in the following decades. Despite being originally designed for emergency situations where violence was needed to end violence such as bank robberies and hostage scenarios, mission creep was unavoidable and SWAT teams would go on to be used for everything from breaking up neighborhood poker games, enforcing underage drinking laws, and performing regulatory inspections, as meticulously documented by Balko. Fast forward to modern day, it is now estimated that SWAT raids occur up to 40,000 times per year across the United States.
This can be traced back to the Reagan administration when SWAT tactics began to be increasingly used in fighting the drug war. Hardliners in his administration saw a "biblical struggle between good and evil, and in the process turn[ed] the country’s drug cops into holy soldiers." Noting the inconsistent reverence supposed limited government conservatives have for Reagan, Balko had this to say:
Conservatives had always held the somewhat contradictory position that government can’t be trusted in any area of society except when it comes to the power to arrest, detain, imprison, and execute people. But Reagan didn't dance around the contradiction, he embraced it. He blamed crime on big government — and in the same breath demanded that the government be given significantly more power to fight it.
Under Reagan, the FBI was brought into enforcing drug laws, health professionals who favored treatment for drug abusers were purged from the bureaucracy, and sweeping new policies such as civil asset forfeiture (the legal theory that property itself can be guilty of a crime and be seized without the owner even being charged) were embraced. Perhaps the most radical action was that Reagan sought to amend the Posse Comitatus Act and bring the military into the Drug War.
Balko notes that:
By the end of the 1980s, joint task forces brought together police officers and soldiers for drug interdiction. National Guard helicopters and U-2 spy planes flew the California skies in search of marijuana plants. When suspects were identified, battle-clad troops from the National Guard, the DEA and other federal and local law enforcement agencies would swoop in to eradicate the plants and capture the people growing them.
After Reagan was succeeded by Vice President George H.W. Bush, the same course continued. Bush Sr. appointed hardliner Bill Bennnet (who once called for beheading drug dealers on Larry King live and even "urged children to turn in their friends who used drugs to the police") as drug czar and ramped up rhetoric that the drug war was a moral crusade between good and evil. Drug treatment programs were stripped of funding, while additional cash flowed into law enforcement and new prison construction. Perhaps the most significant were the Byrne grants that were created in a 1988 crime bill which would send billions in federal cash to police departments over the next twenty-five years and allow "the White House another way to impose its crime policy on local law enforcement." But in Balko’s view, the program's most harmful legacy was the "creation of hundreds of regional and multijurisdictional narcotics task forces" that were often unaccountable and financially rewarded for making many busts in the following decades.
Reformers and activists hoped the election of Bill Clinton would bring changes to the War on Drugs but sadly, that would not be the case. Instead, Clinton "encouraged paramilitary raids against low-level offenders — even users" and cracked down hard on medical marijuana facilities in order to send a political message despite legalization in a number of states. In addition, the Bryne grants picked up steam as they incentivized "police departments across the country to prioritize drug crimes over other investigations." Perversely, the funds were awarded based on the "number of overall arrests, the number of warrants served, or the number of drug seizures." As a result, actually reducing crime was not favored and instead, grants were given to police departments that were making lots of seizures regardless of size and easy arrests (e.g., low level drug offenders).
During this time, the Supreme Court continued to whittle away the Fourth Amendment and further militarization was promoted through the creation of infamous 1033 program as relationships between the federal government and local police departments deepened. High-profile tragedies in the 1990s involving heavily militarized law enforcement such as Ruby Ridge and the Waco Siege served mostly as partisan fodder as the right temporarily became critics only to fall silent when George W. Bush became President.
Bush Jr. followed the moral crusade script and continued the paramilitary raids against medical marijuana facilities and patients despite some initial lip service to federalism. After the September 11th terrorist attacks, drug warriors did not fail to waste a good crisis and used the opportunity to attempt to link the new fear of terrorism to drug use. In addition, the new War on Terror created another "ratchet effect" that ballooned an already-growing National Security State and furthered militarized the police. Thanks to generous anti-terrorism grants from the Department of Homeland Security which dwarfed even the 1033 program, police departments across the country upgraded their arsenals with automatic weapons, drones, armored vehicles, and other military equipment. But since terrorist attacks are incredibly rare, police used their new gear for drug raids instead. Meanwhile, the Supreme Court continued its siege on the Castle Doctrine and the Fourth Amendment with its decisions in United States v. Banks and Hudson v. Michigan.
Many people desiring "hope and change" put their faith in Barack Obama for a drug war détente and an overall repudiation of the Bush policies, but as with what happened with Clinton, they were in for a very bitter disappointment. Obama expanded the trend of police militarization by pouring a record $2 billion into the Byrne grants. This was part of his 2009 economic stimulus package, overseeing "more federal raids on marijuana dispensaries in four years than George W. Bush had presided in over eight," promoting greater forfeiture takings by the Justice Department, and continuing to give away hundreds of millions in federal surplus military equipment to local and state police departments.
Near the end of the book, Balko offers a number of proposed reforms to rollback police militarization and restore the workings of a free society. These ideas include the practical as well as politically unattainable, but at very least, provide a working road map:
Scaling back and ending the War on Drugs.Halting SWAT mission creep such as prohibiting their use by regulatory agencies.Increasing transparency such as detailed warrant tracking and requiring the use of body cameras on raids where the videos could then be made public upon request.Embracing authentic community policing by “taking cops out of patrol cars to walk beats and become a part of the communities they serve” to rebuild trust among the people they serve.Changing police culture by moving away from “us versus them” combat mindset and toward emphasizing counseling and dispute resolutions for resolving conflict in routine problems.Increasing accountability and ensuring police are not above the law by imposing stronger liability on officers who make egregious errors (this proposal would most likely be fought tooth-and-nail by police unions).Even as more people awaken to the realities of a growing police state, the challenges to restoring a free society are vast and likely to be resisted every inch of the way by entrenched interests. As Abigail Hall and Christopher Coyne pointed out in their political-economic analysis of police militarization in the Spring 2013 issue of The Independent Review:
Government agencies’ inherent tendency is to expand beyond their designers’ initial aims and goals. Special-interest groups exacerbate this problem by seeking to expand their power and influence. The onset of crises — whether real or manufactured — begins a long, far-reaching process that erodes the already imperfect constraints on the government’s power … citizens must become skeptical of the possibility of establishing permanent constraints on government power. This skepticism ultimately requires recognition and appreciation of the realities of government power and a rejection of government action as a solution to the perceived crises.
After reading through Rise of the Warrior Cop, if there be a single lesson we should grasp, it is that police militarization and the War on Drugs are intimately tied. The former cannot be reversed unless the latter is ended. Thanks to the War on Drugs, the Castle Doctrine crumbled, the United States ended up with the largest incarcerated population in world history, and the Officer Friendlies of yesteryear have been replaced by a de-facto standing army clothed like Darth Vader.
There is a wide range of opinions among commentators today on what extent the United States is becoming/is a police state. In Balko’s conclusion, "it would be foolish to wait until it becomes one to get concerned." If you were at all disturbed by the events in Ferguson or wondering why your local police department has an armored vehicle with a belt-fed, turreted .50 caliber machine gun, you owe it to yourself to read this book.
Image source: wikicommons: Hostage rescue
Recently the classical liberal legal scholar Richard Epstein criticized “hard-core libertarians.” These extremists want to keep out of “foreign entanglements.” If, as the extremists propose, we act only when there is a direct threat to the United States, “it may be too late.” We should strike immediately against the “forces of death and destruction” such as ISIS. We must spread liberty throughout the world in general, and the Middle East in particular.
Murray Rothbard certainly qualifies as a “hard-core libertarian.” Did he turn a blind eye to threats, owing to a commitment to unrealistic principles? By no means: but he differed from contemporary warmongers about the nature of these threats.
To grasp his ideas, it is best to put international relations aside for a moment and begin with an individual’s right to defense. Unlike Robert LeFevre, Rothbard was not a pacifist. To the contrary, he tells us in The Ethics of Liberty,
Absolute pacifists who also assert their belief in property rights ... are caught in an inescapable inner contradiction: for if a man owns property and yet is denied the right to defend it against attack, then it is clear that a very important aspect of that ownership is being denied to him.Murry Rothbard, The Ethics of Liberty (New York: New York University Press, 1998), chap. 12, p. 77.
We have, then, the right to defend by violence our person and property; but, even if we are threatened, we cannot do anything we like in the name of “defense.” For one thing, there must be “an actual or directly threatened invasion of one’s property.” A mere intimation that someone might in future act in a hostile way against you does not suffice. “It would clearly be grotesque and criminally invasive to shoot a man across the street because his angry look seemed to you to portend an invasion.”Ibid., p. 80.
Further, a response to invasion must be proportional. You cannot kill someone just for stepping uninvited onto your property. Rothbard altogether repudiates the view that any rights violator shows himself to be an outlaw who forfeits all rights. “On what basis must we hold that a minuscule invasion of another’s property lays one forfeit to the total loss of one’s own? I propose another fundamental rule regarding crime: the criminal, or invader, loses his own right to the extent that he has deprived another man of his.”Ibid.
The exercise of the right to self-defense is subject to another restriction; and this, we shall see, is of crucial importance once we turn to foreign relations. You cannot, while defending yourself, violate the rights of innocents. You cannot shoot an innocent bystander because he blocks the way to your otherwise justified response to an aggressor.
Suppose that, in this world, Jones finds that he or his property is being aggressed against by Smith. It is legitimate, as we have seen, for Jones to repel this invasion by the use of defensive violence. But, now we must ask: is it within the right of Jones to commit aggressive violence against innocent third parties in the course of his legitimate defense against Smith? Clearly the answer must be “No.” For the rule prohibiting violence against the persons or property of innocent men is absolute; it holds regardless of the subjective motives for the aggression. It is wrong, and criminal, to violate the property or person of another, even if one is a Robin Hood, or is starving, or is defending oneself against a third man’s attack.Ibid., p. 189.
Rothbard subjects nations to the same limits, and the last of these limits is especially important. Modern warfare of necessity involves assaults on the innocent, and this Rothbard refuses to sanction. “All of the consequences of inter-territorial war make it almost inevitable that inter-State war will involve aggression by each side against the innocent civilians — the private individuals — of the other.”Ibid., p. 192.
In seeking to restrict the conduct of war, Rothbard looked to traditional just war theory. Rothbard cites in this connection Vitoria, Suarez, Grotius, and their successors in later centuries, who carefully specified the limits a state must follow in warfare.
The classical international lawyers developed two ideas, which they were broadly successful in getting nations to adopt: Above all, don't target civilians. If you must fight, let the rulers and their loyal or hired retainers slug it out, but keep civilians on both sides out of it, as much as possible ... [and] Preserve the rights of neutral states and nations. ... In a theory which tried to limit war, neutrality was considered not only justifiable but a positive virtue.Murray Rothbard, "America's Two Just Wars: 1775 and 1861," The Costs of War: America's Pyrrhic Victories (New Brunswick, N.J.: Transaction Publishers, 1999), p. 120.
Rothbard followed the great figures in the just war tradition, but he radically extended their view. For him, the state was not merely subject to limits comparable to those restricting an individual trying to defend himself. Far from it: the state is a predatory organization. Its growth and seizure of new powers, inevitable in war, must be combated.
All State wars, therefore, involve increased aggression against the State’s own taxpayers, and almost all State wars (all, in modern warfare) involve the maximum aggression (murder) against the innocent civilians ruled by the enemy State.Rothbard, Ethics of Liberty, p. 193.
Given the manifest dangers of the predatory state, we should oppose the involvement of our own state in any foreign disputes. In the guise of spreading liberty abroad, America’s foreign interventions serve rather to extend tyranny at home.
But what of the claim that a non-interventionist policy ignores potential dangers that could inflict massive damage on our population? It is rather late in the day to make this claim. “Regime change” in Iraq was needed to protect us from “weapons of mass destruction.” These weapons did not exist, but the fiasco has not stopped the propagandists for war. Now we are told that ISIS, a small group that holds territory in Iraq and Syria, poses a threat to America: only “extremists” deny this. The claim follows a familiar pattern. It is a twice-told tale that, one hopes, will not again fool the American public.
Image source: iStockphoto
The best tax is always the lightest. — Jean-Baptiste Say
There cannot be a good tax nor a just one; every tax rests its case on compulsion. — Frank Chodorov
There can be no such thing as “fairness in taxation.” Taxation is nothing but organized theft, and the concept of a “fair tax” is therefore every bit as absurd as that of “fair theft.” — Murray Rothbard
Since the very fact of taxation is an interference with the free market, it is particularly incongruous and incorrect for advocates of a free market to advocate uniformity of taxation. — Murray Rothbard
The real issue is total spending by government, not tax reform. — Ron Paul
When it comes to the subject of taxes, many conservatives and some libertarians just don’t get it.
The Tax Foundation, a “non-partisan research think tank, based in Washington, DC,” has six “ principles of sound tax policy” that guides all of its research and “which should serve as touchstones for good tax policy everywhere”: simplicity, transparency, neutrality, stability, no retroactivity, broad bases and low rates. Good tax policy “promotes economic growth by focusing on raising revenue in the least distortive manner possible.”
The Tax Foundation recently charged education tax credits with violating “the principles of sound tax policy by greatly increasing the complexity and distortions in the tax code.” They should be eliminated “within a comprehensive reform package” for a number of reasons, among which is that “trading the elimination of education tax credits for lower marginal tax rates is good for economic growth.”
The Tax Foundation does a good job of answering the question of whether “the tax code is the proper tool to increase access to higher education and make college more affordable” (it isn’t), but the organization’s proposal that the government should eliminate all education tax credits and use “the revenues to cut marginal tax rates across the board” is naïve. The government simply can’t be trusted to not turn around and raise marginal tax rates the next time it “reforms” the tax code. And the fact that “trading education credits for lower tax rates” would “benefit the Treasury as well” means that the government would collect more money — which is always a bad thing. How about proposing keeping the education credits and cutting marginal tax rates?
The Tax Foundation also recently weighed in on the subject of sales tax holidays. It is against them. Sales tax holidays “are periods of time when selected goods are exempted from state (and sometimes local) sales taxes.” Although “at first glance, sales tax holidays seem like great policy,” they “are based on poor tax policy and distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform,” “introduce unjustifiable government distortions into the economy without providing any significant boost to the economy,” “represent a real cost for businesses without providing substantial benefits,” are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers,” and “impose serious costs on consumers and businesses without providing offsetting benefits.” Although sales tax holidays may eliminate taxes for some period of time, they “are not real tax cuts.”
But even if, from an economic and political perspective, everything the Tax Foundation says about sales tax holidays is true, there is one thing they have dead wrong: Sales tax holidays are not just real tax cuts, because they eliminate sales taxes completely, they are the ultimate and ideal tax cut.
And then there is Dan Mitchell, formerly of the Heritage Foundation, now of the Cato Institute, who blogs at International Liberty. He is “a long-time proponent of the flat tax.” One reason Mitchell supports the flat tax is “other than a family-based allowance, it gets rid of all loopholes, deductions, credits, exemptions, exclusions, and preferences, meaning economic activity is taxed equally.” But because “a national sales tax (such as the Fair Tax) is like a flat tax but with a different collection point,” and “the two plans are different sides of the same coin” with no “loopholes,” even though he is “mostly known for being an advocate of the flat tax,” Mitchell has “no objection to speaking in favor of a national sales tax, testifying in favor of a national sales tax, or debating in favor of a national sales tax.”
But as I have said before, the flat tax is not flat and the Fair Tax is not fair.
Surprisingly, although Mitchell despises Obamacare, he believes “that there’s one small part of Obamacare that will have a positive impact”: the so-called Cadillac tax on expensive employer-provided health plans. The Cadillac tax:
Will slightly reduce the distortion in the tax code that encourages over-insurance and exacerbates the healthcare system’s pervasive third-party payer problem.Is merely making workers more aware of costs that already exist.Discourages over-insurance, and this is already leading to some positive changes in the marketplace.Although I admire and recommend the work of the Tax Foundation and Dan Mitchell, and regularly visit their websites, for a more libertarian view of sound tax policy, I suggest that we turn to Frank Chodorov and Murray Rothbard.
From his essay “Taxation Is Robbery,” here is Chodorov on the morality of taxation:
The Encyclopaedia Britannica defines taxation as “that part of the revenues of a state which is obtained by the compulsory dues and charges upon its subjects.” That is about as concise and accurate as a definition can be; it leaves no room for argument as to what taxation is. In that statement of fact the word “compulsory” looms large, simply because of its ethical content. The quick reaction is to question the “right” of the State to this use of power. What sanction, in morals, does the State adduce for the taking of property? Is its exercise of sovereignty sufficient unto itself?
On this question of morality there are two positions, and never the twain will meet. Those who hold that political institutions stem from “the nature of man,” thus enjoying vicarious divinity, or those who pronounce the State the keystone of social integrations, can find no quarrel with taxation per se; the State’s taking of property is justified by its being or its beneficial office. On the other hand, those who hold to the primacy of the individual, whose very existence is his claim to inalienable rights, lean to the position that in the compulsory collection of dues and charges the State is merely exercising power, without regard to morals.
Taxation for social services hints at an equitable trade. It suggests a quid pro quo, a relationship of justice. But, the essential condition of trade, that it be carried on willingly, is absent from taxation; its very use of compulsion removes taxation from the field of commerce and puts it squarely into the field of politics. Taxes cannot be compared to dues paid to a voluntary organization for such services as one expects from membership, because the choice of withdrawal does not exist. In refusing to trade one may deny oneself a profit, but the only alternative to paying taxes is jail. The suggestion of equity in taxation is spurious. If we get anything for the taxes we pay it is not because we want it; it is forced on us.
And as Chodorov explains in his book The Income Tax: Root of All Evil (1954), the income tax means that the state says to its citizens:
Your earnings are not exclusively your own; we have a claim on them, and our claim precedes yours; we will allow you to keep some of it, because we recognize your need, not your right; but whatever we grant you for yourself is for us to decide.
The amount of your earnings that you may retain for yourself is determined by the needs of government, and you have nothing to say about it.
From chapter 22, “The Nature of the State,” in his The Ethics of Liberty, here is Rothbard on the nature of taxation:
All other persons and groups in society (except for acknowledged and sporadic criminals such as thieves and bank robbers) obtain their income voluntarily: either by selling goods and services to the consuming public, or by voluntary gift (e.g., membership in a club or association, bequest, or inheritance). Only the State obtains its revenue by coercion, by threatening dire penalties should the income not be forthcoming. That coercion is known as “taxation,” although in less regularized epochs it was often known as “tribute.” Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects.
It would be an instructive exercise for the skeptical reader to try to frame a definition of taxation which does not also include theft. Like the robber, the State demands money at the equivalent of gunpoint; if the taxpayer refuses to pay his assets are seized by force, and if he should resist such depredation, he will be arrested or shot if he should continue to resist.
The libertarian approach to tax deductions and credits differs strikingly from those on the left and the right who want to simplify the tax code by eliminating these things to ensure that every individual and corporation pays some uniform and arbitrary fair share. Since the federal government is unlikely to ever eliminate the income tax, proponents of a free society should work toward expanding tax deductions, tax credits, tax breaks, tax exemptions, tax exclusions, tax incentives, tax loopholes, tax preferences, tax avoidance schemes, and tax shelters and applying them to as many Americans as possible. These things are not subsidies that have to be “paid for.” They should only be eliminated because the income tax itself has been eliminated.
From chapter 2, “Ten Great Economic Myths,” in his Making Economic Sense, here is Rothbard on tax deductions and exemptions:
A deduction or exemption is only a “loophole” if you assume that the government owns 100% of everyone’s income and that allowing some of that income to remain untaxed constitutes an irritating “loophole.” Allowing someone to keep some of his own income is neither a loophole nor a subsidy. Lowering the overall tax by abolishing deductions for medical care, for interest payments, or for uninsured losses, is simply lowering the taxes of one set of people (those that have little interest to pay, or medical expenses, or uninsured losses) at the expense of raising them for those who have incurred such expenses.
There is furthermore neither any guarantee nor even likelihood that, once the exemptions and deductions are safely out of the way, the government would keep its tax rate at the lower level. Looking at the record of governments, past and present, there is every reason to assume that more of our money would be taken by the government as it raised the tax rate back up (at least) to the old level, with a consequently greater overall drain from the producers to the bureaucracy.
And from chapter 4, “Binary Intervention: Taxation,” in his Power and Market, here is Rothbard on tax exemptions and loopholes:
Many writers denounce tax exemptions and levy their fire at the tax-exempt, particularly those instrumental in obtaining the exemptions for themselves. These writers include those advocates of the free market who treat a tax exemption as a special privilege and attack it as equivalent to a subsidy and therefore inconsistent with the free market. Yet an exemption from taxation or any other burden is not equivalent to a subsidy. There is a key difference. In the latter case a man is receiving a special grant of privilege wrested from his fellowmen; in the former he is escaping a burden imposed on other men. Whereas the one is done at the expense of his fellowmen, the other is not. For in the former case, the grantee is participating in the acquisition of loot; in the latter, he escapes payment of tribute to the looters. To blame him for escaping is equivalent to blaming the slave for fleeing his master. It is clear that if a certain burden is unjust, blame should be levied, not on the man who escapes the burden, but on the man or men who impose it in the first place. If a tax is in fact unjust, and some are exempt from it, the hue and cry should not be to extend the tax to everyone, but on the contrary to extend the exemption to everyone. The exemption itself cannot be considered unjust unless the tax or other burden is first established as just.
In the literature on taxation there is much angry discussion about “loopholes,” the inference being that any income or area exempt from taxation must be brought quickly under its sway. Any failure to “plug loopholes” is treated as immoral.
From a libertarian perspective, the goal should be no taxes whatsoever. To that end, any decrease in taxes or tax rates is a good thing and any increase is a bad thing and any increase in tax deductions or credits is a good thing and any decrease is a bad thing. No matter whom it benefits, no matter why the government does it, no matter who lobbied for it, no matter who supports or doesn’t support it, no matter how temporary it might be, and no matter how much complexity it adds to the tax code.
This article first appeared at LewRockwell.com.
Image source: iStockphoto
The fact that opponents of private property rights have managed to frame the debate over health-care mandates as some sort of religious issue is one of the great public relations coups of our time.
Note below, for example, the top of a full page ad in the New York Times taken out by a group called the Freedom From Religion Foundation.
After approvingly quoting eugenicist Margaret Sanger, the ad goes on to claim that the Supreme Court’s Hobby Lobby decision is a Catholic plot to impose “dogma” on the United States legal system. Further down (not pictured), the ad then claims that allowing employers to choose what sort of compensation they give their employees in exchange for labor is proof that the United States is becoming a “theocracy.”
This sort of thinking is part of a larger, and truly bizarre, assertion that a respect for freedom or civil liberties demands that employees use the power of the state to force one’s employer to provide certain types of health care. Some opponents of the Court’s decision go on to argue that allowing a religious exemption for one group of religious people is “inconsistent, dangerous, and unfair to other religious Americans.” The implication is that by allowing employers some modicum of freedom in negotiating with employees, the employer is somehow imposing the religion of the employers on the employees.
Following this same logic, Hillary Clinton went on to say that refusing to pay for contraception coverage is a “slippery slope” toward religious extremism and that freedom of choice for employers in providing health care is akin to imposing Islamic Sharia Law.
It is unfortunate that the issue of employer-provided health care has been framed as a religious matter. As a political ploy, it is quite a savvy move, however, since by casting the dispute over health-care mandates as a type of religious debate, the proponents of government-regulated health care have successfully distracted the public from noticing that the dispute is only a debate over wages and contracts, which are of interest to all employers and business owners, and not just religious or conservative ones.
Part of the blame for this focus on religion lies with the Supreme Court itself. Hobby Lobby challenged the mandate using 1993’s Religious Freedom Restoration Act. In turn, the Court’s majority, which sided with Hobby Lobby, applied the act to “closely-held” private companies, including for-profit ones. This court’s decision was indeed a victory for freedom of choice for business owners, but it is an extremely limited one, and amounts to a very small bone being tossed to employers by the court. Why should employers need to have a religious problem with some aspect of a government regulation to be exempt from it? Should not employers be allowed to offer employees wages and benefits that conform to what the business and laborer freely agree upon? Certainly, workers who do not care for any particular benefits package offered by an employer are free to reject it. If an employer wishes to pay only for New Age health care services based on “crystal healing” he should be free to do so. Likewise, if an employer subscribes to some unusual sex cult and provides health care benefits in the form of vouchers for brothels, he or she should also be free to do so. Likewise, if an employer wishes to provide no health care benefit at all, for whatever reason, based on whatever religion, philosophy, or ideology, he or she should also be able to do so. To object to this is to argue that it is right and moral for the state to use violence or the threat of violence to force employers to provide only certain types of state-approved compensation to employees.
And why the obsession with health care coverage? Employer-provided health care coverage, after all, is simply a type of wage paid to workers in exchange for work. The now-widespread practice of offering health-care benefits to employees is an accident of history:
The very existence of the system is itself a very strange occurrence and a big hint that government intervention played a key role in its creation. After all, employers do not pay for food or gasoline; why do they pay for health care?Employer-provided health insurance has its origin in a tax policy passed in 1943, which made insurance provided by employers tax free. At the time the United States was engaged in World War II and had enacted wage and price controls, preventing employers from competing for scarce labor using the normal mechanism of offering a higher salary. Instead, businesses used the availability of newly tax-subsidized health care as a means of differentiating themselves.
The tax advantages were made even more attractive and fully codified in the 1954 Internal Revenue Code. Over the next few decades, the government’s subsidization of employer-provided health insurance lead to the dominance of that model of health care delivery, as the data from the 1965 Sourcebook of Health Insurance Data makes clear.
Federal health-care mandates are nothing more than federal diktats on how employers shall pay employees, but the way that an employer pays employees, or what type of health care services are covered, has nothing at all to do with imposing a Catholic Theocracy or Sharia Law or any other value system. It is simply compensation traded for labor.
It is unfortunate that Hobby Lobby had to resort to invoking the Religious Freedom and Restoration Act, although it is likely that Hobby Lobby’s lawyers saw no other avenue of legal defense.
If the Congress or the federal courts had any regard for private property, Hobby Lobby would not have been forced to make an argument about religious freedom, but could simply have appealed the mandate as an unwarranted attack on the right of employers and employees to freely negotiate wages.
During the Lochner era of the Supreme Court, when the court correctly viewed the right to freely enter into contracts as an extension of basic property rights, the Court routinely struck down laws mandating minimum wages and other regulations on the grounds of a right to freely contract. If this far-more-reasonable view of property rights were still popular with federal courts today, Hobby Lobby’s case against the Obamacare mandates would have been easy to make on totally non-religious grounds. Since the end of the Lochner era during the New Deal, however, the prerogative of government to meddle in even the smallest aspects of the employer-employee relationship has become so indisputable that those seeking exemptions from federal laws over such matters are forced to fit their legal arguments within the little box known as “religious freedom.”
Just as the federal government has literally reduced free speech to little boxes in the form of “free speech zones,” the right to use one’s private property freely is now constrained to the realm of religious freedom only. If you can prove that your objection to some government regulation is connected to some widely-held belief system, you may be able to gain a few scraps of freedom from the table of the federal courts. If you subscribe to a belief system that is not recognized as a religion by the federal courts, however, you are surely still on your own. Also note how the courts have constrained the reach of the Religious Freedom Restoration Act only to certain types of employers. Individual taxpayers, such as the Quakers, who object to their tax dollars being used to bomb people, for example, are still completely out of luck, and the Supreme Court was careful to make tax law immune from any religious-freedom claims in the Hobby Lobby case.
In the wake of the decision, interventionists are outraged that any group of people, for any reason, have obtained a small amount of freedom of choice in dealing with people who wish to trade some labor for money. This particular freedom is likely to be the nose of the camel under the tent, they fear. One can only hope. It’s nice that religious freedom has been protected in a very small way, but there’s no reason for true friends of freedom to stage a victory parade just yet.
Image source: New York Times.
This article is also available as an Audio Mises Daily
[A selection from Toward a Libertarian Society.]
Just as an important difference in everyday life is that between a bathroom and a kitchen, so, too, does a crucial distinction in political economic philosophy exist between government and private contractual arrangements. But here is where the analogy breaks down. There are other, even more important insights to be garnered in ordinary living than that between these two rooms (e.g., don’t eat poison, feed yourself, take care of babies); there is simply no more important delineation in libertarian theory than that which exists between coercion (the government) and voluntary cooperation (the market).
Yet, such is the parlous nature of our discipline that there are even people parading themselves around as libertarians who are unaware of this distinction. Worse, there are those who write articles in professional journals, and even books, which are dedicated in their entirety to the obliteration of the difference between the state and private market interaction.
They are not without an argument, paltry as it is. Exhibit “A” in their arsenal is the condominium agreement. These “libertarians” wax eloquent about the severity and comprehensiveness of such housing developments. For example, they typically require that all exteriors be painted in the same color; that fences be identical (e.g., everyone must have, say, a picket fence); that there be no window air conditioning units. Some even go so far as to stipulate the color of curtains that can be seen from outside, and either compel, or prohibit, such things as floor rugs, Venetian blinds, screen doors, types of foot mats and whether automobiles must, or cannot be, parked in garages. Some prohibit children entirely; others specify minimum ages for residents (e.g., 60 years old for retirement communities). And legion are the rules and regulations concerning noise at which hours, parties, where tricycles can be stored, etc. Compared even to some villages and small towns, the mandates of these private communities can be intrusive, comprehensive, and oft-times arbitrary.
Then, too, there is the fact that both kinds of organizations are typically run on fully democratic principles. And not only that: there is a sense in which, in both cases, it can truly be said that people agree to take part in the elections in the first place.
In the case of cooperative housing, this is easy to see. All members of the development sign a purchase contract, indicating willingness to be bound by the condo constitution and by a formula (majority, super majority, whatever) for altering its terms.
For towns, no one, of course, signs the constitution. (If you don’t believe this, go back and read Spooner’s No Treason.) However, argue these “libertarians,” by moving into a village the newcomer knows full well the rules of the political entity, or can easily learn them: no spitting on the street, the zoning specifications, speed limits, etc. And, in virtually all cases, town regulations are far less all encompassing than those of condominiums. True, concludes this argument, the city government garners “taxes” while the condo collects membership “fees,” but this is a distinction without a difference.
The first chink in this seemingly airtight case can be seen when we examine the position not of the new arrival in town, but rather that of a landowner who was located there before the town was incorporated; or, alternatively, when we look at the plight of the homeowner living just outside the village limits, when it expands to take into its jurisdiction people such as himself living in contiguous but previously unincorporated areas. (We consider the second of these cases not the first, since there are now far more individuals alive who have experienced the latter, not the former.)
So the mayor comes to this homeowner and says to him, “I’ve got good news for you, Zeke. You’re now part of the town. We’ll collect your garbage for you, we’ll provide city water and sewage services, policing, fire protection, membership in the library; heck, we’ve even got a municipal swimming pool. You’ll have to pay for welfare for the poor, too, of course, but you’ve always helped your down at their luck neighbors before, so that shouldn’t be any burden on you.”
Replies Zeke: “That really sounds wonderful. We’re really getting modern around her, aren’t we, Clem? But I tell you what. I’m going to take a pass on this wonderful opportunity. I see no reason for change. Thanks, but no thanks.”
Whereupon responds Mayor Clem: “I don’t think I’ve fully made my position clear. This really isn’t your choice. We took a vote on this, and your side lost. You’re in, whether you like it or not.”
At this point states Zeke: “Hitler came to power through an election. So don’t tell me about the ballot box. However, I’ll give you one thing, Clem. At least you don’t add insult to injury. At least you don’t compound naked aggression with outright lying, Clem, like those so-called ‘libertarians’ who see no difference between being amalgamated into a town against their will, and buying into a residential community. Your demand for my tax money was refreshingly honest, albeit a bit brutal, for a person I used to think of as a good neighbor.”
So much for the first chink in the armor, the case where the property owner is forcibly incorporated into the town. There is indeed a relevant difference between being compelled to be part of the village, and voluntarily joining the condo.
But what about the stronger case for the “libertarian” side of this argument, the one where a new arrival moves into town, buys a house, etc., knowing full well what rules and taxes he will be bound by? Is it not true that at least in this case, the municipal government is indistinguishable from the strata council that runs the condominium?
Not at all. Consider the following case. I buy a home in a dangerous neighborhood, say, the South Bronx. I know full well that the crime rate there is high, and that I will be especially targeted, given the color of my skin. Perhaps I make this economic decision because of the cheaper real estate, or because I want to be closer to “the people,” the better to study their situation and help eradicate poverty. In any case, as soon as I move in, I am confronted by a street thug with a knife who says to me: “Give me your wallet, you white mother f-----, or I’ll cut you, man.”
Whereupon I pull out my gun and say to the criminal: “My good man, you are overmatched, firepower wise. Cease and desist from your evil ways, and go about your legitimate business, if you have any.”
This street person, who, unbeknownst to me, is actually a bit of a philosopher, expounds as follows: “You don’t seem to understand. I’m one of those ‘libertarians’ who maintain that since you moved to the South Bronx with the full knowledge you would very likely be subjected to muggings of the sort I’m now pulling (or at least trying to pull; I’ve never met a less cooperative victim than you; what’s this world coming to?), you in effect have agreed to be mugged by robbers like me. So, get with the program, man.”
The point is, as we can readily see, the ability to foresee an event is not at all equivalent to agreeing to it. Yes, I can full well predict that if I move to the South Bronx, I’ll likely be victimized by street crime. But this is not at all the same thing as acquiescing in such nefarious activities. Yet, according to the “libertarian” argument we are considering, the two are indistinguishable.
Similarly, the individual who locates in a city with taxes, zoning, etc., can be expected to know he will be subjected to these depredations, just like everyone else there. But this is more than a country mile away from his having agreed to be coerced by these evil doers. The new arrival in town no more gives permission for the tax collector to mulct funds from him than does the newcomer to the South Bronx give permission to the mugger to violate his rights.
In very stark contrast indeed, the purchaser of a unit in a housing development not only foresees he will be subjected to a monthly membership payment, and to a welter of restrictions as to what he can do with his property, but actually consents to pay the former and be bound by the latter. The proof of this is that he signs a bill of sale, stipulating all of the above. In the town-citizen case, there is no such written contract.
It is no exaggeration to say that the most important distinction in all of libertarian theory is that between coercion and non-coercion. Obliterate this divergence and there is nothing left to libertarianism at all. This is so important, it bears repeating: libertarianism consists of nothing more than the implications of this one single solitary distinction. Without it, there is absolutely no theory.
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This article is also available as an Audio Mises DailyThanks to the extraction of oil through hydraulic fracturing, also known as fracking, the US is not only on its way to being energy independent, but is predicted to become a net exporter of oil and gas by 2025. Serious drilling operations have yet to be started in the Utica Shale, which underlies much of the northeastern part of the US, which is said to contain the richest deposits of natural gas and crude oil in the country. With the excavations in North Dakota’s Bakken Shale alone, enough gas had been discovered to carry on for generations ahead. And since 2008, natural gas prices have decreased by almost 75 percent.
Some of the original pioneers of fracking are impressive in their entrepreneurial and technical skills. Among fracking’s innovators, including Harold Hamm, Aubrey McClendon, Tom Ward, and George Mitchell, few have a college degree or any experience in geology or oil drilling, and are simply examples of the creative energies that are unleashed by the market. Nonetheless, the fracking industry is most certainly not a free-market industry and can be heavily dependent on government subsidies. Mitchell’s impact on the development of fracking technology, for example, is sometimes regarded as equal to Henry Ford’s impact on the automobile, but Mitchell was well known throughout the ’80s and ’90s for petitioning the federal government for increased support. Due to his successful track record in the Eastern Shales Project, the Department of Energy granted Mitchell a fat check to develop technologies that drill deeper into the earth.
In 1980, the Section 29 tax credit for “unconventional gas” companies was started. It supported large investments into infrastructure to carry out drilling operations, and it later led to tripling in production of nonconventional gas. It was during the late ’90s that fracking technology’s big breakthrough came, with the creation of “slickwater” — the industry-standard controversial blend of chemicals that are used in groundwater injections. The fluid is crucial in creating cracks in the thick sediment rock quickly, and wide enough for the gas to leak upwards and be collected. Before its breakthrough, slickwater had been the recipient of federal aid for over twenty-five years.
The State initiatives taken on fracking issues go back to the 1950s before natural gas became the favored household fuel. Over three decades, from the shale fields of Texas and Wyoming to the Marcellus in the East, the federal government contributed more than $100 million to develop fracking R&D projects, and billions more in tax breaks. As of 2013, the natural gas and petroleum industry account for roughly $3.2 billion in federal energy subsidies. Halliburton, along with two other companies (Apache and Chesapeake), dominate nearly 63 percent of the American pressure-pumping market. In 2005, the Bush administration implemented the Safe Drinking Water Act which exempted natural gas drilling on federal land, and allowed drilling companies a loophole to not have to disclose the chemicals used in excavations.
Meanwhile, there are real reasons to be concerned about the impact of fracking operations, including its impact on the environment and on infrastructure. As alarming as the environmental and health issues are concerning the carcinogenic (and radioactive) material found in fracking waste, the greatest economic cost comes to the taxpayer-funded roads. As a matter of fact, the cost of the road damage due to oil carrying heavy-haulers running night and day have surpassed the tax revenues generated by fracking in most states.Indeed, many of the oil wells are located on federal land, so it shouldn’t be beyond our comprehension as to why the bureaucracy throws out any consideration of the capital stock of the roads. In an interview with the director of Cornell’s local roads program, he states that “It’s like the Wild West on those roads,” and “Everybody is making up their own rules.” It is more likely, however, that problems are due not so much to a lack of “rules,” but to a lack of true respect for private property when matters of ownership are confused and obscured by government when it comes to federal lands, private property, and mineral rights.
If roads were private, as was the land surrounding them, only through experience, a working price system, and trial and error, could an owner calculate the true cost of oil drilling. Furthermore, property owners would be motivated to ensure that fracking’s profitability would be sufficient enough to fix the severe wear-and-tear of the roads after drilling. Could fracking be sustained without subsidies and without free use of finite and fragile infrastructure? That remains unclear.
Although now more of our energy is coming from renewable and nuclear energy, oil and gas subsidies continue to be substantial, and since the latter are finite resources, more attention needs to be paid toward what will power up our future in the long term. Even Penn State geologist Terry Englelder, who is a leading proponent of fracking admits, “It cannot provide long term solutions.”
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From the Editors:
Today Scotland votes on a referendum concerning political independence from the United Kingdom.
For libertarians, the politics surrounding both sides of the vote are suspicious. The globalist banking class, ever fearful of decentralization of power, warns that Scotland needs Westminster’s economic assistance (read: welfare), Westminster’s military might, and Westminster’s currency. The largely socialist Scots, meanwhile, argue for a more “egalitarian” society administered by Holyrood and a new alliance with their more enlightened fellow travelers in Brussels — leaving one master for another.
As always, libertarians should focus on first principles. Murray Rothbard’s 1993 essay,“Nations by Consent: Decomposing the Nation-State,” does just that.
Rothbard asks the correct questions: What is a nation? What makes a nation legitimate? Are nation-states needed for collective security? When is secession allowed? Should open borders and open immigration be allowed? How should citizenship and voting rights be conferred? How would a completely private, anarcho-capitalist country operate?
These are the questions we must ask and answer as we argue against the state, against central banks, and against an increasingly global crony political class.
Nations By Consent: Decomposing the Nation-Sateby Murray N. Rothbard
Libertarians tend to focus on two important units of analysis: the individual and the state. And yet, one of the most dramatic and significant events of our time has been the re-emergence — with a bang — in the last five years of a third and much-neglected aspect of the real world, the “nation.” When the “nation” has been thought of at all, it usually comes attached to the state, as in the common word, “the nation-state,” but this concept takes a particular development of recent centuries and elaborates it into a universal maxim. In the last five years, however, we have seen, as a corollary of the collapse of communism in the Soviet Union and in Eastern Europe, a vivid and startlingly swift decomposition of the centralized State or alleged nation-State into its constituent nationalities. The genuine nation, or nationality, has made a dramatic reappearance on the world stage.
I. The Re-Emergence of the NationThe “nation,” of course, is not the same thing as the state, a difference that earlier libertarians and classical liberals such as Ludwig von Mises and Albert Jay Nock understood full well. Contemporary libertarians often assume, mistakenly, that individuals are bound to each other only by the nexus of market exchange. They forget that everyone is necessarily born into a family, a language, and a culture. Every person is born into one or several overlapping communities, usually including an ethnic group, with specific values, cultures, religious beliefs, and traditions. He is generally born into a “country.” He is always born into a specific historical context of time and place, meaning neighborhood and land area.
The modern European nation-state, the typical “major power,” began not as a nation at all, but as an “imperial” conquest of one nationality — usually at the “center” of the resulting country, and based in the capital city — over other nationalities at the periphery. Since a “nation” is a complex of subjective feelings of nationality based on objective realities, the imperial central states have had varying degrees of success in forging among their subject nationalities at the periphery a sense of national unity incorporating submission to the imperial center. In Great Britain, the English have never truly eradicated national aspirations among the submerged Celtic nationalities, the Scots and the Welsh, although Cornish nationalism seems to have been mostly stamped out. In Spain, the conquering Castilians, based in Madrid, have never managed — as the world saw at the Barcelona Olympics — to erase nationalism among the Catalans, the Basques, or even the Galicians or Andalusians. The French, moving out from their base in Paris, have never totally tamed the Bretons, the Basques, or the people of the Languedoc.
It is now well known that the collapse of the centralizing and imperial Russian Soviet Union has lifted the lid on the dozens of previously suppressed nationalisms within the former U.S.S.R., and it is now becoming clear that Russia itself, or rather “the Russian Federated Republic,” is simply a slightly older imperial formation in which the Russians, moving out from their Moscow center, forcibly incorporated many nationalities including the Tartars, the Yakuts, the Chechens, and many others. Much of the U.S.S.R. stemmed from imperial Russian conquest in the nineteenth century, during which the clashing Russians and British managed to carve up much of central Asia.
The “nation” cannot be precisely defined; it is a complex and varying constellation of different forms of communities, languages, ethnic groups, or religions. Some nations or nationalities, such as the Slovenes, are both a separate ethnic group and a language; others, such as the warring groups in Bosnia, are the same ethnic group whose language is the same but who differ in the form of alphabet, and who clash fiercely on religion (the Eastern Orthodox Serbs, the Catholic Croats, and the Bosnian Muslims, who, to make matters more complicated, were originally champions of the Manichaean Bogomil heresy).
The question of nationality is made more complex by the interplay of objectively existing reality and subjective perceptions. In some cases, such as Eastern European nationalities under the Habsburgs or the Irish under the British, nationalisms, including submerged and sometimes dying languages, had to be consciously preserved, generated, and expanded. In the nineteenth century this was done by a determined intellectual elite, struggling to revive peripheries living under, and partially absorbed by, the imperial center.
II. The Fallacy of “Collective Security”The problem of the nation has been aggravated in the twentieth century by the overriding influence of Wilsonianism on U.S. and world-wide foreign policy. I refer not to the idea of “national self-determination,” observed mainly in the breach after World War I, but to the concept of “collective security against aggression.” The fatal flaw in this seductive concept is that it treats nation-states by an analogy with individual aggressors, with the “world community” in the guise of a cop-on-the corner. The cop, for example, sees A aggressing against, or stealing the property of, B; the cop naturally rushes to defend B’s private property, in his person or possessions. In the same way, wars between two nations or states are assumed to have a similar aspect: State A invades, or “aggresses against,” State B; State A is promptly designated “the aggressor” by the “international policeman” or his presumptive surrogate, be it the League of Nations, the United Nations, the U.S. President or Secretary of State, or the editorial writer of the august New York Times. Then the world police force, whatever it may be, is supposed to swing promptly into action to stop the “principle of aggression,” or to prevent the “aggressor,” be it Saddam Hussein or the Serbian guerrillas in Bosnia, from fulfilling their presumed goals of swimming across the Atlantic and murdering every resident of New York or Washington, D.C.
A crucial flaw in this popular line of argument goes deeper than the usual discussion of whether or not American air power or troops can really eradicate Iraqis or Serbs without too much difficulty. The crucial flaw is the implicit assumption of the entire analysis: that every nation-stare “owns” its entire geographical area in the same just and proper way that every individual property owner owns his person and the property that he has inherited, worked for, or gained in voluntary exchange. Is the boundary of the typical nation-state really as just or as beyond cavil as your or my house, estate, or factory!
It seems to me that not only the classical liberal or the libertarian, but anyone of good sense who thinks about this problem, must answer a resounding “No.” It is absurd to designate every nation-state, with its self-proclaimed boundary as it exists at any one time, as somehow right and sacrosanct, each with its “territorial integrity” to remain as spotless and unbreached as your or my bodily person or private property. Invariably, of course, these boundaries have been acquired by force and violence, or by interstate agreement above and beyond the heads of the inhabitants on the spot, and invariably these boundaries shift a great deal over time in ways that make proclamations of “territorial integrity” truly ludicrous.
Take, for example, the current mess in Bosnia. Only a couple of years ago, Establishment opinion, Received Opinion of Left, Right, or Center, loudly proclaimed the importance of maintaining “the territorial integrity” of Yugoslavia, and bitterly denounced all secession movements. Now, only a short time later, the same Establishment, only recently defending the Serbs as champions of “the Yugoslav nation” against vicious secessionist movements trying to destroy that “integrity,” now reviles and wishes to crush the Serbs for “aggression” against the “territorial integrity” of “Bosnia” or “Bosnia-Herzegovina,” a trumped-up “nation” that had no more existence than the “nation of Nebraska” before 1991. But these are the pitfalls in which we are bound to fall if we remain trapped by the mythology of the “nation-state” whose chance boundary at time t must be upheld as a property-owning entity with its own sacred and inviolable “rights,” in a deeply flawed analogy with the rights of private property.
To adopt an excellent strategem of Ludwig von Mises in abstracting from contemporary emotions: Let us postulate two contiguous nation-States, “Ruritania” and “Fredonia.” Let us assume that Ruritania has suddenly invaded eastern Fredonia, and claims it as its own. Must we automatically condemn Ruritania for its evil “act of aggression” against Fredonia, and send troops, either literally or metaphorically, against the brutal Ruritanians and in behalf of “brave, little” Fredonia? By no means. For it is very possible that, say, two years ago, eastern Fredonia had been part and parcel of Ruritania, was indeed western Ruritania, and that the Rurs, ethnic and national denizens of the land, have been crying out for the past two years against Fredonian oppression. In short, in international disputes in particular, in the immortal words of W. S. Gilbert:
Things are seldom what they seem,Skim milk masquerades as cream.
The Beloved international cop, whether it be Boutros Boutros-Ghali or U.S. troops or the New York Times editorialist had best think more than twice before leaping into the fray. Americans are especially unsuited for their self-proclaimed Wilsonian role as world moralists and policemen. Nationalism in the U.S. is peculiarly recent, and is more of an idea than it is rooted in long-standing ethnic or nationality groups or struggles. Add to that deadly mix the fact that Americans have virtually no historical memory, and this makes Americans peculiarly unsuited to barreling in to intervene in the Balkans, where who took what side at what place in the war against the Turkish invaders in the fifteenth century is far more intensely real to most of the contenders than is yesterday’s dinner.
Libertarians and classical liberals, who are particularly well-equipped to rethink the entire muddled area of the nation-state and foreign affairs, have been too wrapped up in the Cold War against communism and the Soviet Union to engage in fundamental thinking on these issues. Now that the Soviet Union has collapsed and the Cold War is over, perhaps classical liberals will feel free to think anew about these critically important problems.
III. Rethinking SecessionFirst, we can conclude that not all state boundaries are just. One goal for libertarians should be to transform existing nation-states into national entities whose boundaries could be called just, in the same sense that private property boundaries are just; that is, to decompose existing coercive nation-states into genuine nations, or nations by consent.
In the case, for example, of the eastern Fredonians, the inhabitants should be able to secede voluntarily from Fredonia and join their comrades in Ruritania. Again, classical liberals should resist the impulse to say that national boundaries “don’t make any difference.” It’s true, of course, as classical liberals have long proclaimed, that the less the degree of government intervention in either Fredonia or Ruritania, the less difference such a boundary will make. But even under a minimal state, national boundaries would still make a difference, often a big one to the inhabitants of the area. For in what language — Ruritanian or Fredonian or both? — will be the street signs, telephone books, court proceedings, or school classes of the area?
In short, every group, every nationality, should be allowed to secede from any nation-state and to join any other nation-state that agrees to have it. That simple reform would go a long way toward establishing nations by consent. The Scots, if they want to, should be allowed by the English to leave the United Kingdom, and to become independent, and even to join a Gaelic Confederation, if the constituents so desire.
A common response to a world of proliferating nations is to worry about the multitude of trade barriers that might be erected. But, other things being equal, the greater the number of new nations, and the smaller the size of each, the better. For it would be far more difficult to sow the illusion of self-sufficiency if the slogan were “Buy North Dakotan” or even “Buy 56th Street” than it now is to convince the public to “Buy American.” Similarly, “Down with South Dakota,” or a fortiori, “Down with 55th Street,” would be a more difficult sell than spreading fear or hatred of the Japanese. Similarly, the absurdities and the unfortunate consequences of fiat paper money would be far more evident if each province or each neighborhood or street block were to print its own currency. A more decentralized world would be far more likely to turn to sound market commodities, such as gold or silver, for its money.
IV. The Pure Anarcho-Capitalist ModelI raise the pure anarcho-capitalist model in this paper, not so much to advocate the model per se as to propose it as a guide for settling vexed current disputes about nationality. The pure model, simply, is that no land areas, no square footage in the world, shall remain “public”; every square foot of land area, be they streets, squares, or neighborhoods, is privatized. Total privatization would help solve nationality problems, often in surprising ways, and I suggest that existing states, or classical liberal states, try to approach such a system even while some land areas remain in the governmental sphere.
Open Borders, or the Camp-of-the Saints Problem
The question of open borders, or free immigration, has become an accelerating problem for classical liberals. This is first, because the welfare state increasingly subsidizes immigrants to enter and receive permanent assistance, and second, because cultural boundaries have become increasingly swamped. I began to rethink my views on immigration when, as the Soviet Union collapsed, it became clear that ethnic Russians had been encouraged to flood into Estonia and Latvia in order to destroy the cultures and languages of these peoples. Previously, it had been easy to dismiss as unrealistic Jean Raspail’s anti-immigration novel The Camp of the Saints, in which virtually the entire population of India decides to move, in small boats, into France, and the French, infected by liberal ideology, cannot summon the will to prevent economic and cultural national destruction. As cultural and welfare-state problems have intensified, it became impossible to dismiss Raspail’s concerns any longer.
However, on rethinking immigration on the basis of the anarcho-capitalist model, it became clear to me that a totally privatized country would not have “open borders” at all. If every piece of land in a country were owned by some person, group, or corporation, this would mean that no immigrant could enter there unless invited to enter and allowed to rent, or purchase, property. A totally privatized country would be as “closed” as the particular inhabitants and property owners’ desire. It seems clear, then, that the regime of open borders that exists de facto in the U.S. really amounts to a compulsory opening by the central state, the state in charge of all streets and public land areas, and does not genuinely reflect the wishes of the proprietors.
Under total privatization, many local conflicts and “externality” problems — not merely the immigration problem — would be neatly settled. With every locale and neighborhood owned by private firms, corporations, or contractual communities, true diversity would reign, in accordance with the preferences of each community. Some neighborhoods would be ethnically or economically diverse, while others would be ethnically or economically homogeneous. Some localities would permit pornography or prostitution or drugs or abortions, others would prohibit any or all of them. The prohibitions would not be state imposed, but would simply be requirements for residence or use of some person’s or community’s land area. While statists who have the itch to impose their values on everyone else would be disappointed, every group or interest would at least have the satisfaction of living in neighborhoods of people who share its values and preferences. While neighborhood ownership would not provide Utopia or a panacea for all conflicts, it would at least provide a “second-best” solution that most people might be willing to live with.
Enclaves and Exclaves
One obvious problem with the secession of nationalities from centralized states concerns mixed areas, or enclaves and exclaves. Decomposing the swollen central nation-State of Yugoslavia into constituent parts has solved many conflicts by providing independent nationhood for Slovenes, Serbs, and Croats, but what about Bosnia, where many towns and villages are mixed? One solution is to encourage more of the same, through still more decentralization. If, for example, eastern Sarajevo is Serb and western Sarajevo is Muslim, then they become parts of their respective separate nations.
But this of course will result in a large number of enclaves, parts of nations surrounded by other nations. How can this be solved? In the first place, the enclave/exclave problem exists right now. One of the most vicious existing conflicts, in which the U.S. has not yet meddled because it has not yet been shown on CNN, is the problem of Nagorno-Karabakh, an Armenian exclave totally surrounded by, and therefore formally within, Azerbaijan. Nagorno-Karabakh should clearly be part of Armenia. But, how then, will Armenians of Karabakh avoid their present fate of blockade by Azeris, and how will they avoid military battles in trying to keep open a land corridor to Armenia?
Under total privatization, of course, these problems would disappear. Nowadays, no one in the U.S. buys land without making sure that his title to the land is clear; in the same way, in a fully privatized world, access rights would obviously be a crucial part of land ownership. In such a world, then, Karabakh property owners would make sure that they had purchased access rights through an Azeri land corridor.
Decentralization also provides a workable solution for the seemingly insoluble permanent conflict in Northern Ireland. When the British partitioned Ireland in the early 1920s, they agreed to perform a second, a more micro-managed, partition. They never carried through on this promise. If the British would permit a detailed, parish by parish, partition vote in Northern Ireland, however, most of the land area, which is majority Catholic, would probably hive off and join the Republic: such counties as Tyrone and Fermanagh, southern Down, and southern Armagh, for example. The Protestants would probably be left with Belfast, county Antrim, and other areas north of Belfast. The major remaining problem would be the Catholic enclave within the city of Belfast, but again, an approach to the anarcho-capitalist model could be attained by permitting the purchase of access rights to the enclave.
Pending total privatization, it is clear that our model could be approached, and conflicts minimized, by permitting secessions and local control, down to the micro-neighborhood level, and by developing contractual access rights for enclaves and exclaves. In the U.S., it becomes important, in moving toward such radical decentralization, for libertarians and classical liberals — indeed, for many other minority or dissident groups — to begin to lay the greatest stress on the forgotten Tenth Amendment and to try to decompose the role and power of the centralizing Supreme Court. Rather than trying to get people of one’s own ideological persuasion on the Supreme Court, its power should be rolled back and minimized as far as possible, and its power decomposed into state, or even local, judicial bodies.
Citizenship and Voting Rights
One vexing current problem centers on who becomes the citizen of a given country, since citizenship confers voting rights. The Anglo-American model, in which every baby born in the country’s land area automatically becomes a citizen, clearly invites welfare immigration by expectant parents. In the U.S., for example, a current problem is illegal immigrants whose babies, if born on American soil, automatically become citizens and therefore entitle themselves and their parents to permanent welfare payments and free medical care. Clearly the French system, in which one has to be born to a citizen to become an automatic citizen, is far closer to the idea of a nation-by-consent.
It is also important to rethink the entire concept and function of voting. Should anyone have a “right” to vote? Rose Wilder Lane, the mid-twentieth century U.S. libertarian theorist, was once asked if she believed in womens’ suffrage. “No,” she replied, “and I’m against male suffrage as well.” The Latvians and Estonians have cogently tackled the problem of Russian immigrants by allowing them to continue permanently as residents, but not granting them citizenship or therefore the right to vote. The Swiss welcome temporary guest-workers, but severely discourage permanent immigration, and, a fortiori, citizenship and voting.
Let us turn for enlightenment, once again, to the anarcho-capitalist model. What would voting be like in a totally privatized society? Not only would voting be diverse, but more importantly, who would really care? Probably the most deeply satisfying form of voting to an economist is the corporation, or joint-stock company, in which voting is proportionate to one’s share of ownership of the firm’s assets. But also there are, and would be, a myriad of private clubs of all sorts. It is usually assumed that club decisions are made on the basis of one vote per member, but that is generally untrue. Undoubtedly, the best-run and most pleasant clubs are those run by a small, self-perpetuating oligarchy of the ablest and most interested, a system most pleasant for the rank-and-file non-voting member as well as for the elite. If I am a rank-and-file member of, say a chess club, why should I worry about voting if I am satisfied with the way the club is run? And if I am interested in running things, I would probably be asked to join the ruling elite by the grateful oligarchy, always on the lookout for energetic members. And finally, if I am unhappy about the way the club is run, I can readily quit and join another club, or even form one of my own. That, of course, is one of the great virtues of a free and privatized society, whether we are considering a chess club or a contractual neighborhood community.
Clearly, as we begin to work toward the pure model, as more and more areas and parts of life become either privatized or micro-decentralized, the less important voting will become. Of course, we are a long way from this goal. But it is important to begin, and particularly to change our political culture, which treats “democracy,” or the “right” to vote, as the supreme political good. In fact, the voting process should be considered trivial and unimportant at best, and never a “right,” apart from a possible mechanism stemming from a consensual contract. In the modern world, democracy or voting is only important either to join in or ratify the use of the government to control others, or to use it as a way of preventing one’s self or one’s group from being controlled. Voting, however, is at best, an inefficient instrument for self-defense, and it is far better to replace it by breaking up central government power altogether.
In sum, if we proceed with the decomposition and decentralization of the modern centralizing and coercive nation-state, deconstructing that state into constituent nationalities and neighborhoods, we shall at one and the same time reduce the scope of government power, the scope and importance of voting and the extent of social conflict. The scope of private contract, and of voluntary consent, will be enhanced, and the brutal and repressive state will be gradually dissolved into a harmonious and increasingly prosperous social order.
[Originally appeared in the Journal of Libertarian Studies 11, no. 1 (Fall 1994): 1–10.]
Volume 7, No. 4 (Winter 2004)Court decisions and legislation have a profound impact on the economy because they define and modify property rights. Economists have therefore always been interested in analyzing this impact. In the present work, we will deliver a critique of Coase’s approach and then outline an alternative approach to the study of law and economics. Although this alternative approach has a venerable tradition in economic science, it lacks a generally recognized name. We will call it “property economics.”
Volume 7, No. 4 (Winter 2004)Both the establishment of property rights and their violation spring from actions: acts of appropriation and expropriation. However, in addition to a physical appearance, actions also have an internal, subjective aspect. This aspect cannot be observed by our sense organs. Instead, it must be ascertained by means of understanding (verstehen). The task of the judge cannot—by the nature of things—be reduced to a simple decision rule based on a quasi-mechanical model of causation. Judges must observe the facts and understand the actors and actions involved in order to determine fault and liability.
Volume 10, No. 1 (Spring 2007)
Time preference, one of the fundamental concepts of economics, is the ratio between the present values of present and future goods. Mises (1949) holds that time preference is the only reason interest is paid on loans, calling the pure time preference component originary interest. Empirically observable interest rates also include an entrepreneurial component, reflecting a subjective assessment of the uncertainty of repayment, and a price premium component, reflecting anticipated future changes in the values of the goods in which repayment is to be made, including loss of purchasing power of the monetary unit. Interestingly, the price premium component of the interest rate can be negative.
Volume 13, Number 2 (Summer 2010)
Changes in ownership titles are essential to understanding competitive dynamics and, more broadly, the market process. There is ample evidence that a crucial source of productivity growth, and hence well-being, is due to the reallocation of inputs and outputs from less to the more productive firms. Furthermore, ownership is essential in stimulating and shaping this reallocation process. We argue that a primary role of ownership in an economy is to supply fuel and precision to this reallocation process, as argued by Austrian economists, most notably Ludwig von Mises. Part of the economic function of ownership is that it eases entrepreneurial experimentation and provides an incentive to engage in such activities. These activities can be carried out with varying degrees of competence; in other words, “ownership competence” is unevenly distributed across entrepreneurs. As Mises recognized, the unhampered market process is required to sort among the entrepreneurial embodiments of such ownership competence.
Volume 13, No. 4 (Winter 2010)
In Who Owns the Sky? The Struggle to Control Airspace from the Wright Brothers On, UCLA law professor Stuart Banner examines how the United States moved from the ad coelom rule to the current regime, under which landowners have no right to the sky above them, anyone (with government permission) can fly most anywhere, and governments assume the right to limit access to the air however they see fit. One might reasonably expect such a book to entail a tedious slog through case law, and in some scholars’ hands it might. But the first and foremost thing to say about Who Owns the Sky? is that it is unusually dynamic, engaging, and accessible.
Volume 14, Number 1 (Spring 2011)
To analyze the feasibility of applying the Coase Theorem, this article uses two traditional arguments, economic calculation and non-neutral effects, found in the Austrian literature. This article argues that the efficiency calculation a judge undertakes is problematic and that his decision should not be considered neutral with respect to the general equilibrium (even with zero transaction costs). These problems imply serious challenges to the application of the Coase Theorem.
Volume 3, No. 1 (Spring 2000)As I see matters, private-property rights are of crucial importance to civilization. They are what distinguishes us from the barbarians. To the extent we give in to the enemies of property rights, we reduce ourselves. Yet private property rights have always been under furious attack, and continue to be so. Even though the threat of actual communism seems to have receded, at least for they moment, our universities, newsrooms, and pulpits are still riddled with Marxists. And this is to say nothing of the feminists, the black "studies" professors, the multi culturalists, the postmodernists, and other knots on the tree of knowledge. These movements are all virulent opponents of private-property rights. but at least they have the decency to come to do intellectual batter while flying the colors of central planning, socialism, economic regulation, government power and dirigisme.
Volume 2, No. 3 (Fall 1999)This book is a thorough, lively, and almost encyclopedic defense of private-property rights. In this benighted age, there are not too many of those around. Ranging far and wide, Bethell shows the benefits of private property throughout history and in virtually every corner of the globe. He demonstrates how the institutions of private property can solve environmental problems, were responsible for the success of the industrial revolution in England, how the lack of them accounted for the failures of the U.S.S.R., feudalism, and the third world. His explanation of the Irish famine is alone worth far more than the price of admission. Standing head and shoulders over many purely economic defenses of this institution, Bethell's book also demonstrates the virtues of property rights on political and moral grounds. However, the book makes the case in favor of private-property rights makes needless compromises; it is hemmed in by a welter of caveats, restrictions, exceptions, and provisos.
Volume 18, Number 1 An Interview With Hans-Hermann Hoppe
Hans-Hermann Hoppe, a senior fellow of the Ludwig von Mises Institute, is professor of economics at the University of Nevada, Las Vegas, where he taught with Murray N. Rothbard from 1985 to 1995. He is the author of Handln und Erkennen (1976), Kritik deer Kausalwissenschaftlichen Sozialforschung (1983), Eigentum, Anarchie, und Staat (1987), A Theory of Socialism and Capitalism (1989), and The Economics and Ethics of Private Property (1993), as well as many articles in the former Review of Austrian Economics . He is co-editor of The Quarterly Journal of Austrian Economics and the Journal of Libertarian Studies, general editor of the Scholar's Edition of Human Action, and author of the introduction to the new edition of Ethics of Liberty (1998). He earned his PhD (1974) and Habilitation (1981) at Frankfurt's Goethe University.
AEN: As a student in Germany did you read Mises's Nationalökonomie?
HOPPE: No, because until very recently, you needed a detective to find it. Meanwhile, Human Action, which has never been translated into German, was readily available. Nationalökonomie came out in Geneva under the most unfortunate circumstances. It was cut off from the German public because of the war. The Swiss publisher then went bankrupt. There was no later edition. Nothing ever happened to it.
So I learned Austrian economics from English texts. Recently, I read the German editions of Socialism and Liberalism to write the prefaces for the new editions. I've also been reading Im Namen des Staates, which translates In the Name of the State. It too was published in Geneva, in 1938, and later served as the basis for Omnipotent Government, published in 1944 in the U.S. The writings of Hayek are readily available in Germany, but not Mises. It is the English-language market that keeps Mises alive.
AEN: What will be in the introduction to the new edition of Human Action?
HOPPE: We're in the research stages right now, but this will be a resurrection of the first edition, the original 1949 book Mises wrote as an English edition of National?konomie. The saga of these books, and the later editions of Human Action, is interesting indeed. Working with other Mises Institute scholars, I'm detailing the differences between them and evaluating their significance.
For example, Nationalökonomie contained comments and notes on German intellectual history that he removed for the English edition. We are translating these missing paragraphs to reprint in them in the new introduction. Mises's 1949 book is obviously a landmark in the history of economic science, and the first fully integrated treatise in the history of the Austrian School. It deserves to be in print in the highest-quality edition.
AEN: You teach in Germany in the summers, and where else?
HOPPE: This past year, I was in Romania teaching at the University of Bucharest, and I will be teaching in Prague this summer. The Austrian School is unique in the social sciences for being a truly international school of thought. Austrian books are available in every major language. And unlike trendy articles in the mainstream literature, Austrian works written from Menger to the present day claim universal and immutable scientific validity.
It is this pure theory aspect of the Austrian School that gives us a huge advantage. These days, probably only Marxism can compare with the Austrian School in its worldwide scope. An advantage of having the old Review of Austrian Economics become The Quarterly Journal of Austrian Economics is that it will be cheaper and more accessible to domestic and foreign audiences alike.
AEN: The Austrian School hasn't always been this international?
HOPPE: Well, in the early 1930s, Mises gave the impression in his own writings that he thought the Austrian School was economics as it was understood everywhere. He believed the Austrians had won. So he de-emphasized the differences between the Austrian School and the Lausanne School, for example.
But by the early 1940s, he reversed his judgement. He spelled out why in his memoirs. He says that the Austrian School sees economics as concerned with action and uncertainty. The Lausanne School is an equilibrium school, which is the opposite of action, the opposite of uncertainty. And of course Keynesian macroeconomics was in the process of becoming dominant.
Only then did Mises accept that he was indeed very different. He finally accepted this label of "Vienna" or "Austrian," which he previously thought was almost unnecessary. We should not forget this label was pinned on the School. It was never a self-description until after the war.
Also after the war, the Austrian School became basically an American school. Even Hayek, in his 1978 forward for the German edition of Mises's memoirs, says the Austrian School is almost exclusively an American phenomenon, and exclusively a Mises school, with some ties to Böhm-Bawerk. The other traditions within the Austrian School, he says, have not fulfilled their promise, mentioning the Meyerian branch in particular. He also clearly does not include himself in this Mises tradition.
AEN: Did your teacher Jeurgen Habermas, certainly Germany's leading postmodernist, introduce you to Mises?
HOPPE: No, but Habermas gave me a taste for rationalist philosophy. He has a reputation as a hermeneutician, but he was also profoundly aware of the limits of hermeneutics. He always said there are disciplines like math and geometry where it plays no role whatsoever. He admitted that economics might be one of these disciplines entirely outside the hermeneutical framework. But he simply had no opinion on economics.
I was aware of Habermas's politics, but I was a leftwinger myself, just as everyone else was. So this was never a point of contention between us. Later, I became disillusioned by Marxian politics as a result of Böhm-Bawerk's critique. It convinced me that Marxism was untenable.
AEN: Did you just happen to stumble across this book?
HOPPE: Böhm-Bawerk was a well-known critic, but most leftists never bother with reading their critics. What I had liked about Marxism is that it made the attempt to provide a rigorous, deductively derived system. Back then, unlike now, Marxists accepted standards of logic. I thought this approach was superior to having ad hoc opinions on various subjects. With deductive systems, it is easier to discover whether they deliver the promised goods or collapse. Of course, Marxism collapses.
AEN: Was it a straight shot to the Austrian School?
HOPPE: I went through a brief period as a moderate, accepting some Popperian views, at least as far as the social sciences are concerned. I also became a social democrat on politics. I began to write my habilitation thesis on the foundations of economics and sociology, arguing that there exist disciplines whose theorems cannot be falsified. I knew there was such a thing as a priori knowledge, but I doubted it existed in the social sciences.
At the same time, I was surprised by the claims of people like Milton Friedman. He said that economic theorems have to be tested and cannot be known through deduction. But he would give examples like the quantity theory of money, which I always thought was true by definition: as more money is produced, the value of existing money relative to goods it can purchase falls, all else being equal. This is a statement of logic that does not need to be empirically tested to discover whether it is true.
AEN: Since then, you have been the strongest defender of the Austrian method, praxeology, since Rothbard.
HOPPE: Independently, I had concluded that economic laws were a priori and discoverable through deduction. Then I stumbled on Mises's Human Action. That was the first time I found someone who had the same view; not only that, he had already worked out the entire system. From that point on, I was a Misesian.
Mises took the idea of synthetic a priori--the idea that there are true statements about reality, derived from axioms and logic, that do not need to be tested--from Immanuel Kant. But Mises added an extremely important insight: Kantian mental categories can be understood as ultimately grounded in categories of action. With this, Mises bridged the gulf in Kantianism that separates mental from physical; what we think from the outside, physical world.
If you start with the concept of action, you immediately realize that action involves a subject and an object. Action means: I do something with something in order to reach certain goals. That implies a theory of casuality, which had been a sticking point in Kantianism and remains so in positivism. There were hints of this in Kant, but nothing as explicit as you find it in Mises.
AEN: In applying this a priori approach to ethics, were you attempting to supplant natural rights.
HOPPE: No, not at all. I was attempting to make the first two chapters of Rothbard's Ethics of Liberty stronger than they were. That in turn would provide more weight to everything that followed. I had some dissatisfaction with rigor with which the initial ethical assumptions of libertarian political theory had been arrived at. Intuitively, they seemed plausible. But I could see that a slightly different approach might be stronger. Murray never considered my revisions to be a threat. His only concern was: does this ultimately make the case? Ultimately, he agreed that it did.
AEN: Your approach also holds out the prospect of bringing the fields of economics and ethics more closely together.
HOPPE: This is also what Murray tried to accomplish. The concept that both fields have in common is private property. In economics, we know that you must control certain things in order to act. In ethics, we need to provide a justification for the fact that you hold resources in order to act. So private property is the link between these two areas of theorizing.
Both Habermas and Karl Apel have used the phrase priori of argumentation, which is the basis of my proposed ethics of laissez-faire. Apel, who is probably the better and more rigorous philosopher of the two, had no interest in economics; but if he is right, we can also show that there must be certain practical or praxeological preconditions fulfilled in order to communicate and raise truth claims, namely private property and the Lockean rule on property appropriation.
AEN: What do you see coming out of the new edition of Ethics of Liberty?
HOPPE: This is one of Murray's least-read books. It has not been in print for a very long time. Many people might have felt that they already knew the Rothbardian system. In fact, this book should be considered a pillar of the Rothbardian system, revealing far more about the political ethics and their application than any of his other works. With this book, we can reach a much higher level of philosophical sophistication and unification that we have previously.
The ideas from Rothbard's 1956 article "Toward a Reconstruction of Utility and Welfare Economics" are in here, but in a more well developed form. In the old paper, he begins his theory with the idea of exchange. But in here, he develops a theory of the acquisition of property titles that precedes the theory of exchange.
There is a close connection between welfare theory and ethics, even if economists don't always recognize it. The Chicago School of Demsetz, Coase, Alchian, and Posner attempt to substitute an efficiency standard for a justification of ethical principles. This entire project is built on fallacy. There exists no nonarbitrary way of measuring, weighing, and aggregating individual utilities or disutilities that result from some given allocation of property rights. The attempt is just pseudo-science in service of judicial interventionism.
AEN:You have also argued that a connection exists between monetary intervention and cultural values.
HOPPE: True, but the central bank, through inflationary policy and easy credit, exports this short-term orientation to the whole economy. If you expect the value of money to fall in the future, you are more interested in the fast buck. The central bank makes exaggerated levels of borrowing possible, creating the temporary illusion of wealth but not its reality.
Democracy and legislation have some of the same effects. In particular, they generate high time preference. In the old days, the principles of law never changed over time. The rules of property, exchange, and contract were always the same. Kings did little to change this because their own claim to sovereign rule was also tied to property rights. They wanted to be the owner of the entire realm and to preserve its capital value.
But matters change one you have public property, democracy, and free entry into the governmental system. The democratic ruler does not invoke the principle of private property to show that he is the legitimate ruler. He invokes the principle that no property is entirely private. It follows that these people are tempted to think of law as simply legislation.
Under democracy, you can change law whenever you want. No one knows what the laws will be tomorrow. In fact, hardly anyone knows what the laws are today, because there are so many. In this way, democracy undermines the value of property and undercuts long-term planning and decision making. People become engaged in shorter production processes than they otherwise would.
AEN: Some years ago, you wrote a paper arguing that taxes shorten the structure of production.
HOPPE: That was a specific application of this more general principle. Taxation is a present expropriation and an expected future expropriation. Because of it, present and future income is reduced. The time preference schedules rise and people become more short-term oriented. Taxation, legislation, inflation, credit expansion, bankruptcy law, and all the rest, also bring this about.
The entire structure of government itself is an expression of high time preference. Mises says that in the long run all our interests are harmonious. Everyone gains if private property rights are respected. Even the tax men, in the long run, would become richer if there were no taxation at all. All that is true.
But, of course, this does not imply that every real person has a long-run orientation. In the short run, after all, tax men are better off with government. In the short run, I'm always better off ripping you off. Government institutionalizes the high-time-preference motivation to rip people off instead of producing.
AEN: You mentioned bankruptcy law. What about the claim that the market would underproduce risk-taking in its absence?
HOPPE: Risk taking in a market requires fixed rules of private property. For example, people are not permitted to undertake the risk of murdering people to see if they can get away with it. Instead, everyone is obliged to respect the life of others. Similarly, there is no place in a free market for a person who takes risks by trampling on property rights. If he does, he must be fully liable for the damage he creates.
In a free market, the level of risk people undertake is proscribed by property rights and strict liability. A person is bound by the terms of contract, even if it means giving up everything he owns. In bankruptcy law, the state permits a certain group to act in violation of the contract they have agreed to. These types of laws create legal uncertainty and socialize risk.
AEN: What happens, then, if a debtor doesn't have the money to pay his creditors?
HOPPE: It is the obligation of the creditor to see to it that he is protected against these types of contingencies. The outcome is dictated by the terms of the contract. The borrower may pay out of future income. If there is no provision in the contract for the borrower's going belly up, that's the lender's tough luck. He made a stupid contract.
Repealing bankruptcy laws would bring about a significant change in the economic culture, where stiffing property owners is now common. Bankruptcy laws on the individual level are replicated on an international scale, where we see these huge bailouts by the Fed and the IMF. They do nothing but reward financial mismanagement and allow extortion on a global scale. The culture of extortion now extends from individual to international corporate finance.
AEN: If society were based entirely private property and exchange, most people would say there would be no thing as community and order.
HOPPE: The market's speciality is producing things that people want, and that is certainly true of conditions like community and order. A main means of achieving them is the right of exclusion, which, in a market economy, property owners can always exercise. This allows owners to keep up the value of their property and to encourage civilized behavior.
Part of the terrible trend in modern government has been to trample on the right of exclusion. That is essentially what civil rights law does. Employers cannot hire and fire as they see fit. Teachers cannot kick students out of school. Businesses must accommodate customers who are detrimental to the long-term interest of the firm. In light of this, cultural decay and rotten behavior are to be expected. Even the right of parents to be the ultimate judge in their own household is under attack.
The covenant is a crucial market institution that affirms the right to exclude. Groups of people, usually with one founder, lay down all sorts of rules to which all people who are part of the group are required to adhere. The ultimate owner determines the rules based on consent. And there are competitive markets for covenantal property arrangements themselves, offering varying degrees of strictness.
AEN: The restrictions are then attached to the property itself?
HOPPE: Let's say you buy some property within a larger covenantal structure. You also buy the restrictions, which are presumably in your favor, since the rules are a crucial key to the value of your property. The terms of the covenant can be adjusted according to a process established by the bylaws of the community. If the overarching community is purchased from the full owner, in terms dictated by the covenant, the covenant can also be changed to more fully accord with market conditions.
This mechanism, which rests on the right of property owners to exclude and to dictate rules, is a source of community and order within the matrix of voluntary exchange. But the state hates covenantal arrangements because they form competitive systems of law. The democratic state hates them as much as it hates the right of a businessmen to refuse service or the right of an employer to fire an employee.
AEN: So you see no real distinction between private life and commercial life?
HOPPE: There should be no difference so far as property ownership and rights are concerned. Every person has the right to determine who does and does not eat dinner in his own home. Similarly, every business owner has the right to determine who does and does not eat dinner in his restaurant. The only difference is that restaurant owners hope to facilitate more diners. He would likely have to have an extremely good financial motive for exclusion.
But if we believe in property rights, he should have the right of exclusion on any grounds. From the point of view of the state, it is easier to start the attack on property by taking away the right of exclusion from commercial properties. Then the state can gradually invade the last bastion of undisputed private property, the family household.
AEN: You recently gave a paper on the failure of classical liberalism? What was that failure?
HOPPE: It was the belief in the possibility of a minimal state, and that the state can play a purely protective role. If the state is defined as the institution that has the right to impose taxation and has the compulsory territorial monopoly of jurisdiction, then it is easy to show that this sort of institution is inherently incapable of providing what these classical liberals want the state to provide, that is protection and security.
Once you grant an institution the right to determine unilaterally how much you have to pay to be protected, this institution will have the tendency, by virtue of its self interest, to increase expenditures on protection while reducing that actual production of protection.
The state asks itself the question: how much money is needed in order to protect people from violence? The answer is always that it needs more. And since there is disutility attached to labor, the less actual protection the state produces, the better off its employees are.
Every state, even if it starts out as a minimal state, then, will end up as a maximal state. To think that the problem of protection can ever come from an institution such as the state is an illusion. It is a myth and a patent error of the grandest scale.
One of the most important services on earth--to be protected from aggression by other people--should not be assigned to an institution that can tax you in order to do it and prevent you from seeking out other protectors. All of the incentives are wrong and it sets up potential disaster.
AEN: So the classical liberals were too tolerant of the state?
HOPPE: Far too much. Once you admit the basic principle that the state is an essential provider of security, you give up all counterarguments. Take the example of the case of the social safety net that most free-market advocates say we must have. If you ask them how high the provision of a guaranteed income should be, they can't tell you. They know that if it is too high, people will work less; but if it is too low, they say people will be too poor to recover. But the dividing line between the two is completely arbitrary.
Yet through it all, they take the position that there must be such a thing as a social safety net. If there is no question that the must be such a thing, then you have already admitted that private property rights, the rights of contract, free association, and voluntary trade are not the essential source of security and no longer supreme. There are some considerations that override all these institutions.
If you make these sorts of exceptions, it is very difficult to argue that the exceptions should not apply more broadly. What argument do you have? You have already admitted that some people can be legally expropriated for socially important reasons. The only task for statists is to make the purposes seem important enough to allow for expropriation. Everything then becomes possible.
AEN: Compromise becomes the order of the day.
HOPPE: Indeed, today's ideological landscape is filled with people who claim to want selective cuts in government or to bring about what they call limited government. Then, to ward off the charge that they are too radical, they assure the public that they do not oppose government as such--indeed it is a necessary thing; they just oppose its present size and present policies.
And to prove that they are respectable, then, they lend support to some aspects of the regime, usually its war-making power, its educational apparatus, its regulatory regime, or its social-safety net. By their own logic, they end up trying to improve government rather than dismantle it. This is why they are ultimately no threat to anyone in power. Those who advocate merely "limiting" intervention rather than eliminating it are always ripe for co-option by the state. Mises once observed that anyone who has ever had something new to offer humanity had nothing good to say of the state or its laws.
AEN: Was Mises better than the classical liberals on the question of the state?
HOPPE: Mises thought it was necessary to have an institution that suppresses those people who cannot behave appropriately in society, people who are a danger because they steal and murder. He calls this institution government.
But he has a unique idea of how government should work. To check its power, every group and every individual, if possible, must have the right to secede from the territory of the state. He called this the right of self determination, not of nations as the League of Nations said, but of villages, districts, and groups of any size. In Liberalism and Nation, State, and Economy, he elevates secession to a central principle of classical liberalism. If it were possible to grant this right of self-determination to every individual person, he says, it would have to be done. Thus the democratic state becomes, for Mises, a voluntary organization.
AEN: Yet you have been a strong critic of democracy.
HOPPE: Yes, as that term is usually understood. But under Mises's unique definition of democracy, the term means self rule or self government in its most literal sense. All organizations in society, including government, should be the result of voluntary interactions.
In a sense you can say that Mises was a near anarchist. If he stopped short of affirming the right of individual secession, it was only because of what he regarded as technical grounds. In modern democracy, we exalt the method of majority rule as the means of electing the rulers of a compulsory monopoly of taxation.
Mises frequently made an analogy between voting and the marketplace. But he was quite aware that voting in the marketplace means voting with your own property. The weight of your vote is in accord with your value productivity. In the political arena, you do not vote with your property; you vote concerning the property of everyone, including your own. People do not have votes according to their value productivity.
AEN: Yet Mises attacks anarchism in no uncertain terms.
HOPPE: His targets here are left-utopians. He attacks their theory that man is good enough not to need an organized defense against the enemies of civilization. But this is not what the private-property anarchist believes. Of course, murderers and thieves exist. There needs to be an institution that keeps these people at bay. Mises calls this institution government, while people who want no state at all point out that all essential defensive services can be better performed by firms in the market. We can call these firms government if we want to.
AEN: The strongest evidence against Mises as a radical anti-statist is the passage in Human Action that endorses conscription.
HOPPE: This passage is very peculiar. It, and the several paragraphs that precede it and the one that follows it, is not in the first edition. It makes its first appearance in the 1963 edition. It comes out of the blue, and has no foundation in his overall thinking. To me, this addition appears completely ad hoc.
You just have to remind yourself about his general position on government. Every group and, if it can be technically done, every individual, can secede from the government. Accordingly, conscription, in this sense, is completely illegitimate. If you read the 1949 edition of Human Action, there is nothing at all that would seem to lead to these particular funny conclusions.
AEN: Perhaps the Cold War explains it.
HOPPE: But the likelihood that he would make a statement like this is the greatest in prior editions. In 1940, he was in Switzerland, surrounded by Nazi forces. In 1949, he had just seen the old Europe smashed by war and imperialism; what better time to endorse the draft so it could be used to stop this type of thing in the future? But he did not. Why, then, does he do this in 1963? There is no major war going on. Vietnam was in its early stages. The Cold War is not at a peak, and the Soviet Union was in its post-Stalinist period. These passages cry out for explanation.
AEN: You have been very critical of public goods rationales for the state.
HOPPE: The mistake of public goods theory is to presume that economists can detect that something that is needed but is not being provided by markets, either at all or in sufficient quantity. But this is just an observation that we don't live in a Garden of Eden. At all times, people want goods and services that do not exist or are unaffordable. But just because we want something to be made available does not mean that it should be made available.
If we have to consult with economists to discover whether there are not enough lakes and roads, shouldn't we also check with them to see if are too many tennis shoes and toothpaste brands on the market? Ultimately, public goods theory is a rationale for central planning and an attack on the market itself. The real question is whether it is economically beneficial and economically justified to override voluntary transactions and market verdicts, and forcibly transfer property from private owners to the state. I don't think it ever can be justified.
AEN: On what ground have you criticized free immigration?
HOPPE: Imagine a society where all property is owned by some private individual or group. One has to consider what would happen in such a territory. A very complex picture results. There would be certain regions and institutions where people could come and go as they please with very few conditions attached. We might say that churches, soup kitchens, and other charitable institutions that allow relatively free access within certain rules.
There are also places where entry is dependent on minimal conditions, like paying an entry fee. Private recreational facilities like Disney World operate like this. No one gets in without meeting the conditions of the contract; most anyone can meet those conditions provided they have the means to do so and adhere to the rules once there.
But also in a market economy, there are also extremely exclusive areas like gated communities. In these places, you can only enter if you are an owner or if you have the direct permission from the owners. If you are an owner, you must adhere to extremely strict guidelines on how to behave, and you are responsible for how your guests behave.
In no case is unrestricted access allowed. If all property were private, we would see these conditions replicated more broadly. Some regions, like tourist areas, would have the incentive to attract as many people as possible without reducing the value of the property. Others would be utterly and completely off limits.
AEN: So you liken free immigration to a right to trespass.
HOPPE: Look at what the free immigrationists propose. They want the complete and untrammeled right for people from anywhere to enter and exit property, with no right of exclusion whatsoever. But there is no market arrangement anywhere that replicates that situation. It is completely contrary to the way markets work and property owners behave. Obviously, such a free-for-all can only be brought about on a mass scale if property rights are not assigned to private owners but instead are given to the state.
Making it all the more perverse, government is supposedly charged with protecting property rights from invasion. Instead, in the case of free immigration, it makes possible the untrammeled invasion of property rights. If government is to allow immigration, at minimum it should make sure that the immigrants have an invitation by a property owner. That owner must then assume full liability for their presence.
There is nothing wrong with Microsoft bringing software programmers from around the world to work in its buildings. But it is not okay that these immigrants would then have guaranteed housing, schools, welfare, voting rights, or anything else that invades or presumes the right to invade other people's property. So long as the complete right of exclusion can be exercised by every other property owner, free migration of labor is fine. Citizenship, of course, is an entirely different matter.
AEN: But there is a danger, isn't there, with putting the government in charge of determining who can and cannot immigrate?
HOPPE: There is of course a danger. Absent full privatization, then, the solution is to decentralize the decision-making process away from the federal government to states, counties, villages, towns, and city blocks. They should all make their own exclusionary rules. Through this means, you can prevent to the largest extent possible, the phenomenon of forced integration.
From an economic perspective, it is essential to have free trade, in part because in its absence puts tremendous pressure on people from low wage countries to immigrate to where wages are higher. The more free trade you have, the less incentive there is to move. If goods don't cross borders, armies of people will.
AEN: What do you say to the critique that the private-property society as you describe it appears quite authoritarian?
HOPPE: This is a left-egalitarian critique. They claim that authority should play no role in social life and that there should be no rank or position. But of course, there can be no society without structures of authority. In the family, there is always a hierarchy. In communities, there are always leaders. In firms, there are always managers.
But in a market, none of these authorities have taxing power. Their rule depends entirely on voluntary consent and contact. But the state attempts to break down these competitive centers of authorities and establish a single authority overriding all others. If you don't comply, the state cracks down.
It is a ridiculous idea that we need the state to tell social authorities that they need to adhere to a uniform set of rules and obey a single master. Society does not need uniform modes of association. Market exchange makes social harmony possible even within the framework of radical diversity.
Today's so-called multiculturalists don't see that there is a difference between having a globe with many different cultures and imposing that diversity on each point on the globe. It is a difference between a regime of private property and a statist regime where the rest of us merely obey. Ultimately, those are the only two systems from which we have to choose.
Volume 6, Number 3 (Fall 1986)Robert B, Ekelund, Jr discusses Friedrich von Wieser's book, Social Economics.
There is no security of property, where a despotic authority can possess itself of the property of the subject against his consent. Neither is there such security, where the consent is merely nominal and delusive.
In this monograph, Butler Shaffer addresses an important question that has aroused much interest among libertarians: What is the status of intellectual property? Are patents and copyrights legitimate? This is a major contribution to libertarian legal theory and an indispensable guide to a vital topic.
Narrated by Clay Barnett. Music by Kevin MacLeod (incompetech.com).
Mark Thornton critiques Thomas Piketty's recent bestseller, and explains why capitalism is not the problem, nor are taxation and redistribution of wealth the solutions.
Interviewed by host Redmond Weissenberger, Mark Thornton discusses the real estate and job markets.
What is the status of intellectual property? Are patents and copyrights legitimate in a free society?
Butler Shaffer is a distinguished libertarian legal theorist who has for many years taught at Southwestern Law School in Los Angeles. In this monograph, he addresses an important question that has aroused much interest among libertarians: What is the status of intellectual property? Are patents and copyrights legitimate?
Shaffer responds with an appeal to fundamental libertarian principles. Only arrangements that people freely negotiate with one another are acceptable: laws imposed by a coercive state are not. Judged by this standard, intellectual property fails. People may make contracts that limit the sale or transmission of ideas or books, but these bind only those who make them. Intellectual property laws, by contrast, apply to everyone, whether people accept them or not. These laws could not have arisen through voluntary agreements.
Defenders of intellectual property maintain that inventors and writers need protection for their work. Without patents and copyrights, inventions and creative work would be impeded. Shaffer responds that most of the great creators and inventors of the past worked without patent s and copyrights. Leonardo da Vinci and Shakespeare, for example, did rather well without this sort of state privilege.
A Libertarian Critique of Intellectual Property is a major contribution to libertarian legal theory and an indispensable guide to a vital topic.
Mark Thornton discusses the unintended consequences of gun control legislation as an illustration of prohibition economics. Thornton is a Senior Fellow at the Mises Institute.
Mises Review 18, No. 2 (Summer 2012)THE RULE OF LAW AND THE MEASURE OF PROPERTYJeremy WaldronCambridge University Press, 2012, xiv + 118 pgs.
Classical liberals like Friedrich Hayek and Richard Epstein have often claimed that the rule of law imposes strong constraints on the state's regulation of private property. If they are right, this would be a very effective argument against such regulation, as the rule of law is an ideal commanding wide respect, by no means confined to those of classical-liberal or libertarian inclinations.
Governments that arbitrarily deny legal process to groups of people or punish people for violating orders undisclosed to them obviously violate the rule of law; but how can formal requirements of proper law such as generality and nondiscrimination limit the power of the state to regulate property? The classical liberals answer that people should be able to use law to guide their behavior; interferences with private property disrupt their reasonable expectations of how they can use their property and unduly depend for their implementation on administrative discretion.
Jeremy Waldron, a distinguished legal philosopher, disagrees with this line of thought; and in this short book he deploys many arguments against it and against Lockean accounts of property rights as well.I have recently reviewed another book by this prolific scholar, The Harm in Hate Speech. I don't find what he says persuasive, but his thoughtful discussion merits the attention of everyone interested in libertarian political philosophy.
Waldron has devoted a great deal of his life as a scholar to Locke's theory of property, but his study has not led him to accept it. In this theory, people acquire property by homesteading it; once acquired, property may be transferred by exchange, gift, or bequest to others. A common objection holds that this account can have little or no application to the world we live in today. People cannot trace their property back to an original act of just appropriation, passed to them through transfers wholly legitimate. See the discussion of this objection in Murray Rothbard, Ethics of Liberty, chapter 10, "The Problem of Land Theft," especially the discussion on pp. 67ff.
Waldron advances a variant of this argument. Not only cannot we trace back property titles in the way the theory needs, but we know that property titles often stem from government grants. He is a New Zealander, and he cites as an example the situation in his native country. "But mostly the land seems to have been governed by social and public legal arrangements from start to finish. It was used and cultivated first by a collective group, its original Maori owners" (p. 29). It then passed by treaty to the British government who in turn transferred it to settlers.
The transition from indigenous tribal property to government property to leasehold property on the government's terms to individual freehold is something that was supervised by the state purportedly in the public interest at every stage. (p. 30)
What better evidence could we have that the Lockean theory cannot be used by present owners of property in New Zealand to resist government regulations as encroachments on their rights?
This argument does not succeed; it begs the question against Locke's theory. So long as the original acts of appropriation by the Maori passed the Lockean tests, which Waldron does not challenge, the process Waldron describes at no point violates Locke's theory. It is not a part of that theory that the state cannot be one of the links in the chain of transmission of property, though indeed there are excellent arguments against the justification for a state altogether. The state can, if it acquires property, then sell it to people under various conditions, but its doing so does not subject the new owners to further unspecified regulations of their property by the state. To think otherwise, as Waldron does, is to assume precisely what is at issue in the controversy. His account of New Zealand property leaves Locke unscathed.
Waldron has another argument against the Lockean view, and here he addresses directly the concerns about expectations used by Hayek, Epstein, and others who use the rule of law to fence in the government's interference with property rights. Do Lockean rights, he surprisingly asks, increase stability of expectations? He claims that they do not:
The [Lockean] picture we are being sold has property rights being determined pre-politically; these are the ones that are to respected by the legislature under this substantive constraint. (p. 38)
But the Lockean theory is controversial. Even among people who accept the basic outlines of it, disagreements over such matters as the exact nature of the principle of appropriation abound. "By insisting therefore that positive law is subject to this substantive constraint rooted in the moral reality of pre-political property rights, Locke is subjecting the legislature to a discipline of uncertainty" (p. 39).
This conclusion does not at all follow. A Lockean framework leaves many questions of detail unsettled, true enough; but then people must simply choose what to do within this framework and stick to it, in order to arrive at a stable system of property. Why must a correct theory of property resolve in advance all questions, leaving nothing to be decided by convention? Further, even if details of the theory do admit of correct answers, the fact that people disagree on these need not introduce instability. Those who think the arrangements in place objectively mistaken on these details may nevertheless think it more important to maintain stability than to insist that matters be changed entirely to their liking.
Although Waldron does not discuss this solution, he does address a proposal advanced by James Tully, which he acknowledges would settle the difficulty over stability. (He thinks, though, that it is a misinterpretation of Locke.) On this view, the legislature sets property rights as it wishes: it is these legislatively determined rights that are then stably established.
On Tully's account, the property rights that are protected are themselves artifacts of public law. As such, they are clear, well known, and stable; and they are no longer at the mercy of natural law controversies. But the price of that deliverance is that the property rights in question, being the offspring of legislation, can have very little power and status to set up against legislation (of the environmental kind). Property is no longer privileged as a special or primeval form of law. (p. 41)
Once more the conclusion does not follow. So long as stability is taken to be of great importance, Locke's theory on this interpretation does not allow the legislature to change property arrangements in accord with its wishes of the moment. Waldron, anxious to pursue his environmental imperative, has forgotten the elementary point that laws can be entrenched in a legal system without reference to natural-law constraints.
Before turning from Waldron's discussion of the Lockean theory, I must protest against what can only be called a gross misstatement. Concerning Robert Nozick, one of the foremost 20th-century defenders of the theory, he says,
he was never prepared to say that a Lockean theory legitimized contemporary disparities of wealth in the United States. On the contrary, he thought it undeniable that contemporary holdings in America would be condemned as unjust by any remotely plausible conception of historical entitlement. (p. 33)
To this statement, he appends a reference to pages 230–231 of Anarchy, State, and Utopia. It is quite true that Nozick in those pages says that schemes of transfer payments cannot be condemned as unjust by his theory, in the absence of information of what the principle of rectification requires. There is nothing whatever there, though, condemning contemporary American disparities of wealth. Waldron has unaccountably attributed his own egalitarian proclivities to Nozick.
As mentioned earlier, Waldron advances a great many arguments to challenge the connection of the rule of law with restrictions on the legislative regulation of property, but I shall discuss only one more. Waldron has an interesting view of the famous Lucas case, in which a businessman purchased beachfront property in South Carolina, intending to build houses on the land for commercial sale. A law passed after the sale by the South Carolina legislature prevented him from doing so, and he suffered a large loss as a result. He appealed to the Supreme Court, which ruled that he had been the victim of an unlawful "taking" of his property and required that he be granted compensation for his losses.
Waldron finds fault with the verdict. Given the many environmental regulations already enacted by the legislature, should not Lucas have anticipated that he might not have been able to use the property as he wished? How then can one rightly assert, appealing to the rule of law, that he had the right not to have overturned his reasonable expectations of how he might use the property commercially? He ought not to have assumed without warrant that he could do with the property what the legislature later determined he could not.
True, Mr. Lucas bought his property in 1986, a year or three before the new legislation came into force. But he was not a neophyte in these matters. … Mr. Lucas was not exactly sand-bagged by the council's eventual intervention to safeguard the eroding beaches on and in the immediate vicinity of his property. (pp. 79–80)
In sum, Waldron thinks if someone has reason to think that the government may take from him the right to use his property for commercial use, then his reasonable expectations for use of the property have not been upset. He ought not to have formed these expectations in the first place. By analogy, someone's expectations of personal security have not been upset if he knows that he may in future be compelled to play Russian roulette. Somehow, this does not seem a satisfactory result.
Butler Shaffer has, over the course of several years, written 51 wonderful essays observing the dissolution of Western culture and civilization. They have been assembled in the The Wizards of Ozymandias a captivating work full of entertaining epigrams and anecdotes, as well as enlightening commentary on current events, and historical episodes, that will keep you engaged and immersed from the first to last page. Shaffer's intellectual prowess and deep well of life experience enlightens and rouses introspection at every turn. It is immediately evident that the author has been writing on law, economics, and history for decades. This book will challenge you to more deeply contemplate the ideals of liberty. The title may be foreboding, but for all that, the book is an uplifting and gratifying read.
In his great poem "Ozymandias" Percy Shelley pictures for us the eponymous tyrant whose arrogance of power could not save him from historical oblivion. Ozymandias is a reminder of the fragile nature of every system—be it biological, institutional, or cosmic in character. As we are learning from the advanced course in history in which we seem now to be enrolled, this precariousness also applies to civilizations. It is difficult for intelligent minds to doubt that this current system is in the process of joining Ozymandias in the dust-bin of history.
Western culture has produced material and spiritual values that have done so much to humanize and civilize mankind. Unfortunately, it has also produced highly-structured institutions and practices that not only impede, but reverse these life-enhancing qualities. Is it possible for us to energize our intelligence in order to rediscover, in the debris of our dying civilization, the requisite components for a fundamentally transformed culture grounded in free, peaceful, and productive systems that sustain rather than diminish life?
In the introduction Shaffer describes how civilizations are created by individuals. In following chapters, he explains how they are destroyed by collectives which are good for little more than the destruction of what others have created. Seen in the sharp contrasts between market economies and state socialism; the fundamental struggles are between the creative energies unleashed by liberty, and the repressive forces of politics. Shaffer explores the impact that institutionalism may have on the decline of civilization.
Shaffer methodically takes the reader through the rise and decline of Western civilization using references that range from the construction of an Islamic cultural center a few blocks from the site of the former World Trade Center, to the BP disaster, to the 1951 motion picture, The Day the Earth Stood Stilland on to experiments in removing road signs and traffic lights.
What is likely to follow from this imminent “decline and fall?” Might the remnants of our terminal culture—like an estate bequeathed us by a rich benefactor—provide the foundations for a fundamentally transformed culture; one that does not cannibalize itself?
Can conditions of peace and liberty replace the wars, coercive regulation, and worship of violence that have combined to destroy our present civilization? The book ends with such questions, and invites the reader to contemplate how such a life-centered culture might arise.
If after reading this book you are not convinced that the fall of western civilization is upon us, don't grieve just yet! Shaffer is optimistic that such a collapse could be the turning point for a social transformation toward a society that embraces individual liberty and private property, and that is free from collectivism and institutionalization. Shaffer can already see the seeds of such a transformation.
"The new renaissance that seems to be emerging is fostered, in large part, by exponential increases in our capacities for communicating information to one another. Indeed, “information” may prove to be the “instrument of expansion” that will underlie a new culture."
The Free Market 30, no. 2 (February 2012)To the minds of most environmentalists, the ham-hand of the government is needed to protect wildlife. Private property be damned— the government must step in, otherwise every species on the planet will be hunted into oblivion, or human development will gobble up all remaining wildlife habitat, leading to the complete extinction of all species.
However, on the African plain it’s just the opposite. From the van leaving Hoedspruit airport to the Thornybush Game Preserve, we saw nothing but mile after mile of African savannah, enclosed in electrified fencing. Although government-owned Kruger National Park is nearby, the area is dominated by private game reserves, with ecotourism the primary driver of the local economy.
If not for these private game reserves, a number of species would be extinct. Because people like the four in our party are willing to pay to see the “Big Five” and so much more, the populations of a number of these animals are thriving.
The game-reserve experience, while a good deal dependent on serendipity, is in the hands of human expertise and experience. The Thornybush accommodations, meals, and service are first class. But you go for the game: the experience of a lifetime, seeing animals up close, in the wild, that you’ve only seen before in picture books or cooped up in zoos.
Arriving in the afternoon, our first safari would begin with refreshments in the late afternoon. As I sipped on lemonade, Werner (pronounced “Verner”) our game ranger for our four safaris introduced himself. To the uninitiated, the game ranger might appear merely to be the driver of the vehicle, carrying up to 10 guests plus a tracker perched precariously on the front of the hood. And that would be impressive enough, negotiating the labyrinth of winding dirt roads that weave through the 11,000-hectare reserve. The roads are narrow, deeply rutted, and in some cases close to nonexistent, as a 36-hour downpour of 17 inches a couple weeks prior to our arrival made many roads next to impassable.
But in addition to his driving skills, Werner offered an encyclopedic knowledge of the Thornybush flora and fauna: not just names but mating habits, gestation periods, digestion, and who-knows-what-all about the 147 mammals, 114 reptiles, 507 birds, 49 fish, 34 amphibians, 970 grasses, and 336 tree species that inhabit the private reserve.
Werner introduced us to Orlando, our tracker and Werner’s partner in making our experience unforgettable. As he loaded a Winchester .375 rifle, Werner warned us that the animals are dangerous, and he cautioned us not to stand up in or extend our arms out of the side of the vehicle.
Werner was in constant communication on his radio with other rangers at the same time having a running dialogue with Orlando in Fanigalore, a Bantu/English hybrid language.
While sightings of impala and wildebeests are common, the Big Five are more elusive, so the game rangers stay in constant radio contact to tip each other off to a sighting or fresh tracks. Rangers are only allowed to leave the road to track one of the Big Five.
During our first evening, what we encountered most was the golden orb spider, which takes a week to spin an elaborate web from brush to brush across a road. After destroying the work of various golden orbs, Orlando’s right arm suddenly pointed, and Werner hit the brakes, startling a male black rhino, who, with a female companion, was taking an early evening mud bath.
We would see both black and white rhinos during our safaris, huge lumbering beasts that sport horns prized in China and Vietnam for medicinal purposes. According to the BBC, “The black market price of rhino horn is now in the region of £35,000 ($55,000) per kg.”
South Africa is home to 70 to 80 percent of the global rhino population, and with the rhino-horn trade being a multibillion-dollar-a-year business, last year 450 rhinos were killed by poachers in South Africa.
Private game reserves do all they can to ward off poachers. After all, rhinos, as members of the Big Five, are rare and expensive to replace. But at government-owned Kruger National Park, four park employees were recently arrested for being accomplices in a rhino-poaching operation.
“I am personally saddened to discover that some of our own would so callously abuse the confidence and faith that we have entrusted upon them,” says Sanparks head David Mabunda.
Mr. Mabunda may be sad, but as Walter Block makes clear, “Like public servants the world over, these may be well-meaning people, but they have no real monetary incentive to perpetuate the species.”
Professor Block points out that governments are inept at stopping poachers, and low-level government workers are susceptible to bribes and corruption.
The legalization of rhino-horn sales is actually being discussed in South Africa, but environmental groups like the World Wildlife Fund (WWF) are vehemently opposed to the idea.
This is not a new debate. Dr. Block wrote over 20 years ago that countries inhabited by rhinos make it close to impossible for farmers to domesticate rhinos for profit. Instead, there continue to be “only bureaucrats intoning platitudes about the importance of refraining from hunting the beasts.”
Commercialize the rhino trade, and rhino farms would pop up—and at the same time the rhino supply would flourish. For instance, 60 Minutes reported recently that many African species are thriving on private hunting lodges in Texas.
The game reserve is not a place to sleep in. Everyone receives a 5 a.m. wake-up call, and the game rangers like to start their morning safaris by 5:30. The February morning air had the perfect amount of crispness as we anticipated more Big Five sightings.
Very near Thornybush’s main lodge is an airstrip, and first thing, we spotted two lionesses lounging near the pavement enjoying the cool morning air. Werner pulled our vehicle very close to the lions, but they only yawned, showing little concern or interest.
We would actually see the entire Big Five during our two safaris that day: lion, African cape buffalo, African elephant, rhino, and leopard (the shyest).
The big, powerful animals seem tame around the vehicles, but they are still wild and unpredictable. If we forgot this was dangerous country, the eight-foot black mamba slithering across the road snapped us out of it. It’s the longest, fastest venomous snake in the world. Also, each night after dinner, a member of the Thornybush staff would walk us to our cabins, as unaccompanied guests at game reserves have fallen prey to leopards.
We still had one safari left and we told Werner and Orlando their job was to find the king of the jungle. It didn’t happen quickly, and unlike the other three outings we seemed to go in circles.
Werner and his partner were taking the lion instruction seriously. Our game ranger was clued into a sighting of tracks by another vehicle and Orlando seemed sure a lion was nearby.
Orlando had Werner stop, and he jumped off the vehicle to walk into the bush. Then we heard it—like sitting in the front row at the start of an MGM movie! Orlando wheeled, ran toward the vehicle, and jumped on to his seat. Werner started into the brush toward the roar.
Three lionesses and a male were looking expectantly up a tree. In the tree: a leopard with a fresh baby impala kill. Leopards and lions aren’t friendly, they’re competitors. The leopard was at a distinct disadvantage.
Werner thought the leopard might wait the lions out. Lions don’t climb easily. But the leopard became nervous; whether it was the lions or our vehicle is unsure. The leopard suddenly leaped down from the tree—15 to 20 feet—and ran for the tree in front of our vehicle, with the lions in hot pursuit. We were stunned. Werner quickly backed up.
Again the leopard jumped down and ran up another tree just escaping the lions. Werner was concerned that we were putting the leopard in danger. He pulled the vehicle around near the tree where the leopard had left the dead impala draped over a branch.
Soon the lionesses came back, and one ventured to climb and retrieve the kill. The 300-pound cat made it up the main trunk, claws gouging the tree’s bark. Then things got tricky. The impala was hanging just out of the lion’s reach. The cat carefully adjusted its weight, trying to balance on a limb that allowed enough stability to reach up and grab the impala.
Finally, the impala was secure in the lioness’s jaws. But now the hard part. While leopards have a locking wrist or anklebone that aids in climbing and descending, lions’ ankles slide sideways under their body weight.
Meanwhile, the two other lionesses waited calmly under the tree, hoping to scoop up a falling impala. But the lioness held on, clumsily sliding down the tree trunk. With the kill secure and now on terra firma, the lioness carried the impala into the shade of a bush. The king of the jungle quickly showed up to join her.
It’s the prospect of witnessing this kind of drama that tourists pay money to see, and it’s the market and private property that make it possible, at the same time providing the incentives to protect and revitalize what were once endangered species. As Professor Block makes clear, “there is no intrinsic conflict between the market and the environment.”
Government’s good intentions have done little to protect endangered wildlife. It is only private property and market pricing that will protect these majestic creatures for future generations to marvel at and enjoy.
Much is often made of allowing "consenting adults" to exercise their freedoms unhindered by government regulation. Unfortunately, this presumption is often limited to the realm of activities like gambling and prostitution. But should not consenting adults also be allowed freedom in larger economic matters such as real estate?
In this 1981 lecture, Walter Block discusses the importance of allowing private markets — and not government planners — to decide how land and housing is used by those who buy, sell, and rent it.
Presented at the School of Law, Dalhousie University (Halifax, Nova Scotia, Canada) on 29 January 1981. [1:30:56]
J. Neil Schulman and Wendy McElroy debate at the Libertarian Supper Club in Westwood (Los Angeles), California, in 1983.
The grave robber joins the bootlegger, the gunrunner, the drug dealer, and the ivory poacher as another phony criminal created by laws that shouldn't exist, writes Adam Young.
This audio Mises Daily is narrated by Colin Hussey.
Throughout history, material privation and chronic insecurity were the norm, writes Robert Higgs.
This audio Mises Daily is narrated by Colin Hussey.
The famous physiocratic tenet that only land is productive must be considered bizarre and absurd. It is certainly a tremendous loss of insight compared to Cantillon, who identified land and labor as original productive factors, and entrepreneurs as the motors of the market economy, writes Murray N. Rothbard (1926–1995).
This audio Mises Daily is narrated by Jeff Riggenbach.
If economics is understood as being the science of the implications of voluntary and monetary exchanges among different people (Mises, 1985), the terminology “economics of crime” is a contradiction in terms. Indeed the economic exchange consists in voluntary and peaceful cooperation, whereas crime refers to concepts of violence and coercion (Mises, 1983). The contrast is then more marked between the notion of economics that refers to a process of collaboration and cooperation, and that of criminal activity, which is associated with the invasion of property (Rothbard, 1991 [1970]). In this sense, we have to deal with a logical impossibility and consequently the economics of crime becomes meaningless. More fruitful is the idea of applying the tools of the economist to understanding the behavior of individuals in the allocation of their resources to obey or to violate the law and to protect themselves against violence.
Volume 22, Number 1 (2011)
The 17th-century Dutch Protestant Hugo Grotius, deeply influenced by the late Spanish Scholastics, developed a theory of natural laws that he boldly declared was truly independent of the question of whether God had created them, writes Murray N. Rothbard (1926–1995).
This audio Mises Daily is narrated by Jeff Riggenbach.
[From WIN: Peace and Freedom through Nonviolent Action (March 1, 1971)]
Recently, a bewildering and seemingly new phenomenon has burst upon the public consciousness, "right-wing libertarianism." While earlier forms of the movement received brief and scornful attention by professional "extremist"-baiting liberals, present attention is, almost miraculously for veterans of the movement, serious and respectful. The current implication is "maybe they've got something here. What, then, have they got?"
Whatever their numerous differences, all "right-wing libertarians" agree on the central core of their thought, briefly, that every individual has the absolute moral right to "self-ownership," the ownership and control of his own body without aggressive interference by any other person or group. Secondly, libertarians believe that every individual has the right to claim the ownership of whatever goods he has created or found in a natural, unused state: this establishes an absolute property right, not only in his own person but also in the things that he finds or creates. Thirdly, if everyone has such an absolute right to private property, he therefore has the right to exchange such property titles for other titles to property: hence the right to give away such property to whomever he chooses (provided, of course, that the recipient is willing); hence the right of bequest — and the right of the recipient to inherit.
The emphasis on the rights of private property of course locates this libertarian creed as emphatically "right-wing," as does the right of free contract, implying absolute adherence to freedom of enterprise and the free-market economy. It also means, however, that the right-libertarian stands foursquare for the "civil liberty" of freedom of speech, press, and assembly. It means that he necessarily favors total freedom for abortion, pornography, prostitution, and all other forms of personal action that do not themselves aggress against the property of others. And, above all, he regards conscription as slavery pure and simple. All of these latter positions are of course now regarded as "leftist," and so the right-libertarian is inevitably put in the position of being some form of "left-rightnik," someone who agrees with conservatives on some issues and with leftists on others.
While others therefore see him as curiously fluctuating and inconsistent, he regards his position as virtually the only one that is truly consistent, consistent on behalf of the liberty of every individual. For how can the leftist be against the violence of war and conscription and morality laws while yet favoring the violence of taxes and government controls? And how can the rightist trumpet his devotion to private property and free enterprise while favoring conscription and the outlawing of activities he deems immoral?
While of course opposing any private or group aggression against the rights of private property, the right-libertarian unerringly zeroes in on the central, the overriding aggressor upon such rights: the State apparatus. While the leftist tends to regard the State as an evil enforcer of private-property rights, the right-libertarian, on the contrary, regards it as the prime aggressor on such rights.
In contrast to believers in democracy or monarchy or dictatorship, the right-libertarian steadfastly refuses to regard the State as invested with any sort of divine or any other sanction setting it up above the general moral law. If it is criminal for one man or a group of men to aggress against a man's person or property, then it is equally criminal for an outfit calling itself the "government" or "State" to do the same thing.
Hence the right-libertarian regards "war" as mass murder, "conscription" as slavery, and — for most libertarians — "taxation" as robbery. From such past mentors as Herbert Spencer (The Man vs. the State) and Albert Jay Nock (Our Enemy, the State), the right-libertarian regards the State as the great enemy of the peaceful and productive pursuits of mankind.
With this as the central core of libertarian thought, we must now investigate the numerous facets of the right-libertarian spectrum; and, despite the numerous difficulties of such an analysis, it is still most convenient to align the various tendencies and factions of right-libertarianism on its own "left-right" continuum.
On the extreme-right fringe of the movement, there are those who simply believe in old-fashioned, 19th-century laissez-faire; the major laissez-faire group is the Foundation for Economic Education, of Irvington-on-Hudson, New York, for which many of the middle-aged members of the right-libertarian movement have worked at one time or another.
The laissez-fairists believe that a central government must exist, and therefore that taxes must exist, but that taxation should be confined to the prime "governmental" function of defending life and property against attack. Any pressing of government beyond this function is considered illegitimate.
The great bulk of libertarians, especially among the youth, have, however, gone beyond laissez-faire, for they have seen its basic inconsistency: for if taxation is robbery for building dams or steel plants, then it is also robbery when financing such supposedly "governmental" functions as police and the courts.
If it is legitimate for the State to coerce the taxpayer into financing the police, then why is it not equally legitimate to coerce the taxpayer for myriad other activities, including building steel factories, subsidizing favored groups, etc.? If taxation is robbery, surely then it is robbery regardless of the ends, benevolent or malevolent, for which the State proposes to employ these stolen funds.
Most libertarians also reject the laissez-fairist position that it is morally imperative to obey all laws, no matter how despotic, as well as the all-too-common laissez-fairist patriotic devotion to the American Constitution and the American State. They have also found current laissez-fairists (though this was not true of the 19th-century brand) to be conspicuously silent in mentioning the heavy responsibility of big business for the growth of statism in 20th-century America; instead, the blame is almost always placed on unions, politicians, and leftish intellectuals.
Moreover, almost never is there criticism of the greatest single force accelerating the Leviathan State in America: the military-industrial complex, and the American empire fueled by that complex. For all these reasons, the old-fashioned laissez-faire position has lost credibility for the bulk of today's right-libertarians.
Moving one degree leftward, we come to the Randian and neo-Randian movements, those who follow or have been influenced by the novelist Ayn Rand. From the publication of Rand's novel Atlas Shrugged in 1958, the Randian movement developed into what seemed to be destined as a mighty force. For the emotional impact of Rand's powerfully-plotted novels attracted a vast following of young people into her "Objectivist" movement.
In addition to the emotional drawing power of the novels, Randianism provided the eager acolyte with an integrated philosophical system, a system grounded on Aristotelian epistemology, and blending it with Nietszchean egoism and hero worship, rationalist psychology, laissez-faire economics, and a natural-rights political philosophy, a political philosophy grounded on the libertarian axiom of never aggressing upon the person or property of another.
Even at its peak, however, the effectiveness of the Randian movement was severely limited by two important factors:
One was its extreme and fanatical sectarianism; Randians refused to have anything to do with any person or group, no matter how close in outlook, who deviated by so much as an iota from the entire Randian canon — a canon, by the way, that has a rigid "line" on every conceivable question, from aesthetics to tactics. (An odd exception to this sectarianism, by the way, is the Republican Party and the Nixon administration, which includes several highly placed Randians as advisors.) Particularly hated by the Randians is any former colleague who has deviated from the total line; these people are reviled and personally blacklisted by the faithful. Indeed, Rand's monthly magazine, The Objectivist, is probably the only magazine in the world that consistently cancels the subscription of anyone on their personal blacklist, including any subscribers who send in what they consider to be unworshipful questions.
The second, associated factor is the totalitarian atmosphere, the cultic atmosphere, of the Randian movement. While the official Randian creed stresses the importance of individuality, self-reliance, and independent judgment, the unofficial but crucial axiom for the faithful is that "Ayn Rand is the greatest person who has ever lived" and, as a practical corollary, that "everything Ayn Rand says is right." With this sort of ruling mentality, it is no wonder that the turnover in the Randian movement has been exceptionally high: attracted by the credo of individualism, an enormous number of young people were either purged or drifted away in disgust.
The collapse of the Randian movement as an organized force came in the summer of 1968, when an unbelievable bombshell struck the movement: an irrevocable split between Rand and her appointed heir, Nathaniel Branden.
Since then, the Randian movement has happily become polycentric; and Branden repaired to California to set up his own schismatic movement there. But the latter is still a movement confined to psychological theories and publications, and to book reviews in the occasionally appearing Academic Associates News. As an organized movement, Randianism, whatever variant, is a mere shadow of its former self.
But the Randian creed still remains as a vital influence on the thinking of libertarians, so many of whom were former adherents to the cult. Politically, Rand is to the left of the laissez-fairists in rejecting taxation as robbery, and therefore illegitimate. Rand saw through the illogicality, the inconsistency, of the laissez-faire view of taxation.
Randian political theory wishes to preserve the existing unitary state, with its monopoly over coercion and ultimate decision-making; it wishes to define its "government" as a utopian institution which retains its State monopoly but gains its revenue only by voluntary contributions from its citizens. Still worse, while Randians agree that taxation is robbery, they stubbornly refuse to regard the government — even the existing government, which lives off taxation — as a band of robbers. Hence, Rand illogically infuses into the political outlook of herself and her charges an emotional devotion to the existing American government and to the American Constitution that totally negates her own libertarian axioms.
While Rand opposes the war in Vietnam, for example, she does so on purely tactical reasons as a mistake not in our "national interest"; as a result, she is far more passionate in her hostility to the unpatriotic protestors against the war than she is against the war itself. She advocated the firing of Eugene Genovese from Rutgers, on the surprisingly anti-individualist grounds that "no man may support the victory of the enemies of his country." And even though Rand passionately opposes the draft as slavery, she also believes, with Read and the laissez-fairists, that it is illegitimate to disobey the laws of the American State, no matter how unjust — so long as her freedom to protest the laws remains.
Finally, Ayn Rand is a conventional right-winger, as well, in her attitude toward the "international Communist conspiracy." While Randians are not exactly champions of war, they are prevented by their simplistic diabolism from absorbing the revisionist view of American foreign policy — from realizing that the Cold War and American interventions overseas have been caused by the expanding aggressions of American imperialism rather than by a noble response to "communist expansionism" by the "freest nation on earth." Randians persist in the right-wing myth that the antipode of individualism is communism, whereas the real antipode to liberty in America today is far different: the existing corporate-monopoly, welfare-warfare state.
Many neo-Randians, devoted as they are to logical analysis, have seen the logical clinker in Randian political theory; that if no man may aggress upon another, then neither may an outfit calling itself "government" presume to exert a coercive monopoly on force and on the making of ultimate judicial decision. Hence, they saw that no government may be coercively preserved, and they therefore took the next crucial step; while retaining devotion to the free market and private property, this legion of youthful neo-Randians have concluded that all services, including police and courts, must become freely marketable. It is morally illegitimate to set up a coercive monopoly of such functions, and then revere it as "government." Hence, they have become "free-market anarchists," or "anarchocapitalists," people who believe that defense, like any other service, should only be provided on the free market and not through monopoly or tax coercion.
Anarchocapitalism is a creed new to the present age. Its closest historical links are with the "individualist anarchism" of Benjamin R. Tucker and Lysander Spooner of the late 19th century, and it shares with Tucker and Spooner a devotion to private property, individualism, and competition. Furthermore, and in contrast to Read and Rand, it shares with Spooner and Tucker their hostility to government officials as a criminal band of robbers and murderers. It is therefore no longer "patriotic." It differs from the older anarchist in not believing that profits and interest would disappear in a fully free market, in holding the landlord-tenant relationship to be legitimate, and in holding that men can arrive through reason at objective law which does not have to be at the mercy of ad hoc juries. Lysander Spooner's brilliantly hard-hitting No Treason, one of the masterpieces of antistatism and reprinted by an anarchocapitalist press, has had considerable influence in converting present-day youth to libertarianism.
It is safe to say that the great bulk of right-libertarians are anarchocapitalists, particularly among the youth. Anarchocapitalism, however, also contains within it a large spectrum of differing ideas and attitudes. For one thing, while they have all discarded any traits of devotion to the State and have become anarchists, many of them have retained the simplistic anticommunism, devotion to big business, and even American patriotism of their former creeds.
What we may call "anarchopatriots," for example, take this sort of line: "Yes, anarchy is the ideal solution. But, in the meanwhile, the American government is the freest on earth," etc. Much of this sort of attitude permeated the Libertarian Caucus of the Young Americans for Freedom, which split off or were expelled from YAF at the embroiled YAF convention at St. Louis in August, 1969. This split — based on their libertarianism and their refusal to be devoted to such unjust laws as the draft — led to the splitting off from YAF of almost the entire California, Pennsylvania, Virginia, and New Jersey sections of that leading conservative youth organization. These groups then formed "Libertarian Alliances" in the various states.
A group of older anarchocapitalists centered in New York founded the Libertarian Forum as a semimonthly, in early 1969, and formed the Radical Libertarian Alliance (RLA), which had a considerable impact in fueling and sparking the 1969 YAF split in St. Louis. Its ideas were propagated among the youth with particular effect by Roy A. Childs, Jr.
Childs had particular effect in converting Jarret Wollstein from Randianism to anarchocapitalism and then to a realistic view of the American State. Wollstein, an energetic young Marylander, had been ejected from the Randian movement, and had formed his own Society for Rational Individualism, publishing the monthly National Individualist. Finally, at the end of 1969, Wollstein's SRI merged with the bulk of the old Libertarian Alliance members of YAF to form the Society of Individual Liberty, which has become by far the leading organization of libertarians in this country. SIL has thousands of members, and numerous campus chapters throughout the country, and is loosely affiliated with the California Libertarian Alliance, consisting largely of the ex-YAFers and which itself has over a thousand members within the state.
Meanwhile, as the SIL and the old Libertarian Alliance have flourished by moving from right to center within the spectrum, the New York–centered Radical Libertarian Alliance has fallen upon evil days. Murray Rothbard and Leonard Liggio had founded the journal Left and Right in early 1965 as a means of splitting finally from a conservative movement with which they had been allied but which had become a crusade against communism and a celebrant of the American consensus. In contrast, they saw in the New Left of those days many of the libertarian elements which they had, in earlier days, found on the Right: opposition to centralized bureaucracy and statism, hostility to the public-school system, opposition to conscription, and a renaissance of the old "isolationist" hostility to war and American imperialism. Hence, they called upon the libertarians to find their allies on the New Left rather than on the Right.
Leonard Liggio has been particularly energetic in working with the Left, having lectured on "American Imperialism" at the original Free University of New York, edited the magazine Leviathan, and having been associated with the American branch of the Bertrand Russell Peace Foundation and its War Crimes Tribunal on Vietnam.
Under the inspiration of this search for the New Left, Becky Glaser led the transformation of the YAF chapter at the University of Kansas into an SDS chapter, and such youth leaders as Alan Milchman, then head of YAF at Brooklyn College, and Wilson Clark, Jr., head of the Conservative Club at the University of North Carolina, abandoned these organizations to plunge into radical-left activity.
Rapid growth in the New York movement in 1968–69 led Rothbard and his associates to found the Libertarian Forum, as well as an ever-growing series of dinners, culminating in a conference attracting several hundred libertarians from the East Coast and Midwest, held in New York City on Columbus Day, 1969. Increasingly, however, a split grew within the Radical Libertarian Alliance, which had branches in Washington, DC, Connecticut, and Boston.
The factional differences centered on the problems of revolution, relations with the Left, and communalism vs. individualism. For as the RLA youth took the concept of alliance with the New Left to heart, they increasingly and to varying degrees became "leftists," thus setting up an extreme-left tendency within the anarchocapitalist movement. Leading this tendency was former Goldwater speechwriter Karl Hess, who had been one of the most spectacular converts to right-libertarianism during 1968. Going through a Randian phase — reflected in his famous Playboy article "Death of Politics" in mid-1969 — Hess had passed through the center and on to lead the extreme left by mid-1969.
Responsive to the call for alliance with the New Left, the Left tendency began to oppose any criticisms of their newfound allies, leading to an uncritical adulation of the Black Panthers and other groups on the Left, including the anarchocommunists headed by Murray Bookchin. As in the history of many ideological movements, tactics began to merge into principle, so that many of the extreme left began to become anarchosyndicalists or anarchocommunists, or, failing that, to see little or no difference between the various branches of anarchism.
On revolution, in contrast to the Right, which opposes revolution on principle, and the Center, which holds revolution to be morally defensible as armed self-defense against State aggression but tactically and strategically absurd for present-day America, the RLA-Left began to favor any and all revolutionary tactics, including street fighting, "trashing," etc. This strategy has become increasingly unviable with the general collapse of the New Left and its drift back to Stalinism.
The final split between these various factions occurred after the Columbus Day, 1969, conference held by RLA in New York City, which degenerated into a screaming match between Left, Center, and Right factions, and featured a Left exodus from the Conference to join a march on Fort Dix. Shortly afterward, the over-30 group severed all connections with RLA, and soon New York saw two separate right-libertarian organizations, each wary if not hostile to the other: RLA; and the New York Libertarian Alliance, which was headed by Long Island lawyer Gary Greenberg, and which became affiliated with SIL. Since then, RLA has fragmented into various splintered affinity groupings, the only viable remnants being Ralph Fucetola's New Jersey Libertarian Alliance, which publishes The Abolitionist, and a group led by Charles Hamilton, which publishes the newly established quarterly Libertarian Analysis.
In many ways, California, with the largest right-libertarian population, differs from the movement in the rest of the country. The movement there is led by the California Libertarian Alliance (CLA), of over a thousand members. Led by youthful former YAFers, the CLA is rightist and neo-Randian in tendency, although over the last year and a half it too has moved leftward and abandoned many of its Randian tenets.
CLA has held several highly successful conferences based on the idea of a Left-Right libertarian dialogue. The last conference, held on the campus of the University of Southern California last November and attracting over 700 attendees, featured Paul Goodman as well as more orthodox right-libertarian speakers. It also featured the libertarian psychoanalyst Dr. Thomas Szasz, who, influenced by such laissez-faire libertarians as Ludwig von Mises and F.A. Hayek, has also become a favorite of the New Left for his crusade against the coercion involved in the "mental-health" program.
At the center of the flourishing movement in southern California is Robert LeFevre, head of the anarchopacifist tendency within the movement. LeFevre had founded and run for many years the Freedom School near Colorado Springs, a school that ran two-week summer seminars and was very successful in converting students and members of the public throughout the country. After transforming the school into Rampart College, LeFevre moved the operation to the Los Angeles area, where it has formed the nucleus for the libertarian movement there.
LeFevre believes in absolute pacifism, holding it immoral not only to aggress against the person or property of anyone else but also to defend that person or property by means of violence. Since he opposes all use of violence anywhere, he is far more consistent than socialist-pacifists in his opposition to force, and ranks as a kind of right-wing Tolstoyan. He himself rejects the label "anarchist" and prefers to call his pacifist libertarianism "autarchism."
Another split within the libertarian movement centers on "youth culture": drugs, rock, dress, etc. Almost exclusively, the split is generational, with the over-30s (with the exception of Hess) lined up against the youth culture, and the under-30s (with the exception of dyed-in-the wool Randians) strongly in favor. However, the California youth lead their generation in pushing youth culture as a supposedly mandatory part of the libertarian struggle; a similar but less important split centers on "Women's Liberation" and "Gay Liberation," both of which are pushed strongly by the CLA youth. California is also the home of such bizarre variants as "retreatism" — the dream of small groups for eluding the State by buying (or even making!) their own island, or even moving into caves underground.
Necessarily little known in the rest of the country, but probably with relatively the greatest influence within its own, is the right-libertarian movement in Hawaii. Led by Bill Danks, a graduate student in American history at the University of Hawaii, the movement there managed to gain control of a major radio station, KTRG. For two years, KTRG beamed libertarian programs at their many thousands of listeners for many hours each night.
However, the FCC, in a flagrant-though-unknown example of political repression, has cracked down and taken away the license of the station, and Danks as well as the heads of KTRG have been indicted for violation of the 1970 census! These are the only indictments so far for the high crime of refusing to answer questions on the census. Danks, affiliated with SIL, was head of SIL's Census Resistance '70 in the state of Hawaii.
Another emerging activity in the movement is the National Taxpayers' Union, headquartered in Washington, DC. Headed by James Davidson, publisher of SIL's The Individualist, and Wainwright Dawson, Jr., a former conservative who has merged his United Republicans of America into the NTU, the organization includes among its officers and advisors Murray Rothbard, A. Ernest Fitzgerald, and the distinguished socialist-anarchist Noam Chomsky.
As "left" and "right" categories dissolve and become increasingly meaningless on the American ideological scene, as young people, with the collapse of both the SDS-Left and the liberal "consensus," grope toward a new philosophy and a new orientation, the emerging phenomenon of right-libertarianism may be destined for an important role in American life. If that happens, left-pacifists should not be very distressed, for this would mean an important thrust toward the dismantling of the war machine, the imperial expansion, and the domestic Leviathan of the giant American State.
This article originally appeared in WIN: Peace and Freedom through Nonviolent Action, Vol. 7, No. 4 (March 1, 1971), pp. 6–10.
India is suffering from high prices and a food shortage. Both have been brought about by the government's own policies. For years it has indulged in monetary inflation, controls, state planning, socialism, and a forced industrialization that diverts capital and labor away from farming.
Alarmed by the food riots, the government is taking drastic measures. Most of them are exactly the wrong measures. It has put ceilings on the price of rice and announced price controls on matches, oil, kerosene, sugar, and vegetable oils. This is precisely the step that will do most to discourage production of these necessities. When there is a shortage of any product the cure is high prices, not low prices. In a free market, without inflation, relatively high prices for any product signal a shortage of that product and give maximum incentives to producers and importers to relieve the shortage.
The Indian government, looking for scapegoats, has blamed "speculators" and "hoarders" and announced the imposition of strict controls on the purchase, sale, storage, and transportation of grains. But speculators and hoarders, when they really act intelligently in their own interest, perform a public service. If they are right in thinking that if they hold back now they will get a higher price later, this means that they are conserving supplies now to relieve an even-greater future scarcity. Unless they sell at the point of maximum scarcity, they miss their best market and merely defeat themselves.
Russia vs. IndiaBut the Indian government, distrusting the whole private-market mechanism, is setting up a government grain corporation to do the food importing and trading. The supreme irony is that just as the Indian government has announced this new imitation of Russia, Russia has decided to move in precisely the opposite direction.
Early in August, Premier Khrushchev proposed that potato and vegetable farms sell their produce directly through their own city stores instead of marketing it through the government trade network. The advantage of such a system, he explained, is that the consumer would be able to reject poor quality produce in one store in favor of higher-quality produce offered by another farm's store. Because of the unreliable supply system of the state trade channels, and the low quality of the produce offered, Soviet city workers as well as peasants have in recent years been cultivating their own garden plots. In 1962, 70 percent of the nation's potato crop and 42 percent of the vegetables were produced on these private plots.
Private PropertyUntil now, the net income of the collective farms has been divided among the members on the basis of the work done, computed in workday units. This is to be replaced by a system of payments linked directly to quantity and quality of output. As Khrushchev summed it up in a question he asked a tractor driver in a wheat field, "How would you like it if you were assigned a given plot of land where you would be responsible for all operations, plowing, planting, cultivating, and harvesting, and you would be paid on the basis of the crop produced?"
Marvelous idea! The equivalent of a private lease! It is, in fact, a third of the way back — or forward — to private property. Only two more steps would be necessary to complete the reform. The next would be to allow the individual farmer permanent rights to a plot. This would give him the incentive to conserve and build up the soil to improve the buildings, etc. The final step would be to give each farmer the right to buy or sell plots. The successful farmers would then acquire more plots from the unsuccessful, and production would drift more and more into the hands of the most efficient and productive — thus constantly increasing efficiency and production.
The Chinese communists are quite right when they accuse Khrushchev of flirting with capitalism. If he continues in this direction, while we continue our drift into socialism, Russia may indeed one day outproduce us. Meanwhile socialist India and communist Russia must import food from capitalist America to pull them through.
[This article originally appeared as "Socialism and Famine" in Newsweek, August 31, 1964.]
Private ownership of the means of production is the fundamental institution of the market economy. It is the institution the presence of which characterizes the market economy as such. Where it is absent, there is no question of a market economy.
Ownership means full control of the services that can be derived from a good. This catallactic notion of ownership and property rights is not to be confused with the legal definition of ownership and property rights as stated in the laws of various countries. It was the idea of legislators and courts to define the legal concept of property in such a way as to give to the proprietor full protection by the governmental apparatus of coercion and compulsion, and to prevent anybody from encroaching upon his rights. As far as this purpose was adequately realized, the legal concept of property rights corresponded to the catallactic concept.
However, nowadays there are tendencies to abolish the institution of private property by a change in the laws determining the scope of the actions that the proprietor is entitled to undertake with regard to the things that are his property. While retaining the term private property, these reforms aim at the substitution of public ownership for private ownership. This tendency is the characteristic mark of the plans of various schools of Christian socialism and of nationalist socialism. But few of the champions of these schools have been as keen as the Nazi philosopher Othmar Spann, who explicitly declared that the realization of his plans would bring about a state of affairs in which the institution of private property will be preserved only in a "formal sense, while in fact there will be only public ownership."
There is need to mention these things in order to avoid popular fallacies and confusion. In dealing with private property, catallactics deals with control, not with legal terms, concepts, and definitions. Private ownership means that the proprietors determine the employment of the factors of production, while public ownership means that the government controls their employment.
Private property is a human device. It is not sacred. It came into existence in early ages of history, when people with their own power and by their own authority appropriated to themselves what had previously not been anybody's property. Again and again, proprietors were robbed of their property by expropriation. The history of private property can be traced back to a point at which it originated out of acts that were certainly not legal. Virtually every owner is the direct or indirect legal successor of people who acquired ownership either by arbitrary appropriation of ownerless things or by violent spoliation of their predecessor.
However, the fact that legal formalism can trace back every title either to arbitrary appropriation or to violent expropriation has no significance whatever for the conditions of a market society. Ownership in the market economy is no longer linked up with the remote origin of private property. Those events in a far-distant past, hidden in the darkness of primitive mankind's history, are no longer of any concern for our day. For in an unhampered market society, the consumers daily decide anew who should own and how much he should own. The consumers allot control of the means of production to those who know how to use them best for the satisfaction of the most urgent wants of the consumers. Only in a legal and formalistic sense can the owners be considered the successors of appropriators and expropriators. In fact, they are mandataries of the consumers, bound by the operation of the market to serve the consumers best. Capitalism is the consummation of the self-determination of the consumers.
The meaning of private property in the market society is radically different from what it is under a system of each household's autarky. Where each household is economically self-sufficient, the privately owned means of production exclusively serve the proprietor. He alone reaps all the benefits derived from their employment.
In the market society, the proprietors of capital and land can enjoy their property only by employing it for the satisfaction of other people's wants. They must serve the consumers in order to have any advantage from what is their own. The very fact that they own means of production forces them to submit to the wishes of the public.
Ownership is an asset only for those who know how to employ it in the best possible way for the benefit of the consumers.
[This article is excerpted from chapter 24 of Human Action: The Scholar's Edition and is read by Jeff Riggenbach.]
Private ownership of the means of production is the fundamental institution of the market economy. It is the institution the presence of which characterizes the market economy as such. Where it is absent, there is no question of a market economy, writes Ludwig von Mises (1881–1973).
This audio Mises Daily is narrated by Jeff Riggenbach.
[From Inquiry (1977); reprinted in Wall Street, Banks, and American Foreign Policy (1995).]
The Panama Canal question has already established itself as the hottest political issue for the coming year. Ronald Reagan, who almost rode to the Republican nomination last year on a promise to keep the canal, is back again, leading the powerful forces opposing the new Carter treaties with the government of Panama. Alert to the polls that show that Americans are overwhelmingly opposed to giving up the canal, the Republican National Committee and most Republicans across the country have gleefully seized upon this issue, thus going flatly against the counsel of former President Ford, who vigorously supports the treaty.
In the liberal and "moderate" press, the contending forces are lined up in an all-too-familiar morality play. Opposed to the treaty are reactionaries and jingoists, emotionally and irrationally devoted to the mystique of American "sovereignty" in a foreign land; in its favor are sensible and moderate internationalists, people who believe in friendly cooperation between the United States and Third-World nations and who wish to jettison the last remnants of a naive and outdated American imperialism left over from the innocent if clumsy swaggering of Theodore Roosevelt. What could be a more clear-cut moral lineup: for the treaty, all the good guys, from Carter to Ford to the New York Times and the Washington Post; against, all the certified Bad Guys from Reagan to the American Conservative Union to the John Birch Society?
But you can't always tell all about the game from a list of the players — and there is more to be said than the standard account in the Establishment media. The Reaganite bluster about sovereignty can easily be dismissed; there are, however, more important questions about the new Panama treaty: Does it really abandon US imperial domination of the canal and the Canal Zone? Does the treaty really turn this area of Panama back to the Panamanians? If we consider the treaty in the light of these questions rather than in relation to jingoist notions, we will come up with a very different view of the big political issue of the year.
Particularly revealing are the statements of high American officials and other advocates in assuring the American public of the fallacy of right-wing fears about the treaty. Thus, Henry Kissinger announced his "strong view" that the treaty "is in the national interest of the United States." Kissinger went on to explain that "the new treaty marks an improvement over the present situation in that it assures continuing, efficient, nondiscriminatory, and secure access to the Panama Canal with the support of the countries of the Western Hemisphere instead of against their opposition and eventually their harassment."New York Times, August 18, 1977. In short, it is better to stay in more subtly and induce Panama and the rest of the world to support our dominion than to stay in nakedly and face the hostility of the Panamanians and most other nations.
In his public statement announcing the agreement on the basic elements of the Panama treaty, President Carter stressed that he and the Joint Chiefs of Staff agreed that the pact will be "important to our long-term national interests." Specifically, the United States will formally continue in charge of the canal until the year 2000: "We will have operating control and the right to protect and defend the Panama Canal with our military forces until the end of the century." But even after that "we will have the right to assure the maintenance of the permanent neutrality of the canal as we may determine necessary. Our warships are guaranteed the permanent right to expeditious passage without regard to propulsion or cargo."New York Times, August 13, 1977.
Or, as the Carter administration's summary of the Panama agreement put it, "The U.S. will have the permanent right to defend the neutrality of the canal from any threat, for an indefinite period." President Carter himself has stated flatly, "If it is attacked by any means, I will defend it." He has assured the public that "if we ever have to go into Panama, there will be no legal question under these treaties."Los Angeles Times, October 23, 1977. In short, there are no limits in this treaty on the actions that the United States will be able to take, even after the year 2000, to preserve what it deems to be the "neutrality" of the canal.For a confirming view, see the report on the broadcast by Sol Linowitz over the Voice of America, in Harry B. Ellis, "Carter Still Presses for Canal Treaty," Christian Science Monitor, August 31, 1977.
Thus, in exchange for the mystique of sovereignty and formal national ownership, the United States has acquired the agreement of the Panamanian government in its perpetual ultimate control of the canal. Or, as Ellsworth Bunker, one of the two American negotiators of the treaty — the other was Sol Linowitz — admonished the critics, "It is not ownership but use that is important." He could have added the fact that the ability to use and control property is precisely the function of ownership.Actually, it is unclear that even our existing status in Panama is one if sovereignty and ownership over the Canal Zone. The 1903 treaty with Panama merely grants to the United States "in perpetuity the use, occupation and control if a zone. " The Supreme Court of the Canal Zone on May 6, 1907, in the case of Canal Zone v. Coulson, ruled, quite in the spirit of the treaty, that "the United States is not owner in fee of the Canal Zone; it has only the use and occupation as long as it complies with the terms of the treaty." It is true, however, that the US Supreme Court chose to disregard such limits in the same year, asserting that "the title of the United States to the Canal Zone is not imperfect.'" (Wilson v. Shaw)
"The ability to use and control property is precisely the function of ownership."When the new treaty was announced, Bunker and Linowitz spelled out one of its major advantages to US dominion. As the August 13 New York Times phrased it, Bunker and Linowitz "said they thought that continued operation of the canal was threatened more by possible Panamanian sabotage or disorders that might follow a failure to carry out the agreement than by external threats that they asserted the United States would be free to curb."
But particularly fascinating is the argument on behalf of the Panama treaty by the most sophisticated of American conservative organs, National Review. National Review begins its editorial by assuaging the hurt to the "national pride" of conservatives, and assuring their conservative followers that it understands their "soul-searing" pain. Then, NR proceeds to instruct its constituency in the realities of today's world. "Conservatives are realists, and here is a test of realism." Specifically, and echoing Kissinger, Linowitz, and Bunker, NR points out that "our own military men support the treaty on the ground that the canal can be better defended with the treaty than without it." First of all, under the new treaty Panama agrees that the United States may continue to use its air and sea forces to defend the Panama Canal against an external attack. NR then turns to the "most realistic kind" of military threat to US rule over the canal, namely "guerrilla warfare, and defense against that is very difficult under any circumstances." And then NR adds the clincher: "One thing is sure — it could be done far better together with Panama than without it; or worse, against it." In short, the Panamanian government would now be ranged against such guerrilla warfare rather than overtly or covertly supporting it.
Addressing a common fear of the treaty critics, NR supposes that Panama violates the treaty. In that case, the magazine concludes, "we will still be in a position to act if and when necessary. And what is most important, we would almost surely be in a stronger position to act at some later time in response to an actual threat or violation of the treaty than we would be now in defense of our own refusal to ratify.""The Proposed Treaty: Preliminary Thoughts," National Review, September 2, 1977. In other words, far better for the United States to exercise its power in defense of a treaty — and therefore in command of wide international support — than in isolation after refusing to ratify.
In a similar vein, Carter's national security adviser, Zbigniew Brzezinski, told a White House meeting of prominent Georgians and Floridians that "if he were in the Kremlin and he could think of anything that … might alienate countries against the United States even further, it would be defeat of these treaties."Don Irwin, "Rusk Sees Chance of War in Panama," Los Angeles Times, August 31, 1977.
A common conservative charge is that the treaty will hand over the canal to a "Communist" Torrijos regime in Panama. Far from being a "Communist," however, General Torrijos is in hot water in his own country, especially among the anti-imperialist critics on the Left.The other major charge by the Right is that Torrijos is a "dictator." This is true enough, but the charge comes with peculiar ill grace from a movement that has expressed its devoted admiration for every dictatorial and fascist regime in the world, from South Africa to Chile, South Korea, and the Philippines.
Panamanian newspapers were highly reluctant to reveal to their readers the details of the agreement with the United States. The New York Times reported that "rather than expressing joy at the culmination of the long negotiations, most Panamanians appeared today to be uncertain and confused. " Addressing a meeting of the Panamanian Student Federation, that country's chief negotiator of the agreement, Dr. Romulo Escobar Bethancourt, admitted that many aspects of the treaty were "bad" and even "ugly"; in defense, Escobar demagogically posed the only alternative to the treaty as a "confrontation" with the United States and the "massacre of the best of our youth."
The Panama government announced its intention to hold an early national plebiscite to decide on ratification of the treaty, but it is clear that the plebiscite, which endorsed the treaty by two to one, was held in the midst of a propaganda campaign branding any criticism of the treaty as "treason against our fatherland." More important, it was held while many of the leading opponents of the treaty were languishing in exile. For, over the past three years, the Torrijos regime has systematically deported its most outspoken critics, including likely opponents of the new treaty, to Miami, Mexico, and Venezuela.New York Times, August 11.
Indeed, one of the major unsuccessful demands of the Panamanian Left was that Torrijos keep his promise to declare a general amnesty for political prisoners, and that he allow all the exiles to return to Panama and challenge the treaty. In the light of this situation, it must be considered a joke in questionable taste for Dr. Escobar to condemn the Panamanian exiles in Miami for urging US senators to vote against the treaty. Obviously, a simple way for Panama to put a stop to this activity would be to allow the exiles to return to their Panamanian homeland.
Moreover, a full and fair debate over the plebiscite was precluded by the Torrijos regime's iron control of the media. Every one of the newspapers and television stations is owned or controlled by the government, and the radio stations are also effectively ruled by the regime.
Press censorship and restrictions on public assembly were officially lifted during the 40 days prior to the plebiscite, but Torrijos refused to grant any additional time for public debate. As Marlise Simons reported in the Washington Post of October l3, "Officials say that Panamanians know enough about the treaties and only troublemakers want more time."
Mounting criticism of the treaty has come from conservative as well as leftist critics of the Torrijos regime. The conservative Movement of Independent Lawyers of Panama has denounced the treaty for approving the "first American intervention in our country of the twenty-first century." The MILP went on to assert that "the ordinary Panamanian will easily understand that … there will be a new version — perhaps slightly less grotesque than before — of the hated American perpetuity on the canal issue." Both the Christian Democratic and Social Democratic parties also came out against the treaties, "pointing out that in 1926 and again in 1947, Panama had rejected drafts attempting to legalize the U.S. military bases [there]."Washington Post, October 13. And Panama's Trotskyist Revolutionary Socialist League made the significant statement that the present would be a particularly auspicious time to confront American imperialism: "Today we have the eyes of the world on us, today we have international support, today imperialism has been weakened by Watergate and Vietnam."New York Times, August 11.
On September 6, the Panamanian Left made known its displeasure with the treaty; 1,500 students demonstrated in Panama City against the "dirty treaty" and its provisions for maintaining American military bases and perpetual rights of American intervention. The protest was stamped out by Torrijos's National Guard, which injured dozens of demonstrators and arrested over 30 students.
If the Panama treaties merely provide a sophisticated fig leaf for continued American domination of the canal, why then did the Torrijos regime sign the accord in the face of the domestic troubles that would predictably ensue? One answer to this question might be that venerable motive, money — a vital aspect of the treaty is US agreement to sugarcoat the pill by multiplying manyfold the annual revenues going into the coffers of the Panamanian treasury. Currently, the US government pays $2.3 million a year to Panama for use of the canal. The treaty proposes to increase this amount by giving Panama $0.30 per ton out of the current canal toll of $1.29 per ton. With corrections for inflation, this share is expected to amount to a revenue of $40 to $50 million per year. In addition, operational revenues will be paid for such services as ship repair and dockage; this is expected to amount to $20 million per year.
But this is far from all. The United States also pledges to undertake a five-year program of supplying financial goodies to Panama: $200 million of Export-Import Bank credits; $75 million in Agency International Development housing credits; and $20 million in loan guarantees from the Overseas Private Investment Corporation. This amounts to a five-year boodle of nearly $300 million, which, added to $70 million per annum, makes a handsome subsidy package, and is perhaps worth the risk of a few student demonstrations.
Apparently, the Carter administration feels that it can sell this package to the American public with the argument that none of this money will come directly out of taxes. The annual sum will initially come out of the toll revenues of the US government-owned Panama Canal Company, and later out of the budget of the new, frankly governmental American agency that is scheduled to replace the Panama Canal Company in running the canal. The five-year plan, too, consists of loans and loan guarantees. While all this is ultimately guaranteed by the US taxpayer, the subsidy package, being long-run and indirect, might be slipped by the American taxpayer without causing an outcry.
Focusing on the money enables us to ponder the seemingly curious phenomenon that American big business, unlike our conservative ideologues, is overwhelmingly in favor of the Panama treaty. The advocates include such influential business leaders as Irving S. Shapiro of DuPont, head of the Business Roundtable and such groups as the National Association of Manufacturers. One general reason for this support is that these sophisticated business groups understand and welcome the treaty as a more subtle and acceptable form of American imperialism. A more specific reason is the effect the treaty will have for those firms with trade and investment in Latin America. Rejection of the treaty might mean anti-American unrest throughout the region and might have a "destabilizing" effect on American investments there. Private US investment in Latin America is estimated at $24 billion, while total two-way US trade there amounted to $34 billion in 1976. As John M. Goshko reported in the August 22 Washington Post:
These economic factors could produce some startling surprises about where different interest groups line up in the battle.
There is the strong likelihood that the normally conservative, Republican-leaning business establishment will be solidly on the side of a Democratic president. …
Where the business community is concerned, Carter administration strategists contend, the case for supporting the treaties seems ironclad. In fact, the administration privately is counting on big business to provide some potentially crucial help in getting the treaties past the hurdle of Senate ratification.
Already, Henry R. Geyelin, president of the Council of the Americas, a nonprofit business association comprising every major US firm doing business in Latin America, has testified on behalf of such a treaty before the House Panama Canal Subcommittee.
But explanations in terms of groups or classes are never as rewarding as the concrete unveiling of specific monetary interests. Thus, there needs to be further investigation of which US business or financial groups might be benefiting specifically from the hundreds of millions of dollars that the US government will be pouring into Panama. One clear group of beneficiaries is the American exporters who will receive orders from the $300 million package. US foreign aid is a clever mechanism by which American taxpayers and the US government subsidize American export firms: the dollars are extracted from the taxpayer and are then funneled by the US government to the foreign recipients, who in turn spend the dollars on American exporters. In this case the process is clear: the Panama treaty explicitly applies "Buy American" provisions to the aid, making sure that the American exporters receive the dollars as rapidly as possible.
But there is another use that the Panamanian government will have for the US aid, one that may prove to be a more intimate lead to the underlying reason for concluding this treaty. Panama is heavily in debt to US banks, and the influx of hundreds of millions of dollars will certainly ease its burden in paying the interest and principal on the debt; it may even save Panama from bankruptcy — and the American banks from severe embarrassment. We must therefore contemplate the possibility that the nub of the Panama treaty is a covert bailout operation by which the American taxpayer is being gulled into subsidizing, and even salvaging, a handful of US banks.
This suggestion does not seem very outrageous if we consider the history of how the United States got involved with the Panama Canal in the first place. It's not just, as Senator Hayakawa (R-CA) said, that "we stole it [the canal] fair and square." Or that President Theodore Roosevelt engineered a phony "revolution" in 1903, by which employees of the American-owned railroad declared the Panama section of Colombia independent and American ships prevented Colombia from putting down the rebellion. The similarity with the present theme comes from the hidden motive behind Teddy Roosevelt's flamboyant actions.
"There are several ironies that emerge from the Panama Canal treaty fight — especially the picture of this country's liberals and progressives battling to pour money into the coffers of a handful of Wall Street banks."In order to build the canal, the United States felt that it had to purchase the right to do so from the bankrupt French-owned company that had failed in its attempt to dig the canal. Teddy Roosevelt explained that he acted out of indignation at the Colombian government's insisting on a $10-million "holdup" of American taxpayers for the right to build a canal in Panama. Actually, the US government was perfectly willing to pay $40 million to the French Panama Canal Company. The $10 million to Colombia would have come, not from the taxpayers, but out of the $40 million cut going to the French company.
Why, then, did Teddy Roosevelt swing the big stick and foment a phony revolution in Colombia, in order to save $10 million for the coffers of a bankrupt French-owned company? The answer, which came out years later, is that the "French" company was French no longer; its shares had been secretly bought up shortly before by syndicate of Wall Street bankers, headed by J.P. Morgan and Company. The syndicate hired the eminent Wall Street lawyer, William Nelson Cromwell, to get the American money, and it was Cromwell, sitting in the White House itself, who wrote TR's dispatches and orders and engineered the entire operation. After the syndicate got the $40 million, they were able to sell their shares to the US government for twice what they had paid.
Moreover, one of the syndicate members was none other than Teddy Roosevelt's brother-in-law, Douglas E. Robinson. Not only did Robinson benefit as a syndicate member, but most of the $40 million from the US taxpayers was funneled by Cromwell into the New York real estate firm of the same Douglas Robinson.
And so we should not be surprised to discover that US government action in Panama today is for the purpose of subsidizing the Wall Street bankers. Judging from the facts available to us, the current treaty may well be a rerun of the original bailout.
Commercial banks refuse to make public the details of specific loans like those to Panama, and the Panamanian government is not exactly generous with such information either. However, some broad information is available. When General Torrijos seized power in the 1968 coup, Panama's national debt abroad was $167 million; its estimated total current debt is more than $3.5 billion. More pertinently, the total debt of the Panama government to US banks is reported by the Library of Congress at $1.7 billion. In a memorandum to the president of Panama, the Department of Planning stated that no less than 39 percent of Panama's budget is being used to service its foreign debt, which amounts to $42 million per year and includes $25 million in interest and $17 million in amortizing principal.
Leading the parade of American banks involved in Panama are the First National City Bank and the Chase Manhattan Bank, the flagship bank for the far-flung Rockefeller financial interests. Both of these banks serve as fiscal agents for the government of Panama. In one advertisement for a $115 million loan to Panama, for example, the First National City Bank is listed as the agent for the loan. Other participating banks included the Bank of America, Bankers Trust, Chase Manhattan, the First National Bank of Boston, the First National Bank of Chicago, the Republic National Bank of Dallas, and the Marine Midland Bank.
We might well ask, why did the New York banks pour all these loans into Torrijos's Panama? It seems clear that the money was a quid pro quo for Torrijos's decision — on the advice of leading New York banks — to reorganize Panama's banking laws in July 1970. This reorganization provided a favorable haven, free of taxes and onerous regulations, for foreign banks in Panama, much as Panama has long provided a flag of convenience for world shipping. Since the 1970 legal change, total banking assets in Panama have expanded enormously from a few banks with a few million dollars to 73 banks with total assets of $8.6 billion conducting transactions throughout the world. Prominent among the US banks expanding rapidly in Panama since the 1970 legislation are the First National City Bank, the Bank of America, Chase Manhattan, and the Marine Midland Bank.
It was a deal that benefited the US banks and the Torrijos regime, which could thereby expand its wealth as well as its political power in Panama. But now the US taxpayer is being subtly asked to pick up the tab.
If a handful of large US banks will be the major beneficiaries of the Panama Canal treaty, have they also had any role in lobbying for or negotiating the treaty itself? Or will their gains be merely a lucky windfall from decisions made by the US government for very different reasons? Let us see. While the treaty was being negotiated, then-Senator Gale McGee (D-WY), one of the leading protreaty people in Congress, held a meeting at the State Department at the end of October 1975 to organize a protreaty lobby. In attendance were lobbyists for the Chase Manhattan Bank, the Bank of America, such large corporations as Gulf Oil and Rockwell International, as well as representatives of the Council of the Americas. A campaign kitty was raised at that meeting, estimates of the size ranging from $100,000 to $500,000. Subsequent meetings brought in lobbyists for other large banks and corporations, including Pan American World Airways. Plans were made at these meetings to pressure the US Chamber of Commerce into supporting the future treaty.See Russell W. Howe and Sarah H. Trott, The Power Peddlers, Doubleday, p.123.
The influence of the bankers and the corporations, however, has been even more direct. When Carter took office he appointed the dynamic and highly influential Sol Linowitz, former ambassador to the Organization of American States and long an advocate of a new treaty, to join the octogenarian Ellsworth Bunker on the Panama Canal negotiating team. Bunker himself is a former director of Bankers Trust, and his brother, Arthur Hugh Bunker, is a longtime director of Lehman Brothers.
Linowitz's connections are more numerous and impressive. He is a member of the powerful Council on Foreign Relations, which is dominated as well as chaired by David Rockefeller, who is also chairman of the Chase Manhattan Bank. Moreover, Linowitz is a member of the exclusive and now-famous Trilateral Commission, which was founded and is dominated by David Rockefeller and which includes so many foreign-policy and economic-affairs leaders of the Carter administration — from Carter himself to Vice President Mondale, Secretary of State Cyrus Vance, and National Security Adviser Brzezinski. In addition, Linowitz is a trustee and former chairman of the policy committee of the Center for Inter-American Relations, an organization founded and chaired by David Rockefeller, whose directors interlock heavily with the Council for Foreign Relations. Linowitz was also a member of Nelson Rockefeller's personal vehicle for his abortive presidential run, the National Committee on Critical Choices for Americans. As a member of the board of directors of Time, Inc., Linowitz also wields a degree of influence on the media.
Even more pertinently, upon his appointment as negotiator of the canal treaties, Sol Linowitz was a member of the board and the executive committee of Marine Midland Bank and of Pan Am. He was also a large stockholder in Marine Midland. The Marine Midland connection is clear and direct; for, as Congressman George Hansen (R-ID) has disclosed, the government of Panama owes Marine Midland Bank nearly $8 million. Furthermore, it was only after Hansen and Senator James McClure (R-ID) filed suit on April 20 for a temporary restraining order against Linowitz as canal negotiator that Linowitz finally resigned his positions with Marine Midland.
The suit sought the restraining order on the ground of conflict of interest on the part of Linowitz, at least until this presidential appointment should be confirmed by the Senate. Linowitz, however, insisted on keeping his high positions at Pan Am while negotiating and arguing on behalf of the canal treaty. Pan Am's connection, while intriguing, does not seem as direct as Marine Midland's. Pan Am has for decades been within the Rockefeller financial ambit, as is indicated by James S. Rockefeller's presence on the airline's board of directors. Other directors are Frank Stanton of CBS and Donald Kendall of Pepsico, both of whom are directors at Atlantic Richfield Company, whose president Robert O. Anderson is a member of the board of Rockefeller's Chase Manhattan Bank. Until he became secretary of state, Cyrus Vance was also a director of Pan Am. While too much should not be made of a list of corporate interconnections, the above establishes a clear pattern of Linowitz-Rockefeller commonality of interest and action.
We have already seen that Pan Am participated in the McGee-organized corporate lobbying in favor of a Panama treaty. What does Pan Am have to gain from Torrijos? One obvious benefit is the protection of the company's landing rights in Panama. It just might be important that Panama serves as Pan Am's headquarters for Latin America.
One of the most important influences in the drive toward a treaty was the new Washington-based Commission on US-Latin American Relations. The commission was organized in 1974 by the Center for Inter-American Relations and was largely financed by Ford Foundation and Rockefeller funds. Its chairman until recently was Sol Linowitz, with Dr. Robert A. Pastor serving as the staff director. Other members of the Linowitz Commission included such influential Trilateral Commission members as W. Michael Blumenthal, who is now secretary of the treasury; Samuel P. Huntington, now an aide to the National Security Council; Peter Peterson, chairman of Lehman Brothers; and Elliot Richardson.
In December 1976, Pastor wrote a report for the Linowitz Commission, urging a new treaty and substantial funds for Panama; the Council on Foreign Relations promptly held a special colloquium on the subject and endorsed the Linowitz Report. The next month, Brzezinski, national security adviser to Carter, appointed a special assistant on the Panama question, who turned out to be none other than Dr. Robert Pastor.
Without delay, Pastor drew up a National Security Council memorandum recommending a new Panama Canal treaty. The paper was approved by Brzezinski, and then, after being checked out with longtime Nelson Rockefeller foreign-policy aide Henry Kissinger, endorsed by Carter. As the culmination of the Linowitz-Rockefeller drive, Linowitz then got himself appointed negotiator for the new Panama treaty.There are several ironies that emerge from a careful look at the Panama Canal treaty fight — especially the picture of this country's liberals and progressives battling to pour money into the coffers of a handful of Wall Street banks in the name of a treaty they mistakenly believe represents a withdrawal of US power abroad. It doesn't, and those who automatically oppose anything the right wing favors need to do some hard rethinking of their reflexive support for the new Panama Canal treaties.
This article originally appeared on Dec. 5, 1977, in Inquiry, vol. 1, no. 2: pp. 9–14. It has been reprinted in Wall Street, Banks, and American Foreign Policy (Center for Libertarian Studies, 1995).
Over the past two weeks, National Public Radio (NPR) has carried stories on the plight of the bluefin tuna and on the conservation campaign designed to save the endangered fish. Restaurants and supermarket chains have pledged to boycott the delectable creature until governments lower fishing quotas. Some vocal fishermen naturally oppose reductions in their quotas, because this would hurt their livelihood.
The whole episode is just another demonstration of the conflict that arises whenever government regulation tries to solve a problem caused by a lack of property rights. If people owned portions of the ocean, then the bluefin tuna would become as ubiquitous as cattle.
The ConflictWe'll quote from an earlier NPR story to summarize the situation before a recently concluded conference that addressed the problem:
Paris: November 24, 2010
Conservation group WWF teamed up with supermarket chains and restaurants Wednesday to press countries to set stricter fishing regulations for Atlantic bluefin tuna during an international conference in Paris.
WWF says the fish, popular in sushi, is on the brink of collapse.
French supermarket groups Carrefour SA and Auchan, French food services giant Sodexo and British restaurant chains Pret A Manger and Moshi Moshi are among the companies that pledged to stop serving Atlantic bluefin tuna until the situation improves, the conservation group said.
The companies joined WWF in pressing the International Commission for the Conservation of Atlantic Tunas, or ICCAT, to take "urgent action" to save the fish, which swims in the Atlantic and Mediterranean. …
WWF and other conservation groups want the 48 member countries of ICCAT to suspend or dramatically reduce the fishing quotas for the species.
Some fishermen, however, say such a move would lead to job losses and hurt their already suffering business.
As it turned out, ICCAT set the total allowable catch at 12,900 metric tons, a level that it claimed would allow "the maximum sustainable yield for bluefin-tuna fishing from now until 2022." According to ICCAT, "A balance between respect for the resource and the economic activity of the fishermen is possible."
Conservation groups were dismayed, calling the meeting a "total failure" for the bluefin tuna. Critics pointed out that even ICCAT's own scientific analysis showed that there was only a 70 percent chance that the new quota was consistent with sustainability of the tuna stock.
Tragedy of the CommonsThe problem of overfishing is genuine. Maybe ICCAT's new quota will "work" and maybe it won't, but in any case there is a definite problem when fishermen can harvest fish at a faster rate than the fish reproduce. Economists call this a "tragedy of the commons," when each individual takes from the common resource without taking account of the impact on everyone else.
Originally, the concept of a tragedy of the commons was used to analyze a hypothetical medieval pasture, where each herder could let as many cattle graze as he wanted. Even if everyone could see that there were more cattle than the land could support, it would be in no one's interest to restrict his own herd, because someone else would simply offset the move by enlarging his own herd.
The tragedy of the commons in pastureland was solved by the enclosure movement, i.e., by assigning property rights to individual parcels of land. Thereafter, a herder needed permission from the owner in order to let his animals graze on a plot. The owner of the land was interested in maximizing the long-run services of his property and so he would restrict the total amount of grazing to below the outcome that occurred when the grass was available on a first-come, first-served basis to all herders.
Privatizing the OceanThe same general logic applies to aquatic resources, including fish. In principle, the problem of overfishing could be easily solved if "chunks" of ocean were transferred into private property. Rather than having a meeting of 48 governments to determine "the" quota, the owner(s) of each chunk of ocean could set an individual policy for that chunk.
To be sure, there would be logistical difficulties in privatizing the oceans. For example, if it turned out to be too costly to sink large nets deep enough into the water at the property lines, then the fish could easily swim from one owner's property into another's. The situation would be analogous to one on land before ranchers developed barbed-wire fencing.
"If people owned portions of the ocean, then the bluefin tuna would become as ubiquitous as cattle."In such a scenario, one solution might be for entrepreneurs to buy many adjacent chunks in order to own an enormous volume of ocean water, so that the owner(s) of any consolidated property could expect to reap most of the benefits from limiting the amount of fishing that could take place on its surface.
Alternatively, it might make more sense to establish property rights in the sea creatures themselves, analogous to branding of cattle. To track their swimming property, the owners might use radio collars (for whales and large fish) or coat the schools of smaller fish with a harmless radioactive substance.
For someone who has never heard such proposals, these suggestions sound farfetched. But there is quite a voluminous literature on the topic, for example here and here.
Government vs. Market StewardshipGovernment-run enterprises suffer from the calculation problem described by Ludwig von Mises (originally in reference to full-blown socialism). Because they earn their revenues through coercive taxation, and because they often prohibit competition, government enterprises have no idea if they are serving their "customers" as efficiently as possible.
But beyond this fundamental calculation problem, there is also the more mundane incentive problem. Specifically, government officials who are in charge of "protecting endangered species" do not take nearly as good care of them as would private owners, who would personally reap the gains from increasing the market value of the resource.
For example, an African government could claim that it is committed to saving the white rhino, but in the grand scheme of things, how much will its officials really care about spending money to intercept poachers? Yet, in the case of white rhinos in southern Africa, when property rights were introduced — so that the animals were no longer contraband but prized possessions — the turnaround in population figures was astounding.
In the case of fishing, government regulations are often the epitome of inefficiency and unintended consequences. In a typical progression, the government might declare that people can fish only during a certain time of the year, but during the "fishing season" anything goes. The obvious result is that commercial fishermen equip themselves with high-capacity vessels that can extract enormous quantities of fish in very little time.
Even at this point, the outcome is wasteful. The expensive, state-of-the-art vessels are only in use for a small portion of the year — during fishing season — and otherwise lie idle.
Over time, as the commercial fishing boats become more sophisticated — and as more fishermen enter the industry — the government realizes that the fish population will not survive, even with the limited season. Thus, the government introduces new measures, designed to hinder the productivity of the fishermen. For example, the government might ban the use of nets bigger than a certain size or it might limit the size of vessel that can be taken onto the body of water.
All this foolishness would largely be eliminated with private ownership. The primary brake on overfishing would be the price that the owner of the chunk of ocean charged the commercial fishermen to "rent" his or her water. The owners of ocean wouldn't have any interest in forcing their customers to use inefficient equipment or techniques, and there wouldn't be arbitrary "seasons" except as they coincided with the natural biological cycles of the fish.
ConclusionWith ill-defined property rights, genuine conflict develops among people. Turning to government regulation will only exacerbate the problem, because government officials do not actually have the interests of "society" at heart. Only through genuine ownership can the problem of overfishing be solved. The bluefin tuna needs more capitalism!
[This article, written in the year 1755, is excerpted from part 1, chapter 15 of An Essay on Economic Theory.]
Experience shows that trees, plants, and other kinds of vegetation can be increased to any quantity, to the extent that the land allocated to them can support.
The same experience shows that all the animal species can be multiplied to any quantity that the land allotted to them can support. Horses, cattle, and sheep can easily be multiplied up to the number that the land will support. One can even improve the fields allocated for this purpose by irrigation, as in Milan.Here Cantillon notes that technology in the form of irrigation increases the productivity of resources. He has been criticized for ignoring the role of technological progress. Hay can be grown to raise cattle in stables and feed them in larger numbers than if they were allowed to freely roam in the fields. Sheep may be fed on turnips, as in England, so that more can be fed with an acre of land than if it were pasture.
In a word, we can multiply all sorts of animals in such numbers as we wish to maintain, even to infinite numbers if we could find lands in infinite quantity to nourish them; and the multiplication of animals has no other bounds than the greater or lesser means allotted for their subsistence. There is no doubt that if all land was devoted to the simple sustenance of man, the race would increase up to the number that the land would support in the manner to be explained.
There is no country where population is carried to a greater height than in China. The common people are supported by rice and rice water; they work almost naked and in the southern provinces, they have three plentiful harvests of rice each year thanks to the great care they give to agriculture. The land is never fallow and yields more than a hundredfold every year.Yields more than 100 times the amount of seed that is planted. Those who wear clothes generally have cotton clothing, which needs so little land for its production that an acre of land, it seems, is capable of producing a quantity of clothing sufficient for 500 adults.
The Chinese, by the principles of their religion, are obliged to marry and raise as many children as their means of subsistence will afford. They look upon it as a crime to use land for pleasure gardens or parks, cheating the public of food. They transport travelers in sedan chairs and save the work of horses upon all tasks that men can perform.
Their number is incredible, according to the descriptions of China's visitors,Higgs translated this as "Relations of Voyages," a common title of books written by travelers and explorers of foreign lands. however, they are forced to let many of their children die in the cradle when they are unable to support them, keeping only the number they can feed. By hard and persistent labor, they draw from the rivers an extraordinary quantity of fish, and from the land, all that is possible.
Nevertheless, when bad years come, they die of hunger by the thousands in spite of the care of the emperor, who stores rice for such contingencies. Numerous then as the people of China are, they are necessarily proportioned to their means of living and do not exceed the number the country can support, according to their standard of living; and on this level, a single acre of land will support many of them.
On the other hand, there is no country where the increase of population is more limited than among the savages in the interior parts of America. They neglect agriculture, live in the forests, and live by hunting the animals found there. As the trees consume the sap and substance of the earth, there is little pasture for animals, and since an Indian eats several animals in a year, 50 or 100 acres often supply only enough food for a single Indian.
A small tribe of these Indians will have 40 square leaguesRoughly 100 square miles. for its hunting ground. They wage regular and bitter wars over these boundaries, and always proportion their numbers to their means of support from hunting.
The Europeans cultivate the land and draw grain from it for their subsistence. The wool of their sheep provides them with clothing. Wheat is the grain on which most of them are fed, but some peasants make their bread of rye, and in the north from barley and oats. The food of the peasants and the people is not the same in all countries of Europe, and land is often different in quality and fertility.
"On the other hand, there is no country where the increase of population is more limited than among the savages in the interior parts of America. They neglect agriculture, live in the forests, and live by hunting the animals found there." Most of the land in Flanders,Now located in northern Belgium. and part of that in Lombardy,Now located in northern Italy. yields 18 to 20 times the wheat sown, without lying idle. The countryside of Naples yields still more. There are some parts of France, Spain, England, and Germany that yield the same amount. Cicero tells us that the land of Sicily in his time yielded tenfold, and the elder Pliny says that the LeontineLeontini was a city-state on the east coast of Sicily, just north of Syracuse. lands in Sicily yielded 100 times the seed sown, those of Babylon 150 times, and some African lands a good deal more.
Today, land in Europe yields on the average six times what is sown, so that five times the seed remains for the consumption of the people. Land usually lays fallow the third year, producing wheat the first year, and barley and oats the second.
A man who lives on bread, garlic, and roots, wears only hemp garments, coarse linen, wooden shoes, and drinks only water, like many peasants in the south of France, can live on the produce of an acre and a half of land of average quality, yielding a sixfold harvest and laying fallow every third year.
On the other hand, an adult man, who wears leather shoes, stockings, woolen cloth, who lives in a house and has a change of linen, a bed, chairs, table, and other necessities, moderately drinks beer or wine, eats meat every day, butter, cheese, bread, vegetables, etc., sufficiently and yet moderately, needs less than the product of four to five acres of average quality. It is true that in these estimates no land is allotted for horses, except those needed to plow and for the transport of the products a distance of ten miles.
History records that the first Romans each maintained his family on two journauxHiggs did not translate Cantillon's journaux, but the Roman jugerum was their unit of land measurement and is equal to approximately two-thirds of an English acre. of land, equal to one Paris acre, and approximately 330 square feet. They were almost naked, had no wine or oil, slept in straw, and hardly had any comforts, but because they intensely cultivated the land, which is fairly good around Rome, they drew from it plenty of grains and vegetables.
If the property owners had the desire to increase the population, they would encourage peasants to marry young and raise children by promising to provide them with subsistence, devoting the land entirely to that purpose, and they would doubtless increase the population up to the point that the land could support, according to the products allotted for each person, whether those of an acre and a half, or four to five acres.
But if instead, the prince, or the property owners, made them use the land for other purposes than the upkeep of the people. If, by the prices they offer in the market for commodities and merchandise, they determine that the farmers will employ the land for other purposes than the maintenance of men (for we have seen that the prices they offer in the market and their consumption determine the use made of the land, just as if they cultivated it themselves), the people will necessarily decrease in number. Some will be forced to leave the country for lack of employment while others, not having the necessary means of raising children, will not marry or will only marry late, after having saved for the support of the household.
If the property owners who live in the country move to the cities far away from their land, horses must be fed for the transport of food into the city for both the owner and all the domestic servants, artisans, and others, whom their residence in the city will attract.
The transport of wine from Burgundy to Paris often costs more than the wine itself costs in Burgundy. Consequently, the land employed for the upkeep of wagon horses, and those who look after them, is more considerable than the land that produces the wine and supports those who have taken part in its production. The more horses there are in a state, the less food will remain for the people. The upkeep of wagon, hunting, or show horses often takes three or four acres of land each.
But when the nobility and property owners draw from foreign manufactures their cloths, silks, laces, etc., and pay for them by sending to the foreigner their native products, they significantly diminish the subsistence of the inhabitants and increase that of foreigners, who often become enemies of the state.
If a nobleman or property owner in Poland, to whom his farmers yearly pay a rent equal to about one-third of the product of his land, uses the cloths, linens, etc., of Holland, he will pay, for these goods, one-half of the rent he receives, and perhaps use the other half for the subsistence of his family, on other products and rough manufactures of Poland.
However, half his rent, on our assumption, corresponds to one-sixth of the production of his land, and this sixth part will be carried away by the Dutch, to whom the farmers of Poland will deliver wheat, wool, hemp, and other products. Here then is a sixth part of the land of Poland withdrawn from its people, to say nothing of the feeding of the wagon horses, carriage horses, and show horses maintained in Poland, because of the lifestyle of the nobility.
Furthermore, if out of the two-thirds of the production of the land allotted to the farmers, the latter, imitating their masters, consume foreign manufactures that they also pay to the foreigners in raw products of Poland, there will be a good third of the production of the land in Poland removed from the food of the people, and, what is worse, mostly sent to foreigners and often serving to support the enemies of the state.
If the property owners and the nobility in Poland would consume only the manufactures of their own state, bad as they might be at the outset, the products would soon become better, and it would maintain a greater number of their own people at work, instead of giving this advantage to foreigners. And if all states took precautions not to be the dupes of other states in matters of commerce, each state would be considerable only in proportion to its products and the industry of its people.The long-distance transportation of bulky commodities entails a reduced purchasing power for property owners and less sustenance for the local people.
If the ladies of Paris enjoy wearing Brussels lace, and if France pays for this lace with Champagne wine, the production of a single acre of flax must be paid for with the production of 16,000 acres of vineyards, if my calculations are correct. Suffice it to say that in this transaction, a great amount of the production of the land is withdrawn from the subsistence of the French, and all the products sent abroad — unless an equally considerable amount of products is brought back in exchange — tend to diminish the number of people in the state. Notice that Cantillon is not arguing over the gains from trade, but that trading necessities for luxuries has the effect of reducing the population. Recall from previous chapters that such reductions involve poverty, starvation, and emigration.
When I said that the property owners might multiply the population as far as the land would support them, I assumed that most men desire nothing better than to marry if they are set in a position to maintain their families in the same style as they are content to live themselves. That is, if a man is satisfied with the production of an acre and a half of land, he will marry if he is sure of having enough to maintain his family in the same style. However, if he is only satisfied with the product of five to ten acres, he will be in no hurry to marry, unless he thinks he can support his family in the same manner.
In Europe, the children of the nobility are brought up in affluence; and as the largest share of the property is usually given to the eldest sons, the younger sons are in no hurry to marry. They usually live as bachelors, either in the army or in the monasteries, but will seldom be found unwilling to marry if they are offered heiresses and fortunes, or the means of supporting a family on the level they consider appropriate and without which they think they will make their children unhappy.
"If the ladies of Paris enjoy wearing Brussels lace, and if France pays for this lace with Champagne wine, the production of a single acre of flax must be paid for with the production of 16,000 acres of vineyards." In the lower classes of the state, there also are men who, from pride and from reasons similar to those of the nobility, prefer to live in celibacy and to live on the little that they have, rather than settle down in family life. But most of them would gladly set up a family if they could count on supporting their family as they wish. They would consider it an injustice to their children if they brought them up only to fall into a lower class than themselves.
Only a few men in a state avoid marriage because of a pure libertine spirit. All the lower classes wish to live and raise children who can live at least like themselves. When laborers and artisans do not marry, it is because they wait until they save enough to enable them to set up a household or to find some young woman who brings a little capital for that purpose. Every day, they see others like themselves who, for lack of such precautions, start a family and fall into the most frightful poverty, being obliged to deprive themselves of their own food in order to nourish their children.
From the observations of Mr. Edmond Halley,Edmond Halley, "An Estimate of the Degrees of the Mortality of Mankind, drawn from curious Tables of the Births and Funerals at the City of Breslaw; with an Attempt to ascertain the Price of Annuities upon Lives," Philosophical Transactions 196 (London, 1693), pp. 596–610. at Breslaw in Silesia [a region in Poland], it is found that of all the females capable of child bearing, from 16 up to 45 years of age, not one in six actually bears a child every year. Instead, says Mr. Halley, there ought to be at least four in six who should have children every year, without including those who are barren or have stillbirths.
The reason why four women out of six do not bear children every year is that they cannot marry because of the discouragement and difficulties in their way. A young woman takes care not to become a mother if she is not married; she cannot marry unless she finds a man who is ready to run the risk of it.
Most of the people in a state are hired or are entrepreneurs; most are dependent and live in uncertainty whether they will find by their labor or their enterprise the means of supporting their household on an acceptable level. Therefore, they do not all marry, or marry so late that of six women, at least four should produce a child every year, but there is actually only one in six who becomes a mother.
If the property owners help to support the families, a single generation would suffice to push the increase of population as far as the production of the land will supply the means of subsistence. Children do not require as much of the land's production as adults. Both can live on more or less according to their consumption.
The northern people, where the land produces little, have been known to live on so little production that they have sent out colonists and swarms of men to invade the lands of the south, destroy the inhabitants, and appropriate their land.Cantillon is here referring to the Vikings of Scandinavia. According to the different manner of living, 400,000 people might subsist on the same products of the land, which ordinarily supports only 100,000. A man who lives on the production of an acre and a half of land, may be stronger and braver than one who consumes the production of five or ten acres.
Therefore, it seems pretty clear that the number of inhabitants in a state depends on their means of subsistence. As the means of subsistence depend on the method of cultivating the soil, and this method depends chiefly on the taste, desires, and manner of living of the property owners, the increase and decrease of population also stand on the same foundation.
Editor's Notes by Mark Thornton
The national furor over the TSA's new procedures — culminating in yesterday's "Opt Out Day" — has elicited the typical response from the bureaucracy and its apologists. Why, these invasive scans and "enhanced pat-downs" are only for your good, in order to ensure safe flying. You don't want another attack, do you?
This is a false tradeoff. Especially in the long run, there is no tension between freedom and safety. If airport security were truly returned to the private sector, air travelers would achieve a much better balance of privacy and legitimate security measures.
The Calculation ProblemWhenever considering government versus market provision of a good or service, we should recall Ludwig von Mises's famous critique of socialism. Specifically, Mises argued that even if the central planners were angels, intending only the best for their subjects, and even if these angels were fully informed of the latest technical knowledge, nonetheless they would be groping in the dark when they tried to design a blueprint for the entire economy.
The socialist central planners would suffer from a calculation problem, meaning that they couldn't evaluate whether a given enterprise — such as a car factory or a farm — was making efficient use of society's scarce resources. Sure, the car factory might be cranking out vehicles that the comrades enjoyed driving. But that alone is not enough to prove that the car factory is economically efficient. For all the planners know, the resources (steel, rubber, labor hours) going into the production of the cars could be diverted into other lines, increasing the production of items that the comrades enjoy even more than the cars.
The market economy solves this problem effortlessly through market prices and the profit-and-loss test. If a car factory is using up resources that consumers would prefer go into alternate sectors, this fact manifests itself objectively when the accountant announces that the car factory is "losing money." After all, to be unprofitable simply means that the car factory cannot earn enough revenues from its customers in order to pay the prices for resources that other entrepreneurs are able to afford. That is the sense in which consumers are "voting" (through their spending decisions) that the car factory either reform or shut down.
In Mises's view, the fundamental superiority of the market economy over socialism was not that entrepreneurs happened to be bold innovators, while government bureaucrats were dull yes-men. No, the problem was an institutional one. In the market economy, the factors of production are privately owned, which allows the generation of market prices for every unit of every resource. Thus people in the private sector get immediate and constant feedback on the success or failure of their operations. There is nothing analogous in government, because its "customers" cannot withhold their purchases if they don't like the "services."
The Calculation Problem and the TSAWhen it comes to the apparent tradeoff between privacy and security, the TSA suffers from the same calculation problem that plagues all socialist agencies. The proper balance of the various considerations cannot be discovered through some "objective" procedure if it doesn't involve private property and market prices.
Consider: Even if there are no further terrorist incidents on planes, that won't prove that the new patdowns and scans were the right thing to do. For one thing, it's possible that there are other security procedures, which do not humiliate large numbers of customers, that would yield the same success of zero incidents. In that case, the current TSA procedures would be inappropriate because they cause needless suffering with no offsetting benefit.
"In the long run, there is no tradeoff between freedom and security."But more importantly, it's possible that the "efficient" number of terrorist incidents — for the rest of US history — is not zero. In fact, no matter what procedures are implemented, it's always possible that wily terrorists will still manage to beat the system. In real life, we can never guarantee safety. This is why so many pundits' discussions of airline travel miss the mark completely: they assume that there is some objective answer of "the right" amount of security, when this is a complex economic question.
To see this last point, we should switch from terrorism to something far less emotional: car crashes. If the government completely nationalized automobile production (something that may happen eventually), and insisted on making a uniform model for every driver in America, we would hear the pundits discuss various issues in the abstract.
For example, Rachel Maddow might argue that the government-issued cars should have three sets of seat belts, air bags for every passenger, and a top speed of 55 miles per hour in order to contain healthcare costs (which would also have been completely nationalized by this point). On the other hand, Sean Hannity might go ballistic over the nanny-state regulations, and point out that the Founding Fathers didn't even have mirrors on their stagecoaches.
The Market Is the Only SolutionYet such hypothetical arguments over "the correct" amount of vehicle safety would be absurd if they conceded the premise that the government should set the standard and apply it uniformly to everyone (except for the politicians, who would get to drive vintage Ferraris). The only way to solve the conflict would be to privatize car production and allow consumers to spend their money, focusing on whatever attributes they cared about the most.
The same conclusion holds for air travel. Only in a truly free market — where different airlines are free to try different approaches to safety — could we approach a sensible solution to these difficult questions. Passengers who don't mind invasive scanning or sensitive inspections could patronize airlines offering these (cheap) techniques — assuming they were really necessary to achieve adequate safety. On the other hand, passengers who objected to these techniques could pay higher ticket prices in order to fly on airlines that hired teams of bomb-sniffing dogs, or set up very secure prescreening procedures (perhaps with retinal IDing in order to board a flight), or implemented some as-yet-undreamt-of method to keep their flights safe, without resorting to methods that their customers found humiliating.
The Role of InsuranceMost people who are sympathetic to the free market would endorse the above sentiments, but with one nagging concern: How does the airline take into account the huge damages imposed on others if one of its planes is hijacked?
One possibility is that the legal system would hold airlines strictly accountable for such property damage, and that the airlines would need to purchase massive insurance policies before obtaining permission to send giant steel containers full of jet fuel hurtling over skyscrapers and shopping malls.
I spell out the mechanics of such a system here. For our purposes, let me deal with one possible objection: Someone might say, "But what happens if an airline has lax security, and terrorists use it to cause an enormous amount of damage, wiping out their insurers? That's why we ultimately need the government in charge of security."
Yet I could pose the same question: What happens if the TSA screws up, and a major terrorist incident occurs? Will John Pistole and his immediate staff be fired? Will the TSA itself have its budget gutted? And who is to say that even the US federal government could "afford" such a catastrophe?
Once we consider the incentives (and lack of consumer feedback) plaguing the TSA, we realize that not only will it err on the "invasive" side of the spectrum, but that it will do so ineffectively.
Here's one obvious example that numerous people have pointed out: What's to stop a terrorist from placing a plastic explosive in an area where it would not be detected by even an "enhanced patdown"? Therefore it is not even true that these scandalous new procedures "at least keep us safe."
ConclusionAs Murray Rothbard pointed out, most of the vexing "social problems" of the day would fade away if we lived in a voluntary society based on private property. This result holds in the specific application of airport security.
In the long run, there is no tradeoff between freedom and security. To paraphrase Franklin, those who would consent to temporary groping in order to avoid terrorism will end up with both.
Murray Rothbard, in his life, was known as Mr. Libertarian. We can make a solid case that the title now belongs to Walter Block, a student of Rothbard's whose own vita is as thick as a phone book, as diverse as Wikipedia. Whether he is writing on economic theory, ethics, political secession, drugs, roads, education, monetary policy, social theory, unions, political language, or anything else, his prose burns with a passion for this single idea: if human problems are to be solved, the solution is to be found by permitting greater liberty.
Yes, Walter Block is provocative. He is an admitted anarchocapitalist, and his signature treatise is called Defending the Undefendable. But readers who spend time with his prose discover that there is far more to the Blockian method than simply breaking taboos. He is provocative not just because of his conclusions but also because he is relentlessly logical, unfailingly truthful, and unusually sincere. He wants answers to the most vexing human problems — whether they are small or large — and he is going to pursue that truth as far as human reasoning can take him.
I can recall looking through correspondence that Professor Block has had with colleagues in topics such as monetary policy, letters in which Block is sharply in disagreement with his correspondent. His argument on behalf of his position is so pointed and attractive that his opponent cannot resist attempting an answer, but of course that only elicits yet another response, and yet another rejoinder, and another response, and so on. The rounds of correspondence can go on for dozens of interchanges. Block persists not because he wants to beat anyone down, but because he is so sincere about finding truth and ferreting out error. If he is wrong about a point, he wants to know it. That's why his opponents always end up on the hot seat.
There is another aspect to his work that should be noted. His public persona is as a plumb-line libertarian, but his method and mode of argument come from his core training in the science of economics. He deploys economic tools in the service of finding answers to social problems. This shows up not only in his exposition; he is also an inspired teacher who never misses a chance to present his argument step by step so that the reader can come to understand economic logic along the way.
You might be surprised at how reasonable-sounding Block can make what might otherwise be considered an outrageous idea. Not every reader will accept every one of Block's conclusions. But everyone will learn how a top-notch economic thinker in the Austrian tradition approaches a huge range of issues. If you disagree with him, you would do well to do so with the same method: that of thinking through problems with close attention to logical and analytical detail.
There is one final trait of Block that might be overlooked: his humility. In a world of academics with inflated egos and selfish ambitions, Block displays constant sincerity, even a kind of naïveté in believing that the truth demonstrated with patience and logic should be enough to carry the day. In our politicized world of charlatans and agenda-driven ideologues, this is rarely the case, of course. But Block charms us with his truth-seeking way, his desire to engage counterarguments of any sort, and his willingness to be shown where he is wrong.
A volume of all the "critical essays" by Walter Block would surely run into thousands of pages. But this is an excellent sampling, and a great tribute to one of the most inspired and hardworking intellectuals of our time.
Housing, a central priority for government policy for many decades, collapsed in 2008; even today, millions of homes are under water. This poses many economic and ethical issues.
This elegant and fact-filled book by Doug French examines the background to the case of "strategic default," or walking away from your home, and considers its implications from a variety of different perspectives. The thesis here is that there is nothing ominous or evil about this practice. It is an extension of economic rationality.
The idea that "a man's house is his castle" is attributed to American Revolutionary James Otis from 1761, and his idea was that government should never be permitted to breach its walls. It is a good thought, in context, one that sums up a dogged attachment to the right of private property.
In the 20th century, however, government got behind the idea that every citizen should be provided a castle of his or her own. This is the essence of the good life, we were told, the very core of our material aspirations. The home is the most valuable possession we could ever have. It is the best investment, even better than gold. Government would make us all owners, one way or another, even if it meant violating rights to make it happen.
Beginning in 2007 and culminating in 2008, this dream was smashed, as home values all over the country plummeted, wiping out a primary means of savings. Some homes fell by as much as 75–80 percent, instilling shock and awe all across the country. The thing that was never supposed to happen had happened. This meant more than mere asset depreciation. An article of faith had fallen, and there were many spillover effects.
The home was the foundation of our financial strategy, our love of accumulating large things, the core of our strategic outlook for our lives. Once that goes, much more goes besides. The things in the home suddenly become devalued. We look around ourselves in astonishment at how much stuff we have, and we are weighed down by the very prospect of moving. We are longing for a different way, perhaps for the first time in a century.
The collapse of the housing market — which has occurred despite every effort by the government to prevent it — coincides with the highest rate of unemployment among young people that we've seen in many generations. Economic opportunity is dwindling, at least in traditional jobs. The advance of digital technology has made it possible to do non-traditional jobs while living anywhere, and perhaps changing one's location every year or two.
Millions have walked away from their mortgages. Those who have swear that they will never again be tricked by the great housing myth that this one asset is guaranteed to go up and up forever. The new source of value is not something attached to the biggest thing we own but rather in the most fundamental unit of all: ourselves, and what we can do. This change represents a dramatic change not just for one generation but for an entire ethos that has defined what it means to be an American for about a century.
This change begins with a single realization: I'm paying more for my house than my house is worth. What precisely is the downside of walking away, of going into a "strategic default"? I lose my house. Good. That's better than losing money on my house.
But what are the economic and ethical implications of this? Americans haven't faced this dilemma in at least a century. But now they are, by the millions. They are awakening to the reality that the house is no different from any other physical possession. It has no magical properties and it embodies no high ideals. It is just sticks and bricks.
But what about the idea that our home is our castle? Doug French's thesis is that the essence of freedom is to come to understand that the real castle is to be found within.
[An audio version of this article, read by Steven Ng, is available as a free MP3 download.]
Unquestioning reverence for the police is one of the more unfortunate inculcations in our formative years. If it were not for the police, lawlessness and chaos would rule; therefore, we owe our safety, our civilization, our very lives to the selflessness and dedication of the police; thus, police are our "heroes." So we were told, and so we believed.
A similar syllogism positions the police as heroes, and heroes are worthy of worship. That explains the elegiac melancholy that imbues media coverage whenever a police officer is martyred in the line of duty: to kill a cop is one of the most heinous acts one can imagine.
But is the death of a police officer really more tragic than the death of anyone else unknown to us? We can read the obituaries; we can peruse every entry, and not one will evoke a scintilla of sentiment. But if a police officer dies, an involuntary pathos percolates to the surface. The reaction is not unlike Pavlov's dog involuntarily salivating upon hearing the bell.
If we were to peer over the manufactured ethos, we would see a hard-boiled reality that differs significantly from the callow perception. Personal contacts with the police, if not confrontational, are at least disagreeable. The following scenario is familiar because it is universal: We are driving ten miles an hour over the posted interstate speed limit; weather, traffic, time preference, and common sense dictate our actions to be reasonable and nonintrusive. Suddenly, our tranquil, solitary world is shattered by a blast of swirling blue and red light emanating from a Crown Victoria drafting a few feet off our rear bumper.
The speed limit is the law, we are told. And because the law is the law, the diligent police officer is as inflexible as the law he is commissioned to enforce. All explanations — rational or otherwise — fall on the same deaf ears. The policeman remains unmoved, because he can ill afford to be moved. His municipality, and therefore his salary, depends on the additional lucre.
So we meekly sit on our hands. We were in the wrong, after all; we are a nation of laws and good government. Commonsense be damned, even when we realize that this revenue-through-punishment business model motivates an adjunct behavior: infringement enhancement. Not only are we fined for speeding; the police officer snoops around for ancillary digressions — a burned-out license-plate bulb, a cracked windshield, an unbuckled seatbelt, and, God forbid, the whiff of alcohol. The tally quickly rises into the hundreds of dollars. The police officer extends the full-fare ticket. We quietly sign off, not wanting to provoke further investigation. As we pull away, we find ourselves unsettled by a fog of ambivalence. This is the law?
Actually, there is no fog. The more right we are in our argument and the more logically we think, particularly when our actions involve no trespass against person or property, the more we bristle at submitting to impertinence and intrusion. We also resent the unsaid truth: regardless of the level of amenity the police officer effuses from the outset, he would have injured or even killed us had we not acquiesced to his demands. Though government sloganeers insist the police are there "to protect and to serve," protecting and serving are only an intemperate remark away from "to coerce and to intimidate."
The apprehension is only marginally less severe when we voluntarily contact the police to report a personal trespass. The police officer's same questioning tactic — impertinent, curt, or accusing — does little to quell our anxiety, nor does it quell the nagging thought that our property or conduct violates the letter of the law, thus inviting unintended scrutiny.
The chummy moralizing only adds to the ambivalence. The public-service announcement (featuring a crisply uniformed, avuncular B-actor sort) always favors the proliferation of laws. The law, the police officer explains in even tones, ensures a more secure and civil society. Of course, the police officer underplays the requisite fines and arrests needed to enforce the laws. The strong arm stops us from ejecting ourselves from moving vehicles, distracting ourselves while driving, idling our cars on a cold day. The fact that our infractions not only add to the municipality's revenue stream but add to the ability to further violate our person and property is an afterthought.
And as for the Brobdingnagian display of zealotry in enforcing these laws? Sure, it is off-putting to refined sensibilities, but it is merely an affectation employed to punctuate the police's dedication to maintaining order. For that reason, an alleged drug dealer's abode must be violated violently: the front door must be kicked in; the house must be entered by officers fully armored, armed, and angry; the occupants must be thrown into chaos. The alleged perpetrator, if not killed, must be wrestled to the ground and shackled, and made to endure the added humiliation of spittle and screaming invective. Afterward, the lead gendarme must pronounce to the cameras, "We are all safer now that one more criminal has been taken off the street."
Because illegal drugs are the bogeyman of middle-class morality, most applaud this aggressive imposition of the law. In fact, they wouldn't mind seeing a little more of it — hence, the overwhelming support when more police officers are promised to be added to the city payrolls. President Clinton promised to provide "funding" for 100,000 new cops and the voting majority applauded. Few stop to note that more police means more laws and stricter enforcement of the current laws. More police open the door to more coercion and more violence — from the police. But so what? It is always the other guy who is the lawbreaker — until it is you.
Government-funded education, along with, unfortunately, sophistic parental tutelage, has blinded generations of Americans to the truth: the police do nothing to ensure civility. Civility is a byproduct of respect for property. If there is no respect for property, there is no civility.
Consider the United States, where the citizens, for the most part, respect property. Respect for property instills an empathy and desirable ethos: most of us want to own property, and we want others to respect the property we own. In turn, we respect our neighbor's property. Contrast this behavior to parts of the world where respect for property is wanting. Mexico is an easy exemplar: the country is conspicuously marked by a superfluity of graffiti-desecrated buildings, metal-grill window coverings, class segregation, and violence and discord. Mexico also suffers from more intrusive laws (and more capricious enforcement of those laws) than the United States.
The level of police power also correlates negatively with the police's respect for property rights. There is the obvious: kicking in doors, rummaging through personal items, wrecking automobiles. But police also violate property rights more discreetly and more insidiously: trespassing on private property, gleaning freebies from business owners, repelling customers with their very presence.
If we want to maximize social harmony, the power of the police must be minimized, while the importance of property rights must be maximized. When that occurs, any ambivalence we feel about the police will dissipate, because there will no longer be any reason to feel ambivalent.
There is no clash between Locke's libertarian concerns and devotion to "classical virtue." Devotees of liberty, property, and free markets have generally been moralists as well as adherents of a free-market economy, writes Murray N. Rothbard (1926–1995).
This audio Mises Daily is narrated by Jeff Riggenbach.
[Excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith.]
The turmoil of the English Civil War in the 1640s and 1650s generated political and institutional upheaval, and stimulated radical thinking about politics. Since the Civil War was fought over religion and politics, much of the new thinking was grounded in, or inspired by, religious principles and visions. Thus, as we shall see further in the chapter on the roots of Marxism, millennial communist sects popped up again, for the first time since the Anabaptist frenzy of the early 16th century in Germany and Holland. Particularly prominent in the frenzy of the Civil War Left were the Diggers, the Ranters, and the Fifth Monarchists.There was a direct filtration of ideas from Thomas Müntzer and the communist Anabaptists into England. One of Müntzer's collaborators, Henry Niclaes, survived the smashing of Anabaptism to found familism, a pantheistic creed claiming that man is God, and calling for the establishment of the kingdom of (man) God on Earth, as the only place such a kingdom could ever exist. Familist ideas were carried to England by a disciple of Niclaes, Christopher Vittels, a Dutch joiner, and familism spread in England during the late 16th century. A center of familism in early 17th-century England was in Grindleton, in Yorkshire. There, in the decade after 1615, "the Grindletonians" were led by Grindleton's Anglican curate, the Rev. Roger Brearly. Part of the attraction of familism was its antinomianism, the view that truly godly persons, such as themselves, could never commit a sin, by definition, and therefore antinomians usually flaunted behavior generally considered sinful in order to demonstrate to one and all their godly and "sin-free" status.
At the opposite pole of new thought generated by the Civil War was the prominence, in the midst of the forces of the mainstream republican Left, of the world's first self-consciously libertarian mass movement — the Levellers. In a series of notable debates within the Republican Army — notably between the Cromwellians and the Levellers — the Levellers, led by John Lilburne, Richard Overton, and William Walwyn, worked out a remarkably consistent libertarian doctrine, upholding the rights of "self-ownership," private property, religious freedom for the individual, and minimal governmental interference in society. The rights of each individual to his person and property, furthermore, were "natural" — that is, they were derived from the nature of man and the universe, and therefore were not dependent on, nor could they be abrogated by, government. And while the economy was scarcely a primary focus of the Levellers, their adherence to a free-market economy was a simple derivation from their stress on liberty and the rights of private property.
For a while it seemed that the Levellers would triumph in the Civil War, but Cromwell decided to resolve the army debates by the use of force, and he established his coercive dictatorship and radical Puritan theocracy by placing the Leveller leadership in jail. The victory of Cromwell and his Puritans over the Levellers proved fateful for the course of English history. For it meant that "republicanism," in the eyes of the English, would be forever associated with the bloody rule of Cromwell's saints, the reign of religious fanaticism, and the sacking of the great English cathedrals. Hence the death of Cromwell led swiftly to the restoration of the Stuarts, and the permanent discrediting of the republican cause. It is likely, on the contrary, that a Leveller rule of freedom, religious toleration, and minimal government might have proved roughly acceptable to the English people, and might have ensured a far more libertarian English polity than actually evolved after the Restoration and the Whig Settlement.The Levellers have acquired a left-wing coloration because of their label, and because they have been admired by Marxist historians, enthusiastic about their radicalism, and as the most consistent figures in the "bourgeois revolution" of the 17th and later centuries. The Levellers, however, were in no sense egalitarians, except in the laissez-faire libertarian sense that they were opposed to special privileges granted by the state. On the Levellers, see especially Don M. Wolfe (ed.), Leveller Manifestoes of the Puritan Revolution (1944, New York: Humanities Press, 1967), including the editor's lengthy introduction; and the latest collection of Leveller tracts in A.L. Morton (ed.), Freedom in Arms: A Selection of Leveller Writings (London: Lawrence & Wishart, 1975). Also see the classic H.N. Brailsford, The Levellers and the English Revolution (Stanford, Calif.: Stanford University Press, 1961). One of the best brief summaries of Leveller doctrine is in C.B. Macpherson, The Political Theory of Possessive Individualism: Hobbes to Locke (Oxford: Clarendon Press, 1962), pp. 137–59.
Historiographical discussion of the great libertarian political theorist John Locke (1632–1704), who emerged to prominence after the Civil War, and particularly in the 1680s, has been mired in a welter of conflicting interpretations. Was Locke a radically individualistic political thinker or a conservative Protestant Scholastic? An individualist or a majoritarian? A pure philosopher or a revolutionary intriguer? A radical harbinger of modernity or one who harked back to the medieval or to classical virtue?
Most of these interpretations are, oddly enough, not really contradictory. By this point, we should realize that the Scholastics may have dominated medieval and postmedieval traditions, but that despite this fact they were pioneers and elaborators of the natural-law and natural-rights traditions. The pitting of "tradition" versus "modernity" is largely an artificial antithesis. "Moderns" like Locke or perhaps even Hobbes may have been individualists and "right-thinkers," but they were also steeped in Scholasticism and natural law. Locke may have been and indeed was an ardent Protestant, but he was also a Protestant Scholastic, heavily influenced by the founder of Protestant Scholasticism, the Dutchman Hugo Grotius, who in turn was heavily influenced by the late Spanish Catholic Scholastics. As we have already seen, such great late 16th-century Spanish Jesuit Scholastics as Suarez and Mariana were contractual natural-rights thinkers, with Mariana being positively "pre-Lockean" in his insistence on the right of the people to resume the rights of sovereignty they had previously delegated to the king. While Locke developed libertarian natural rights thought more fully than his predecessors, it was still squarely embedded in the Scholastic natural-law tradition.Much mischief has been wrought by the interpretation of Leo Strauss and his followers that Locke was a natural rights-er who (following Hobbes) broke with the wise ancient tradition of natural law. Actually, Locke the natural rights-er developed the Scholastic natural-law tradition, and was the opposite of Hobbes's right-wing Grotian apologia for state absolutism. On Hobbes, Locke, and the Tew circle, see Richard Tuck, Natural Rights: Their Origin and Development (Cambridge: Cambridge University Press, 1979). Leo Strauss's interpretation is in his Natural Right and History (Chicago: University of Chicago Press, 1953). For a critique of Strauss, and insistence that Locke was not a Hobbesian but in the natural-law tradition, see Raghuveer Singh, "John Locke and the Theory of Natural Law," Political Studies 9 (June 1961), pp. 105–18.
Neither are John Pocock and his followers convincing in trying to posit an artificial distinction and clash between the libertarian concerns of Locke or his later followers on the one hand, and devotion to "classical virtue" on the other. In this view 18th-century Lockean libertarians from Cato to Jefferson become magically transmuted from radical individualists and free-marketeers into nostalgic reactionaries harking back to ancient or Renaissance "classical virtue." Followers of such virtue somehow become old-fashioned communitarians rather than modern individualists. And yet, why can't libertarians and opposers of government intervention also oppose government "corruption" and extravagance? Indeed, the two generally go together. As soon as we realize that, generally, and certainly until Bentham, devotees of liberty, property, and free markets have generally been moralists as well as adherents of a free-market economy, the Pocockian antitheses begin to fall apart. To 17th- and 18th-century libertarians, indeed to libertarians in most times and places, attacks on government intervention and on government moral corruption go happily hand in hand.The locus classicus of the Pocockian thesis is J.G.A. Pocock, The Machiavellian Movement (Princeton, N.J.: Princeton University Press, 1975). In addition to the contrasting works of Isaac Kramnick and Joyce Appleby, see in particular the scintillating refutation of Pocock's central example, the alleged "classical virtue" emphasis of the radically Lockean Cato's LettersCato's Letters: John Locke and the Republican Paradigm," History of Political Thought 11 (1990), pp. 273–94.
There are still anomalies in John Locke's career and thought, but they can be cleared up by the explicit discussion and implications of the impressive work by Richard Ashcraft.Richard Ashcraft, Revolutionary Politics and Locke's Two Treatises on Government (Princeton, N.J.: Princeton University Press, 1986). Essentially Ashcraft demonstrates that Locke's career can be divided into two parts. Locke's father, a country lawyer and son of minor Puritan country gentry, fought in Cromwell's army and was able to use the political pull of his mentor Colonel Alexander Popham, MP, to get John into the prominent Westminster School. At Westminster, and then at Christ Church, Oxford, Locke obtained a BA and then an MA in 1658, then became a lecturer at the college in Greek and rhetoric in 1662, and became a medical student and then a physician in order to stay at Oxford without having to take holy orders.
Despite or perhaps because of Locke's Puritan background and patronage, he clearly came under the influence of the Baconian scientists at Oxford, notably including Robert Boyle, and hence he tended to adopt the "scientific," empiricist, low-key absolutist viewpoint of his friends and mentors. While at Oxford, Locke and his colleagues enthusiastically welcomed the restoration of Charles II, and indeed the king himself ordered the university to keep Locke as a medical student without having to take holy orders. While at Oxford, Locke adopted the empiricist methodology and sensate philosophy of the Baconians, leading to his later Essay Concerning Human Understanding. Moreover, in 1661 Locke, this later champion of religious toleration, wrote two tracts denouncing religious tolerance, and favoring the absolute state enforcing religious orthodoxy. In 1668, Locke was elected to the Royal Society, joining his fellow Baconian scientists.
Something happened to John Locke in the year 1666, however, when he became a physician and in the following year when he became personal secretary, advisor, writer, theoretician, and close friend of the great Lord Ashley (Anthony Ashley Cooper), who in 1672 was named the first Earl of Shaftesbury. It was due to Shaftesbury that Locke, from then on, was to plunge into political and economic philosophy, and into public service as well as revolutionary intrigue. Locke adopted from Shaftesbury the entire classical-liberal Whig outlook, and it was Shaftesbury who converted Locke into a firm and lifelong champion of religious toleration and into a libertarian exponent of self-ownership, property rights, and a free-market economy. It was Shaftesbury who made Locke into a libertarian and who stimulated the development of Locke's libertarian system.
John Locke, in short, quickly became a Shaftesburyite, and thereby a classical liberal and libertarian. All his life and even after Shaftesbury's death in 1683, Locke only had words of adulation for his friend and mentor. Locke's epitaph for Shaftesbury declared that the latter was "a vigorous and indefatigable champion of civil and ecclesiastical liberty." The editor of the definitive edition of Locke's Two Treatises of Government justly writes that "without Shaftesbury, Locke would not have been Locke at all." This truth has been hidden all too often by historians who have had an absurdly monastic horror of how political theory and philosophy often develop — in the heat of political and ideological battle. Instead, many felt they had to hide this relationship in order to construct an idealized image of Locke the pure and detached philosopher, separate from the grubby and mundane political concerns of the real world.Ibid., pp. 75–82, 370–71.
Professor Ashcraft also shows how Locke and Shaftesbury began to build up, even consciously, a neo-Leveller movement, elaborating doctrines very similar to those of the Levellers. Locke's entire structure of thought in his Two Treatises of Government, written in 1681–1682 as a schema for justifying the forthcoming Whig revolution against the Stuarts, was an elaboration and creative development of Leveller doctrine — the beginnings in self-ownership or self-propriety, the deduced right to property and free exchange, the justification of government as a device to protect such rights, and the right of overturning a government that violates, or becomes destructive of, those ends. One of the former Leveller leaders, Major John Wildman, was even close to the Locke-Shaftesbury set during the 1680s.
The deep affinity between Locke and Scholastic thought has been obscured by the undeniable fact that, to Locke, Shaftesbury, and the Whigs, the real enemy of civil and religious liberty, the great advocate of monarchical absolutism, during the late 17th century and into the 18th century, was the Catholic Church. For by the mid 17th century, Catholicism, or "popery," was identified not with the natural rights and the checks on royal despotism as of yore, but with the absolutism of Louis XIV of France, the leading absolutist state in Europe, and earlier with absolutist Spain. For the Reformation, after a century, had succeeded in taking the wraps off monarchical tyranny in the Catholic as well as Protestant countries. Ever since the turn of the 17th century, indeed, the Catholic Church in France, Jansenist and royalist in spirit, had been more a creature of royal absolutism than a check on its excesses. In fact, by the 17th century, the case could be made that the most prosperous country in Europe which was also the freest — in economics, in civil liberties, in a decentralized polity, and in abstinence from imperial adventures — was Protestant Holland.A more detailed analysis of 17th-century Dutch politics would show, however, that the free-market, decentralized, propeace party was the republicans or Arminians, followers of the Protestant theologian Jacobus Arminius, who was theologically closer to Catholics in believing in free will for salvation. On the other hand, the "Calvinist" party in Holland favored the Orange monarchy, statism, controlled markets, and a warlike foreign policy.
Thus it was easy for the English Whigs and classical liberals to identify the absolutism, the arbitrary taxes, the controls, and the incessant wars of the Stuarts with the Catholicism towards which the Stuarts were not so secretly moving, as well as with the specter of Louis XIV, toward whom the Stuarts were moving as well. As a result, the English and American colonial tradition, even the libertarian tradition, became imbued with a fanatical anti-Catholicism; the idea of including evil Catholics in the rubric of religious toleration was rarely entertained.
One common confusion about Locke's systematic theory of property needs to be cleared up — Locke's theory of labor. Locke grounded his theory of natural property rights in each individual's right of self-ownership, of a "propriety" in his own person. What then establishes anyone's original right of material, or landed or natural resource property, apart from his own person? In Locke's brilliant and very sensible theory, property is brought out of the commons, or out of nonproperty, into one's private ownership in the same way that a man brings unused property into use — that is, by "mixing his self-owned labor," his personal energy, with a previously unused and unowned natural resource, thereby bringing that resource into productive use and hence into his private property.
Private property of a material resource is established by first use. These two axioms — self-ownership of each person, and the first use, or "homesteading," of natural resources — establishes the "naturalness," the morality, and the property rights underlying the entire free-market economy. For if a man justly owns material property he has settled in and worked on, he has the deduced right to exchange those property titles for the property someone else has settled in and worked on with his labor. For if someone owns property, he has a right to exchange it for someone else's property, or to give that property away to a willing recipient. This chain of deduction establishes the right of free exchange and free contract, and the right of bequest, and hence the entire property-rights structure of the market economy.
Many historians, especially Marxists, have taken glee in claiming that John Locke is thereby the founder of the Marxian "labor theory of value" (which Marx in turn acquired from Smith and especially Ricardo). But Locke's is a labor theory of property — that is, a theory of how material property justly comes into ownership by means of labor exertion or "mixing." This theory has absolutely nothing to do with what determines the value or price of goods or services on the market, and therefore has nothing to do with the later "labor theory of value."
This article is excerpted from An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith.
Jeffrey Tucker interviews Stephan Kinsella, instructor of the Mises Academy's forthcoming course, "Rethinking Intellectual Property: History, Theory, and Economics". Recorded 9 October 2010. [25:10]
The definition of a bribe is rather arcane. It isn't even clear whether they are harmful. Lew Rockwell and Pierre Lemieux have made the case that public bribes are simply the cost of doing business, similar to taxation, and an opportunity to overcome at least some harmful governmental regulation and gain entry into markets.
Arguing about the relative merits of bribery versus taxation is very much (perhaps exactly) like speculating about the most pleasant way to be robbed.
Nevertheless, as acknowledged in Pierre Lemieux's article, bribes "accustom people to cheating not only in their relations with the state but also in their private relations," and can also be used to shut out competition, which is clearly harmful.
It also seems clear that many entrepreneurs avoid certain regions because their culture of rampant bribery, as compared to taxation, is significantly more opaque and unpredictable, hindering economic calculation. They prefer the devil they know over the one they don't.
Regardless of their relative merits, bribes are a phenomenon distinct from taxation and regulation. Examining where and to what extent illicit bribes exist sheds further light on the distinction between the private, voluntary economy, and the public, coercive one.
Bribes are payments or favors exchanged to influence the spending of wealth or the providing of a service, which are also somehow morally reprehensible and often secret. This highly subjective definition applies differently in four separate cases:
bribes to individuals operating with their private propertybribes to employees operating with their employer's propertybribes to businesses operating with their private propertybribes in the public sectorBribes to IndividualsIf an individual receives a payment or favor to influence the spending of his own money, it cannot generally be considered a bribe, but a coupon, discount or rebate. Extending the definition of bribes to encompass individuals spending their own wealth would require the monthly Value Pack many people receive in the mail to be considered an envelope full of bribes.
Similarly, if an individual receives payment or favors for providing a service, it would be very difficult to portray it as anything other than a salary, wage or commission.
The best argument for the existence of bribery in the realm of individually provided services can be made in cases of misrepresentation: an influential restaurant critic offering a dishonest review, or a famous athlete pretending to use health products which don't really help him.
These cases create no violation of property rights.These cases are also analogous to Murray Rothbard's disc-jockey example, described below. The public may feel deceived, but they have no property rights over the newspaper that runs the column or the television station that airs the commercial. Furthermore, the restaurant critic's reputation and future marketability will rise or fall accordingly, as will the athlete's, limiting their dishonesty.
Of course, if the misrepresentation reaches the point of fraud, a case can be made for breach of contract between consumers and the restaurant or the sellers of health products, but fraud is a crime separate from bribery.
Bribes in the case of individuals operating with their own resources, do not exist. The misrepresentations often associated with what we call bribes are constrained by free-market competition.
Bribes to EmployeesA payment made to an employee to influence the spending of his employer's money, like a procurement officer receiving money in exchange for purchasing one type of machinery as opposed to the most favorable kind on behalf of his employer, can certainly be considered a bribe in the nefarious sense.
Such cases are generally rare, because business owners are very good at looking after their money, and those who aren't don't remain business owners very long. Furthermore, as illustrated in Murray Rothbard's disk-jockey example, it is only the employer whose property rights are violated:
A record company bribes a disc jockey to play Record A. Presumably, the disc jockey would either not have played the record at all or would have played Record A fewer times; therefore, Record A is being played at the expense of Records B, C, and D which would have been played more frequently if the disc jockey had evaluated the records purely on the basis of his own and/or the public's taste.
Surely, in a moral sense, the public is being betrayed in its trust in the disc jockey's sincerity. That trust turns out to have been a foolish one. But the public has no property rights in the radio program, and so they have no legal complaint in the matter. They received the program without cost. The other record companies, the producers of Records B, C, and D, were also injured since their products were not played as frequently, but they too, have no property rights in the program, and they have no right to tell the disc jockey what to play.
Was anyone's property rights aggressed against by the disc jockey's taking of a bribe? Yes, for as in the case of the bribed purchasing agent, the disc jockey violated his contractual obligation to his employer … to play those records which in his view will most suit the public. … Furthermore, if the record company had bribed the employer directly … then there would have been no violation of anyone's property right and therefore properly no question of illegality.
In cases of misrepresentation, like a teacher receiving bribes to inflate grades, it is very likely that the teacher, similar to the disk jockey, has violated his contractual obligation to his employer. The question of whether the rights of other students are violated is addressed in the next section. Bribes in the case of employees operating with their employer's resources are rare because every employer is naturally vigilant toward his private property. When bribes occur, it is the employer whose rights are violated.
Bribes to BusinessesWhen money or favors are given to influence the purchases made by business, the case is analogous to the individual one discussed above. They are coupons, discounts, rebates, or additional services, not bribes.
Similar to the previous examples of misrepresentation, a case for bribery can be made where, for example, a private educational institution (not just a rogue teacher) receives bribes to give particular students higher grades.
In the unlikely case that a contract between academic institution and students (or their parents) specified an objective rating of students' abilities, then the contractual obligations of the university toward the students were violated, and the students can and should seek restitution. Once again, however, the crime is the fraudulent representation of services, not the actual bribe.
As far as I know, academic institutions do not currently write such contracts with their students. Perhaps the practice would arise in a free market for education as some institutions would see arbitrary grading at a rival school as an opportunity to distinguish their more honest brand of scholarship.
Absent such contracts, no violation of property occurs. The consequence of such a practice will very appropriately be the rising and falling of the academic institution's reputation.
It is unlikely that the market would tolerate academic institutions whose grading arbitrarily reflects the students' abilities. What is much more likely, and already widely practiced, especially in nontechnical studies, is a uniform grade inflation for all students at a particular university in exchange for their tuition.
I know of a friend of a friend who taught at an Ivy League school. When attempting to give bad grades she was cautioned by her adviser that "the parents of these kids aren't paying $40k a year for their children to receive Cs and Ds."
The ultimate arbiter of the grades will be the future employers of these students. Employers already can and already do use many criteria completely apart from grades.
Among businesses operating with their own resources, criminal bribes do not exist. What people sometimes recognize as bribes, are dishonest or fraudulent representation of a service. The free market is perfectly capable of regulating the dishonesty.
Bribes in the Public SectorIn the public sector, bribes, in the most nefarious sense of the word, are rampant — so much so that politicians regularly attempt to distinguish themselves by claiming to be among the few who do not accept bribes.
Unlike accountability for individually owned money, the accountability for publicly owned money is very diffuse — another tragedy of the commons.
Public corruption is often unpunished, because the main lever available to the true owners of the money, the public, is the election of the politicians who preside over the bureaucracy; and it is all too easy for politicians to stir the pot of emotional issues and cause the levers of democratic elections to be pulled for reasons unrelated to illicit bribery.
Where well-intentioned politicians seek to stem the corruption, they follow the path detailed in Ludwig Von Mises's wonderful little book, Bureaucracy. They descend into webs of rules and regulations.
It would be an interesting project to attempt to measure the quantity of land, labor and capital goods tied up in the government-accountability industry — and then to speculate whether there would be less inefficiency and waste if government simply threw in the towel on fighting corruption.
Illicit bribes are also rampant in government-provided services. Unlike the private school, restaurant critic, or athlete whose reputations compete with other schools, restaurant critics, and athletes, a health inspector, customs official, or license issuer does not face competition.
These providers of public services operate as government monopolies. They do not rely on their reputations and voluntary patronage of their service. In pursuing their individual self-interest, providers of government-monopolized services are much more likely to encounter situations in which the reward of a bribe is high enough to cover the risk associated with accepting it.
In both the spending of public money and the providing of public services, bribes are relatively common. They are a predictable and inevitable consequence of individuals pursuing their self-interest in the public sector.
ConclusionThe important difference between the public and private sectors is that private-sector competition naturally minimizes what we consider immoral and illicit bribes, while the public sector offers no effective mechanism for doing so.
In the private sector, a bribe refers to a payment to conduct fraud, breach of contract, or some generally immoral or illegal activity. The bribe precipitates a crime, but isn't itself a crime.
In the public sector, the nature of government monopolies and public spending causes the bribe itself to be criminalized. The criminalization, whether good or bad, is either a check that government attempts to put on its own corruption, or, for the skeptics, an illusion of accountability that the government considers necessary.
A close adherence to property rights leads to the conclusion that illicit bribes only exist in the public sector.
[From the Beacon blog of the Independent Institute.]
Regime uncertainty has gained increasing recognition as the current economic troubles have persisted with little or no improvement since the economy reached a cyclical trough early in 2009. As described in my 1997 paper, regime uncertainty pertains to
the likelihood that investors' private property rights in their capital and the income it yields will be attenuated further by government action. Such attenuations can arise from many sources, ranging from simple tax-rate increases, to the imposition of new kinds of taxes, to outright confiscation of private property. Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights.
In the latter half of the 1930s, many investors feared that the government would destroy the private enterprise system and replace it with fascism, socialism, or some other extreme transformation of the existing economic order.
In testing my hypothesis, I marshaled three distinct types of evidence: historical documentation of government actions and public reactions; findings of public opinion surveys, especially surveys of businessmen; and evidence from financial markets. The latter seems to some observers, especially to economists, to be the most telling because it is relatively "hard" and quantitative. In any event, it is the sort of evidence economists are accustomed to analyzing.
My most striking financial evidence for the New Deal episode pertains to the yield curve for corporate bonds, that is, to the spreads between the effective yields on high-grade corporate bonds with various terms to maturity. I found that this yield curve became suddenly much steeper sometime between the first quarter of 1934 and the first quarter of 1935 (a period when the New Deal lurched from its first, or business-tolerant, phase to its second, or business-hostile, phase) and remained very steep until sometime between the first quarter of 1941 and the first quarter of 1942 (a period when the New Deal handed over the reins to the military and the big businessmen who, along with the president himself, ran the war-command economy for the duration). I interpreted these extreme spreads as risk premiums on longer-term investments caused by regime uncertainty.
Given the extraordinary scale and scope of the actions the government has taken since mid-2008 and the many expressions of uncertainty (and hence of unwillingness to undertake long-term investments) voiced by businessmen and others as a result of this flurry — bailouts, unprecedented monetary policies, surges in government spending, and tremendous regulatory undertakings in health care and financial markets, among other things — one wonders whether the corporate bond yield curve shows the same kind of movement it displayed in the face of the regime uncertainty that prevailed from 1935 to 1941.
To pursue this matter, I have examined a number of series on corporate bond yields, by term to maturity, that I constructed from data available at Bondsonline.com. (Normally, when economists analyze "the yield curve," they use data on US Treasury securities. I caution against using such data for the purpose under discussion here. To analyze risks to private-property rights as manifested by the risk premiums in bond yields, one must use private bonds, not government bonds.)
I find that back in 2008, before the onset of the financial panic in September, the corporate bond yield curve was rather flat — that is, the yields increased only slightly with term to maturity. At the lower end of the yield curve, yield spreads were tending to narrow slightly until late September. When the panic hit, yields became extremely volatile, especially for the bonds with two years to maturity (the shortest term in the data), and remained volatile for almost a year. After mid-2009, the volatility diminished greatly.
Examining these data, I find that once this dust had settled, the yield curve for corporate bonds had become substantially steeper. For example, the spread between corporate bonds with 5 years to maturity and corporate bonds with 2 years to maturity increased from roughly 1 percentage point or less before the financial crisis to roughly 2 percentage points since mid-2009.
Similar changes occurred in the spread between the bonds with 10 years to maturity or 20 years to maturity and the bonds with 2 years to maturity: the former increased from roughly 1 percentage point to 2-3 percentage points; the latter increased from roughly 2 percentage points to roughly 4 percentage points or more.
Similarly, at the upper end of the yield curve, the spreads widened: between the bonds with 10 years to maturity and those with 5 years to maturity, from roughly a fraction of 1 percentage point to roughly more than 1 percentage point; between bonds with 20 years to maturity and those with 5 years to maturity from roughly 1 percentage point or less to 2-3 percentage points. Finally, the spread between the bonds with 20 years to maturity and those with 10 years to maturity increased from less than 1 percentage point before the crisis to 1-2 percentage points since mid-2009.
Thus, corporate bond yields have exhibited three distinct periods: precrisis stability with a shallow yield curve; extreme volatility of the yield curve, including some inversions in the latter part of 2008; and postcrisis stability with a much steeper yield curve since mid-2009.
Thus, just as the steep yield curve for the New Deal years corresponds precisely with the so-called Second New Deal, when Roosevelt and his leading subordinates and advisers went on the warpath against investors as a class, the recent transition corresponds to the volatility associated with the period of frenetic government action and financial-market fluctuations between September 2008 and the middle of 2009, leaving in its wake a much steeper yield curve.
I view these financial data as consistent with the hypothesis of recently heightened regime uncertainty. Of course, they do not "prove" that it is true, just as the striking data I found for the 1930s do not "prove" the hypothesis as applied to that episode. But in economic history, one looks above all for the correspondence of various forms of evidence with the interpretation one places on the observations.
In the current episode, as during that of the latter 1930s, we find that (1) a great deal of direct testimony by businessmen and investors, (2) an account of the government's ideological character and the historical narrative of what the government has done and, and (3) the bond-market evidence (as well as the movements of the stock market, although they are more difficult to interpret) all conform with a hypothesis that places significant weight on regime uncertainty.
In any event, these preliminary explorations certainly show that the hypothesis should not be dismissed out of hand because it is not "scientific" or because it is not part of the mainstream macroeconomist's customary style of mathematical modeling. If mainstream analysts continue to disregard the role of regime uncertainty in the major depressions of the modern era, especially in accounting for their extraordinary duration, then they will only demonstrate the poverty of their own mode of analysis.
With no end in sight, the controversy surrounding the so-called ground-zero mosque continues to bring out the worst in all of us. As the controversy continues, I'm struck by a parallel between this proposed mosque and another American monument established in 1996.
BackgroundAlmost 15 years ago, President Bill Clinton designated a large expanse of land in Utah as the Grand Staircase Escalante National Monument. Seen largely as a political ploy to win favor among voting environmentalists, the designation of this national monument immediately halted business development in the area, including a proposed coal mine, and stifled Utah's ability to make use of lands designated to help pay for the state's school system.
Creation of the monument also sparked a conflict between local county officials and the federal Bureau of Land Management over which authorities have jurisdiction over the dirt roads throughout the monument. This controversy continues to this day and is quite emblematic of the frustration felt by many of us in the more rural western United States over BLM practices and fair use of what we see as "our own land."
Make no mistake: these matters are conflicts of law with no easy solutions. The controversy over Grand Staircase Escalante is very much alive in Utah today, with local ranchers and miners still angry about what they see as federal usurpation of important economic resources, and local environmental activists equally as passionate in their support of the monument. However, we must pause to note that this issue no longer has a place on the national stage.
Our Right to Resolve Local Issues LocallyOne root of the issue is the question of why the use of local land that most Americans will never see in their entire lives was elevated to the national stage. At the time, I recall wondering why people from such places as California, Chicago, New York, and Washington had such strong opinions on land about which they knew nothing and in which they had no stake. Fifteen years later, I still don't know. Nevertheless, President Clinton was able to leverage a national appetite for environmental protection toward the resolution of an entirely local land-use issue.
Many locals rightly felt that their views were trounced by far-away opinions that were completely distanced from the very real local issues Utahns were living every day. Their question rings as true today as it did in 1996: How much weight does "national opinion" carry with regard to local issues, especially when it comes to land use?
I ask this question now because the fundamental issue is very similar in New York City today. Put to a local vote, it seems virtually guaranteed that the majority of New Yorkers would back the mosque's right to exist. As a result, the controversy today — as it was in Utah 15 years ago — is being generated and exploited by a national public with no immediate connection to the particular lands in question. Of what relevance, really, are the opinions of Utahns, Arizonans, Californians, Washingtonians, et al., in matters of private property in New York City? The obvious answer is none, of course.
And yet, as a former resident of Utah, I cannot help but feel that some in New York City are now getting their just desserts for weighing in on far-away private property issues. Herein lies a lesson to be learned by all of us: one day, you are the one determining what some distant group should do with their own land; the next day, they may very well be determining how you use yours!
This is the inherent danger of elevating local matters to the national stage. What right does any New Yorker have to object to a national discourse on this mosque, when they were so quick to weigh in on analogous controversies elsewhere in the country?
Civic Duty and Personal ResponsibilityIf it is not already clear, let us take a moment to be unequivocal: The use of one's own private property is determined by the owner, subject to local zoning laws. What this means is that if a religious group purchases land fair and square with the intention of constructing a religious building, they are well within their rights to do so. On this point, all sides agree. So let that be the end of the question.
There is a confusion about land value at work here. To wit, if what is now known as "Ground Zero" is hallowed ground for our country, then where are all the patriots willing to put their money where their mouths are? Throughout the Amazon rainforest, environmental groups and green-minded individuals have purchased great expanses of land because they, as private individuals, wish to see that land untouched by developers. Rather than coerce the locals through the machinery of government, they simply (and peacefully) purchase what they value so that the land may continue to exist in a way that they prefer. If it is important to some Americans that "Ground Zero" remains free of monuments to Islam, then one may very well ask how much New York City land they have purchased to ensure that it exists as a patriotic monument consistent with their own preferences.
Ironically, this argument was just as easy to apply to environmentalists in 1996, who decided to use the federal government as a tool to determine land use, rather than peacefully purchasing land and using it in accordance with their values.
It is easy to see the discrepancy between what people claim to value and what values they are truly willing to stand behind (e.g., financially). Those who wish to conserve natural landmarks or patriotic hallowed ground are certainly free to exercise their rights, purchase property, and invest themselves in the values they hold dear. Those who elect not to exercise this right have no place criticizing those who do, no matter to what legal use the land is eventually put.
ConclusionIn an ideal world, we could transcend allegedly "polarizing" issues like this and exist in a harmonious, free society. Rather than rushing to condemn a monument to Islam near the former World Trade Center, concerned Americans could financially contribute to the erection of such a monument with the proviso that the eventual landmark properly reflects their values. Those in charge of erecting the landmark would then be eager to create a monument to the peaceful, free, and cooperative society that America has always been.
In the real world, pundits fan the flames. It is tempting to participate in the controversy, lending our own unique take on a multifaceted issue. When left-liberals label their opponents bigots, and conservatives become enemies of private property, it is important for libertarians to adhere to principle. At issue is more than just private property and the freedom to worship, but one of the most attractive and important principles of classical liberalism: civic duty.
Of course all Americans have a right to worship as they please. Of course all Americans have a right to use private property as they see fit. Beyond that cursory glance lie the more important concepts of putting our money where our mouths are if we wish to see land used the way we want it to be, and letting local people sort out their own local issues on the local stage.
[This article first published as "Grand Staircase Escalante and the 'Ground Zero Mosque,'" on Ryan P. Long's blog, Stationary Waves.]
During my trip to Haiti, I got into a discussion with my fellow volunteers about the financial crisis. Things were going quite well as we all agreed that the rich investment bankers deserved no taxpayer bailout. However, my hopes were dashed when one of the more intellectual guys suddenly declared the problem was capitalism, and that a "resource-based economy" would relieve the world of scarcity.
Apparently this idea is catching on; a reader emailed me the grandiose description of "the Venus Project." Although the people involved are admirably doing what they can to rid the world of injustice, they lack basic knowledge of economics. In the present article, I'll run over some of the biggest gaps in their proposal.
The Venus ProjectAccording to the website,
The Venus Project is an organization that proposes a feasible plan of action for social change, one that works towards a peaceful and sustainable global civilization. It outlines an alternative to strive toward where human rights are no longer paper proclamations but a way of life.
We operate out of a 21.5-acre Research Center located in Venus, Florida.
Resource-Based EconomyFor our purposes in this article, the website's section on a "Resource-Based Economy" is much more interesting:
The term and meaning of a Resource-Based Economy was originated by Jacque Fresco. It is a system in which all goods and services are available without the use of money, credits, barter or any other system of debt or servitude. All resources become the common heritage of all of the inhabitants, not just a select few. The premise upon which this system is based is that the Earth is abundant with plentiful resources; our practice of rationing resources through monetary methods is irrelevant and counter productive to our survival.
I am going to be quite critical of the Resource-Based Economy (RBE) in the remainder of this article, so I want to start off on a positive note: I don't believe that these thinkers are wrong in their visions of what life on Earth could be like. Their website is filled with beautiful visions of sea colonies and pollution-free technology, and I agree with them that the world could easily look like this in a few decades.
However, these idealists are wrong to blame our current, dysfunctional world on capitalism or money per se. On the contrary, if everyone respected each other's property rights — meaning there would be no more petty crime, but also no more taxation, military conscription, or drug prohibition — then humanity would become fantastically wealthy, in material terms. (I give just a taste of the potential bounty in this article.)
In fact, in a truly free world, in which billions of people grew up never knowing of theft — let alone of mass murder — the productivity of labor and corresponding standard of living could be so high that, by our present standards, people would seem to be living in a "postscarcity" condition.
Now of course, this technically wouldn't be true, so long as the laws of physics were the same, and so long as the human mind created ever more desires. But consider someone in our real world right now, who goes from living on the streets in Calcutta to being adopted by a middle-class family in suburban America.
When this person goes with his new family into a Costco or a Sam's Club, he enjoys the air conditioning that relieves him from the outside heat. If he has to go to the bathroom, he can do so. He can get a drink of water at the fountain and then he can go throughout the store, eating samples of delectable food. At the end, his adoptive parents might leave the store without having purchased anything. The former beggar from Calcutta would be astounded at all the "free" goods and services he just enjoyed, and he might understandably conclude that America is a land of abundance, whereas India is a land of want.
What I am arguing, then, is that in a truly free world, where we all respected each other's property, the rise in living standards would be analogous to our hypothetical boy who moves from the streets of Calcutta to the suburbs of Maine. In that fantastic world, giving someone a "free" heart surgery might be as cheap as giving someone a piece of gum in our current society.
If such a world really is technologically possible, we should cut the socialist dreamers some slack. Their fault lies not with their vision, but with their plans for achieving it.
Did World War II Disprove the Existence of Scarcity?The website gives an odd historical illustration of its principles:
A resource-based economy would utilize existing resources from the land and sea, physical equipment, industrial plants, etc. to enhance the lives of the total population. In an economy based on resources rather than money, we could easily produce all of the necessities of life and provide a high standard of living for all.
Consider the following examples: At the beginning of World War II the US had a mere 600 or so first-class fighting aircraft. We rapidly overcame this short supply by turning out more than 90,000 planes a year. The question at the start of World War II was: Do we have enough funds to produce the required implements of war? The answer was no, we did not have enough money, nor did we have enough gold; but we did have more than enough resources. It was the available resources that enabled the US to achieve the high production and efficiency required to win the war. Unfortunately this is only considered in times of war.
Let's think about what the writers mean by saying the United States at the start of World War II "did not have enough money" to pay for the war effort. Presumably, they mean that the American public would never have consented to the explicit taxation (and government borrowing) that would have been necessary for Uncle Sam to persuade resource owners to voluntarily hand over their items to the government.
So what did the federal government do to overcome this "lack of money"? Why, it simply forced American citizens to scale back their own consumption, in order to free up scarce resources and redirect them into war production. Specifically, the Federal Reserve created money out of thin air to lend to the government:
At the same time, the government physically threatened anyone who dared to raise prices above the permissible limits. The result was that the fraction of total output going to the private sector drastically fell during the war years:
Before leaving this section, I should point out that the above chart misleadingly gives the impression that total output went up during the war years. Yet as Bob Higgs points out, this is a statistical artifact of massive government expenditures coupled with price controls. Simply put, the Fed and banking system flooded the economy with new money, raising the "numerator," while the government made it illegal for merchants to raise prices, thus holding down the "denominator." Therefore, "real GDP" figures show a huge burst during the war years, but these numbers are meaningless.
Contrary to the claims of the RBE website, World War II did not illustrate the productive powers of mankind. On the contrary, it showed how incredibly wasteful and monstrous human affairs can become when property rights are systematically violated.
Ignoring the Lessons of the Calculation DebateOur writers offer little explanation of where this newfound abundance will come from, but they do say this:
As we outgrow the need for professions based on the monetary system, for instance lawyers, bankers, insurance agents, marketing and advertising personnel, salespersons, and stockbrokers, a considerable amount of waste will be eliminated.
This view demonstrates either that the writers have never heard of the socialist-calculation debate or that they failed to learn its lessons.
Ludwig von Mises showed that money prices are not arbitrary; it really means something when a firm suffers a loss. Specifically, when a firm loses money it means that customers are not willing to pay as much for the finished product (or service) as the firm had to spend acquiring inputs. Loosely speaking, then, a firm that loses money is one that takes valuable resources and turns them into something that society values less.
Mises put his finger on the fundamental problem with socialism. If the state owns all the resources, then there can be no market prices for the tractors, kilowatt-hours, barrels of oil, and other things necessary for production. Looking at the various productive enterprises in operation at any moment, the central planners won't have a common denominator for all of the different combinations of inputs going into each one. The planners won't know if a particular car factory "makes sense," because they will just have an enormous stream of data describing the various resources going into the factory, and the amount of finished cars coming out of the factory. These brute facts alone don't tell the planners if they are efficiently using the resources being consumed in the factory.
Returning to the quotation above, our RBE writers don't realize that their world would still require the services of bankers, insurance agents, and advertising personnel. Whether conducted at the individual level, or by "society" through a group of representatives, people would still need to decide how much of their resources to save, and how much to invest in various enterprises. They would also need to decide how to deal with the possibility that key workers could drop dead of a heart attack, upsetting their production plans. Furthermore, even in the RBE utopia, there would still be constant product innovation. Citizens would need to be informed of the new options, so that production decisions could change to reflect the public's desires. Thus we see that even the RBE would require some form of bankers, advertisers, etc.
Competition as a Discovery ProcedureOur writers overlook one of the key insights of Friedrich Hayek when they claim,
Considerable amounts of energy would also be saved by eliminating the duplication of competitive products such as tools, eating utensils, pots, pans and vacuum cleaners. Choice is good. But instead of hundreds of different manufacturing plants and all the paperwork and personnel required to turn out similar products, only a few of the highest quality would be needed to serve the entire population. Our only shortage is the lack of creative thought and intelligence in ourselves and our elected leaders to solve these problems.
Yet as Hayek pointed out decades ago, it is not a given fact what the "highest quality" products are, nor how to create them in the most economical way.Download PDF. Our society currently enjoys very high-quality tools, eating utensils, pots, etc., precisely because entrepreneurs are in constant rivalry with each other, striving to "steal" customers away from each other, through offering better products at lower prices.
ConclusionOur present world is manifestly unjust. In addition to wars and genocides, there are also pockets of shocking poverty that could be quickly eradicated if only the right social institutions were in place.
Those championing the Resource-Based Economy recoil in horror from our present world, and understandably so. Yet because they have obviously not studied Austrian economics, they have misdiagnosed the problem.
Abolishing money will not solve the world's problems, because money is an indispensable tool to aid in economic calculation. Rather, the way to raise the material standard of living around the world is to foster a universal respect for property rights.
Property rights as they are circumscribed by laws and protected by courts and the police are the outgrowth of an age-long evolution. The history of these ages is the record of struggles aiming at the abolition of private property. Again and again despots and popular movements have tried to restrict the rights of private property or to abolish it altogether. These endeavors, it is true, failed. But they have left traces in the ideas determining the legal form and definition of property. The legal concepts of property do not fully take account of the social function of private property. There are certain inadequacies and incongruities that are reflected in the determination of the market phenomena.
Carried through consistently, the right of property would entitle the proprietor to claim all the advantages that the good's employment may generate on the one hand and would burden him with all the disadvantages resulting from its employment on the other hand. Then the proprietor alone would be fully responsible for the outcome. In dealing with his property he would take into account all the expected results of his action, those considered favorable as well as those considered unfavorable. But if some of the consequences of his action are outside of the sphere of the benefits he is entitled to reap and of the drawbacks that are put to his debit, he will not bother in his planning about all the effects of his action. He will disregard those benefits that do not increase his own satisfaction and those costs that do not burden him. His conduct will deviate from the line it would have followed if the laws were better adjusted to the economic objectives of private ownership. He will embark upon certain projects only because the laws release him from responsibility for some of the costs incurred. He will abstain from other projects merely because the laws prevent him from harvesting all the advantages derivable.
The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages that his actions have inflicted upon other people. But there were loopholes left that the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages that the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities.
The same doctrines that prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated. Later again the opposite tendency began to prevail in many countries, and the liability of manufacturers and railroads was increased as against that of other citizens and firms. Here again definite political objectives were operative. Legislators wished to protect the poor, the wage earners, and the peasants against the wealthy entrepreneurs and capitalists.
Whether the proprietor's relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional wording of laws, it is at any rate a datum the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people.
The extreme instance is provided by the case of no-man's property referred to above. If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns — lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil — do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds.
In the early days of human civilization, when soil of a quality not inferior to that of the utilized pieces was still abundant, people did not find any fault with such predatory methods. When their effects appeared in a decrease in the net returns, the ploughman abandoned his farm and moved to another place. It was only when a country was more densely settled and unoccupied, first-class land was no longer available for appropriation that people began to consider such predatory methods wasteful. At that time they consolidated the institution of private property in land. They started with arable land and then, step by step, included pastures, forests, and fisheries.
The newly settled colonial countries overseas, especially the vast spaces of the United States, whose marvelous agricultural potentialities were almost untouched when the first colonists from Europe arrived, passed through the same stages. Until the last decades of the 19th century there was always a geographic zone open to newcomers — the frontier. Neither the existence of the frontier nor its passing was peculiar to America. What characterizes American conditions is the fact that at the time the frontier disappeared ideological and institutional factors impeded the adjustment of the methods of land utilization to the change in the data.
In the central and western areas of continental Europe, where the institution of private property had been rigidly established for many centuries, things were different. There was no question of soil erosion of formerly cultivated land. There was no problem of forest devastation in spite of the fact that the domestic forests had been for ages the only source of lumber for construction and mining and of fuel for heating and for the foundries and furnaces, the potteries and the glass factories. The owners of the forests were impelled to conservation by their own selfish interests. In the most densely inhabited and industrialized areas up to a few years ago between a fifth and a third of the surface was still covered by first-class forests managed according to the methods of scientific forestry.Late in the 18th century, European governments began to enact laws aiming at forest conservation. However, it would be a serious blunder to ascribe to these laws any role in the conservation of the forests. Before the middle of the 19th century, there was no administrative apparatus available for their enforcement. Besides the governments of Austria and Prussia, to say nothing of those of the smaller German states, virtually lacked the power to enforce such laws against the aristocratic lords. No civil servant before 1914 would have been bold enough to rouse the anger of a Bohemian or Silesian magnate or a German mediatized Standesherr. These princes and counts were spontaneously committed to forest conservation because they felt perfectly safe in the possession of their property and were eager to preserve unabated the source of their revenues and the market price of their estates.
"The owners of the forests were impelled to conservation by their own selfish interests."It is not the task of catallactic theory to elaborate an account of the complex factors that produced modern American land-ownership conditions. Whatever these factors were, they brought about a state of affairs under which a great many farmers and the majority of the lumbering enterprises had reason to consider the disadvantages resulting from the neglect of soil and forest conservation as external costs.One could as well say that they considered the advantages to be derived from giving care to soil and forest conservation external economies.
It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive. But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership.
The case of external economies is not simply the inversion of the case of external costs. It has its own domain and character.
If the results of an actor's action benefit not only himself but also other people, two alternatives are possible:
The planning actor considers the advantages he expects for himself so important that he is prepared to defray all the costs required. The fact that his project also benefits other people will not prevent him from accomplishing what promotes his own well-being. When a railroad company erects dikes to protect its tracks against snowslides and avalanches, it also protects the houses on adjacent grounds. But the benefits its neighbors will derive will not hinder the company from embarking upon an expenditure that it deems expedient.
The costs incurred by a project are so great that none of those whom it will benefit is ready to expend them in full. The project can be realized only if a sufficient number of those interested in it share in the costs.
It would hardly be necessary to say more about external economies if it were not for the fact that this phenomenon is entirely misinterpreted in current pseudoeconomic literature.
A project P is unprofitable when and because consumers prefer the satisfaction expected from the realization of some other projects to the satisfaction expected from the realization of P. The realization of P would withdraw capital and labor from the realization of some other projects for which the demand of the consumers is more urgent. The layman and the pseudoeconomist fail to recognize this fact. They stubbornly refuse to notice the scarcity of the factors of production. As they see it, P could be realized without any cost at all, i.e., without foregoing any other satisfaction. It is merely the wantonness of the profit system that prevents the nation from enjoying gratuitously the pleasures expected from P.
Now, these short-sighted critics go on to say, the absurdity of the profit system becomes especially outrageous if the unprofitability of P is merely due to the fact that the entrepreneur's calculations neglect those advantages of P that for them are external economies. From the point of view of the whole of society such advantages are not external. They benefit at least some members of society and would increase "total welfare." The nonrealization of P is therefore a loss for society. As profit-seeking business, entirely committed to selfishness, declines to embark upon such unprofitable projects, it is the duty of government to fill the gap. Government should either run them as public enterprises or it should subsidize them in order to make them attractive for the private entrepreneur and investor. The subsidies may be granted either directly by money grants from public funds or indirectly by means of tariffs the incidence of which falls upon the buyers of the products.
"Public works are not accomplished by the miraculous power of a magic wand. They are paid for by funds taken away from the citizens."However, the means a government needs in order to run a plant at a loss or to subsidize an unprofitable project must be withdrawn either from the taxpayers' spending and investing power or from the loan market. The government has no more ability than individuals to create something out of nothing. What the government spends more, the public spends less. Public works are not accomplished by the miraculous power of a magic wand. They are paid for by funds taken away from the citizens. If the government had not interfered, the citizens would have employed them for the realization of profit-promising projects the realization of which they must omit because their means have been curtailed by the government.
For every unprofitable project that is realized by the aid of the government there is a corresponding project the realization of which is neglected merely on account of the government's intervention. Yet this nonrealized project would have been profitable, i.e., it would have employed the scarce means of production in accordance with the most urgent needs of the consumers. From the point of view of the consumers the employment of these means of production for the realization of an unprofitable project is wasteful. It deprives them of satisfactions they prefer to those the government-sponsored project can furnish them.
The gullible masses, who cannot see beyond the immediate range of their physical eyes, are enraptured by the marvelous accomplishments of their rulers. They fail to see that they themselves foot the bill and must consequently renounce many satisfactions they would have enjoyed if the government had spent less for unprofitable projects. They have not the imagination to think of the possibilities that the government has not allowed to come into existence.Cf. the brilliant analysis of public spending in Henry Hazlitt's book Economics in One Lesson (New York, 1946), pp. 19–29.
These enthusiasts are still more bewildered if the government's interference enables submarginal producers to continue producing and to stand the competition of more efficient plants, shops, or farms. Here, they say, it is obvious that total production is increased and something is added to the wealth that would not have been produced without the assistance of the authorities. What happens in fact is just the opposite; the magnitude of total production and of total wealth is curtailed. Outfits producing at higher costs are brought into existence or preserved while other outfits producing at lower costs are forced to curtail or to discontinue their production. The consumers are not getting more, but less.
There is, for instance, the very popular idea that it is a good thing for the government to promote the agricultural development of those parts of the country that nature has poorly endowed. Costs of production are higher in these districts than in other areas; it is precisely this fact that qualifies a large part of their soil as submarginal. When unaided by public funds, the farmers tilling these submarginal lands could not stand the competition of the more fertile farms. Agriculture would shrink or fail to develop and the whole area would become a backward part of the country. In full cognizance of this state of affairs, profit-seeking business avoids investing in the construction of railroads connecting such inauspicious areas with the centers of consumption. The plight of the farmers is not caused by the fact that they lack transportation facilities. The causation is the other way round; because business realizes that the prospects for these farmers are not propitious, it abstains from investing in railroads that are likely to become unprofitable for lack of a sufficient amount of goods to be shipped.
If the government, yielding to the demands of the interested pressure groups, builds the railroad and runs it at a deficit, it certainly benefits the owners of farm land in those poor districts of the country. As a part of the costs that the shipping of their products requires is borne by the treasury, they find it easier to compete with those tilling more fertile land to whom such aid is denied. But the boon of these privileged farmers is paid for by the taxpayers who must provide the funds required to defray the deficit. It affects neither the market price nor the total available supply of agricultural products. It merely makes profitable the operation of farms that hitherto were submarginal and makes other farms, the operation of which was hitherto profitable, submarginal. It shifts production from land requiring lower costs to land requiring higher costs. It does not increase total supply and wealth; it curtails them, as the additional amounts of capital and labor required for the cultivation of high-cost fields instead of low-cost fields are withheld from employments in which they would have made possible the production of some other consumers' goods. The government attains its end of benefiting some parts of the country with what they would have missed, but it produces somewhere else costs that exceed these gains of a privileged group.This article is excerpted from chapter 23 of Human Action: The Scholar's Edition and is read by Jeff Riggenbach.
Carried through consistently, the right of property would entitle the proprietor to all the advantages that the good's employment may generate — and all the disadvantages resulting from its employment, writes Ludwig von Mises (1881–1973).
This audio Mises Daily is narrated by Jeff Riggenbach.
Everyone who is serious about ideas now has to deal with the issue of "intellectual property," especially given the advent of digital media and the state's war on the supposed violators of the intellectual rights of others. The situation has at once become very hopeful, with more sharing of ideas than ever before in history, and extremely grim, with the federal government pressuring every Internet-service provider to act as proxy enforcers of an unjust law — and twisting the arms of developing countries to adopt draconian, Western-style IP law. See Kinsella, "Stop the ACTA (Anti-Counterfeiting Trade Agreement)," The Libertarian Standard (April 11, 2010).
This debate, however, involves more than just IP issues. The discussion surrounding this topic has further clarified other issues, like the character of goods and property, the existence and centrality of nonscarce goods in economic life, and the role of learning in the evolution of society. This partially accounts for why the IP topic is so hot: it causes us to revisit fundamental issues over property, ownership, competition, and other areas we've mistakenly taken for granted. What follows is a summary of some fundamental ideas many of us batted around this summer.For some of these discussions, see the comment threads to the following articles and blog posts: "The Death Throes of Pro-IP Libertarianism" (currently at over 500 comments, probably a record for the Mises Blog); "Kinsella: Ideas are Free: The Case Against Intellectual Property: or, How Libertarians Went Wrong"; "The L. Neil Smith–FreeTalkLive Copyright Dispute"; "Replies to Neil Schulman and Neil Smith re IP)"; "Leveraging IP"; "The Creator-Endorsed Mark as an Alternative to Copyright"; "Locke, Smith, Marx and the Labor Theory of Value."
Scarcity and Scarce Goods"Why are tangible goods property?" This is a central question of Stephan Kinsella's Against Intellectual Property. The reason for property is that
there can be conflict over these goods by multiple human actors. The very possibility of conflict over a resource renders it scarce, giving rise to the need for ethical rules to govern its use. Thus, the fundamental social and ethical function of property rights is to prevent interpersonal conflict over scarce resources.
On this point, we can cite Hoppe's Theory of Socialism and Capitalism, where Hoppe writes with singular clarity: "only because scarcity exists is there even a problem of formulating moral laws; insofar as goods are superabundant ('free' goods), no conflict over the use of goods is possible and no action-coordination is needed.Hoppe, Theory of Socialism and Capitalism, p. 158, n. 120. The logic for this insight Hoppe draws from Rothbard, and the term "free goods" he takes from Mises.
Hoppe writes:
To develop the concept of property, it is necessary for goods to be scarce, so that conflicts over the use of these goods can possibly arise. It is the function of property rights to avoid such possible clashes over the use of scarce resources by assigning rights of exclusive ownership. Property is thus a normative concept: a concept designed to make a conflict-free interaction possible by stipulating mutually binding rules of conduct (norms) regarding scarce resources.A Theory of Socialism and Capitalism, p. 18.
Even in the case of the Garden of Eden, where superabundance would mean that all things we ever wanted were in our grasp, Hoppe explains that there would still be a need for property rights. This is because the human body itself is scarce: choices about who can use it and how it can be used necessarily exclude other choices. One cannot simultaneously eat an apple, smoke a cigarette, climb a tree, and build a house. Likewise, as Hoppe notes
because of the scarcity of body and time, even in the Garden of Eden property regulations would have to be established. Without them, and assuming now that more than one person exists, that their range of action overlaps, and that there is no preestablished harmony and synchronization of interests among these persons, conflicts over the use of one's own body would be unavoidable. I might, for instance, want to use my body to enjoy drinking a cup of tea, while someone else might want to start a love affair with it, thus preventing me from having my tea and also reducing the time left to pursue my own goals by means of this body. In order to avoid such possible clashes, rules of exclusive ownership must be formulated. In fact, so long as there is action, there is a necessity for the establishment of property norms. Ibid., p. 20–21. Thus, "This 'ownership' of one's own body implies one's right to invite (agree to) another person's doing something with (to) one's own body: my right to do with my body whatever I want, that is, includes the right to ask and let someone else use my body, love it, examine it, inject medicines or drugs into it, change its physical appearance and even beat, damage, or kill it, if that should be what I like and agree to." P. 22.
A property right in one's scarce body is a precondition for action even in the face of superabundance. Hoppe goes so far as to say that the body is the "prototype of a scarce good." Here he agrees with Jefferson's teacher Count Destutt de Tracy: "property exists in nature: for it is impossible that every one should not be the proprietor of his individuality and of his faculties."A Treatise on Political Economy, written in 1801, translated by Thomas Jefferson and reprinted by the Mises Institute (2009), p. 125. For further elaboration on Hoppe's views on body-ownership, see Kinsella, "How We Come To Own Ourselves," Mises Daily (Sep. 7, 2006), quoting Hoppe's 1985 comments:
The answer to the question what makes my body 'mine' lies in the obvious fact that this is not merely an assertion but that, for everyone to see, this is indeed the case. Why do we say 'this is my body'? For this a twofold requirement exists. On the one hand it must be the case that the body called 'mine' must indeed (in an intersubjectively ascertainable way) express or 'objectify' my will. Proof of this, as far as my body is concerned, is easy enough to demonstrate: When I announce that I will now lift my arm, turn my head, relax in my chair (or whatever else) and these announcements then become true (are fulfilled), then this shows that the body which does this has been indeed appropriated by my will. If, to the contrary, my announcements showed no systematic relation to my body's actual behavior, then the proposition 'this is my body' would have to be considered as an empty, objectively unfounded assertion; and likewise this proposition would be rejected as incorrect if following my announcement not my arm would rise but always that of Müller, Meier, or Schulze (in which case one would more likely be inclined to consider Müller's, Meier's, or Schulze's body 'mine'). On the other hand, apart from demonstrating that my will has been 'objectified' in the body called 'mine,' it must be demonstrated that my appropriation has priority as compared to the possible appropriation of the same body by another person.
As far as bodies are concerned, it is also easy to prove this. We demonstrate it by showing that it is under my direct control, while every other person can objectify (express) itself in my body only indirectly, i.e., by means of their own bodies, and direct control must obviously have logical-temporal priority (precedence) as compared to any indirect control. The latter simply follows from the fact that any indirect control of a good by a person presupposes the direct control of this person regarding his own body; thus, in order for a scarce good to become justifiably appropriated, the appropriation of one's directly controlled 'own' body must already be presupposed as justified. It thus follows: If the justice of an appropriation by means of direct control must be presupposed by any further-reaching indirect appropriation, and if only I have direct control of my body, then no one except me can ever justifiably own my body (or, put differently, then property in/of my body cannot be transferred onto another person), and every attempt of an indirect control of my body by another person must, unless I have explicitly agreed to it, be regarded as unjust(ified).
But let's be clear what we do not mean by the term scarce in the sense that it applies to this discussion. Something can have zero price and still be scarce: a mud pie, soup with a fly in it, a computer that won't boot. So long as no one wants these things, they are not economic goods. And yet, in their physical nature, they are scarce because if someone did want them, and they thus became goods, there could be contests over their possession and use. They would have to be allocated by either violence or market exchange based on property rights.
Nor does scarcity necessarily refer to whether a good is in shortage or surplus, nor to whether there are only a few or whether there are many. There can be a single "owner" of a nonscarce good (a poem I just thought of, which I can share with you without your taking it away from me) or a billion owners of scarce goods (paperclips, which, despite their ubiquity, are still an economic good).
Nor does scarcity necessarily refer to tangibility only, to the ability to physically manipulate the thing, or to the ability to perceive something with the senses; airspace and radio airwavesSee B.K. Marcus, "The Spectrum Should Be Private Property: The Economics, History, and Future of Wireless Technology," Mises Daily (Oct. 29, 2004); Kinsella, "Why Airwaves (Electromagnetic Spectra) Are (Arguably) Property," Mises Blog (Aug. 9, 2009).are intangible scarce goods and therefore potentially held as property and therefore priced, while fire is an example of a tangible good of potentially unlimited supply.
Instead, the term scarcity here refers to the possible existence of conflict over the possession of a finite thing. It means that a condition of contestable control exists for anything that cannot be simultaneously owned: my ownership and control excludes your control.
Replication and Nonscarce GoodsIn contrast, there are nonscarce goods. A classic statement on them comes from Frank Fetter's Economic Principles:
Some things, even such as are indispensable to existence, may yet, because of their abundance, fail to be objects of desire and of choice. Such things are called free goods. They have no value in the sense in which the economist uses that term. Free goods are things which exist in superfluity; that is, in quantities sufficient not only to gratify but also to satisfy all the desires which may depend on them.
An example of a necessarily nonscarce good is a thing in demand that can be replicated without limit, so that I can have one, you can have one, and we can all have one. This is a condition under which there can be no contest over ownership. As Hoppe says, under these conditions, there would be no need for norms governing their ownership and use.
This nonscarce status might apply to many things but it always applies to nonfinite things, that is, goods that can be copied without limit, with no additional copy having displaced the previous copy and with no degradation in the quality of the copied good from the original good."Rivalrous vs. Non-Rivalrous," Mimi and Eunice, by Nina Paley
Jefferson himself made the lasting statement that clearly distinguishes the two types of goods:
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Thomas Jefferson to Isaac McPherson, Aug. 13, 1813, Writings 13: pp. 333–35.
The idea is not just the spawn of Enlightenment thought. St. Augustine also took note of the peculiar goods quality of words.
The words I am uttering penetrate your senses, so that every hearer holds them, yet withholds them from no other. … I have no worry that, by giving all to one, the others are deprived. I hope, instead, that everyone will consume everything; so that, denying no other ear or mind, you take all to yourselves, yet leave all to all others. But for individual failures of memory, everyone who came to hear what I say can take it all off, each on one's separate way. St. Augustine, Garry Wills, Viking 1999, p. 145.
Imagine if Jefferson's and Augustine's descriptions of ideas applied to finite things. Let's say that someone owns a magic bagel. He could give a friend a bagel and another would magically appear in its place, allowing him to keep his bagel at the same time. The very act of giving it away would create an exact copy of it. A neighbor could do the same. Potentially, everyone in the world could have an identical bagel — all equally delicious.
This magic bagel would then constitute what has been traditionally called a free good or what we are now calling a nonscarce good — something that can be possessed unto infinity and by an unlimited number of people without displacing or degrading the original. With free goods, or nonscarce goods, there is no conflict over ownership.
You could say that you have a property right in the magic bagel, but it would be meaningless because anyone could "take it" by the act of replicating it. It cannot be owned in the traditional sense. I could of course keep my magic bagel under wraps and never let anyone know about it. But that changes nothing about its magic properties. It remains a good that can be copied without limit. And my ability to keep the secret is a result of my property right in — my ability to control — the scarce resource of my body.
Under these conditions, the status of the bagel as a free good is due to its replicability. If it could not be so replicated, if its magic went away, it would become a scarce good. Once it became public, there would be a contest over ownership of that bagel (if I have it, you can't have it).
"Nonscarce goods do not need the assistance of prices to ration their availability. They are free gifts that can be shared the world over."So it is with all things: if there is a zero-sum contest over its possession, it is scarce; if there need not be rivalry over its ownership, and its capacity for copying and sharing is infinite, it is nonscarce.
Does that sound fanciful? With regard to bagels, it is. But what if something like the magic-bagel example becomes real? Yesterday we could replicate information with photocopiers and print any number of perfect copies with a laser printer; and now we can copy and reproduce documents and files digitally. What if so-called 3D printers become widespread? These are devices that can fabricate various material objects by using a "recipe." In principle one could see a bagel (or car) that he likes, find or create a blueprint or recipe for it, and have a copy printed using one's own 3D printer, energy, and raw materials.
One can only imagine the IP police stopping people from using their 3D printers to make useful tools and goods based on the idea that doing so is somehow "stealing" the property of others that is still sitting in their homes.
In any case, for now the technology for 3D copying and printing is in its infancy. Not so for digitally encoded information. For example, consider a file on your hard drive. It can be packaged up and sent via email. The file does not disappear. A perfect copy of that file appears in someone else's email. That person could similarly forward (a copy of) the file to another person. This can happen billions and trillions of times without compromising the integrity of the first file. In effect, this file is like the magic bagel, a nonscarce good. If the file is on a server, it can be accessed by billions of people, each of whom could similarly host the file until it multiplies without limit.
Consider the power of this nonscarce good. That file might contain a database with all the world's financial transactions for last month. The record of those transactions would be nonscarce. The file could contain images of all the paintings in the National Gallery of Art. These images would be nonscarce. It could contain videos of all college lectures given in the United States last semester. Again, nonscarce.
All of this is possible and practicable. We experience this every day. We do this every day. All the files on the World Wide Web, unless they have been specially coded to be otherwise, constitute free goods.
It seems clear that we are moving into a world in which we have to account for the existence of massive and growing numbers of goods that are not scarce, in the sense that they are potentially replicable into infinity. These goods fall outside the strict confines needed for rationing. There need be no conflict and hence no need for traditional property rights for them.
Goods, Scarce and NonscarceOne helpful way to understand this is to classify all goods as either finite and therefore normally scarce or nonfinite and therefore naturally nonscarce. This distinction appears from time to time in the history of thought. An example is Armen Alchian and William Allen in their book, Exchange and Production. "A good is anything that anyone wants. Anything is a good if at least one person wants it. There are two classes of goods: 1) free goods, and 2) economic, or scarce, goods." Belmont: California, Wadsworth, 1977, p. 24. Property rights are essential for scarce goods. It is these scarce goods that serve as means for action, while nonscarce goods that can be copied without displacing the original are not means but guides for action. An example is Armen Alchian and William Allen in their book, Exchange and Production. "A good is anything that anyone wants. Anything is a good if at least one person wants it. There are two classes of goods: 1) free goods, and 2) economic, or scarce, goods." Belmont: California, Wadsworth, 1977, p. 24. It would be ridiculous to speak of some kind of "social ownership" over scarce goods. Scarce goods can only be owned by one person at a time. Sure, you can share them, but that is just a means of allocating a scarce good that changes nothing about the intrinsic nature of the good. In the end, all attempts at socializing scarce resources lead to state ownership and the well-known chaos associated with it.
But let us return to the bagel, this time one without magic properties. What about the recipe and skills that made it? The recipe and skills can be copied by anyone. Anyone can watch and learn. The recipe can be shared unto infinity. Once the information in the recipe and the techniques of making it are released, they are free goods, nonscarce goods, or nonfinite goods.
What are some more examples of such naturally nonscarce goods? One person can share an idea and it can spread unto infinity, never reducing or degrading the quality of the original. Fire might be considered another example (as Thomas Jefferson said). A match can light a log without displacing the fire from the match. The times tables are another example: the grade-school teacher doesn't "give up" this knowledge when drilling it into the students. An image of anything qualifies too. One person can look at another and memorize what he or she sees, without somehow taking or replacing the original. A tune is the same way. It can be shared and replicated without limit. I can sing a song, and you can sing the same song without taking the song from me.
"I can sing a song, and you can sing the same song without taking the song from me."These goods are all nonscarce and thereby require no economization. Once they are released, they need not be priced. There is no "structure of production" attached to their reproduction or allocation (hence there is no "structure of production" for the dissemination of ideas).
To be sure, nonscarce goods can be economized and thereby commercialized by rationing the scarce means of their distribution. For example, a professor, whose time and body are scarce, is paid to share nonscarce ideas. This is a service, but once the professor's ideas are shared, they enter into the realm of all nonscarce goods. What is paid for in fact is not the idea itself but the presentation, the time required to share, the labor services of teaching, all of which are scarce goods. For discussion of the proper classification of contracts for the "sale" of labor services, see Kinsella, "A Libertarian Theory of Contract: Title Transfer, Binding Promises, and Inalienability," Journal of Libertarian Studies 17, no. 2 (Spring 2003), at pp. 24–26.
It is the same with a book or article. What is scarce is the medium through which the idea is expressed, which is why books, articles, and web access cost money. The ideas conveyed in them, however, are copyable without limit.
This is not an insight that applies to digital media alone. This is true regardless of the technology involved. Whether we are talking about a scribe working on velum in the 8th century or a writer working on a web-based document in the 21st century, the ideas conveyed in the words, and the image of the words themselves, are nonscarce goods, while the medium through which they are conveyed is scarce. The range and importance of nonscarce goods has been vastly expanded by the existence of digital media.
As to whether a good is naturally scarce or nonscarce, the test here is simple. If the good can be taken (shared) without displacing the original, it is always nonscarce. If taking the original means that it can no longer exist in the possession of the original owner or possessor, it is a scarce good. All goods fall into one or the other category. All nongoods (unwanted things, necessarily a contingent category) can of course be similarly classified.
Scarce The matrix is presented as a tool for mental experiment only — if anything is a nongood (necessarily a subjective idea), it is also by definition nonscarce, since all (nonexistent) demand for it is satisfied. Nonetheless, the typology illustrated in the matrix helps in categorizing the attributes of goods discussed in this article.NonscarceGoodBagel, Factory, Shoes, People, DeskRecipe, Idea, Tune, Image, Skill, FireNongoodMud Pie, Poison Soup, Slug, Road KillBad Idea, Awful Sound, Gibberish Text At the same time, it is also true that most things are bundles of scarce and nonscarce goods. A book is a nonscarce text conveying nonscarce ideas on scarce paper and taking up scarce space on a shelf. A key that unlocks a door is made of scarce metal but its functioning is due to the nonscarce shape of the cut of the key, a shape that is infinitely copyable.
A concert by Lady Gaga is a scarce human body backed by scarce instruments and microphones producing music and sound, which immediately become nonscarce in the performing and hearing. Tying a shoe employs scarce laces with scarce hands guided by replicable (nonscarce) skills and techniques.
Replication and CivilizationNonscarce goods do not need the assistance of prices to ration their availability. They are free gifts that can be shared the world over. How important are these goods? Given that they are inclusive of all information, art, know-how, and anything else that can be possessed and copied without displacement, they are hugely important. Without these gifts, the whole of learning, imitation, and world culture would come crashing down.
We are not truly human without being part of human civilization; and there can be no civilization and progress without the spread, dissemination, and accumulation of knowledge. To be human is to be part of a learning society, a communicating society, an information-sharing society. Society is emulation-based.
As it stands, the existence of the nonscarce good is the basis of all intellectual progress, the foundation of technological and artistic progress, and thereby a boon to civilization. It is also at the core of enterprise. Entrepreneurs succeed by first imitating others who have succeeded. Their nonscarce experience and ideas are first copied and then improved, with the goal of profit. The example of success that entrepreneurs follow is itself a nonscarce good. Anyone with the means to do so is free to copy the successful idea and replicate it. The nonscarce good is the fuel of the competitive process.
In contrast, a scarce good cannot be shared without limit. It is necessarily owned and controlled by only one person at a time; even the attempt to share implies displacement (while I have it, you do not). To acquire it requires either homesteading unowned resources or stealing, transforming, or contractually acquiring (trading for) already-existing resources. As Hoppe has explained, "One can acquire and increase wealth either through homesteading, production and contractual exchange, or by expropriating and exploiting homesteaders, producers, or contractual exchangers. There are no other ways." Quoted in Kinsella, Intellectual Property and Libertarianism, Mises Daily (Nov. 17, 2009). But production presupposes the producer already owns the property that he transforms into something more desirable or useful. The only ways to acquire a particular scarce resource is to either homestead it, acquire it contractually, or steal it. (One may also transform already-owned property into the desired configuration.)Trading is what gives rise to rationing and allocating by the price system.
"To be human is to be part of a learning society, a communicating society, an information-sharing society. Society is emulation-based."Again, it would be preposterous to speak of socialism in scarce goods, because it is physically impossible to imagine two simultaneous owners of the same scarce good. As Hoppe observes, "Two individuals cannot be the exclusive owner of one and the same thing at the same time." Hoppe, "How is Fiat Money Possible? — or, The Devolution of Money and Credit," Review of Austrian Economics 7, no.2 (1994), p. 67. See also Hans-Hermann Hoppe, Jörg Guido Hülsmann & Walter Block, "Against Fiduciary Media," Quarterly Journal of Austrian Economics 1, no. 1 (1998), n.5: "Even partners cannot simultaneously own the same thing. A and B can each own half of a household, or half the shares in it, but they each own a different 50 percent. It is as logically impossible for them to own the same half as for two people to occupy the same space. Yes, A and B can both be in New York City at the same time, but only in different parts of it." However, it is possible to speak of something like "socialism" for a good that is nonscarce by its nature, precisely because it can be infinitely copied.
The nonscarce good is private so long as it is never revealed; it must remain a secret. Once the secret is out, the good becomes part of the commons (or socially shared, if you will) because everyone who encounters it can use it. Technology has worked to create ever more goods that have become part of the nonscarce category, and this might be seen as a major feature of technological development for all time.
Austrians on "Free Goods"Austrians have always, if sometimes only implicitly, recognized the existence of the nonscarce good, which is precisely the good in question with regard to intellectual property. Menger's 1871 book, Principles of Economics, begins with the definition of a good that excludes the concern over scarcity. Something is a good, in Menger's view, when it is causally capable of satisfying a human need. This is a very broad definition.
For something to be a good, said Menger, there must be human knowledge of this cause-and-effect connection, along with command over the thing so that the relationship between cause and effect can be realized. Among these goods he includes goodwill, family connections, friendship, love, religious and scientific fellowships — all of which fall into the class of things that can be replicated without displacement. Only later in the opening chapter, when discussing the issue of property, does Menger introduce the notion of scarcity and hence the need for economizing.
Seeing property as a subclass under the larger division of goods implies the existence of what Ludwig von Mises called a "free good" — something that is "available in superfluous abundance which man does not need to economize." Human Action, p. 93 Mises says that though they are "not the object of any action" they are useful and even essential for production. Ibid., p. 128. Giving the example of a recipe, he writes that these free goods, or nonscarce goods, render "unlimited services." A free good "does not lose anything from its capacity to produce however often it is used; its productive power is inexhaustible; it is therefore not an economic good."
But it is no less important: "These designs — the recipes, the formulas, the ideologies — are the primary thing; they transform the original factors — both human and nonhuman — into means.Ibid., p. 142. Ideas and information are nonscarce goods but they serve as guides to action in the use of scarce means, to transform scarce things in the world to achieve the actor's desired end. As Mises wrote, "Action is purposive conduct. It is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means."Ultimate Foundation of Economic Science, p. 34 (emphasis added). See also Guido Hülsmann, "Knowledge, Judgment, and the Use of Property," Review of Austrian Econonomics 10 no. 1 (1997), p. 44.
Murray Rothbard elaborated: "There is another unique type of factor of production that is indispensable in every stage of every production process. This is the 'technological idea'." Man, Economy and State, p. 75. Rothbard points out that once the idea comes about, it no longer has to be produced. It is an "unlimited factor of production that never wears out or needs to be economized by human action." This is precisely what a nonfinite, nonscarce good is: an unlimited factor of production.
Fetter also glimpses that ideas themselves are nonscarce goods:
The gain to the general welfare, however, can result only when the new inventions are actually embodied in machines. An invention is only an immaterial idea, and the machines in which inventions are incorporated are wealth which has a capital value. Further, a gain can result only when the usance of the machines is not so high as to absorb the larger part of the gain in efficiency. Not all labor-saving inventions call for more elaborate or more costly machines. Some are merely better methods, and require no more equipment — or even less. Some of them are simpler and less costly than the forms they displace. These (unless patented) are free goods, uplifting the efficiency of production "without money and without price."Fetter, p. 465.
Although Fetter assumes the existence of patent rights and does not question their legitimacy, he recognizes that methods — which are merely recipes, a type of information — are nonscarce goods (he calls them "free goods") that are freely available and increase efficiency and productivity — that is, unless they are patented, thus making them artificially scarce.
One of the longest and most searching essays on this topic is by Eugen von Böhm-Bawerk, in his article "Whether Legal Rights and Relationships are Economic Goods." Eugen von Böhm-Bawerk, "Whether Legal Rights and Relationships are Economic Goods," trans. George D. Huncke, in Shorter Classics of Eugen von Böhm-Bawerk (South Holland, Ill.: Libertarian Press, [1881] 1962), discussed in Gael J. Campan, "Does Justice Qualify as an Economic Good?: A Böhm-Bawerkian Perspective," The Quarterly Journal of Austrian Economics 2, no. 1 (Spring 1999). In this piece, Böhm-Bawerk points to several features of things that make them economic goods, among them physical possession and "the power of disposal and control." The notion of scarcity as a precondition for calling something an "economic good" is presumed but never stated outright. However, Böhm-Bawerk added critical elements to the idea of the good, noting that personal services must also be included in this category. Whether such are truly goods is not inherent in the service itself but depends on the subjective response to that service, thus introducing to the idea of a good a subjective component. Here Böhm-Bawerk keenly observes the interplay between materially scarce and subjectively nonscarce goods:
Be it granted that the poet’s soul must have originated thought and emotion, and be it further granted that only in another soul and through intellectual powers can those thoughts and emotions be reproduced, but the path from soul to soul leads through the physical world for one stretch of the journey and on that stretch the intellectual element must make use of the physical vehicle, that is to say, of the forces or powers of nature. The book is that physical material vehicle.Böhm-Bawerk, "Whether Legal Rights and Relationships Are Economic Goods," pp. 25–138.
As Joseph Salerno notes, "Böhm-Bawerk employed the example of the production and consumption of a poem to illustrate that the good is inextricably bound up with the want-satisfaction process that traverses and links the objective and subjective realms."Joseph Salerno, "Böhm-Bawerk's Vision of the Capitalist Economic Process: Intellectual Influences and Conceptual Foundations," New Perspectives on Political Economy, Volume 4, Number 2, 2008, pp. 87–112.
Scarce Goods, Nonscarce Goods, Progress, and InterventionWhy does all of this matter? It is interesting on the level of theory but it is also critically important as a practical matter. Enterprise in our time is increasingly dependent on a clear understanding of the difference between scarce and nonscarce goods. In the current recession, for example, the bust hit scarce goods, and it is the scarce-goods sector that the government is attempting to stimulate. But the nonscarce sector, which is not subject to the structure of production, and therefore is resistant to business-cycle effects, continues to thrive and has been unaffected by the machinations of bad macroeconomic policy. (But it is affected by "intellectual property" regulation.)
Institutions such as Google and the Mises Institute have discovered the secret of giving away nonscarce goods (search services and digital books) and restricting commercial operations to allocating only scarce goods (teacher services, physical books, and advertising space on screens).See Doug French, "The Intellectual Revolution Is in Process," Mises Daily (Sept. 11, 2009); Jeff Tucker, "A Theory of Open," Mises Blog (Jan. 7, 2010) and "up with iTunes U," Mises Blog (Jan. 29, 2010); and Gary North, "A Free Week-Long Economics Seminar," LewRockwell.com (July 24, 2010). This combination of giving away the nonscarce good and selling the scarce good has permitted both institutions to grow through service.
But this distinction is also exceedingly helpful for understanding economic theory. It clarifies the absolute necessity of property rights and free movement of prices for all scarce goods — exactly as classical economists have said. It also illustrates the need to completely de-control access to nonscarce goods and to permit the voluntary learning and sharing process to take its own course.The distinction between scarce and nonscarce goods is crucial. A signal example of the importance of making careful distinctions in fundamental economic concepts is Menger's clarification of price and value theory, which has profound implications with respect to other aspects of economics. As Professor Salerno explains:
Menger's intentions were to reconstruct classical economics on firmer foundations by grounding the supply-and-demand theory of price and the theory of monetary calculation in the choices and actions of consumers and to repair its superstructure by healing the rift between the theory of price and the theory of distribution. Menger boldly proclaimed his intention of subsuming all the branches of economics under a reconstructed price theory in his Preface to Principles, writing "I have devoted special attention to the investigation of the causal connections between economic phenomena involving products and the corresponding agents of production, not only for the purpose of establishing a price theory based upon reality and placing all price phenomena (including interest, wages, ground rent, etc.) together under one unified point of view, but also because of the important insights we thereby gain into many other economic processes heretofore completely misunderstood." (emphasis added by the present authors)Joseph T. Salerno, "Carl Menger: The founding of the Austrian School," in Randall T. Holcombe, 15 Great Austrian Economists (Auburn, Alabama: Mises Institute, 1999), at p. 80.
Nonscarce goods are a great gift courtesy of the structure of reality, a boon to humankind, a vast treasure of resources — tools for making the world a relentlessly better place.For elaboration, see the last three paragraphs of Kinsella, "The Death Throes of Pro-IP Libertarianism."
The failure to understand the distinction between scarce and intrinsically nonscarce goods might also help to explain the persistence of socialist ideology. For example, one possible explanation of the predictable socialist impulse of religious leaders, intellectuals, and artists is that their primary work consists in the production and distribution of nonscarce goods (salvation, ideas, and art) and that this accounts for the failure of the people in these professions to come to terms with the relentless reality of scarcity.
In summary, the world has given us two types of goods, one type that demands allocation through property and prices and one type that can be infinitely copied. In the production and distribution of scarce goods, there is no substitute for the commercial marketplace. And the notion that government should ever restrict replicable nonscarce goods or grant protection to a single monopolistic producer of nonscarce goods is contrary to freedom, material advancement, and social peace.
Special thanks to BK Marcus, Doug French, Jeffrey Herbener, Raymond Walter, David Gordon, Robert Murphy, and Joseph Salerno for comments.
[From Liberty, November 1988.]Prof. Hans Hoppe, a fairly recent immigrant from West Germany, has brought an enormous gift to the American libertarian movement. In a dazzling breakthrough for political philosophy in general and for libertarianism in particular, he has managed to transcend the famous is/ought, fact/value dichotomy that has plagued philosophy since the days of the scholastics, and that had brought modern libertarianism into a tiresome deadlock. Not only that: Hans Hoppe has managed to establish the case for anarchocapitalist, Lockean rights in an unprecedentedly hard-core manner, one that makes my own natural-law/natural-rights position seem almost wimpy in comparison.
In the modern libertarian movement, only the natural-rights libertarians have come to satisfyingly absolute libertarian conclusions. The different wings of "consequentialists" — whether emotivists, utilitarians, Stirnerites, or whatever — have tended to buckle at the seams. If, after all, one has to wait for consequences to make a firm decision, one can hardly adopt a consistent, hard-nosed stance for liberty and private property in every conceivable case.
Hans Hoppe was schooled in the modern (in his case, Kantian) philosophic tradition, rather than in natural law, acquiring a PhD in philosophy at the University of Frankfurt. He then moved to a dissertation in the philosophy of economics for his "second doctoral," or Habilitation degree. Here he became an ardent and devoted follower of Ludwig von Mises and his "praxeological" approach, as well as of the system of economic theory Mises built on this approach, which arrives at absolute conclusions derived logically from self-evident axioms.
Hans has proven to be a remarkably productive and creative praxeologist, partly because he is the only praxeologist (as far as I know) who arrived at the doctrine originally from philosophy rather than from economics. He therefore brings to the task special philosophic credentials.
Hoppe's most important breakthrough has been to start from standard praxeological axioms (e.g., that every human being acts, that is, employs means to arrive at goals), and, remarkably, to arrive at a hard-nosed anarcho-Lockean political ethic. For over 30 years I have been preaching to the economics profession that this cannot be done: that economists cannot arrive at any policy conclusions (e.g., that government should do X or should not do Y) strictly from value-free economics.
In order to come to a policy conclusion, I have long maintained, economists have to come up with some kind of ethical system. Note that all branches of modern "welfare economics" have attempted to do just that: to continue to be "scientific" and therefore value-free, and yet to make all sorts of cherished policy pronouncements (since most economists would like at some point to get beyond their mathematical models and draw politically relevant conclusions). Most economists would not be caught dead with an ethical system or principle, believing that this would detract from their "scientific" status.
And yet, remarkably and extraordinarily, Hans Hoppe has proven me wrong. He has done it: he has deduced an anarcho-Lockean rights ethic from self-evident axioms. Not only that: he has demonstrated that, just like the action axiom itself, it is impossible to deny or disagree with the anarcho-Lockean rights ethic without falling immediately into self-contradiction and self-refutation.
In other worlds, Hans Hoppe has brought to political ethics what Misesians are familiar with in praxeology and Aristotelian-Randians are familiar with in metaphysics: what we might call "hard-core axiomatics." It is self-contradictory and therefore self-refuting for anyone to deny the Misesian action axiom (that everyone acts), since the very attempt to deny it is itself an action. It is self-contradictory and therefore self-refuting to deny the Randian axiom of consciousness, since some consciousness has to be making this attempt at denial. For if someone cannot attempt to deny a proposition without employing it, he is not only caught in an inextricable self-contradiction; he is also granting to that proposition the status of an axiom.
"Remarkably and extraordinarily, Hans Hoppe has proven me wrong."Murray N. Rothbard
Hoppe was a student of the famous neo-Marxist German philosopher Jurgen Habermas, and his approach to political ethics is based on the Habermas-Apel concept of the "ethics of argumentation." According to this theory, the very fact of making an argument, of trying to persuade a reader or listener, implies certain ethical precepts: e.g., recognizing valid points in an argument. In short, the fact/value dichotomy can be transcended: the search for facts logically implies that we adopt certain values or ethical principles.
Many libertarian theorists have recently gotten interested in this kind of ethics (e.g., the Belgian anarchist legal theorist Frank van Dun, and the British Popperian Jeremy Shearmur.) But theirs is a "soft" kind of argumentation ethics, for the question may always arise why one should want to keep an argument or dialogue going. Hoppe has gone way beyond this by developing a hard-core axiomatic, praxeological twist to the discussion.
Hoppe is interested, not so much in keeping the argument going, but in demonstrating that any argument whatsoever (including of course anti-anarcho-Lockean ones) must imply self-ownership of the body of both the arguer and the listeners, as well as a homesteading-of-property right so that the arguers and listeners will be alive to listen to the argument and carry it on.
In a sense, Hoppe's theory is similar to the fascinating Gewirth-Pilon argument, in which Gewirth and Pilon (the former a liberal, the latter a minarchist libertarian) attempted to say the following. The fact that X acts demonstrates that he is asserting that he has the right to such action (so far so good!) and that X is also implicitly conceding to everyone else the same right. That conclusion, though soul-satistfying to libertarians, and similar to praxeology in its stress on action, unfortunately didn't make it — for, as natural rights philosopher Henry Veatch pointed out in his critique of Gewirth: why should X grant anyone else's rights? By stressing self-contradiction in the arguments of non-anarcho-Lockeans, Hoppe has solved the age-old problem of generalizing an ethic for mankind.
Nevertheless, by coming out with a genuinely new theory (amazing in itself, considering the long history of political philosophy) Hoppe is in danger of offending all the intellectual vested interests of the libertarian camp. Utilitarians, who should be happy that value-freedom was preserved, will be appalled to find that Hoppean rights are even more absolutist and "dogmatic" than natural rights. Natural rightsers, while happy at the "dogmatism," will be unwilling to accept an ethics not grounded in the broad nature of things.
Randians will be particularly upset because the Hoppean system is grounded (as was the Misesian) on the Satanic Immanuel Kant and his "synthetic a priori." Randians might be mollified, however, to learn that Hoppe is influenced by a group of German Kantians (headed by mathematician Paul Lorenzen) who interpret Kant as a deeply realistic Aristotelian, in contrast to the idealist interpretation common in the United States.
As a natural rightser, I don't see any real contradiction here, or why one cannot hold to both the natural-rights and the Hoppean-rights ethic at the same time. Both rights ethics, after all, are grounded, like the realist version of Kantianism, in the nature of reality. Natural law, too, provides a personal and social ethic apart from libertarianism; this is an area that Hoppe is not concerned with.
A future research program for Hoppe and other libertarian philosophers would be (a) to see how far axiomatics can be extended into other spheres of ethics, or (b) to see if and how this axiomatic could be integrated into the standard natural-law approach. These questions provide fascinating philosophical opportunities. Hoppe has lifted the American movement out of decades of sterile debate and deadlock, and provided us a route for future development of the libertarian discipline.
[Excerpted from The Economics and Ethics of Private Property.]
I will first state this general theory of property as a set of rulings applicable to all goods, with the goal of helping to avoid all possible conflicts by means of uniform principles, and I will then demonstrate how this general theory is implied in the nonaggression principle. According to the nonaggression principle, a person can do with his body whatever he wants as long as he does not thereby aggress against another person's body. Thus, that person could also make use of other scarce means, just as one makes use of one's own body, provided these other things have not already been appropriated by someone else but are still in a natural unowned state. As soon as scarce resources are visibly appropriated — as soon as somebody "mixes his labor" with them, as John Locke phrased it,John Locke, To Treatises on Government, ed. Peter Laslett (Cambridge: Cambridge University Press, 1970), esp. vols. II, V. and there are objective traces of this — then property (the right of exclusive control), can only be acquired by a contractual transfer of property titles from a previous to a later owner, and any attempt to unilaterally delimit this exclusive control of previous owners or any unsolicited transformation of the physical characteristics of the scarce means in question is, in strict analogy with aggressions against other people's bodies, an unjustifiable action.On the nonaggression principle and the principle of original appropriation see also Rothbard, For A New Liberty, chap. 2; idem, The Ethics of Liberty, chaps. 6–8.
The compatibility of this principle with that of nonaggression can be demonstrated by means of an argumentum a contrario. First, it should be noted that if no one had the right to acquire and control anything except his own body (a rule that would pass the formal universalization test), then we would all cease to exist, and the problem of the justification of normative statements simply would not exist. The existence of this problem is only possible because we are alive, and our existence is due to the fact that we do not, indeed cannot, accept a norm outlawing property in other scarce goods next to and in addition to that of one's physical body. Hence, the right to acquire such goods must be assumed to exist. Now, if this is so, and if one does not have the right to acquire such rights of exclusive control over unused, nature-given things through one's own work (by doing something with things with which no one else has ever done anything before), and if other people have the right to disregard one's ownership claim to things which they did not work on or put to some particular use before, then this is only possible if one can acquire property titles not through labor (i.e., by establishing some objective, intersubjectively controllable link between a particular person and a particular scarce resource), but simply by verbal declaration, by decree.This is the position taken by Jean-Jacques Rousseau, when he asks us to resist attempts to privately appropriate nature-given resources by, for example, fencing them in. He says in his famous dictum; "Beware of listening to this impostor, you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody" ("Discourse upon the Origin and Foundation of Inequality Among Mankind," in Jean-Jacques Rousseau, The Social Contract and Discourses, ed. G.D.H. Cole [New York: 1950], p. 235). However, to argue so is only possible if it is assumed that property claims can be justified by decree. How else could "all" (even those who never did anything with the resources in question) or "nobody" (not even those who made use of it) own something unless property claims were founded by mere decree? However, the position of property titles being acquired through declaration is incompatible with the above-justified nonaggression principle regarding bodies. For one thing, if one could indeed appropriate property by decree, this would imply that it would also be possible for one to simply declare another person's body to be one's own. Clearly enough, this would conflict with the ruling of the nonaggression principle, which makes a sharp distinction between one's own body and the body of another person. Furthermore, this distinction can only be made in such a clear-cut and unambiguous way because for bodies, as for anything else, the separation between "mine and yours" is not based on verbal declarations, but on action. The observation is based on some particular scarce resource that had in fact — for everyone to see and verify because objective indicators for this existed — been made an expression or materialization of one's own will or, as the case may be, of somebody else's will. More importantly, to say that property could be acquired not through action but through a declaration would involve an obvious practical contradiction, because nobody could say and declare so unless his right of exclusive control over his body as his own instrument of saying anything was in fact already presupposed, in spite of what was actually said.
As I intimated earlier, this defense of private property is essentially also Murray Rothbard's. In spite of his formal allegiance to the natural-rights tradition, Rothbard, in what I consider his most crucial argument in defense of a private-property ethic, not only chooses essentially the same starting point — argumentation — but also gives a justification by means of a priori reasoning almost identical to the one just developed. To prove the point I can do no better than simply quote:
Now, any person participating in any sort of discussion, including one on values, is, by virtue of so participating, alive and affirming life. For if he were really opposed to life, he would have no business continuing to be alive. Hence, the supposed opponent of life is really affirming it in the very process of discussion, and hence the preservation and furtherance of one's life takes on the stature of an incontestable axiom.Rothbard, The Ethics of Liberty, p. 32; on the method of a priori reasoning employed in the above argument see also, idem, Individualism and the Philosophy of the Social Sciences (San Francisco: Cato Institute, 1979); Hans-Hermann Hoppe, Kritik der kausalwissenschaftlichen sozialforschung. Untersuchungen zur Grundlegung von Soziologie und Ökonomie (Opladen: Westdeutscher Verlag 1983); idem, "Is Research Based on Causal Scientific Principles Possible in the Social Sciences? Ratio (1983); supra chap. 7; idem, A Theory of Socialism and Capitalism, chap. 6.
So far it has been demonstrated that the right of original appropriation through actions is compatible with and implied by the nonaggression principle as the logically necessary presupposition of argumentation. Indirectly, of course, it has also been demonstrated that any rule specifying different rights cannot be justified. Before entering a more detailed analysis, though, of why it is that any alternative ethic is indefensible, a discussion which should throw some additional light on the importance of some of the stipulations of the libertarian theory of property — a few remarks about what is and what is not implied by classifying these latter norms as justified is in order. In making this argument, one would not have to claim to have derived an "ought" from an "is." In fact, one can readily subscribe to the almost generally accepted view that the gulf between "ought" and "is" is logically unbridgeable.On the problem of deriving "ought" from "is" see W.D. Hudson, ed., The Is-Ought Question (London: Macmillan 1969). Rather, classifying the rulings of the libertarian theory of property in this way is a purely cognitive matter. It no more follows from the classification of the libertarian ethic as "fair" or "just" that one ought to act according to it, than it follows from the concept of validity or truth that one should always strive for it. To say that it is just also does not preclude the possibility of people proposing or even enforcing rules that are incompatible with this principle. As a matter of fact, the situation with respect to norms is very similar to that in other disciplines of scientific inquiry. The fact, for instance, that certain empirical statements are justified or justifiable and others are not does not imply that everybody only defends objective, valid statements. On the contrary, people can be wrong, even intentionally. But the distinction between objective and subjective, between true and false, does not lose any of its significance because of this. Instead, people who would do so would have to be classified as either uninformed or intentionally lying. The case is similar with respect to norms. Of course there are people, lots of them, who do not propagate or enforce norms that can be classified as valid according to the meaning of justification I have given above. However, the distinction between justifiable and nonjustifiable norms does not dissolve because of this, just as that between objective and subjective statement does not crumble because of the existence of uninformed or lying people.
Rather, and accordingly, those people who would propagate and enforce such different, invalid norms would again have to be classified as uninformed or dishonest, insofar as one had made it clear to them that their alternative norm proposals or enforcements cannot and never will be justifiable in argumentation. There would be even more justification for doing so in the moral case than in the empirical one, since the validity of the nonaggression principle and that of the principle of original appropriation through action as its logically necessary corollary must be considered to be even more basic than any kind of valid or true statements. For what is valid or true has to be defined as that upon which everyone — acting according to this principle — can possibly agree. As I have just shown, at least the implicit acceptance of these rules is the necessary prerequisite to being able to be alive and argue at all.
Why is it then that other nonlibertarian property theories fail to be justifiable? First, it should be noted, as will become clear shortly, that all of the practiced alternatives to libertarianism and most of the theoretically proposed nonlibertarian ethics would not even pass the first formal universalization test and would fail for this fact alone! All these versions contain norms within their framework of legal rules that have the form, "some people do, and some people do not." However, such rules that specify different rights or obligations for different classes of people have no chance of being accepted as fair by every potential participant in an argument for simply formal reasons. Unless the distinction made between different classes of people happens to be such that it is acceptable to both sides as grounded in the nature of things, such rules would not be acceptable because they would imply that one group is awarded legal privileges at the expense of complementary discriminations against another group. Some people, either those who are allowed to do something or those who are not, would not be able to agree that these were fair rules.See Rothbard, The Ethics of Liberty, p. 45. Since most alternative ethical proposals, as practiced or preached, have to rely on the enforcement of rules such as "some people have the obligation to pay taxes, and others have the right to consume them," or "some people know what is good for you and are allowed to help you get these alleged blessings even if you do not want them, but you are not allowed to know what is good for them and help them accordingly," or "some people have the right to determine who has too much of something and who too little, and others have the obligation to accept that," or even more plainly, "the computer industry must pay to subsidize the farmers, the employed for the unemployed, the ones without kids for those with kids," or vice versa. They all can be discarded as serious contenders to the claim of being a valid theory of norms qua property norm, because they all indicate by their very formulation that they are not universalizable. What is wrong with a nonlibertarian ethic if this is resolved and there is indeed a theory formulated that contains exclusively universalizable norms of the type "nobody is allowed to" or "everybody can"? Even then the validity of such proposals could never hope to be proven — not because of formal reasons but because of their material specifications. Indeed, while the alternatives that can be refuted easily as regards their claim to moral validity on simple formal grounds can at least be practiced, the application of those more sophisticated versions that would pass the universalization test would prove for material reasons to be fatal: even if one tried to, they simply could never be implemented.
There are two related specifications in the libertarian property theory with at least one of which any alternative theory comes into conflict. According to the libertarian ethic, the first such specification is that aggression is defined as an invasion of the physical integrity of other people's property.On the importance of the definition of aggression as physical aggression see also Rothbard, ibid., chaps. 8–9; idem, "Law, Property Rights and Air Pollution," Cato Journal (Spring, 1982).Download PDF There are popular attempts to define it as an invasion of the value or psychic integrity of other people's property. Conservatism, for instance, aims at preserving a given distribution of wealth and values and attempts to bring those forces that could change the status quo under control by means of price controls, regulations, and behavioral controls. Clearly, in order to do so, property rights to the value of things must be assumed to be justifiable, and an invasion of values, mutatis mutandis, would have to be classified as unjustifiable aggression. Not only does conservatism use this idea of property and aggression; redistributive socialism does too. Property rights to values must be assumed to be legitimate when redistributive socialism allows me, for instance, to demand compensation from people whose chances or opportunities negatively affect mine. The same is true when compensation for committing psychological, or "structural violence" is requested.On the idea of structural violence as distinct from physical violence see Dieter Senghass, ed., Imperialismus und strukturelle Gewalt (Frankfurt/M.: Suhrkamp, 1972). The idea of defining aggression as an invasion of property values also underlies both the theories of justice of John Rawls and Robert Nozick, however different these two authors may have appeared to be to many commentators. For how could Rawls think of his so-called difference-principle (“Social and economic inequalities are to be arranged so that they are reasonably expected to be to everyone’s—including the least advantaged ones—advantage or benefit,” John Rawls, A Theory of Justice [Cambridge, Mass.: Harvard University Press 1971], pp. 60–83, 75ff.), as justified unless he believes that simply by increasing his relative wealth a more fortunate person commits an aggression, and a less fortunate one then has a valid claim against the more fortunate person only because the former’s relative position in terms of value has deteriorated?! And how could Robert Nozick claim it to be justified for a “dominant protection agency” to outlaw competitors, regardless of what their actions would have been like? (Robert Nozick, Anarchy, State, and Utopia [New York: Basic Books, 1974], pp. 55f.) Or how could he believe it to be morally correct to outlaw so-called nonproductive exchanges, i.e., exchanges where one party would be better off if the other one did not exist at all or at least had nothing to do with it (as, for instance, in the case of a blackmailee and a blackmailer), regardless of whether or not such an exchange involved physical invasion of any kind (ibid., pp. 83–86) unless he thought that the right to have the integrity of one’s property values (rather than its physical integrity) preserved existed? For a devastating critique of Nozick’s theory in particular see Rothbard, The Ethics of Liberty, chap. 29; on the fallacious use of the indifference curve analysis, employed both by Rawls and Nozick, idem, Toward a Reconstruction of Utility and Welfare Economics (New York: Center for Libertarian Studies, Occasional Paper Series, No. 3, 1977). In order to be able to ask for such compensation, what one must have done, namely affect my opportunities, my psychic integrity, or my feeling of what is owed to me, would have to be classified as an aggressive act.
Why is this idea of protecting the value of property unjustifiable? First, while every person, at least in principle, can have full control over whether or not his actions cause the physical characteristics of something to change and hence can also have full control over whether or not those actions are justifiable, control over whether or not one's actions affect the value of somebody else's property does not rest with the acting person but rather with other people and their subjective evaluations. Thus, no one could determine ex ante if his actions would be qualified as justifiable or unjustifiable. One would first have to interrogate the whole population to make sure that one's planned actions would not change another person's evaluations regarding his own property. Even then, nobody could act until universal agreement was reached on who is supposed to do what with what, and at which point in time. Clearly, because of all the practical problems involved, everyone would be long dead and nobody could argue any longer, well before agreement could be reached.See also Rothbard, The Ethics of Liberty, p. 46. Even more decisively, this position regarding property and aggression could not even be effectively argued because arguing in favor of any norm implies that there is conflict over the use of some scarce resources; otherwise there would simply be no need for discussion. However, in order to argue that there is a way out of such conflicts it must be presupposed that actions must be allowed prior to any actual agreement or disagreement because if they were not, one could not even argue so. Yet if one can do this (and, insofar as it exists as an argued intellectual position, the position under scrutiny must assume that one can), then this is only possible because of the existence of objective borders of property — borders which anyone can recognize as such on his own without having to agree first with anyone else with respect to his system of values and evaluations. Such a value-protecting ethic, too, in spite of what it says, must in fact presuppose the existence of objective property borders rather than of borders determined by subjective evaluations, if only in order to have any surviving persons who can make its moral proposals.
The idea of protecting value instead of physical integrity also fails for a second related reason. Evidently, one's value, for example on the labor or marriage market, can be and indeed is affected by other people's physical integrity or degree of physical integrity. Thus, if one wanted property values to be protected, one would have to allow physical aggression against people.
However, it is only because of the very fact that a person's borders — that is the borders of a person's property in his own body as his domain of exclusive control, which another person is not allowed to cross unless he wishes to become an aggressor — are physical borders (intersubjectively ascertainable, and not just subjectively fancied borders) that everyone can agree on anything independently (and agreement means agreement among independent decision-making units!). Only because the protected borders of property are objective (i.e., fixed and recognizable as fixed prior to any conventional agreement), can there be argumentation and possibly agreement of and between independent decision-making units. Nobody could argue in favor of a property system defining borders of property in subjective, evaluative terms because simply to be able to say so presupposes that, contrary to what theory says, one must in fact be a physically independent unit saying it.
The situation is no less dire for alternative ethical proposals when one turns to the second essential specification of the rulings of the libertarian theory of property. The basic norms of libertarianism are characterized not only by the fact that property and aggression are defined in physical terms; it is of no less importance that property is defined as private, individualized property, and that the meaning of original appropriation, which evidently implies making a distinction between prior and later, has been specified. It is with this additional specification as well that alternative, nonlibertarian ethics come into conflict. Instead of recognizing the vital importance of the prior-later distinction in deciding between conflicting property claims, they propose norms which in effect state that priority is irrelevant for making such a decision and that late-comers have as much of a right to ownership as first-comers. Clearly, this idea is involved when redistributive socialism makes the natural owners of wealth and/or their heirs pay a tax so that the unfortunate late-comers can participate in its consumption. It is also involved when the owner of a natural resource is forced to reduce (or increase) its present exploitation in the interest of posterity. Both times it only makes sense to do what one does when it is assumed that the person accumulating wealth first, or using the natural resource first, has thereby committed an aggression against some late-comers. If they had done nothing wrong, then the late-comers should have no such claim against them.For an awkward philosophical attempt to justify a late-comer ethic see James P. Sterba, The Demands of Justice(Notre Dame, Ind.: Notre Dame University Press, 1980), esp. pp. 58ff., 137ff.; on the absurdity of such an ethic see Rothbard, Man, Economy, and State, p. 427.
What is wrong with this idea of dropping the prior-later distinction as morally irrelevant? First, if the late-comers (those who did not do something with some scarce goods), indeed had as much of a right to them as the first-comers (those who did do something with the scarce goods), then nobody would ever be allowed to do anything with anything, as one would have to have all of the late-comers' consent prior to doing what one wanted to do. Indeed, as posterity would include one's children's children — people who come so late that one could not possibly ask them — to advocate a legal system that does not make use of the prior-later distinction as part of its underlying property theory is simply absurd, because it implies advocating death but must presuppose life to advocate anything. Neither we, nor our forefathers, nor our progeny could, do, or will survive and say or argue anything if one followed this rule. In order for any person — past, present or future — to argue anything it must be possible to survive now. Nobody can wait and suspend acting until everyone of an indeterminate class of late-comers happens to come around and agree to what one wants to do. Rather, insofar as a person finds himself alone, he must be able to act, to use, to produce, and to consume goods straightaway, prior to any agreement with people who are simply not around (and perhaps never will be). Insofar as a person finds himself in the company of others and there is conflict over how to use a given scarce resource, he must be able to resolve the problem at a definite point in time with a definite number of people instead of having to wait unspecified periods of time for unspecified numbers of people. Simply in order to survive, then, which is a prerequisite to arguing in favor or against anything, property rights cannot be conceived of as being timeless and nonspecific regarding the number of people concerned. Rather, they must be thought of as originating through acting at definite points in time for definite acting individuals.It should be noted here that only if property rights are conceptualized as private-property rights originating in time does it then become possible to make contracts. Clearly enough, contracts are agreements between enumerable physically independent units which are based on the mutual recognition of each contractor's private ownership claims to things acquired prior in time to the agreement and which then concern the transfer of property titles to definite things from a definite prior to a definite later owner. No such thing as contracts could conceivably exist in the framework of a late-comer ethic!
Furthermore, the idea of abandoning the prior-later distinction would simply be incompatible with the nonaggression principle as the practical foundation of argumentation. To argue and possibly agree with someone (if only on the fact that there is disagreement) means to recognize the prior right of exclusive control over one's own body. Otherwise, it would be impossible for anybody to say anything at a definite point in time and for someone else to be able to reply, for neither the first nor the second speaker would be a physically independent decision-making unit anymore at any time. Eliminating the prior-later distinction, then, is tantamount to eliminating the possibility of arguing and reaching agreement. However, as one cannot argue that there is no possibility for discussion without the prior control of every person over his own body being recognized and accepted as fair, a late-comer ethic that does not make this distinction could never be agreed upon by anyone. Simply saying that it could be would imply a contradiction, for one's being able to say so would presuppose one's existence for an independent decision-making unit at a definite point in time.
Hence, one is forced to conclude that the libertarian ethic not only can be justified and justified by means of a priori reasoning, but that no alternative ethic can be defended argumentatively.
Excerpted from The Economics and Ethics of Private Property.
[This article is excerpted from chapter 7 of Individualism and Economic Order.]
Without some such central control of the means of production, planning in the sense in which we have used the term ceases to be a problem. It becomes unthinkable. This would probably be agreed by the majority of economists of all camps, although most other people who believe in planning still think of it as something that could be rationally attempted inside the framework of a society based on private property.
In fact, however, if by "planning" is meant the actual direction of productive activity by authoritative prescription of either the quantities to be produced, the methods of production to be used, or the prices to be fixed, it can be easily shown not that such a thing is impossible, but that any isolated measure of this sort will cause reactions that will defeat its own end, and that any attempt to act consistently will necessitate further and further measures of control until all economic activity is brought under one central authority.
It is impossible within the scope of this discussion of socialism to enter further into this separate problem of state intervention in a capitalistic society. It is mentioned here only to say explicitly that it is excluded from our considerations. In our opinion well-accepted analysis shows that it does not provide an alternative that can be rationally chosen or that can be expected to provide a stable or satisfactory solution of any of the problems to which it is applied.Cf. Ludwig von Mises, Kritik des Interventionismus (1929), trans. and republished as A Critique of Interventionism (1977).
But here, again, it is necessary to guard against misunderstanding. To say that partial planning of the kind we are alluding to is irrational is, however, not equivalent to saying that the only form of capitalism that can be rationally advocated is that of complete laissez-faire in the old sense. There is no reason to assume that the historically given legal institutions are necessarily the most "natural" in any sense.
The recognition of the principle of private property does not by any means necessarily imply that the particular delimitation of the contents of this right as determined by the existing laws are the most appropriate. The question as to which is the most appropriate permanent framework that will secure the smoothest and most efficient working of competition is of the greatest importance and one that, it must be admitted, has been sadly neglected by economists.
But, on the other hand, to admit the possibility of changes in the legal framework is not to admit the possibility of a further type of planning in the sense in which we have used the word so far. There is an essential distinction here that must not be overlooked: the distinction between a permanent legal framework so devised as to provide all the necessary incentives to private initiative to bring about the adaptations required by any change and a system where such adaptations are brought about by central direction. It is this, and not the question of the maintenance of the existing order versus the introduction of new institutions, which is the real issue.
In a sense both systems can be described as being the product of rational planning. But in the one case this planning is concerned only with the permanent framework of institutions and may be dispensed with if one is willing to accept the institutions that have grown in a slow historical process, while in the other it has to deal with day-to-day changes of every sort.
There can be no doubt that planning of this sort involves changes of a type and magnitude hitherto unknown in human history. It is sometimes urged that the changes now in progress are merely a return to the social forms of the pre-industrial era. But this is a misapprehension. Even when the medieval guild system was at its height, and when restrictions to commerce were most extensive, they were not used as a means actually to direct individual activity. They were certainly not the most rational permanent framework for individual activity that could have been devised, but they were essentially only a permanent framework inside which current activity by individual initiative had free play.
With our attempts to use the old apparatus of restrictionism as an instrument of almost day-to-day adjustment to change, we have already gone much further in the direction of central planning of current activity than has ever been attempted before. If we follow the path on which we have started, if we try to act consistently and to combat the self-frustrating tendencies of any isolated act of planning, we shall certainly embark upon an experiment that until recently had no parallel in history. But even at this stage we have gone very far.
If we are to judge the potentialities aright, it is necessary to realize that the system under which we live, choked up with attempts at partial planning and restrictionism, is almost as far from any system of capitalism that could be rationally advocated as it is different from any consistent system of planning. It is important to realize in any investigation of the possibilities of planning that it is a fallacy to suppose capitalism as it exists today is the alternative. We are certainly as far from capitalism in its pure form as we are from any system of central planning. The world of today is just interventionist chaos.
Classical political economy broke down mainly because it failed to base its explanation of the fundamental phenomenon of value on the same analysis of the springs of economic activity that it had so successfully applied to the analysis of the more complex phenomena of competition. The labor theory of value was the product of a search after some illusory substance of value rather than an analysis of the behavior of the economic subject.
The decisive step in the progress of economics was taken when economists began to ask what exactly were the circumstances that made individuals behave toward goods in a particular way. To ask the question in this form led immediately to the recognition that to attach a definite significance or value to the units of different goods was a necessary step in the solution of the general problem that arises everywhere when a multiplicity of ends compete for a limited quantity of means.
The omnipresence of this problem of value wherever there is rational action was the basic fact from which a systematic exploration of the forms, under which it would make its appearance under different organizations of economic life, could proceed. Up to a certain point, from the very beginning, the problems of a centrally directed economy found a prominent place in the expositions of modern economics. It was obviously so much simpler to discuss the fundamental problems on the assumption of the existence of a single scale of values consistently followed than on the assumption of a multiplicity of individuals following their personal scales that in the early chapters of the new systems the assumption of a Communist state was frequently used — and used with considerable advantage — as an expository device.Cf. particularly Friedrich von Wieser, Natural Value (London, 1893).
But it was used only to demonstrate that any solution would necessarily give rise to essentially the same value phenomena — rent, wages, interest, etc. — that we actually observe in a competitive society, and the authors then generally proceeded to show how the interaction of independent activities of the individuals produced these phenomena spontaneously, without inquiring further whether they could be produced in a complex modern society by any other means.
The mere absence of an agreed common scale of values seemed to deprive that problem of any practical importance. It is true that some of the earlier writers of the new school not only thought that they had actually solved the problem of socialism but also believed that their utility calculus provided a means that made it possible to combine individual utility scale into a scale of ends objectively valid for society as a whole. But it is now generally recognized that this latter belief was just an illusion and that there are no scientific criteria that would enable us to compare or assess the relative importance of needs of different persons, although conclusions implying such illegitimate interpersonal comparisons of utilities can still be found in discussions of special problems.
But it is evident that, as the progress of the analysis of the competitive system revealed the complexity of the problems that it solved spontaneously, economists became more and more skeptical about the possibility of solving the same problems by deliberate decision.
It is perhaps worth noting that as early as 1854 the most famous among the predecessors of the modern "marginal utility" school, the German Herman Heinrich Gossen, had come to the conclusion that the central economic authority projected by the Communists would soon find that it had set itself a task that far exceeded the powers of individual men.Herman Heinrich Gossen, Entwicklung der Gesetze des menschlichen Verkehrs und der daraus fliessenden Regeln für menschliches Handeln (Braunschweig, 1854), p. 231. Among the later economists of the modern school, the point in which Gossen had already based his objection, the difficulty of rational calculation when there is no private property, was frequently hinted at.
It was particularly clearly put by Professor Edwin Cannan, who stressed the fact that the aims of socialists and Communists could only be achieved by "abolishing both the institution of private property and the practice of exchange, without which value, in any reasonable sense of the word, cannot exist."Edwin Cannan, A History of the Theories of Production and Distribution (1893; 3rd ed., 1917), p. 395. Professor Cannan has later also made an important contribution to the problem of the international relation between socialist states. Cf. his essay on "The Incompatibility of Socialism and Nationalism," in The Economic Outlook (London, 1912). But, beyond general statements of this sort, critical examination of the possibilities of a socialist economic policy made little headway, for the simple reason that no concrete socialist proposal of how these problems would be overcome existed to be examined.A completely neglected attempt to solve the problem from the socialist side, which shows at least some realization of the real difficulty, was made by Georg Sulzer, Die Zukunft des Sozialismus (Dresden, 1899).
It was only early in the present century that at last a general statement of the kind we have just examined, concerning the impracticability of socialism by the eminent Dutch economist, N.G. Pierson, provoked Karl Kautsky, then the leading theoretician of Marxian socialism, to break the traditional silence about the actual working of the future socialist state and to give in a lecture, still somewhat hesitantly and with many apologies, a description of what would happen on the morrow of the Revolution.An English translation of this lecture, originally given in Delft on April 24, 1902, and soon afterward published in German, together with that of another lecture given two days earlier at the same place, was published under the title, The Social Revolution and On the Morrow of the Social Revolution (London, 1907). But Kautsky only showed that he was not even really aware of the problem that the economists had seen.
He thus gave Pierson the opportunity to demonstrate in detail, in an article that first appeared in the Dutch Economist, that a socialist state would have its problems of value just as any other economic system and that the task socialists had to solve was to show how in the absence of a pricing system the value of different goods was to be determined. This article is the first important contribution to the modern discussion of the economic aspects of socialism, and, although it remained practically unknown outside of Holland and was only made accessible in a German version after the discussion had been started independently by others, it remains of special interest as the only important discussion of these problems published before World War I.
It is particularly valuable for its discussion of the problems arising out of the international trade between several socialist communities.An English translation of Pierson's article is contained in the volume on Collectivist Economic Planning to which the present essay formed the introduction. All the further discussions of the economic problems of socialism that appeared before the first World War confined themselves more or less to the demonstration that the main categories of prices, as wages, rent, and interest, would have to figure at least in the calculations of the planning authority in the same way in which they appear today and would be determined by essentially the same factors. The modern development of the theory of interest played a particularly important role in this connection. After Böhm-Bawerk,In addition to his general work on interest, his essay on "Macht und ökonomisches Gesetz" (Zeitschrift für Volkswirtschaft. Sozialpolitik und Verwaltung [1914]) should be specially mentioned, since in many ways it must be regarded as a direct predecessor of the later critical work. it was particularly Professor Gustav Cassel who showed convincingly that interest would have to form an important element in the rational calculation of economic activity.
But none of these authors even attempted to show how these essential magnitudes could be arrived at in practice. The one author who at least approached the problem was the Italian economist Enrico Barone, who in 1908, in an article on the "Ministry of Production in the Collectivist State," developed certain suggestions of Pareto's.Vilfredo Pareto, Cours d'économie politique, (Lausanne, 1897), vol. 2, p. 364ff. This article is of considerable interest as an example of how it was thought that the tools of mathematical analysis of economic problems might be utilized to solve the tasks of the central planning authority.An English translation of Barone's essay forms the Appendix to the volume on Collectivist Economic Planning.
When, with the end of the war of 1914–1918, socialist parties came into power in most of the states of central and eastern Europe, the discussion on all these problems necessarily entered a new and decisive phase. The victorious socialist parties had now to think of a definite program of action, and the socialist literature of the years immediately following World War I was for the first time largely concerned with the practical question of how to organize production on socialist lines.
These discussions were very much under the influence of the experience of the war years when the states had set up food and raw material administrations to deal with the serious shortage of the most essential commodities. It was generally assumed that this had shown that not only was central direction of economic activity practicable and even superior to a system of competition but also that the special technique of planning developed to cope with the problems of war economics might be equally applied to the permanent administration of a socialist economy.
Apart from Russia, where the rapidity of change in the years immediately following the revolution left little time for quiet reflection, it was mainly in Germany and even more so in Austria that these questions were most seriously debated. Particularly in the latter country whose socialists had long played a leading role in the intellectual development of socialism, and where a strong and undivided socialist party had probably exercised a greater influence on its economic policy than in any other country outside Russia, the problems of socialism had assumed enormous practical importance.
It may perhaps be mentioned in passing that it is rather curious how little serious study has been devoted to the economic experiences of that country in the decade after the First World War, although they are probably more relevant to the problems of a socialist policy in the Western world than anything that has happened in Russia. But, whatever one may think about the importance of the actual experiments made in Austria, there can be little doubt that the theoretical contributions made there to the understanding of the problems will prove to be a considerable force in the intellectual history of our time.
Among these early socialist contributions to the discussions, in many ways the most interesting and in any case the most characteristic for the still very limited recognition of the nature of the economic problems involved, is a book by Otto Neurath that appeared in 1919, in which the author tried to show that war experiences had revealed that it was possible to dispense with any considerations of value in the administration of the supply of commodities and that all the calculations of the central planning authorities should and could be carried out in natura, i.e., that the calculations need not be carried through in terms of some common unit of value but that they could be made in kind.Otto Neurath, Durch die Kriegswirtschaft zur Naturalwirtschaft (Munich, 1919).
Neurath was quite oblivious of the insuperable difficulties that the absence of value calculations would put in the way of any rational economic use of the resources and even seemed to consider it as an advantage. Similar strictures apply to the works published about the same time by one of the leading spirits of the Austrian Social Democratic Party, Otto Bauer.Otto Bauer, Der Weg zum Sozialismus (Vienna, 1919). It is impossible here to give any detailed account of the argument of these and a number of other related publications of that time. They have to be mentioned, however, because they are important as representative expression of socialist thought just before the impact of the new criticism and because much of this criticism is naturally directed or implicitly concerned with these works.
In Germany discussion centered round the proposals of the "socialization commission" set up to discuss the possibilities of the transfer of individual industries to the ownership and control of the state. It was this commission or in connection with its deliberations that economists like Emil Lederer and Eduard Heimann and the ill-fated Walther Rathenau developed plans for socialization that became the main topic of discussion among economists.Rathenau was assassinated in 1922.
For our purpose, however, these proposals are less interesting than their Austrian counterparts, because they did not contemplate a completely socialized system but were mainly concerned with the problem of the organization of individual socialized industries in an otherwise competitive system. For this reason their authors did not have to face the main problems of a really socialist system. They are important, nevertheless, as symptoms of the state of public opinion at the time when and in the nation in which the more scientific examination of these problems began.
One of the projects of this period deserves perhaps special mention not only because its authors are the inventors of the now fashionable term planned economy but also because it so closely resembles the proposals for planning now [1935] so prevalent in Great Britain. This is the plan developed in 1919 by the economics and labor minister, Rudolf Wissel, and his undersecretary of state, W. von Moellendorf.This plan was originally developed in a memorandum submitted to the cabinet of the Reich on May 7, 1919, and later developed by Rudolf Wissel in two pamphlets, Die Planwirtschaft (Hamburg, 1920) and Praktische Wirtschaftspolitik (Berlin, 1919). But interesting as their proposals of organization of individual industries are and relevant to many of the problems discussed in England at the present moment as is the discussion to which they gave rise, they cannot be regarded as socialist proposals of the kind discussed here but belong to the halfway house between capitalism and socialism, discussion of which for reasons mentioned above has been deliberately excluded from the present essay.
The distinction of having first formulated the central problem of socialist economics in such a form as to make it impossible that it should ever again disappear from the discussion belongs to the Austrian economist Ludwig von Mises. In an article on "Economic Calculation in a Socialist Community," which appeared in the spring of 1920, he demonstrated that the possibility of rational calculation in our present economic system was based on the fact that prices expressed in money provided the essential condition that made such reckoning possible."Die Wirtschaftsrechnung im sozialistischen Gemeinwesen," Archiv für Sozialwissenschaften und Sozialpolitik, vol. 58, no.1 (April 1920), reproduced in an English translation in Collectivist Economic Planning. Most of this article has been embodied in the more elaborate discussion of the economic problems of a socialist community in part II of Professor Mises's Gemeinwirtschaft (Jena, 1922; 2nd ed., 1932); English trans. by J. Kahane under the title Socialism (London, 1936). The essential point on which Professor Mises went far beyond anything done by his predecessors was the detailed demonstration that an economic use of the available resources was only possible if this pricing was applied not only to the final product but also to all the intermediate products and factors of production, and that no other process was conceivable that would in the same way take account of all the relevant facts as did the pricing process of the competitive market.
Together with the larger work in which this article was later incorporated, Professor Mises's study represents the starting point from which all the discussions of the economic problems of socialism, whether constructive or critical, which aspire to be taken seriously must necessarily proceed.
While Professor Mises's writings contain beyond doubt the most complete and successful exposition of what from then onward became the central problem, and while they had by far the greatest influence on all further discussions, it is an interesting coincidence that about the same time two other distinguished authors arrived independently at very similar conclusions.
"Professor Mises's study represents the starting point from which all the discussions of the economic problems of socialism, whether constructive or critical, which aspire to be taken seriously must necessarily proceed."The first was the great German sociologist Max Weber, who in his posthumous magnum opus, Wirtschaft und Gesellschaft, which appeared in 1921, dealt expressly with the conditions that in a complex economic system made rational decisions possible. Like Mises (whose article he quotes as having come to his notice only when his own discussion was already set up in print), he insisted that the in natura calculations proposed by the leading advocates of a planned economy could not provide a rational solution of the problems that the authorities in such a system would have to solve.
He emphasized in particular that the rational use and the preservation of capital could be secured only in a system based on exchange and the use of money, and that the wastes due to the impossibility of rational calculation in a completely socialized system might be serious enough to make it impossible to maintain alive the present populations of the more densely inhabited countries:
The assumption that some system of accounting would in time be found or invented if one only tried seriously to tackle the problem of a moneyless economy does not help here: the problem is the fundamental problem of any complete socialization and it is certainly impossible to talk of a rationally "planned economy" while in so far as the all-decisive point is concerned no means for the construction of a "plan" is known.Max Weber, Wirtschaft und Gesellschaft ("Grundriss der Sozialökonomik," vol. 3 [Tübingen, 1921]), pp. 55–56.
A practically simultaneous development of the same ideas is to be found in Russia. Here, in the summer of 1920, in the short interval after the first military successes of the new system, when it had for once become possible to utter criticisms in public, Boris Brutzkus, a distinguished economist mainly known for his studies in the agricultural problems of Russia, subjected to a searching criticism, in a series of lectures, the doctrines governing the action of the Communist rulers.
These lectures, which appeared under the title "The Problems of Social Economy under Socialism" in a Russian journal and were only many years later made accessible to a wider public in a German translation,The original title under which these lectures appeared in the winter of 1921–22 in the Russian journal Ekonomist was "Problems of Social Economy under Socialism." They were later reprinted in the original Russian as a pamphlet that appeared in Berlin in 1923, and a German translation under the title Die Lehren des Marxismus im Lichte der russischen Revolution was published in Berlin in 1928. This essay, together with a discussion of the development of economic planning in Russia, appeared in an English translation in Boris Brutzkus, Economic Planning in Soviet Russia (London, 1935). show in their main conclusion a remarkable resemblance to the doctrines of Mises and Max Weber, although they arose out of the study of the concrete problems that Russia had to face at that time and although they were written at a time when their author, cut off from all communication with the outside world, could not have known of the similar efforts of the Austrian and German scholars. Like Professor Mises and Max Weber, his criticism centers round the impossibility of a rational calculation in a centrally directed economy from which prices are necessarily absent.
Although to some extent Max Weber and Professor Brutzkus share the credit of having pointed out independently the central problem of the economics of socialism, it was the more complete and systematic exposition of Professor Mises, particularly in his larger work on Die Gemeinwirtschaft, that has mainly influenced the trend of further discussion on the Continent. In the years immediately succeeding its publication a number of attempts were made to meet his challenge directly and to show that he was wrong in his main thesis and that even in a strictly centrally directed economic system values could be exactly determined without any serious difficulties. But, although the discussion on this point dragged on for several years, in the course of which Mises twice replied to his critics,Ludwig von Mises, "Neue Beitrage zum Problem der sozialistischen Wirtschaftsrechnung," Archiv für Sozialwissenschaften, vol. 51 (1924), and "Neue Schriften zum Problem der sozialistischen Wirtschaftsrechnung," Archiv für Sozialwissenschaften, vol. 60 (1928). it became more and more clear that, in so far as a strictly centrally directed planned system of the type originally proposed by most socialists was concerned, his central thesis could not be refuted.
Much of the objections made at first were really more a quibbling about words caused by the fact that Mises had occasionally used the somewhat loose statement that socialism was "impossible," while what he meant was that socialism made rational calculation impossible. Of course any proposed course of action, if the proposal has any meaning at all, is possible in the strict sense of the word, i.e., it may be tried. The question can only be whether it will lead to the expected results, that is, whether the proposed course of action is consistent with the aims that it is intended to serve.
Insofar as it had been hoped to achieve by means of central direction of all economic activity at one and the same time a distribution of income independent of private property in the means of production and a volume of output that was at least approximately the same or even greater than that procured under free competition, it was more and more generally admitted that this was not a practicable way to achieve these ends.
But it was only natural that, even where Professor Mises's main thesis was conceded, this did not mean an abandonment of the search for a way to realize the socialist ideals. Its main effect was to divert attention from what had so far been universally considered as the most practicable forms of socialist organization to the exploration of alternative schemes.
It is possible to distinguish two main types of reaction among those who conceded his central argument. In the first place, there were those who thought that the loss of efficiency, the decline in general wealth that will be the effect of the absence of a means of rational calculation, would not be too high a price for the realization of a more just distribution of this wealth. Of course, if this attitude is based on a clear realization of what this choice implies, there is no more to be said about it, except that it seems doubtful whether those who maintain it would find many who would agree with their idea.
The real difficulty here is, of course, that for most people the decision on this point will depend on the extent to which the impossibility of rational calculation would lead to a reduction of output in a centrally directed economy compared with that of a competitive system. Although in the opinion of the present writer it seems that careful study can leave no doubt about the enormous magnitude of that difference, it must be admitted that there is no simple way to prove how great that difference would be. The answer here cannot be derived from general considerations but will have to be based on a careful comparative study of the working of the two alternative systems and presupposes a much greater knowledge of the problems involved than can possibly be acquired in any other way but by a systematic study of economics.It is perhaps necessary in this connection to state explicitly that it would be wholly inconclusive if such a comparison were made between capitalism as it exists (or is supposed still to exist) and socialism as it might work under ideal assumptions — or between capitalism as it might be in its ideal form and socialism in some imperfect form. If the comparison is to be of any value for the question of principle, it has to be made on the assumption that either system is realized in the form that is most rational under the given condition of human nature and external circumstances that must of course be accepted.
The second type of reaction to Professor Mises's criticism was to regard it as valid only as regards the particular form of socialism against which it was mainly directed and to try to construct other schemes that would be immune to that criticism. A very considerable and probably the more interesting part of the later discussions on the Continent tended to move in that direction.
The Anti-Counterfeiting Trade Agreement (ACTA) contravenes every principle of civilized society, both in its content and in the nature of the proceedings leading to its creation, writes Gennady Stolyarov II.
This audio Mises Daily is narrated by the author.
Covers the problems of government intervention into pollution and natural resource use issues, emphasizing importance of private property and individual liberty in producing desirable outcomes. Recorded at Mises University 2010.
"You want your invention to yourself? Then keep it to yourself."
– Benjamin R. Tucker[From the book The Debates of Liberty]
Intellectual property — as embodied in copyright and patent — was the subject of intense debate within Liberty. Benjamin Tucker flatly rejected the idea that legal copyright was compatible with anarchism. The strength of Tucker's opposition to patents may be judged from his essay "State Socialism and Anarchism: How Far They Agree, and Wherein They Differ." Here, Tucker explained the key difference between individualist anarchism's position on intellectual property and that of the major competing radical school of his day — state socialism:
"The two principles … are AUTHORITY and LIBERTY, and the names of the two schools of Socialistic thought which fully and unreservedly represent one or the other of them are, respectively, State Socialism and Anarchism."
Tucker explained that "nearly all political economists" confined themselves to describing society as it existed. By contrast, socialism and anarchism described society as it should be, and explored the means by which such an ideal could come about. Tucker observed, "This seems to have been done independently by three different men…: Josiah Warren, an American; Pierre J. Proudhon, a Frenchman; Karl Marx, a German Jew." The "parting of ways" between Marx on one hand and Warren and Proudhon on the other was their method of "striking down monopoly." Following the path of "Authority," Marx accepted that "government must assume all the functions of the economy in order to protect it from monopoly…. First, then, State Socialism, which may be described as the doctrine that all the affairs of men should be managed by the government, regardless of individual choice" (emphasis in original).
Warren and Proudhon adhered to "Liberty" and "saw that monopoly rested upon Authority [government] and to destroy the former it was necessary to destroy the latter." The means they advocated was "to create as much competition as possible." Thus, they launched a frontal attack on the four monopolies of "principal importance, — the money monopoly, the land monopoly, the tariff monopoly, and the patent monopoly." To Tucker, patent was one of the four mainstays of monopoly upon which Authority rested.
A debate on intellectual property within Liberty was, perhaps, inevitable. Lysander Spooner, one of Tucker's mentors, had written a work entitled The Law of Intellectual Property; or, An Essay on the Right of Authors and Inventors to a Perpetual Property in their Ideas. Moreover, Herbert Spencer, a thinker much quoted and and respected by Liberty, argued vigorously for intellectual property. The stage was set for a clash of concepts.
As a topic of debate, intellectual property appeared in the July 7, 1888, issue of Liberty through a provocative article in which Benjamin Tucker declared, "there can rightfully be no such thing as the exclusive ownership of an idea." From this point, the twin issues of patent and copyright gradually blossomed into major debate through which the concept of "property" was finely honed.
The Boundaries of the DebateIn a debate, it is natural to assume that the exchange of opinions swings back and forth between advocacy and denial. This is not a precise statement of what occurred in the debate on whether ideas could be property. Most of the positions held were more complicated. For example, the egoist James L. Walker, who wrote under the pseudonym Tak Kak, contributed heavily to the anti-intellectual-property side. Yet he wrote, "My thoughts are my property as the air in my lungs is my property." Clearly, Tak Kak did not object to copyright and patent on the grounds that ideas could not be "property" in some sense. Both sides of the debate acknowledged that an individual owned his own thoughts, which could be expressed or withheld entirely at his option.
Moreover, both sides believed that an idea could remain the property of its originator even after it had been imparted to others. Tak Kak maintained,
If any person wishes to live by imparting his ideas in exchange for labor, I have nothing to say against his doing so and getting cooperative protection without invading the persons and property of myself and my allies… Mr. Spencer [Herbert Spencer] is welcome to all the property in ideas that he can erect and maintain without government. No one can speak or write, and yet have the same advantage as if he were silent… But whatever he can do by contract, cooperation, and boycotting … let him do so at his pleasure.
Tak Kak restated his theme in different terms: "As long as Spencer has an idea in his brain, it is his, and it is not mine until it is in my brain."
Note two key points in Tak Kak's position. The first is a restatement of the self-ownership principle: that is, every human being simply by being human has jurisdiction over his own body. By logical extension, self-ownership protected any idea within his mind. The second point is that "communicated" ideas — ideas that ceased to be solely within his mind and assumed a public status — no longer enjoyed the automatic protection of self-ownership. Any ownership of public ideas did not derive from natural rights, but from a contract or from what Tak Kak called "cooperative protection."
Tucker refined Tak Kak's second point. In distinguishing between an idea within your mind (private) and an idea that had been communicated (public), Tucker claimed that the ownership of a private idea did not result from originating it. The ownership resulted from the fact that the idea was protected by other rights. You owned an idea in your mind simply because it was impossible for anyone to access it without your consent unless they used force, such as torture. Thus, the "ownership" of private ideas was merely a byproduct of self-ownership.
A public idea was not comparably protected by self-ownership. When an author or inventor publicized his idea, he relinquished what Tucker termed "a power which theretofore had been guarded by other rights — the right of inviolability of person, the right of privacy of domicile." Tucker was clear — by publishing his work, an author or inventor did not relinquish his right to it for there was no right to begin with. There had been a protective shield provided by self-ownership. Publication removed that protective shield. If an idea was in the public realm, an individual could access and use it without violating anyone else's "equal liberty."
Thus, Tak Kak and Tucker defined one boundary of the debate, the anti-intellectual property side (hereinafter AIP). You own private ideas. They can be protected either through silence or through contracts similar to those currently used by computer companies to "license" software packages. But there was no "natural" right to a public idea. In being communicated, it became the private property of anyone who held it in their minds thereafter. As J. William Lloyd expressed it, "You cannot cut an idea bodily out of a brain as you might transplant a strawberry from one garden to another. If I think the same thought as my neighbor, very well; it is plain that I have taken and received nothing from him, for he still has his thought as strong as ever."
Proponents of intellectual property (hereinafter IP) insisted that copyright and patent were natural rights and deserved protection whether they were private or public ideas. In general, these proponents maintained one of two positions. The most radical position was the claim that the discoverer of an idea became entitled not only to his specific instance of the idea (the private one), but also to all subsequent instances of it (the public ones) without exception.
The more commonly argued IP position was that the discoverer of an idea held exclusive ownership until and unless someone else substantiated his independent discovery of the same idea — for example the discovery of how to store electricity in a battery. At that point, the independent discoverer acquired an ownership claim equal to that of the other originator. Such dual ownership would be far more likely to occur in patents than copyrights because inventors use the same state-of-the-art technology to address the same questions and, so, often come up with identical solutions.
IP advocates insisted that ideas were property because they were the products of human labor, like chairs or tables, and every person rightfully owned what his labor produced. Lysander Spooner was widely quoted to support this argument: "the principle of individual property … says that each man has an absolute dominion, as against all other men, over the products and acquisitions of his own labor." In short, intellectual property was a natural right.
Opponents of intellectual property countered by claiming that the proper reward for such labor was the specific idea produced.
Although the discussion of intellectual property took many intricate twists within Liberty, it ultimately revolved around two key questions: (1) What is property? and (2) What is an idea?
What Is Property?IP advocates generally defined property as wealth whose ownership has been acquired either through discovery or through labor. Spooner stated, "Property is simply wealth, that is possessed — that has an owner; in contradistinction to wealth, that has no owner, but lies exposed, unpossessed, and ready to be converted into property, by whomsoever chooses to make it his own" (emphasis in the original). Spooner continued, "Any article of wealth which a man creates or produces by the exercise of any portion of his wealth producing faculties is … clearly his rightful property."
Tucker addressed the question in more fundamental terms. He asked why the concept of property had originated within society in the first place. The logic behind this approach was his belief that concepts are problem-solving devices. Ideas arise only because they serve a need, they answer a question. To illustrate this, consider a universe parallel to our own which runs along slightly different rules. In this alternate universe, you can satisfy needs simply by wishing for satisfaction. Food appears magically in your hand, clothes on your limbs, and a bed under your tired body. It is unlikely that the concept of money would evolve in such a universe, because that concept came about to solve the problem of transferring and storing wealth. Thus, in the parallel universe, the problem-solving concept of money would not arise because the problem did not exist.
Tucker used this approach to analyze the concept of property. He asked, what is it about the nature of our universe and of man that gives rise to property in the first place? What problem is being solved?
Tucker argued that the idea of property arose as a way to solve conflicts caused by scarcity. In the real universe, goods are scarce and this fact leads to inevitable competition among men for their use. For example, since one chair cannot be used in the same manner and at the same time by two individuals, it was necessary to determine who should use the chair. The concept of property resolved this problem. The one who could claim the chair as property should determine its use. "If it were possible," wrote Tucker, "and if it had always been possible, for an unlimited number of individuals to use to an unlimited extent and in an unlimited number of places the same concrete thing at the same time, there would never have been any such thing as the institution of property."
This argument had direct implications for copyright and patent. A public idea was not a scarce good, as it could be used by an unlimited number of individuals to an unlimited extent and in an unlimited number of places. According to Tucker, this meant means that intellectual property as a natural right ran counter to the very purpose for which the idea property evolved.
In fact, intellectual property would create a scarcity where none naturally existed. In short, it would create an unnatural monopoly. To claim all potential generators because you have built one yourself, Tucker argued, is comparable to "a claim on the part of a man who first struck oil to ownership of the entire oil region or petroleum product."
What Are the Essential Characteristics of Property?Anti-intellectual-property advocates claimed that copyright and patent contradicted not only the purpose for which the idea of property evolved but also the essential characteristics of property.
What were these characteristics? Two related ones were claimed: alienability and transferability. In other words, to qualify as natural property, it has to be possible to alienate it from one person and transfer it to another. Not all transfers had to be complete or final. For example, a homeowner might decide to rent out a room rather than sell the entire structure. But, in principle, it had to be possible to alienate and transfer a good in order to consider it "property."
Tak Kak applied this standard to ideas: "The giver or seller parts with it [property] in conveying it. This characteristic distinguishes property from skill and information. Bread is property." But the art of baking was not property; it was a skill that was not alienated in being transferred. "Monopoly consists in the attempt to make property of liberties, discoveries, sciences, and arts by a pretended or forced alienation."
The idea that property must be capable of alienation was reminiscent of Thomas Jefferson's famous analogy between ideas and candles. Jefferson explained that, just as a man could light his taper from an existing candle without diminishing the original flame, so too could he acquire an idea without diminishing the original source. Jefferson wrote further,
If nature has made any one thing less susceptible than all others of exclusive property, it is … an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it.
The inalienability of ideas was a problem not only for the original owner, but also for anyone who received it. The recipient had no choice but to avail himself of the idea once it had been communicated to him — once he had heard or seen it. That is, the recipient had no means by which to pluck the information out of his head and return to a state of ignorance. Nevertheless, the enforcement of intellectual property prevented him from using what was in his own mind.
Along the theme of nonalienability, Lloyd postulated that an essential characteristic of property was the ability to destroy what you possess. He commented further, "the impossibility of destroying an idea, or withholding it from use … is excellent proof that there can be no property in ideas. What is an idea?"
IP advocates argued from natural rights that an idea is the product of intellectual labor and, thus, a form of wealth.
The AIP egoist J.B. Robinson approached the issue differently. "What is an 'idea'?" he asked. "Is it made of wood, or iron, or, stone? … the idea is nothing objective … that is to say, the idea is not part of the product; it is part of the producer." In other words, to own an idea in another person's mind reduced to a form of slavery because the ownership claim was over an aspect of another person's body. Ideas could not be owned by anyone other than the individual in whose mind the idea resided.
Thus, AIP advocates added another essential characteristic to property — it must be tangible. Tak Kak commented, "A convenient test [of property] is this: no ownership except in that which is embodied in tangible form, hence subject to wear and decay, for this is the general mark of products as distinct from that so-called production which can be imparted to others and become common property without the original owner having less than before."
The Debate Debuts: The Question of PatentIn the July 7, 1888, issue of Liberty, Tucker critiqued an article by Henry George that had appeared in the June 23 issue of the Standard. George claimed that ownership came from production, not discovery. This led him to reject patents, describing them as ideas that manipulated the laws of nature through machinery. He wrote, "No man can justly claim ownership in natural laws, nor in any of the potentialities which nature hold for it." To those who protested that only the machine, not the natural law, was being claimed as property, George replied that the principles upon which the machines operated were intrinsic to nature. For example, a windmill was nothing more than an expression of how the force of wind pushing against a surface could produce power. Thus, every patent reduced to an ownership claim over an expression of nature.
George distinguished between two forms of labor that went into producing an invention. The first form was the mental labor of working out the operating principles of the machine — this was the labor of discovery. But since the principles existed in nature — e.g., how X amps of electricity reacts to Y ohms of resistance — they were available for discovery by anyone and could not be claimed by one man. The second form of labor was the actual construction of a specific machine from raw materials — this was the labor of production. Thus, the specific machine a man produced, such as a wheelbarrow, could be claimed as his property but he could not prevent another man from producing his own wheelbarrow.
George then proceeded to distinguish between patents and copyright, and to argue that the latter was a defensible form of intellectual property. That is, he claimed that the labor of production expended on how to say something gave a man an ownership right to that arrangement of words and not merely to one specific instance of the arrangement.
In a response that bordered on an ad hominem attack, Tucker called George "one of the most dangerous men among all of those now posing as public teachers." It was George's defense of copyright that elicited Tucker's scorn. Henceforth, the topic of intellectual property would have two well-defined threads in which patent and copyright were addressed as separate issues.
Concerning patents, Tucker agreed that the act of discovery gave a man no more right to a principle, such as electricity, than simply stepping upon a continent gave him a right to that landmass. Only the labor of production endowed ownership. And, since "the work of production is required afresh in the case of each particular thing," no particular thing can be claimed by anyone other than the individual who manufactured it.
Tucker then raised controversy by contending that the act of discovering the principle anew was not even required for someone to claim equal ownership to a specific machine for the simple reason that such independent invention might not be possible. For example, Tucker disputed whether any man living in civilization had the ability to independently invent the steam engine; if a man had seen this machine, he was thereby deprived of the ability to conceive it anew. That is, a man who had seen a steam engine could not be totally original in inventing one even if he honestly attempted to be so. "This being the case," concluded Tucker, "a patent given to him [the inventor] puts the entire world at his mercy."
Vigorous advocate of intellectual property Victor Yarros countered by claiming that there was an implied contract or obligation on the part of anyone who received another's idea to refrain from using it. After all, Tucker was not forced to absorb the idea, even a popular one. Presumably, he did so of his own free will and, thus, he voluntarily deprived himself of the ability to discover the idea anew. "If Mr. Tucker wants to be the originator of everything he has occasion to use and enjoy in life, he is at liberty to abstain from reading and studying." Yarros continued, "All Mr. Tucker has the right to demand, is that these things shall not be brought to his own private house and placed before his eyes…. If he chooses to … walk in the public street and look at the display of goods in the windows, he does so at the risk of depriving himself of the liberty of originating certain things."
Tucker responded, "Some man comes along with an invention and parades it in the streets; and we are told that, in consequence of this act on his part, we must either give up our liberty to walk the streets or else our liberty to invent… Not so fast my dear sir! … Were you compelled to parade your invention on the streets? And why do you ask us to protect you from the consequences?"
Yarros conceded that "the man who parades a simple thing in the streets should not be protected in the monopoly of its use," but he maintained that complex creations should be protected since a duplicator would have to go out of his way "to stop and study the invention."
Tucker countered that a man with great mechanical ability could understand a machine at a glance. Thus, Yarros's standard of "complexity" made the enforcement of patent laws a purely subjective matter. A man who had to study a steam engine in order to duplicate it would be legally liable for such duplication, whereas an experienced engineer who understood the engine at a glance would be exempt. Thus, innocence or guilt would be purely a matter of the educational background or intellectual abilities of the accused.
Tucker extended his argument to include copyright as well as patents. Presumably, a man with either a photographic or phonographic memory would able to remember verbatim literature that had been placed before his eyes or read aloud in his presence. But IP advocates would be far less willing to concede points on the issue of copyright as opposed to patents.
The Question of CopyrightAlthough most contributors to Liberty viewed patents as discoveries of natural principles, many of them viewed copyright in an entirely different manner.
In Yarros's foray into ideological battle, he had stated, "Mr. Tucker's argument, entirely applicable to patent rights, is completely inapplicable to copyright." Poetry and novels did not exist in nature to be discovered, like the principles of a generator. Indeed, advocates of copyright argued that it was impossible for two people to write the same short story independently, even though simultaneous and independent inventions were not uncommon.
The argument for copyright was two-pronged. First, literature was pure creation rather than a discovery of existing principles. Second, independent creation of the same piece of literature was impossible.
These arguments led many of those who opposed patent laws into the advocacy of enforced copyright. Tucker had written, "The central injustice of … patent laws is that it compels the race to pay an individual through a long term of years a monopoly price for knowledge that he has discovered today although some other man … in many cases very probably would have discovered it tomorrow." This objection did not seem to apply to literature and copyright.
Nevertheless, Tucker maintained, "The same argument that demolishes the right of the inventor demolishes the right of the author." Patent and copyright were simply two expressions of the same principle.
Tucker proceeded to answer the arguments for copyright. First, he denied that literature was pure creation rather than a discovery of existing principles. Literature was nothing more than an arrangement of the alphabet according to certain principles; both the alphabet and these principles preexisted any piece of literature and were available to anyone to use in any manner. If no one could reasonably claim ownership in a particular combination of the alphabet, then no one could own a style of expression.
The possibility of independently creating a piece of literature posed more of a problem. There were documented cases of simultaneous inventions of machinery, but not of literature. Although the general ideas expressed in a book might be duplicated — as in the instance of Walras, Jevons, and Menger who all simultaneously "originated" theories of marginal utility — the duplication of the style of expression was considered beyond possibility.
Tucker staunchly defended this possibility. Even throwing letters randomly in the air a sufficient number of times would produce Hamlet, he argued; thus it was logically possible to independently reproduce a style of expression.
Moreover, Tucker contended that a style of expression was a type of idea in and of itself. He made the somewhat Platonic assertion that all combinations of letters or words existed potentially, just as all combinations of raw materials existed potentially. Thus, one man had no more right to monopolize the arrangement of words in a poem than he had to claim ownership of the arrangement of raw materials that resulted in a generator. Yarros considered such metaphysical talk to be "meaningless jargon." On the likelihood of anyone independently reproducing the exact words of an author, Yarros wrote, "Instead of being very probable, it is beyond all possibility … the method, the style, the manner, the peculiarities of all kinds due to his physical, mental and moral traits, these no other man might or would under any circumstances bring." Copyright did not prevent anyone from writing a work that reflected the ideas of an author; it merely protected the work's unique style of expression, which could not be honestly duplicated.
In response, Tucker declared that discussions of probability or possibility were "improper," both in terms of forging law about copyright or of arguing its validity as a natural right. Regarding the making of law, he maintained, "the propriety of considering degree of probability … fails to distinguish between the weighing of evidence and the forming of laws. The question of probability rightly enters into the former, but not into the latter." Besides which, the presumption of innocence would mean that an author who accused another of plagiarism would have to prove that independent creation had not occurred.
In terms of copyright as a natural right, Tucker wrote,
To discuss the degrees of probability … is to shoot wide of the mark. Such questions as this are not to be decided by rule of thumb or by the law of chances, but in accordance with some general principle…. Among the things not logically impossible, I know of few nearer the limit of possibility than that I should ever desire to publish Liberty in the middle of the desert of Sahara; nevertheless, this would scarcely justify any great political power in giving Stanley a right to stake out a claim comprising that entire region and forbid me to set up a printing press.
In short, a question of rights must be determined by the general principles, not by probability.
Yarros's response to Tucker's argument of independent discovery of style was brief and empirical rather than theoretical: "Since men began to write, no such occurrence has taken place as the production of two similar quatrains, or two ten-line paragraphs by two independent men." Unlike the patent dispute in which Yarros gave so much ground as to end up virtually agreeing with Tucker, the dispute between them concerning style remained unresolved.
Tak Kak picked up on Tucker's attack on protecting the style of literature. In an attempt at reductio ad absurdum, Tak Kak pointed to a large inconsistency in the procopyright arguments. They asserted stylistic expression should be legally protected, yet they did not extend this protection beyond literature and art. Tak Kak observed that ideas and style are expressed in almost all aspects of our lives and yet it is only with regard to patent and copyright that laws are introduced to "protect" the originator.
"If a printer may not copy new books," commented Tak Kak, "of course the shoemaker may not copy new shoes." Such a denial, of course, would be widely considered a violation of the shoemaker's liberty. "The shoemaker or printer with materials and tools in hand must copy what is in demand or starve. If he be not permitted to use his tools and his material in fashioning any goods that he knows how to fashion, and chooses to fashion, his liberty and his property are frustrated at one stroke."
Chairs, hairstyles, clothing, flower gardens, room decor, and all other forms of expression have unique styles. The style of a flower arrangement may be as unique as the style of a sonnet, yet it was only with the sonnet, with so-called intellectual property, that special privileges of legal protection were demanded. Further, to be consistent, the copyright advocate would have to admit that all speech was a unique, personal form of expression. Therefore, a man should be entitled to legal protection for every sentence he uttered so that no one thereafter could speak that arrangement of words without his consent.
The advocates of copyright came close to adopting this latter position. The procopyright Lysander Spooner had previously written, "So absolute is an author's right of dominion over his ideas that he may forbid their being communicated even by human voice if he so pleases." With lines so clearly and deeply drawn, neither side conceded many points on copyright.
Secondary QuestionsAlthough questions of secondary importance tended to be dismissed quickly, they provide a sense of the complexity of the debate.
The anti-intellectual-property advocates attacked their opponents for being inconsistent on several points, especially on the advocacy of either a time limit or a territorial limit in law for copyright and patent. If the ownership of ideas was a natural right, critics inquired, why should it be so limited? Other natural property was not possessed only for five years, or within a certain country. If ideas were property as a chair was, why were ideas being treated differently under the law? The impact of this argument was to make many who advocated copyright and patents so uncomfortable with time or territory limits that they conceded this point without changing their core position.
Purely utilitarian arguments were introduced by labor reformer Hugo Bilgram who commented that the "only basis on which the question [copyright] must stand or fall is that of social expediency…. To this question only one answer appears possible, and this is an affirmative answer." The specific social expediency raised by Bilgram was the likelihood that no great literature would be written if authors were not granted a natural-rights protection, and natural profit, for their published work. "Were it considered proper for any publisher to copy any new work without the author's consent, the authorized publisher … could therefore in no way afford to remunerate the author for his labour. And, authors having no earthly chance of being financially remunerated by any other mean, they would simply not write."
As a counter, Tucker pointed to the great literature produced by such writers as Shakespeare, who had penned his plays a century prior to the first copyright law. Speaking as both a publisher and an author, he stated, "it is a rule, to which exceptions are very rare, that, even in the absence of copyright, competing editions are not published except of books the demand for which has already been large enough to more than reasonably reward both author and publisher for their labor." He also quoted the contemporary playwright and contributor to Liberty George Bernard Shaw, who observed, "the cry for copyright is the cry of men who are not satisfied with being paid for their work once, but insist upon being paid twice, thrice, and a dozen times over."
Tucker could have added that he did not advocate stripping authors and inventors of protection. He merely wished that protection to be extended on a contractual basis. Elsewhere, he interjected the observation, "It must not be inferred that I wish to deprive the authors of reasonable rewards for their labor. On the contrary, I wish to help them to secure such, and I believe that there are Anarchistic methods of doing so" (emphasis in original).
Tucker's appeals to his own personal experiences as a writer, editor, and publisher were difficult to refute. He referred to an earlier book published under the imprint of B. Tucker, "Why … did two competing editions of the Kreutzer Sonata appear on the market before mine had had the field two months? Simply because money was pouring into my pockets with a rapidity that nearly took my breath away. And after my rivals took the field, it came in faster than ever…. Competition in the book world is not to be shunned but to be courted."
A latecomer in the debate, Joseph Labadie, supported Tucker's point: "The question of recompense is not necessarily involved in the denial of the right to property in ideas."
The argument from expediency was also used to defend patents that were deemed to be socially necessary conditions to encourage inventors and scientists to create. Indeed, patents were presented almost as being necessary conditions for human progress itself. J. William Lloyd replied to this claim by declaring precisely the opposite to be true:
It is quite within the limits of possibility … that I could invent a hoe so superior to any other that not only all existing hoes, but all existing tools of cultivation were worthless by comparison … the practice of improved agriculture would then depend upon the manufacture and use of my hoes, yet the form of hoe thus expressed being exclusively mine, I would at once become an autocrat with tremendous power … and thus imperil human liberty without hope of redress, but I could at any time do something perhaps even worse — refuse to make these hoes altogether, and forbid others to do so, and this for all time." (emphasis in original)
Some advocates of patents found this to be a convincing argument and conceded the right of independent invention; that is, so long as an invention resulted from the independent labor of an inventor, it could be claimed as property whether or not it duplicated any one else's similar independent effort. But as IP advocate Victor Yarros explained, the onus of proof rested upon the second inventor to prove that his work had evolved independently. In other words, in asserting his claim, the second inventor would be considered guilty until proven innocent.
Tucker quickly pointed out that this reversal of legal process ran counter to all established methods of fair trial. He suggested that his sometime associate editor Yarros appealed to this argument because "to go to a jury on a question of independence of invention or authorship with the burden of proof on the complainant … would be sure victory for the defendant."
Generally speaking, all aspects of the social-expediency argument were dismissed with ease by Tucker, whose career as a professional journalist and editor gave him a facility with examples and statistics as well as a background that may have intimidated his opponents more than it convinced them. Indeed, Tucker was not above stooping to ad hominem attacks and open ridicule. Regarding international copyright, Tucker charged that the other side were authors who were arguing in their vested interests. He called them "free traders" who "declare for protection in the sphere which involves their special interest."
In an article entitled "As Usual, Protection Only for the Rich," Tak Kak added a more reasoned observation. He claimed that a proposed international copyright law, which was being championed by the natural-rights side, protected only the rich: "It allows any publisher to pirate the works of all authors who are not rich enough to invest a considerable sum in printing in this country or famous enough to get some American publisher — to do so for them."
The Debate ClosesOn the whole, the debate over intellectual property within the pages of Liberty was conducted with goodwill and with a minimum of personal attacks. For example, when Tucker took exception to Yarros's use of the word "evasion" to describe one of his (Tucker's) arguments, Yarros hastened to defuse that word of any derogatory meaning. Tucker was equally, and uncharacteristically, generous: "if he [Yarros] has failed and, so far as I know it, such is the nearly unanimous verdict of the readers of Liberty, — the fault is not with the champion, but with his hopeless cause."
With this remark, Tucker announced that "the discussion of property in ideas between Mr. Yarros and myself is now closed."
Although the end of debate may have seemed abrupt or arbitrary, it is important to remember that the discussion spanned three years. It continued past its announced "official" closing date of May 1891 through to July 11 with articles by J.B. Robinson, Tak Kak, Lloyd, William Hanson and George Forrest. With the exception of a fairly neutral piece by Hanson, the contributions argued against intellectual property.
Tucker's opposition against property in ideas did not alter over the years, except perhaps to harden. He continued to view intellectual property as one of the four categories of usury through which monopolies were established by government. Although he considered the "banking (or money) monopoly" to be the most serious of the four, intellectual property — if carried to its logical conclusion — would be disastrous. One of Tucker's last statements on intellectual property remains his clearest:
Had it been in force in the lifetime of James Watt, [it would] have made his direct heirs the owners of at least nine-tenths of the now existing wealth of the world; and, had it been in force in the lifetime of the inventor of the Roman alphabet, nearly all the highly civilized peoples of the earth would be to-day the virtual slaves of that inventor's heirs, which is but another way of saying that, instead of becoming highly civilized, they would have remained in the state of semi-barbarism. It seems to me that these two statements, which in my view are incontrovertible, are in themselves sufficient to condemn property in ideas forever.
Conclusion: Patent and Copyright by ContractTucker and the other contributors to Liberty who rejected intellectual property as a natural right were not hostile to copyright or patent enforced by contract. Nor did they deny a man's absolute right to exclusively use whatever ideas he privately held. The point at which this exclusivity was lost, however, came when the idea was communicated without the protection of contract. Tucker insisted that a man who wrote in the public realm abandoned all claim to his property just as a man who spoke publicly abandoned claim to his spoken words.
The natural-rights side contended that the law must presume something to be property so long as it was valuable. If an idea had value, then it was presumed to be property whether publicly expressed or not. By contrast, Tucker advanced a theory of abandonment. That is, if a man publicized an idea without the protection of a contract, then he was presumed to be abandoning his exclusive claim to that idea.
If a man scatters money in the street, he does not thereby formally relinquish title to it … but those who pick it up are thereafter considered the rightful owners…. Similarly a man who reproduces his writings by thousands and spreads them everywhere voluntarily abandons his right of privacy and those who read them … no more put themselves by the act under any obligation in regard to the author than those who pick up scattered money put themselves under obligations to the scatterer.
Perhaps the essence of Tucker's approach to intellectual property was best expressed when he exclaimed, "You want your invention to yourself? Then keep it to yourself."
This article originally appeared on WendyMcElroy.com.
Like a submarine patent, the intellectual-property issue has lurked beneath the surface of libertarianism for decades. IP was for a long time largely assumed by most libertarians to be legitimate, a type of property right. This is because of the influence of Ayn Rand, one of the most influential of all modern libertarians, who was strongly pro-IP. One reason Rand was so much in favor of IP was probably due to her reverence for the American system, which enshrined patent and copyright in the Constitution, which she saw as almost perfect (Judge Narragansett in Atlas Shrugged only had to tweak a few things to make it ideal).
But though weakly pro-IP, most libertarians never gave the issue much thought, assuming that it was an arcane and technical type of property right whose details were best left to experts. The arguments for IP looked similar in structure to those for regular property: there were principled, natural-rights-type arguments based on justice and the merit of production and "creating value"; and there were utilitarian arguments that said it makes sense for the market to provide incentives to innovate and create, just as it does to produce goods for a profit. But most libertarians didn't look at it too closely; indeed most had, and still have, a hard time distinguishing between copyright, patent, and trademark — they use them erroneously and interchangeably quite often.
Those that did look more closely at the issue felt uneasy about it — Mises and Hayek had a few things to say about it, but not completely conclusively, and not in depth (see "Mises on Intellectual Property"; Jeff Tucker, "Misesian vs. Marxian vs. IP Views of Innovation"; Jeff Tucker, "Hayek on Patents and Copyrights"). Even Rothbard, obviously another very influential libertarian, only dealt with patent and copyright in a few short passages — criticizing patents but defending a tentative notion of private copyright (see Against Intellectual Property, the "Contract vs. Reserved Rights" section).
But all along there were dissenters — such as Benjamin Tucker, way back in 1888, as explained by Wendy McElroy in "Copyright and Patent in Benjamin Tucker's Periodical Liberty." In the last couple of decades, scholarly criticism of IP by libertarians has begun to mount: by Wendy McElroy, Boudewijn Bouckaert, Tom Palmer, Roderick Long, and others (see the section "Anti-IP Resources" in "The Case Against IP: A Concise Guide"; and Against Intellectual Property, "The Spectrum" section).
My own Against Intellectual Property, first published in 2000, had a definite (and unanticipated) effect among libertarians, primarily, I think, because of its timing (five years after the Internet), and the fact that, although it built on the work of previous scholars, it was more systematic and comprehensive, and more explicitly integrated with Austrian-libertarian insights and principles (plus my status as a practicing patent attorney made some people take notice). In the last three to five years, it seems that the libertarian tide has turned against IP — dramatically and decisively (we might mark the inflection point in 2004, when Jeff Tucker asked me to to do a post on the Mises Blog collecting the various growing resources on IP, shortly after his own conversion to the Light Side of the Force). Thus, today, most libertarians, especially the young, are very aware of the IP issue and are adamantly opposed to it; they see it as clearly unlibertarian (see Jeff Tucker, "The Great IP Breakthrough"; "Have You Changed Your Mind About Intellectual Property?").
As noted here,
While Objectivists, libertarians and conservatives strongly agree on the principle of physical property rights, the picture is much more divided when it comes to "intellectual property," a catch-all phrase for several different items, including patents, copyright and trademarks. In a landmark essay by Stephan Kinsella, Against Intellectual Property, argues that "intellectual property" is not only meaningless and harmful, it is in direct violation of the general principle of private property, and primarily constitutes a state-sanctioned creation of artificial scarcity, leading ultimately to poverty, not job creation and wealth.
The wider libertarian movement accepted the argument, put it into action (see this achievement) and moved on. Objectivists, on the other hand, maintained that what Ayn Rand spoke and practiced on the subject remains the unalterable truth.
But even some Objectivists are now switching sides.As noted, the IP criticisms in my publications of course built on the work of earlier libertarians; but the point is that in recent years libertarians have widely accepted the anti-IP argument.
Some of the Austrian or libertarian critics of IP who have emerged in recent years include Jeff Tucker (see various chapters in the "Technology" section of his recent Bourbon for Breakfast), Julio Cole, Jacob Huebert (who has a great chapter on IP in his recent book Libertarianism Today), Manuel Lora and Daniel Coleman, and Timothy Sandefur. Left-libertarians who have been quick to condemn IP as unlibertarian include Kevin Carson, author of "Intellectual Property — A Libertarian Critique"; Sheldon Richman; and Gary Chartier, author of the forthcoming The Conscience of an Anarchist; not to mention Roderick Long. (That said, some of the leftists who oppose IP have, not surprisingly, some confusing ideas that weaken their case; see "Eben Moglen and Leftist Opposition to Intellectual Property," "Thick and Thin Libertarians on IP and Open Source," and "An Open Letter to Leftist Opponents of Intellectual Property: On IP and the Support of the State.")
There are also a growing number of IP critics who are artists, philosophers, techies, or journalists, most of them at least libertarian leaning, including artist Nina Paley, philosopher David Koepsell, tech blogger Mike Masnick, and reporter Joe Mullin. Standing in a league all its own, there is the monumentally important 2008 book Against Intellectual Monopoly, by Michele Boldrin and David Levine (see Jeff Tucker, "A Book that Changes Everything").
"The direction of the future, of progress, is towards more abundance and prosperity and wealth. It is obscene to undermine the glorious operation of the market in producing wealth and abundance by imposing artificial scarcity on human knowledge and learning."Why the sea change in the prominence of IP as an issue among libertarians, and their decisive rejection of it, in contrast to the apathetic pro-IP stance of the past? It appears that IP could be taken for granted only so long as no one looked at it very closely. But as soon as libertarians turned their attention to IP, they realized the case for it was full of holes.
But why did they turn their attention to it? Why did it emerge from the depths after decades of relative obscurity? A primary reason is that the damage done by patent and copyright law has been magnified and exacerbated by the advent of digital information and the Internet — copyright, for example, is being invoked more than ever because of the ease of duplicating and transmitting digital files. And the flood of news and information delivered over the Internet alerts millions to the consequences of IP law. We see horror stories every day (see "The Patent, Copyright, Trademark, and Trade Secret Horror Files").
The younger generation of libertarians is larger, more radical, more Austrian, more sophisticated, and more informed than ever before — largely due to the resources and efforts of the Mises Institute (just see the typical arguments made in the comments threads such as these). Combine this with the mounting — and Austrolibertarian — case against IP and its more conspicuous damages and daily outrages, it's no wonder that the IP issue, out of nowhere it seems, in the last three or so years has been "settled": libertarians are now, almost universally, against IP. Their arguments are sophisticated, they are technically savvy, they love the Internet, and they love the Mises Institute and its complementary open-information policy (see Doug French, "The Intellectual Revolution Is in Process"; Jeff Tucker, "A Theory of Open" and "up with iTunes U"; Gary North, "A Free Week-Long Economics Seminar"). The young libertarians and Austrians "get it." For them the IP issue (and, increasingly, the anarchy issue) is a no-brainer.
The speed of this recent IP awakening appears to have caught the old-guard libertarian defenders of IP — mostly Randians and older libertarians from a generation or two ago — slumbering, clinging to the tattered remnants of arguments for IP. As they have gradually realized that a revolution has taken place around them, a few have tried to mount a rear-guard defense; but it has been tepid and half-hearted for the most part. You can see it in the quality of their arguments. Most of these are smart libertarians, who usually make much better arguments than they do when talking about IP. Why are their arguments so weak? It is because they are just wrong. There is no defense of IP (see "There are No Good Arguments for Intellectual Property").
IP law is unlibertarian and unjustified. I realized this myself after trying, and failing, for years to figure out a way to justify IP and square it with libertarian principles. IP is a type of systematic redistribution of property rights, contrary to Lockean homesteading rules, that can only be implemented by the state and its legislation. So the IP libertarians have nothing left but the tired old arguments of the type you might hear dashed off in law school or in a mainstream economics class.
They trot out tired bromides, make unsubstantiated claims, refuse to engage critics honestly. We own things we create, they say, even though ownership is meant to solve conflicts over scarce things (see "What Libertarianism Is"), not just any thing you can conceptualize and put a name to. Or they'll repeat the Randian notion that you own "value" that you create, as if value is a substance you create, as opposed to the way we demonstrably regard and use an object due to its configuration (see "Rand on IP, Owning 'Values,' and 'Rearrangement Rights'," discussing Hoppe's criticism of property rights in value).
They accuse "pirates" of "stealing"; when you point out that copying is not theft because the originator still has his copy, then they switch to some other argument, such as claims that the value of the original copy is diminished; when you point out that there are no property rights in value, but only in the physical integrity of property, they switch to arguments about incentives, even though they usually condemn utilitarian arguments. If you explain that every creator's work also built on the thought of others, they come up with a convenient public domain or "fair use" exception. When you point out obviously outrageous injustices of the current IP system, they say they are not in favor of the current IP system … yet they oppose the call to abolish it! And when you ask them what type of IP system they do favor, they have no answer, punting it to judges or Randian legislators to figure out, on the grounds that they are not patent lawyers or specialists!
"There are no property rights in value, but only in the physical integrity of property."They say that you need patents to stimulate invention and copyright to stimulate artistic creativity — they are often hyperbolic and say there would be no innovation in an IP-free world. If you point out that there would obviously be some innovation absent IP law, they then say there would not be enough innovation. If you ask them how much is enough, they have no answer — though some apparently think even the monopoly IP grant doesn't ensure enough innovation, and propose using tax dollars to provide innovation awards to state-recognized geniuses — even some libertarians favor this! (See "Libertarian Favors $80 Billion Annual Tax-Funded 'Medical Innovation Prize Fund'"; "$30 Billion Taxfunded Innovation Contracts: The 'Progressive-Libertarian' Solution"; "Re: Patents and Utilitarian Thinking Redux: Stiglitz on using Prizes to Stimulate Innovation.")
What does a libertarian say to that argument? Is that supposed to be serious? It reminds me of my conservative friends in Houston who are — surprise, surprise — in favor of NASA, and repeat the propaganda about the value of "spinoff technology." After all, think of all the spinoff technology the space program has produced. Never mind the cost of the unseen — have some Tang, boys! Ain't that Tang good? You woudn't want to be deprived of Tang, now, would ya?
When they say that we need IP to stimulate innovation, they presume that the value of the extra innovation thereby stimulated is greater than the cost of the IP system (see "There's No Such Thing as a Free Patent"). If you ask them how they know this, they have no answer. They've never wondered and don't care. Ask them what the cost of the IP system is, or what the value of the marginal innovation is, or how they even know it's a "net gain" — they have no idea (my estimate is over $30 billion net loss annually in America from patents alone — see "Reducing the Cost of IP Law").
And if you point out the methodological and moral problems with utilitarian reasoning (see Against Intellectual Property, "Utilitarian Defenses of IP"), why, you're a nutty Austrian or extremist! If you point out that despite their claim that the IP system generates wealth, almost all studies conclude otherwise (see "Yet Another Study Finds Patents Do Not Encourage Innovation"), they change the subject. Or maybe they toss out the sloppy comment that, well, America has done pretty well since its founding, which — eh, eh, EH? — was the same time we adopted patent law! Never mind that you could make the same argument about war, imperialism, democracy, antitrust law, taxation, and so on.
They demand to know how artists and innovators are supposed to be paid absent IP. If you point out that it's the job of the entrepreneur to figure out how to make profit in the market given the costs of exclusion and externalities, they are not satisfied: they switch from individualist free marketeers to central planners demanding to know exactly what a market freed of the IP restrictions they favor would look like. Never mind that one reason we don't know for sure what market institutions and practices would arise is because the statist IP they support has preempted and crowded these solutions out. And if you point out some possible solutions, they sneer and call it charity or "not enough."
For just a sampling of some of the recent, futile libertarian attempts to defend IP and to stem the migration to the anti-IP side, see: "The L. Neil Smith — FreeTalkLive Copyright Dispute" and Jeff Tucker, "L. Neil Smith on IP"; "IP: The Objectivists Strike Back!"; "Shughart's Defense of IP"; "Richard Epstein on 'The Structural Unity of Real and Intellectual Property'"; "Yeager and Other Letters Re Liberty article 'Libertarianism and Intellectual Property'"; "Objectivists: 'All Property is Intellectual Property'"; "Objectivist Law Prof. Mossoff on Copyright; or, the Misuse of Labor, Value, and Creation Metaphors."
When the holes in their weak arguments are exposed, they escalate and call us IP socialists or communists — even though the idea that people who mentally "labor" "deserve" a "reward" for their labor is itself Marxian (see "Locke, Smith, Marx and the Labor Theory of Value"; "Objectivists: 'All Property is Intellectual Property'"). Their escalating rhetoric is driven by a desperation arising from the growing awareness that they have lost. It resembles a bit the way the state keeps increasing IP protection — copyright terms always lengthening, the West twisting the arms of emerging economies to "strengthen" IP protection and the coming ACTA (see "Stop the ACTA [Anti-Counterfeiting Trade Agreement]") — in the face of a growing, unstoppable wave of piracy and torrenting. We are seeing the thrashings of a dying institution and a dying idea.
The mistake made by IP libertarians stems in part from the imprecise, overly metaphorical Lockean notion that the reason you own things you homestead is that you "own" the labor you "mixed" with these things — rather than the more straightforward argument that by first appropriating an unowned resource you establish a better claim than latecomers — no fiction of "labor ownership" is needed (see "Intellectual Property and Libertarianism"). This mistake permeates the modern — mostly Randian — thinking about IP. This way of thinking about homesteading, and the American Founders' choice to put copyright and patent in the "protolibertarian" American Constitution (even though it was just a centralizing document used in a coup d'etat as a legitimacy cover for the state; see "Rockwell on Hoppe on the Constitution as Expansion of Government Power"), and Rand's and others' adoption of these ideas, has created a road block to clear thinking about IP.
"'Making' or 'creating' simply refers to the process of transforming something you already own by rearranging it."They say that you own things you find (appropriate or homestead) and things you buy from others — and "also" anything you create. They miss the fact that finding and contractual acquisition exhaust the ways of legitimately acquiring ownership of external objects. "Making" or "creating" simply refers to the process of transforming something you already own by rearranging it so that it is more valuable to you, or to a customer, say (even Rand saw this — see "Rand on IP, Owning 'Values,' and 'Rearrangement Rights'"). Creation is not an independent source of ownership; it is a way of making your property more valuable. (See "A Theory of Contracts: Binding Promises, Title Transfer, and Inalienability"; Against Intellectual Property, "Creation vs. Scarcity" section; "Objectivist Law Prof. Mossoff on Copyright; or, the Misuse of Labor, Value, and Creation Metaphors"; "Libertarian Creationism." "Trademark and Fraud")
By assuming the "ownership" of labor, even though the ability to control one's actions and labor is simply a by-product or consequence of ownership of one's body (all rights are property rights, as Rothbard has shown), and not an independent property right; by assuming that creation is an independent source of property rights, even though it is not; by assuming values are created, ownable things, rather than the changed utility of property the owner himself rearranged — these libertarians have equated nonscarce ideas and patterns with physical, scarce resources. After all, by your effort or labor, you create a plow, a house, or a song, right?
By treating these dissimilar things — nonscarce, infinitely reproducible patterns of information and physical, scarce objects — similarly, the IP advocates try to treat them with the same rules. They take property rules designed precisely to allocate ownership of scarce physical objects in the face of possible conflict and try to apply them to information patterns. In so doing, they end up imposing artificial scarcity on that which was previously nonscarce and infinitely reproducible.
Thus, what the pro-IP libertarians have missed is that it is good that ideas, information, patterns, and recipes are nonscarce and infinitely reproducible. Technological and other progress is possible because we can learn and build on previous knowledge. The market itself crucially relies on emulation — entrepreneurs emulate the successful action of others, thereby competing and serving consumers, and always bidding down prices and even profits. (As Jeff Tucker has noted, the role of emulation and learning in the market is ripe for further research and inquiry by Austrians. See "Hayek, IP, and Knowledge"; Jeff Tucker, "Without Rejecting IP, Progress is Impossible.")
The market also enables the production of products that are scarce goods — with ever-increasing efficiency — and, crucially, makes scarce goods more abundant. The market is always trying to overcome and reduce the scarcity that is inherent in physical resources. The human actors on the market use infinitely reproducible, nonscarce knowledge and information to guide their use of scarce resources in ever-more efficient ways, so as to reduce the real scarcity that does exist in the physical world of useful goods. (See "Intellectual Property and the Structure of Human Action.")
And what does IP do? In the name of capitalism and the free market, it imposes artificial scarcity on things that are already infinitely reproducible. In the name of the market — the same market that is working to increase the abundance of scarce goods, to decrease scarcity — IP libertarians argue that we should impose restrictions on nonscarce information — to make it scarce so that it fits into the round-hole property-rights framework they have erroneously decided to apply to the square peg of information. They are going the wrong direction. The direction of the future, of progress, is towards more abundance and prosperity and wealth. We work with the real world of scarcity, using our ever-expanding base of knowledge to prosper in the face of scarcity; we make more things in the face of entropy and physical limitations!
It is obscene to undermine the glorious operation of the market in producing wealth and abundance by imposing artificial scarcity on human knowledge and learning (see "IP and Artificial Scarcity"). Learning, emulation, and information are good. It is good that information can be reproduced, retained, spread, and taught and learned and communicated so easily. Granted, we cannot say that it is bad that the world of physical resources is one of scarcity — this is the way reality is, after all — but it is certainly a challenge, and it makes life a struggle. It is suicidal and foolish to try to hamper one of our most important tools — learning, emulation, knowledge — by imposing scarcity on it. Intellectual property is theft. Intellectual property is statism. Intellectual property is death. Give us intellectual freedom instead!
[This article is excerpted from chapter 21 of Human Action, the Scholar's Edition and is read by Jeff Riggenbach.]
The life of primitive man was an unceasing struggle against the scantiness of the nature-given means for his sustenance. In this desperate effort to secure bare survival, many individuals and whole families, tribes, and races succumbed. Primitive man was always haunted by the specter of death from starvation. Civilization has freed us from these perils. Human life is menaced day and night by innumerable dangers; it can be destroyed at any instant by natural forces which are beyond control or at least cannot be controlled at the present stage of our knowledge and our potentialities. But the horror of starvation no longer terrifies people living in a capitalist society. He who is able to work earns much more than is needed for bare sustenance.
There are also, of course, disabled people who are incapable of work. Then there are invalids who can perform a small quantity of work; but their disability prevents them from earning as much as normal workers do; sometimes the wage rates they could earn are so low that they could not maintain themselves. These people can keep body and soul together only if other people help them. The next of kin, friends, the charity of benefactors and endowments, and communal poor relief take care of the destitute. Alms folk do not cooperate in the social process of production; as far as the provision of the means for the satisfaction of wants is concerned, they do not act; they live because other people look after them. The problems of poor relief are problems of the arrangement of consumption, not of the arrangement of production activities. They are as such beyond the frame of a theory of human action that refers only to the provision of the means required for consumption, not to the way in which these means are consumed. Catallactic theory deals with the methods adopted for the charitable support of the destitute only as far as they can possibly affect the supply of labor. It has sometimes happened that the policies applied in poor relief have encouraged unwillingness to work and the idleness of able-bodied adults.
In the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested. The accumulation of capital soars above the increase in population figures. Consequently the marginal productivity of labor, wage rates, and the wage earners' standard of living tend to rise continually. But this improvement in well-being is not the manifestation of the operation of an inevitable law of human evolution; it is a tendency resulting from the interplay of forces that can freely produce their effects only under capitalism. It is possible and, if we take into account the direction of present-day policies, even not unlikely that capital consumption on the one hand and an increase or an insufficient drop in population figures on the other hand will reverse things. Then it could happen that men will again learn literally what starvation means and that the relation of the quantity of capital goods available and population figures will become so unfavorable as to make part of the workers earn less than a bare subsistence. The mere approach to such conditions would certainly cause irreconcilable dissensions within society, conflicts the violence of which must result in a complete disintegration of all societal bonds. The social division of labor cannot be preserved if part of the cooperating members of society are doomed to earn less than a bare subsistence.
The notion of a physiological minimum of subsistence to which the "iron law of wages" refers and which demagogues put forward again and again is of no use for a catallactic theory of the determination of wage rates. One of the foundations upon which social cooperation rests is the fact that labor performed according to the principle of the division of labor is so much more productive than the efforts of isolated individuals that able-bodied people are not troubled by the fear of starvation that daily threatened their forebears. Within a capitalist commonwealth the minimum of subsistence plays no catallactic role.
Furthermore, the notion of a physiological minimum of subsistence lacks that precision and scientific rigor that people have ascribed to it. Primitive man, adjusted to a more animal-like than human existence, could keep himself alive under conditions that are literally unbearable to his dainty scions pampered by capitalism. There is no such thing as a physiologically and biologically determined minimum of subsistence, valid for every specimen of the zoological species homo sapiens. No more tenable is the idea that a definite quantity of calories is needed to keep a man healthy and progenitive, and a further definite quantity to replace the energy expended in working. The appeal to such notions of cattle breeding and the vivisection of guinea pigs does not aid the economist in his endeavors to comprehend the problems of purposive human action. The "iron law of wages" and the essentially identical Marxian doctrine of the determination of "the value of labor power" by "the working time necessary for its production, consequently also for its reproduction,"Cf. Marx, Das Kapital (7th ed. Hamburg, 1914), I, 133. In the Communist Manifesto (Section II) Marx and Engels formulate their doctrine in this way: "The average price of wage labor is the minimum wage, i.e., that quantum of means of subsistence which is absolutely required to keep the laborer in bare existence as laborer." It "merely suffices to prolong and reproduce a bare existence." are the least tenable of all that has ever been taught in the field of catallactics.
Yet it was possible to attach some meaning to the ideas implied in the iron law of wages. If one sees in the wage earner merely a chattel and believes that he plays no other role in society, if one assumes that he aims at no other satisfaction then feeding and proliferation and does not know of any employment for his earnings other than the procurement of those animal satisfactions, one may consider the iron law as a theory of the determination of wage rates. In fact the classical economists, frustrated by their abortive value theory, could not think of any other solution of the problem involved. For Torrens and Ricardo, the theorem that the natural price of labor is the price that enables the wage earners to subsist and to perpetuate their race without any increase or diminution was the logically inescapable inference from their untenable value theory. But when their epigones saw that they could no longer satisfy themselves with this manifestly preposterous law, they resorted to a modification of it that was tantamount to a complete abandonment of any attempt to provide an economic explanation of the determination of wage rates. They tried to preserve the cherished notion of the minimum of subsistence by substituting the concept of a "social" minimum for the concept of a physiological minimum. They no longer spoke of the minimum required for the necessary subsistence of the laborer and for the preservation of an undiminished supply of labor; they spoke instead of the minimum required for the preservation of a standard of living sanctified by historical tradition and inherited customs and habits. While daily experience taught impressively that, under capitalism, real wage rates and the wage earners' standard of living were steadily rising, while it became from day to day more obvious that the traditional walls separating the various strata of the population could no longer be preserved, because the social improvement in the conditions of the industrial workers demolished the vested ideas of social rank and dignity, these doctrinaires announced that old customs and social convention determine the height of wage rates. Only people blinded by preconceived prejudices and party bias could resort to such an explanation in an age in which industry supplies the consumption of the masses again and again with new commodities hitherto unknown and makes accessible to the average worker satisfactions of which no king could dream in the past.
It is not especially remarkable that the Prussian Historical School of the wirtschaftliche Staatswissenschaften viewed wage rates no less than commodity prices and interest rates as "historical categories" and that in dealing with wage rates it had recourse to the concept of "income adequate to the individual's hierarchical station in the social scale of ranks." It was the essence of the teachings of this school to deny the existence of economics and to substitute history for it. But it is amazing that Marx and the Marxians did not recognize that their endorsement of this spurious doctrine entirely disintegrated the body of the so-called Marxian system of economics. When the articles and dissertations published in England in the early 1860s convinced Marx that it was no longer permissible to cling unswervingly to the wage theory of the classical economists, he modified his theory of the value of labor power. He declared that "the extent of the so-called natural wants and the manner in which they are satisfied, are in themselves a product of historical evolution" and "depend to a large extent on the degree of civilization attained by any given country and, among other factors, especially on the conditions and customs and pretensions concerning the standard of life under which the class of free laborers has been formed." Thus "a historical and moral element enter into the determination of the value of labor power." But when Marx adds that nonetheless "for a given country at any given time, the average quantity of indispensable necessaries of life is a given fact,"Cf. Marx, Das Kapital, p. 134. Italics are mine. The term used by Marx which in the text is translated as "necessaries of life" is "Lebensmittel." The Muret-Sanders Dictionary (16th ed.) translates this term "articles of food, provisions, victuals, grub." he contradicts himself and misleads the reader. What he has in mind is no longer the "indispensable necessaries," but the things considered indispensable from a traditional point of view, the means necessary for the preservation of a standard of living adequate to the workers' station in the traditional social hierarchy. The recourse to such an explanation means virtually the renunciation of any economic or catallactic elucidation of the determination of wage rates. Wage rates are explained as a datum of history. They are no longer seen as a market phenomenon, but as a factor originating outside of the interplay of the forces operating on the market.
However, even those who believe that the height of wage rates as they are actually paid and received in reality are forced upon the market from without as a datum cannot avoid developing a theory that explains the determination of wage rates as the outcome of the valuations and decisions of the consumers. Without such a catallactic theory of wages, no economic analysis of the market can be complete and logically satisfactory. It is simply nonsensical to restrict the catallactic disquisitions to the problems of the determination of commodity prices and interest rates and to accept wage rates as a historical datum. An economic theory worthy of the name must be in a position to assert with regard to wage rates more than that they are determined by a "historical and moral element." The characteristic mark of economics is that it explains the exchange ratios manifested in market transactions as market phenomena the determination of which is subject to a regularity in the concatenation and sequence of events. It is precisely this that distinguishes economic conception from the historical understanding, theory from history.
We can well imagine a historical situation in which the height of wage rates is forced upon the market by the interference of external compulsion and coercion. Such institutional fixing of wage rates is one of the most important features of our age of interventionist policies. But with regard to such a state of affairs it is the task of economics to investigate what effects are brought about by the disparity between the two wage rates, the potential rate that the unhampered market would have produced by the interplay of the supply of and the demand for labor on the one hand, and on the other the rate that external compulsion and coercion impose upon the parties to the market transactions.
It is true, wage earners are imbued with the idea that wages must be at least high enough to enable them to maintain a standard of living adequate to their station in the hierarchical gradation of society. Every single worker has his particular opinion about the claims he is entitled to raise on account of "status," "rank," "tradition," and "custom" in the same way as he has his particular opinion about his own efficiency and his own achievements. But such pretensions and self-complacent assumptions are without any relevance for the determination of wage rates. They limit neither the upward nor the downward movement of wage rates. The wage earner must sometimes satisfy himself with much less than what, according to his opinion, is adequate to his rank and efficiency. If he is offered more than he expected, he pockets the surplus without a qualm. The age of laissez-faire for which the iron law and Marx's doctrine of the historically determined formation of wage rates claim validity witnessed a progressive, although sometimes temporarily interrupted, tendency for real wage rates to rise. The wage earners' standard of living rose to a height unprecedented in history and never thought of in earlier periods.
The labor unions pretend that nominal wage rates at least must always be raised in accordance with the changes occurring in the monetary unit's purchasing power in such a way as to secure to the wage earner the unabated enjoyment of the previous standard of living. They raise these claims also with regard to wartime conditions and the measures adopted for the financing of war expenditure. In their opinion even in wartime neither inflation nor the withholding of income taxes must affect the worker's take-home real wage rates. This doctrine tacitly implies the thesis of the Communist Manifesto that "the working men have no country" and have "nothing to lose but their chains"; consequently they are neutral in the wars waged by the bourgeois exploiters and do not care whether their nation conquers or is conquered. It is not the task of economics to scrutinize these statements. It only has to establish the fact that it does not matter what kind of justification is advanced in favor of the enforcement of wage rates higher than those the unhampered labor market would have determined. If as a result of such claims real wage rates are really raised above the height consonant with the marginal productivity of the various types of labor concerned, the unavoidable consequences must appear without any regard to the underlying philosophy.
The same is valid with regard to the confused doctrine that wage earners are entitled to claim for themselves all the benefits derived from improvements in what union officers call the productivity of labor. On the unhampered labor market wage rates always tend toward the point at which they coincide with the marginal productivity of labor. The concept of the productivity of labor in general is no less empty than all other universal concepts of this kind, e.g., the concept of the value of iron or gold in general. To speak of the productivity of labor in a sense other than that of the marginal productivity is meaningless. What these union officers have in mind is an ethical justification of their policies. However, the economic consequences of these policies are not affected by the pretexts advanced in their favor.
Wage rates are ultimately determined by the value the wage earner's fellow citizens attach to his services and achievements. Labor is appraised like a commodity not because the entrepreneurs and capitalists are hardhearted and callous but because they are unconditionally subject to the supremacy of the pitiless consumers. The consumers are not prepared to satisfy anybody's pretensions, presumptions, and self-conceit. They want to be served in the cheapest way.
This article is excerpted from chapter 21 of Human Action, the Scholar's Edition and is read by Jeff Riggenbach.
[Excerpted from Defending the Undefendable. An MP3 audio file of this article, read by Jeff Riggenbach, is available for download.]
"Hey, Bozo, you want a citation for litterin'?Pick up that matchbook cover!"The litterer today will find few defenders. He is beset on all sides, bearing the brunt of the barbs of do-gooder groups. Radio and television stations beam anti-litter messages as a "public service," and neighborhood and parent-teacher associations, church groups, and civic organizations are in agreement on the issue of littering. The film industry, which must pass over many topics as too controversial, is united in its hatred for litter. Litter is a great unifier.
There is, however, one small, seemingly insignificant detail that destroys the case against litter and the litterer. Litter can only take place in the public domain — never in the private domain. The ads showing the supposed evils of litter take place on highways, beaches, streets, parks, subways, or public bathrooms — all public areas.
This is not because most littering occurs in public places. It is definitional. If something resembling littering in all other aspects were to occur in a private place, it would not be considered littering. When large crowds leave a ballpark, movie, theater, concert, or circus, what remains among the seats and aisles is not and cannot be litter. It is garbage, dirt, or waste, but not litter.
After normal working hours in the downtown area of our cities, a horde of cleaners descend upon the privately owned banks, stores, restaurants, office buildings, factories, etc. What they do is clean, and under no circumstances do they pick up litter. Concurrent with this, the department of sanitation cleans the public streets and sidewalks, picking up litter.
Now there is no real distinction to be drawn between leaving garbage in public places and leaving garbage in private places. There is no reason to call the former and not the latter "littering," since what is being done in both cases is the same. In both cases the creation of garbage is a concomitant of the process of producing or of consuming.
In some instances, leaving garbage to be picked up later is the optimal solution. For example, it is too time-consuming for a carpenter to clean up the wood shavings as he works. It is easier and cheaper to allow the "litter" (wood shavings) to accumulate and be swept away at the end of the day or at periodic intervals.
The factory manager could institute an anti-"litter" campaign and force the carpenters to keep their work area free of any accumulation of wood shavings. He might even enforce this edict with the threat of a $50 fine. However, with these rules his workforce might quit, or, if they did not quit, the costs of production would rise inordinately, and he would lose business to competitive factories.
In the medical practice, on the other hand, littering cannot be tolerated. Operating, consulting, or treatment rooms must be sanitary, well-scrubbed and free of debris. Failure to adopt a strong anti-litter campaign here would involve the administrator of the hospital in financial failure, as it became known that his institution was unsanitary.
In the case of consumption, most restaurants, for example, do not pursue anti-litter campaigns. There are no signs on restaurant walls forbidding the dropping of forks, napkins, or bread crumbs. A restaurant could prohibit litter, but it would lose its customers to other establishments.
What these seemingly disparate examples have in common is to illustrate that in the market, the decision of whether and how much litter to allow is based ultimately on the wishes and desires of the consumers! The question is not treated simplistically and there is no general outcry to "get rid of litterbugs."
"In the market, the decision of whether and how much litter to allow is based ultimately on the wishes and desires of the consumers!"There is rather a careful weighing of the costs and benefits of allowing waste materials to accumulate. To the extent that the costs of garbage collection are low and the harm caused by garbage accumulating is high, there tend to be frequent collections and severe penalties for leaving garbage around, as in the example given of littering in a medical facility.
If the costs of garbage collection are high and the harm caused by the accumulation is low, there tend to be less frequent collections and no penalties for littering. These differences in policy are not the result of any governmental law, but are a result of the market process. Entrepreneurs who do not act in accordance with an accurate cost-benefit analysis lose customers, either directly, as customers stalk out in anger, or indirectly, as the higher costs of operation allow the competition price advantages.
A system that is based on the needs and desires of the people involved is very flexible. In each example, a policy on littering was tailored to the requirements of the specific situation. Moreover, such a system is capable of responding quickly to changes, whether they be in the costs of litter collection or in the harm caused by uncollected litter.
If, for instance, a system were installed in hospitals enabling litter to be taken out at very little cost, or if consumer desires regarding litter underwent a marked change, hospital administrators would have to relax their stringent anti-litter stance. The hospitals that failed to adjust to the new technology and tastes would tend to lose patients to competing institutions. (These are private, profit-making hospitals. Public hospitals, which obtain their funds through compulsory taxation, have no such incentives to please customers.)
On the other hand, if it were discovered that soda cans and popcorn boxes left under the seats at baseball stadiums were disease carriers, or interfered with the viewing of the game, the stadium rules concerning litter would be changed automatically by stadium owners, without any government edict.
In considering litter in the public domain, there is no finely attuned system responding to the needs and desires of the people. Rather, the public domain is the ward of the government, and the government treats consumer demands in a rather cavalier manner, virtually ignoring them.
Government enterprise is the only enterprise that will deal with an increased desire to litter with a steadfast determination to eliminate it, thereby refusing to adapt to either consumer desires or changing technology.Only a nonprofit government agency could react to increased consumer desires for road use (traffic jams) with a threat to ban cars. Only a government agency free from the necessity of earning profits could react to increased consumer desires for park use by forbidding people to enter parks after dark. The law is the law. The government can function this way because it is outside the market. It does not obtain its revenues from the market process of voluntary trade. It obtains its revenues through taxation, a process completely unrelated to its ability to satisfy customers.
The governmental argument against litter is that it is done out of disrespect for others' rights. But this argument is without merit. The whole concept of private litter is a case in point. If litter were a violation of rights and a refusal to consider the comfort of others, what of the "litter" in restaurants, ballparks, factories, etc.? Litter comes about in the private market precisely as a means of satisfying the desires of consumers for comfort. One no more violates the restaurant owner's rights by littering than by eating, since both are paid for.
"Government enterprise is the only enterprise that will deal with an increased desire to litter with a steadfast determination to eliminate it, thereby refusing to adapt to either consumer desires or changing technology."How is the government's failure to maintain a flexible litterbug policy in the public sector to be interpreted? It is not entirely due to indifference, although it is far simpler to totally prohibit something than to deal with it in a reasonable manner. The explanation is that no government, no matter how interested or beneficent, could maintain a flexible litterbug policy.
Such a policy must be supported by a price system — a profit and loss system — to measure the cost and benefits of littering, and to automatically penalize managers who failed to adjust accordingly. If the government enacted a system of this type, it would no longer be a governmental system, for it could not rely on the bête noir of government — a tax system completely unrelated to success in satisfying the wants of consumers.
The inability of the government to be flexible can occasionally take strange turns. For many years there was no effective restriction in New York City of dog owners who allowed their dogs to defecate on the streets and sidewalks. Presently there is a movement afoot to prohibit dog defecation on any street or sidewalk, launched by citizens' groups organized under the banner of "children before dogs."
The flexibility of the market is completely ignored by both of these factions. Nowhere is it realized that dog "litter" can be restricted to certain places. The issue is seen as a choice between prohibiting it altogether or allowing it everywhere. Imagine the beneficent results that would ensue if the streets and sidewalks were privately owned. A greater flexibility would result because of the rewards entrepreneurs would gain for devising methods of satisfying both groups.
Some might object to the private ownership of the sidewalks on the grounds that dog owners would have to pay for the use of a "dog lot" that they now use free (assuming there is no prohibition of dog defecation). But this is incorrect, because no individual, including the dog owner, has the free use of the sidewalks. The sidewalks, as all other goods and services provided by the government, are paid for by the citizens through taxes! Citizens pay not only for the original cost of the sidewalks, but also for upkeep, maintenance, policing, and cleaning services.
It is difficult to anticipate the exact way a free market would function in this area, but some guesses may be hazarded. Perhaps several enterprising entrepreneurs would set up fenced-in sandy areas that dogs could use. These entrepreneurs could have two separate contracts, one with the dog owners, which would specify the fee for use of the area, and the other with garbage truck owners, specifying the cost of maintaining the areas. The exact location and number of these areas would, as with any service, be determined by the needs of the people involved.
In the light of the inflexibility of the government, and its apparent lack of interest in accommodating public tastes, how is the litterbug to be viewed? The litterbug treats public property in much the same way he would treat private property if he were but free to. Namely, he leaves garbage around on it. It has been demonstrated that there is nothing intrinsically evil about this activity, and that but for governmental calcification, it would be as widely accepted in the public arena as it is in the private. It is an activity that should be regulated by people's needs, not by government fiat.
We must conclude, therefore, that far from being a public enemy, the litterer is actually a hero. The courage exhibited by the litterer, given the intense campaign of vilification directed against him, is considerable. Even more important, the behavior of the litterer who purposefully "takes the law into his own hands" can serve as a protest against an unjust system.
This article is excerpted from Defending the Undefendable. An MP3 audio file of this article, read by Jeff Riggenbach, is available for download.
The April 20 explosion and subsequent round-the-clock oil spill from a BP-operated deepwater drilling rig in the Gulf of Mexico 40 miles off the Louisiana coast has generated justifiable anger across the nation. It's also generated calls for strict sanctions against BP, the most drastic of which is confiscation of all company assets.
The front line of this campaign is an ad hoc organization calling itself "Seize BP," which already has organized dozens of rallies across the country.
Its mission mirrors its name: persuade the Obama administration to seize assets of the British-based oil company and use the proceeds for compensating victims and family members for loss of life, health, and property.
Were it only that simple. Surely, heartbreaking accounts of the ecology of the Gulf of Mexico coastal region damaged by oil toxicity and oxygen depletion make such impulses understandable. At least 100 million gallons of crude oil have spewed from the broken well and onto beachfront and other properties. Yet such a move in the long run would set a precedent whose effect would be to chase away private-sector oil drilling from that region. And given the experiences of nationalized oil industries elsewhere, it is not likely to prevent further spills. Market logic, unfortunately, rarely appeals to the impatient.
Apparently, it doesn't appeal to the Obama administration. President Barack Obama, under enormous public pressure to "do something," has already embarked on a course of de facto nationalization. In a private June 16 White House meeting, Obama coaxed BP chief executive Tony Hayward into "donating" $20 billion to a new escrow account earmarked for payment of damage claims — the president called it "a good start." Obama has also ordered a six-month moratorium on granting of deepwater drilling permits (at least 500 feet below sea level) and drilling on 33 exploratory wells in the Gulf of Mexico; US District Judge Martin Feldman a week later invalidated the move as heavy-handed, but the administration vows to appeal. President Obama also has leaned on the Interior Department and other federal agencies to aggressively increase oversight of all Gulf drilling operations.
Then there is the matter of court action. Attorney General Eric Holder announced that the Justice Department is reviewing whether criminal and civil laws were broken. "We will make certain that those responsible clean up the mess they have made and restore or replace the natural resources lost or injured in this tragedy," said Holder. This is separate from inevitable lawsuits by the states of Louisiana, Mississippi, Alabama and Florida (BP already has given them a combined $305 million), plus dozens of private suits already filed. If the company faces criminal charges, its legal bills alone — independent of stratospheric settlements or jury awards — could run into the tens of billions of dollars. Yes, BP is a highly profitable company. But this is exactly why President Obama and his people are going after the company with such ferocity in the first place. Why bother putting the squeeze on a money loser?
Despite all this, a large number of activists want the administration to go much further. They are calling upon the federal government to confiscate all BP assets and place them in a "temporary" trust fund. That's where Seize BP comes in.
A project of a communist organization, Act Now to Stop War and End Racism — better known as ANSWER — Seize BP is circulating an online petition that reads as follows:
The government of the United States must seize BP and freeze its assets, and place those funds in trust to begin providing immediate relief to the working people throughout the Gulf states whose jobs, communities, homes and businesses are being harmed or destroyed by the criminally negligent actions of the CEO, Board of Directors and senior management of BP.
ANSWER justifies its petition in a statement appearing on PSLweb.org ("the Party for Socialism and Liberation"), couched in predictably shrill prose:
We must act now to defend jobs, communities, wildlife and the environment from the combined forces of BP, other Big Oil giants and the federal government that have acted as partners in the reckless and frantic search of corporate super-profits by permitting ultrahazardous deep-water, offshore oil drilling. BP reaped $5.6 billion in pure profits in the first three months of this year alone.…
The U.S. government functions as a servant for the Big Oil capitalists, both at home and abroad. Our jobs, our loved ones, our communities and everyone's environment are sacrificed in the government's effort to serve BP and other Big Oil giants. Hundreds of thousands are killed and wounded for Big Oil. The people of Iraq and Iran, and elsewhere, have been subject to cruel invasions and occupations by the U.S. military and CIA so that BP and others can plunder their natural resources.
Supporters of confiscation argue that the Oil Pollution Act of 1990, which created a federal trust fund to make available up to $1 billion per incident, doesn't adequately address the issue. Abolishing profit apparently will. "This is part of a deeper crisis of extracting resources for profit that we feel, and ANSWER coalition feels, is not the way to extract resources for human use," said Mike Chrisemer, an ANSWER supporter and member of Florida State University's Center for Participant Education. "We feel that the nonprofit way is the best solution to that. Leaving it up to companies that are just trying to make money off it — that doesn't always equate for what's best for the community."
Leaders of Seize BP aren't impressed by Tony Hayward's recent assurances that his company is committed to making good on all claims. "Our demand is very straightforward and very simple: Seize assets of BP sufficient to compensate the people they harm," states Seize BP chief organizer Carl Messineo.
Sources only slightly more reputable than ANSWER/Seize BP are also pushing this envelope. One prominent belongs to Robert Reich, secretary of labor during the first Clinton administration and now a professor of public policy at the University of California at Berkeley. Writing in the May 31 edition of the Huffington Post, Reich argued that because we face a national emergency, the federal government must temporarily seize BP assets. Without such action, full corporate accountability is impossible. The piece is worth quoting from at length:
It's time for the federal government to put BP under temporary receivership, which gives government authority to take over BP's operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public will know what's going on, be confident enough resources are being put to stopping the gusher, ensure BP's strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the president is ultimately in charge.
If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs in order to keep them financially solvent, it should be able to put BP's North American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history.
The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what's necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would be unambiguously working in the public's interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. As a result, the public continues to worry that a private for-profit corporation is responsible for stopping a public tragedy.
Such statements underscore a growing desire for a clampdown not simply on BP, but on the entire oil industry. Rolling Stone editor, Jann Wenner, writing in that magazine's most recent issue ("The Inadequacy of Hope," July 8–22), opines, "The time has come to put a complete stop to all high-risk offshore drilling and to take away, once and for all, the oil industry's huge tax subsidies."
In light of Reich's favorable view of the federal takeover of AIG and GM, it's fair to say that he (and Wenner) wouldn't be too troubled by a takeover of all major US industry. For such people, the pursuit of profit is all but inimical to the public interest. But the prospect of seizure should be alarming notwithstanding — and for several reasons.
BP is a foreign-owned company and thus by international law is immune to seizure. "Seize BP" activists say a legal precedent exists for receivership because the assets pose a domestic threat. But this principle only applies when there is a real possibility that assets will be transferred out of the country. "Most of BP's assets in the U.S. are not mobile," states Cornell law professor Jeffrey Rachlinski. "They're not exactly a shell corporation. It's not going to be difficult to enforce judgment against them and any judgment is likely to be extensive."
A government takeover would be a foreign-policy blunder of immense proportions. Great Britain has been a trusted ally for more than a century. Seizing one of their largest corporations, and at a time when their own economy is reeling, would sour our partnership quickly. It also would set a dangerous precedent for US relations with other nations. Under a similar pretext, for example, we could seize assets of Japanese-owned Toyota to compensate American victims of that carmaker's malfunctioning accelerator pedals. And we could take over Chinese toy factories to compensate American children and their families injured by design defects, excessive lead paint, and tiny magnets in their merchandise. Putting the shoe on the other foot, foreign governments could expropriate US corporate assets to make whole potential damage claims. Fidel Castro would be proud of such retaliation.
Nationalization doesn't assure safety. A good example is the regime of Venezuela, the world's fifth-largest oil exporter. In 2007 its state-run oil and natural gas company, Petroleos de Venezuela (PDVSA), grabbed a 60-percent stake in four projects that process crude oil extracted from the South American country's Orinoco River basin into synthetic oil. The affected companies were ExxonMobil, Chevron, ConocoPhillips, BP, Total SA (France), and Statoil ASA (Norway). "This is the true nationalization of our natural resources," boasted President Hugo Chavez. "The privatization of oil is over. This is the last space that was left for us to recuperate. Petroleum now belongs to all Venezuelans." Not everyone in the Castroite strongman's country has been celebrating. Just this May PDVSA had a major accident of its own. One of its offshore gas exploration platforms, Aban Pearl, sunk into the sea. The accident didn't generate headlines mainly because all 95 workers aboard were rescued. And it might have been avoided altogether had Chavez not fired half of PDVSA's managers and senior engineers following a 2002 strike. That hasn't been the only calamity. In 2005 an explosion killed five workers at PDVSA's Paraguana Refining Complex. What makes us think that a government takeover of BP will immunize our own country from such disasters?
If BP hasn't yet been able to cap its own well, it's highly unlikely that federal bureaucrats and contractors will do any better. BP has every interest in fixing the problem. Its reputation, indeed existence, is on the line. Already, the spill has cost the company an estimated $2.65 billion in cleanup costs. If BP had the expertise to build the well and drilling technology, then by definition BP has the expertise to plug the rupture.
BP, a publicly traded firm formed through a 1998 merger of British Petroleum and Amoco, has been hammered by the market in which it operates. The company's inability to prevent or control a calamity, in other words, is a good predictor of its potential lack of profitability. That's why investors have been pulling out. BP's stock price, hovering around $60 a share in the days before the April 20 explosion, closed this Monday (June 28) at $27.05, a drop of over 50 percent. All three bond rating firms — Fitch, Moody's, and Standard & Poor's — have downgraded long-term BP debt. The prospect of a financial meltdown and a subsequent takeover by another company is enough incentive for BP to get the problem under control.
"Seize BP" is about building socialism, not providing financial compensation. Since the BP fiasco is the ugly face of capitalism, receivership must be only the first step. That the campaign is controlled by ANSWER is highly significant. Founded only days after the 9/11 terrorist attacks, ANSWER during the last decade organized major antiwar rallies marked by intense opposition to US interests rather than US policy (the latter, a hallmark of patriotic dissent). In beliefs and leadership, the New York City–based group is virtually indistinguishable from the International Action Center (IAC), a front for a Stalinist entity known as the Workers World Party; former US Attorney General Ramsey Clark is closely involved with all three groups. These and allied organizations tightly coordinate operations; many share the same Manhattan address and phone number. "Seize BP" front man Carl Messineo fits right in. He's a cofounder of the Partnership for Civil Justice Legal Defense & Education Fund, a project of the IAC. He also was a member of the legal defense team for the antiwar group Voices in the Wilderness, which eventually was fined $20,000 by the Treasury Department for smuggling supplies to Iraq in violation of UN sanctions against the then-Saddam Hussein regime.
Imposing receivership upon BP, a company with nearly $250 billion in revenues in 2009, will not provide accountability for the Gulf Coast oil spill.
Nobody should ignore the necessity of promoting safety or of compensating aggrieved parties for personal and property damage, to say nothing of the families of the 11 workers who died in the April 20 explosion.
A society that values individual rights should not give liable parties a free pass. But a hostile federal takeover of BP would send a message to every other firm in the oil industry that their assets aren't safe from plunder.
I am fortunate enough to live on a property with enough trees and garden areas, put in by previous owners, that I accumulate a pile of yard waste in my backyard. About once a year, I have to figure out what to do with it. Where I live, you can burn yard waste, and so, once a year, I do. I don't really have any good way to haul it anywhere, and I put in plants or flowers that can tolerate ashy soil after the burn is complete. In a way, I tap into my inner caveman, using a technology that has been around for a long time — the wonderful technology of fire making.
Of course, in some places, any burning is banned. In others, it is permitted, but discouraged, with a lot of vague regulations so that you can be stopped at any time. Where I live, it is clearly indicated that
Open burning is allowed on Tuesday, Thursday, and Saturday during daylight hours, only. No burning is allowed in a closed container, such as a burning barrel (outdoor grills are acceptable). You may only burn yard waste.
I have tried to contact city officials in the past about ordinance clarification, and I remain curious: why is burning permitted on some days and not others? Why only during daylight hours? What exactly counts as "yard waste"?
From what I can tell (and from what I have experienced myself), burning yard waste releases smoke and particulate matter into the air, and those with asthma or respiratory diseases would be adversely affected by my burning. You can see, however, that according to the city I have every right to release grand plumes of smoke and soot anywhere I want on Tuesday, Thursday, and Saturday during daylight hours. Yet on the other days, and at night, I am completely restricted from doing so, even if no one around me cares.
This is the truly disastrous result of the city inserting itself between me and my fellow property owners — the city has taken over what we should be doing ourselves. In a system of strong private-property rights, I would have to find out whether anyone around me had, for example, children with asthma. Or if they simply did not like the smell of smoke wafting into their home.
What the city has done indicates that negotiating with the city council is more important (and legally binding) than negotiating with my neighbors — the property owners themselves. They have permitted me to burn away, no matter what the consequences.
And what if I didn't have their permission to burn yard waste? Under the current system, someone could complain or call the police, but I clearly have the law on my side — so what are they going to do about it? Three little sentences about the simple burning of yard waste, and yet, it's really so much more.
In theory, if I could burn my yard waste and contain all of the smoke on my property (or at least enough so that no one knew that I was burning anything), shouldn't I be able to do it regardless of what others may think? Some city councils have assumed that this cannot be done — that if they don't know how to do it, then no one must know how. This assumption has led to all-out burning bans. But why should my rights be curtailed in this scenario?
Similarly, what if none of my neighbors care about my burning and smoke? Should the city intrude on my property rights in this case? I think not. The only sensible way to deal with a situation like this is to enforce strong private-property rights. Our arrangement has nothing to do with the city.
Some cities (such as mine) permit burning under some circumstances, but the conditions themselves are arbitrary and can impede on the arrangements peaceful citizens make amongst themselves. For example, perhaps my neighbor with asthmatic kids will be gone all day on Wednesday, and they indicate to me that I should burn then.
Or perhaps one neighbor doesn't want my smoke coming her way at all, ever. I could check the weather reports and plan to burn on a day when the wind is blowing away from her house. Of course, if enough property owners object to my burning, and I can't figure out some way to contain my smoke and particulate matter, I would have to figure out another way to get rid of my yard waste — maybe by hiring someone to haul it away, or by composting.
The law is supposed to maintain rights, but in this case it can easily be used to violate them: if I was having a feud with my neighbor with asthmatic children, I could try to burn as much yard waste as I could, directing the flow of smoke towards them. Currently, where I live, I can do this as long as I follow the city's ordinance on burning. I could even call the police to stop my neighbors from putting out my fire, or redirecting the smoke flow. In essence, I could smoke them out of their home on Tuesday, Thursday, and Saturday during all daylight hours. During that time I could induce asthmatic distress in their children — in their own home — all I want.
What my city has done is similar to what the US, in concert with the States, has done. The Clean Air Act has put limits and restrictions on what certain industries can emit into the air. But, just as in my city, the other levels of government have injected themselves between the private-property owners and permitted some smog and other substances that cause air-quality concerns.
A system of private-property rights over all else would be a better solution. Once your smoke and particulate matter has interfered with my air space against my will (which would be determined on a case-by-case basis, by each property owner), then that would be considered an act of aggression.
Even a "simple" regulation on burning yard waste — a caveman-era technology — has far-reaching implications and potentially disastrous, unintended consequences. In our modern society, a strong reliance on private-property rights would better allow us to deal with simple cases like these, as well as the complexities of advanced technology.
[Based on the notes for a lecture given by the author to Young Americans for Liberty at the University of California, San Diego on May 4, 2010.]
The jurisdiction of economics extends far beyond the study of production and consumption of goods and services. The science of economics consists of the study of human action, interaction, and cooperation. Even if you accept the mainstream division of micro- and macroeconomics, at the most basic levels economics deals with how market agents make decisions and how these decisions affect interactions between individuals. Even the broadest of market trends, usually condemned to the realm of "macroeconomics," boils down to interactions between individual market agents.Viewing economics as the study of human action might seem distinctively Austrian, and certainly the change in methodology from one that focused on the "'economic' aspects of human action" to one that recognized all human action as the realm of economics coincides with the beginning of the marginal revolution and the Austrian School (Ludwig von Mises Human Action . Auburn, Alabama: Ludwig von Mises Institute, 1998: pp. 2–3). While there are significant methodological differences between the Austrian School and other major schools of economics, it nevertheless stands that all economists must recognize that markets are no more than natural constructs of cooperating individuals.How individuals interact in tandem, forming the economic system as studied in modern macroeconomics, is simply fascinating. Even the most complex economies, such as today's global market, are made up of individual human actors, each seemingly unaware of the others' intentions and goals. Economics is the science that studies these individual agents of the market and how they coordinate through the price mechanism to create, not just what the mainstream considers "the market," but society as a whole, all without the necessity of a central planner or authority. The fact that human civilization is the product of billions of individuals, each acting to accomplish certain self-serving ends, is truly mind blowing.
What economists call "political economy," or modern economics, did not come into being until the mid-18th century. Adam Smith has traditionally been considered the father of modern economic science. Murray Rothbard believed otherwise and bestowed this honor on Richard Cantillon, writing that "[m]ost people, economists and laymen alike, think that economics sprang fullblown, so to speak, from the head of Adam Smith…. [t]he honour of being called the 'father of modern economics' belongs, then, not to its usual recipient, Adam Smith, but to a gallicized Irish merchant, banker, and adventurer who wrote the first treatise on economics more than four decades before the publication of Wealth of Nations" (Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, Volume I: Economic Thought Before Adam Smith Auburn, Alabama: Ludwig von Mises Institute, 1995: p. 345). Unfortunately, most of Richard Cantillon's insights were lost after the publication of Wealth of Nations. Cantillon was "rediscovered" in the late-19th century by William Stanley Jevons, one of the three "founders" of the marginal revolution. About Cantillon's treatise Essai, Jevons writes, "Cantillon's essay is, more emphatically than any other single work, 'the Cradle of Political Economy'" ("Richard Cantillon and the Nationality of Political Economy" [January 1881]: p. 342). Friedrich Hayek, basing his history of Cantillon on Jevon's work, also held this view (See The Trend of Economic Thinking Indianapolis, Indiana: Liberty Fund, 1991: p. 246). Since then the study of economics has not been one of linear progress; neither has it been free of controversy. Even before the birth of political economy, the study of economics was done by competing schools of thought; for example, the French mercantilists and the French liberals. One of the best treatises on pre-Smithian economics remains Murray Rothbard's An Austrian Perspective on the History of Economic Thought (1995). Joseph Schumpeter also treats a wide variety of historiographical subjects in History of Economic Analysis , where he includes a criticism of Adam Smith and suggests (like Rothbard) that Smith and his students (David Ricardo, et. al) set economic science on the wrong direction until the advent of the marginal revolution (I. M. D. Little, "History of Economic Analysis." The Economic History Review 8, no. 1 [1995]: pp. 95–96). Between Rothbard's and Schumpeter's treatises, the latter is probably the most well-known amongst mainstream academia. Nobel laureate George J. Stigler, himself interested in the history of economic thought, wrote, "[Schumpeter's] comments are, as ever, supremely sophisticated and, as usual, full of shrewd insight" ("Schumpeter's History of Economic Analysis." The Journal of Political Economy 62 , no. 4 [August 1954]: p. 345). Following the Smithian movement and despite the development of Marxism in the mid-19th century, economics was largely unified by the marginal revolution. I.M.D. Little writes on Schumpeter's History of Economic Analysis that "[h]is main thesis is that there was a fundamental unity in the period's theory, at least in the later years. Jevons, Menger, Walras, and Marshall taught essentially the same doctrine" (Little [1995], p. 97). However, the marginal revolution was followed by the birth of several distinct schools of economic thought. Some of the most well-known include the Neoclassical, Austrian, and Keynesian Schools, which interestingly all enjoy the same foundations in the marginal revolution. John Maynard Keynes's economics marched in an almost complete opposite direction to that of the neoclassicistsand Austrians. While the two latter schools of thought generally agreed on the basic premises of economics as laid out by the classical economists, Keynes almost completely deviated away from these premises (Ralph Raico, " Was Keynes a Liberal?"). Nevertheless, Keynes's beliefs were greatly influenced by the marginal revolution, and especially by Knut Wicksell. Keynes's beliefs regarding subjectivity and the propensity to consume, marginal efficiency of capital, and his pure theory of interest, were all built on the foundations provided by the marginal economists ( The General Theory of Employment, Interest and Money . BN Publishing, 2008).
Of the three above-mentioned major intellectual movements, the Austrian School is probably the smallest and least known. Despite this, it has become one of the fastest growing schools of thought in the past decade. And its ranks have swollen since the financial crisis of 2007. Austrian economics has become popular beyond the political boundaries of the United States. There are Mises Institutes in Brazil and Sweden, for example, while Austrian seminars have been held in countries such as Spain, where liberalism has historically been drowned out by syndicalist and socialist thought. For a view on the growth of the Austrian School, see Llewellyn H. Rockwell Jr., " More Powerful Than Armies This growth is impressive enough as to prompt responses to the Austrian School from intellectual opponents who are usually ambivalent. The Austrian School was not unknown during the 1920s and 1930s. John Keynes openly criticized Austrian theory in The General Theory . For example, he directly refers to Friedrich Hayek's and Lionel Robbin's criticism of his own theories put forth in his Treatise on Money. He also criticizes Hayek's business-cycle theory, by disputing the validity of Hayek's claim that a rise in the supply of credit will lead to discoordination in the market (Keynes 2008, pp. 79–85). Another notable criticism of Austrian theory was Piero Sraffa's critique "Dr. Hayek on Money and Capital," published in The Economic Journal. Sraffa was an "uncomprehending and rabid [disciple]" of Keynes, and his critique of Hayek's Prices and Production stems largely from the fact that at this time Keynes was chief editor of The Economic Journal (from Joseph Salerno's introduction to F.A. Hayek's Prices & Production and Other Works. Auburn, Alabama: Ludwig von Mises Institute, 2008: p. viii). Following the 1930s and early 1940s criticism and acknowledgment of the Austrian School became far more sparse. Only more recently has there been a revival in opponent's interest in Austrian economics. This is probably because the Austrian "revival" threatens their own beliefs and the supremacy of their beliefs in modern academia and political policy. Some recent criticism includes that of Paul Krugman and Bradford DeLong. All of this should be evidence enough that the Austrian School merits a closer look.
There are some basic questions that most "beginners" ask when first delving into Austrian theory. What is Austrian economics? Who are these Austrian economists? Why is Austrian economics relevant in today's world? These are all questions worthy of a response, and this is what the present essay sets out to do. The present essay also serves as a bibliography of sorts, as one can further investigate into the topics proposed by following the sources suggested in the footnotes throughout.
What is Austrian Economics?The Austrian School of thought has offered economic science a wide variety of unique insights. It is unrealistic to provide a detailed account of all Austrian theory within the limits of an introduction. Nevertheless, there are some key theories that the Austrians have become known for, providing a solid foundation for further investigation into Austrian economics.
The unique keystone to Austrian theory is the concept of praxeology. Praxeology is the science of human action, under which the broader subject of political economy is categorized. Mises wrote, "Out of the political economy of the classical school emerges the general theory of human action, praxeology . The economic or catallactic problems are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology" (Mises 1998, p. 3).The employed methodology of praxeology is known as a priorism, Sometimes Austrian methodology is referred to as praxeology. For example, as Rothbard wrote, "Praxeology is the distinctive methodology of the Austrian school" (“ Praxeology: The Methodology of Austrian Economics." Originally in The Logic of Action One: Method, Money, and the Austrian School , Cheltenham, United Kingdom: 1997, p. 58). But, most accurately praxeology is the science, not simply the methodology. which is based on the ideas
that the fundamental axioms and premises of economics are absolutely true;that the theorems and conclusions deduced by the laws of logic from these postulates are therefore absolutely true. Rothbard, Murray N., "In Defense of Extreme Apriorism." Southern Economic Journal (January 1957): p. 314.Praxeology recognizes the fundamental axiom that is human action. Mises believed the axiom of human action to be true a priori, or independent of experience. "The human mind," he wrote, "is not a tabula rasa on which the external events write their own history. It is equipped with a set of tools for grasping reality. Man acquired these tools, i.e., the logical structure of his mind, in the course of his evolution from an amoeba to his present state. But these tools are logically prior to any experience" (Mises 1998, p. 35). The belief that the axiom of human action is a priori is not universally shared amongst all Austrians. Rothbard, for example, believed the axiom of human action was found empirically. "My view is that the fundamental axiom and subsidiary axioms are derived from the experience of reality and are therefore in the broadest sense empirical" (Rothbard 1997, p. 64).Human action is purposeful and aims at completing ends through deliberately chosen means. Human action differentiates itself from instinctual reaction, such as a human's reaction to biological stimuli, in the sense that the latter is subconscious while human action is entirely conscious. Mises 1998, pp. 11–13. This is the implication Mises makes when he writes that "[m]en cooperate. That means that, in their activities, they anticipate that activities on the part of other people will accomplish certain things in order to bring about the results they are aiming at with their own work" ("Human Cooperation" in Ludwig von Mises on Money and InflationApart from the axiom of human action there are also several subsidiary axioms, including the facts that man values leisure over work and individuals vary — no one individual is the same as another. Rothbard 1997, p. 59. These subaxioms are not a priori, as Rothbard wrote, "[i]t should be noted that for Mises it is only the fundamental axiom of action that is a priori ; he conceded that the subsidiary axioms of the diversity of mankind and nature, and of leisure as a consumers' good, are broadly empirical" (Rothbard 1997, p. 67).
"Economics is the science that studies these individual agents of the market and how they coordinate through the price mechanism to create, not just what the mainstream considers 'the market,' but society as a whole, all without the necessity of a central planner or authority."From the axiom of human action, praxeology seeks to develop theory through logical deduction. Modeled, the axiom of human action is represented by A; if A implies B, and A is accepted as true, then B must also be true. That B must be true if implied by A is independent of experience (or a priori), proven through logic. Rothbard 1997, pp. 58–60. Also relevant are the four first chapters of Human Action. Also see Israel M. Kirzner, The Economic Point of View (Indianapolis, Indiana: Liberty Fund, 1960): pp.151–89. As such, Mises denies the usefulness of historical experience in the study of economics, given that through praxeology any theories developed would be apodictic. It follows that praxeology makes empirical validation or falsification not only superfluous but, as Mises holds, almost useless. According to Rothbard, "Mises indeed held not only that economic theory does not need to be "tested" by historical fact but also that it cannot be so tested." (Rothbard 1997, p. 72). It is common for Austrians to apply theory to history, but this is a form of illustration or elucidation, and not a method by which to deduce more theory (Selgin, George A., Praxeology and Understanding: An Analysis of the Controversy in Austrian Economics Auburn, Alabama: Ludwig von Mises Institute, 1990: p. 25). Noteworthy is that Mises's view on empiricism is not universally accepted by all Austrian scholars. Friedrich Hayek, for example, believed that empiricism was a useful tool to falsify theory, even if empiricism could not validate theory (Hayek 2008, pp. 9–17). Nevertheless, Hayek agreed with Mises's a priori approach to logical deduction: "Even as a means of verification, the statistical examination of the cycles has only a very limited value for trade cycle theory … First, it must be deduced with unexceptionable logic from the fundamental notions of the theoretical system; and second, it must explain by purely deductive method those phenomena with all their peculiarities that we observe in actual cycles" (Hayek 2008, p. 12). For a general overview of differences in exact praxeologic methodology see Selgin 1990, pp. 27–37.
Praxeology and a priori reasoning lead to the important concept of time preference. This is the notion that, ceteris paribus, individuals prefer present satisfaction to future satisfaction, under the condition that the utility of future satisfaction is the same or less, ordinally speaking. Ordinal versus cardinal utility is an important concept in Austrian economics, and refers to nothing more than the belief that utility cannot be objectively measured (cardinal utility) and that nothing has measurable intrinsic value. The utility of something can only be measured relative to the utility of another thing (ordinal utility). Mises explains that "[m]arginal utility provides no unit of value. The worth of two units of a given commodity is not twice as great as one — although it is necessarily greater or smaller than one. Judgments of value do not measure: they arrange, they grade" (Socialism: An Economic and Sociological AnalysisNew Haven, Connecticut: Yale University Press, 1951: p. 114). For an in-depth discussion on ordinal utility versus cardinal utility, see Murray N. Rothbard, " Socialism: An Economic and Sociological Analysis As such, humans choose certain time-consuming actions because they expect the end to have greater utility than any other end closer in time. Jesús Huerta de Soto explains that "actors undertake time-consuming actions because they expect to thus achieve more valuable ends; according to the latter, other things being equal, actors always prefer the goods closer to them in time" (Money, Bank Credit and Economic CyclesAuburn, Alabama: Ludwig von Mises Institute, 2009: pp. 270–72). In the broader sense, the idea of time preference becomes clearer once it is understood that capital accumulation, or savings, comes about as a result of changes in time preference. Individuals save as a means of garnering greater satisfaction at some point in the future.
While praxeology could be the subject of an entire book — and a complete understanding of praxeological science as developed to date would certainly be useful — for the purposes of a primer only the basic idea of what praxeology consists of is necessary. Praxeology is the science of rational human action, and its a priori methodology makes Austrian theory valid independent of experience. It follows that the following major Austrian insights are products of reason and not empiricism.
Non-neutrality of MoneyOne of the most important Austrian positions is the belief in the non-neutrality of money. The mainstream believes in the long-run neutrality, or superneutrality, of money. This belief maintains that changes in the money supply only cause proportional and permanent changes to prices, while leaving the "real economy" — investment, production, and employment — unchanged. Thorsten Polleit, " The Fallacy of the (Super)Neutrality of Money" Polleit provides an important caveat: "The neutrality-of-money hypothesis does not rule out that changes in the money growth rate may have permanent effects on the level of economic activity. In fact, a rise in the growth rate of the money stock (from, say, 4% a year to 5% a year) may be thought of as having the potential of pushing production to a permanently higher level of output." While money may change the underlying economy in the short-run, it is believed that nevertheless these will adjust proportionally to changes in the money supply over the medium term or long run. Ibid It is exactly this belief in the superneutrality of money that led to the development of the mechanistic quantity theory of money, or MV=PT. Huerta de Soto writes that "[s]upposing the 'velocity of circulation' of money remains relatively constant over time, and the gross national product approximates that of 'full employment,' monetarists believe money is neutral in the long run, and that therefore an expansion of the money supply (M) tends to proportionally raise the corresponding general price level" (2009: pp. 522–35).
Austrians expressly reject the notion of the superneutrality of money. The Austrian rejection bases itself on the idea that the purchasing power of money is decided only upon the moment of an exchange. In other words, the price of a good relative to a medium of exchange is decided during individual exchanges, depending on the amount of money following that particular good during that particular period of time. Therefore, a change in the supply of money will not affect all prices proportionally; rather it influences only certain prices, depending on what the new money is spent on. There are a number of refutations of the mechanical-quantity theory of money, including: Mises 1998, pp. 395–98; Polleit 2009; Huerta de Soto 2009, pp. 522–35; Hayek 2008, pp. 253–76. Also: Ludwig von Mises The Theory of Money and Credit. Indianapolis, Indiana: Liberty Fund, 1980: pp. 162–63.
Austrian Business-Cycle TheoryBelieving in the non-neutrality of money is an important step towards understanding the Austrian business-cycle theory. The Austrian theory of the trade cycle is perhaps their most well-known contribution to economics, at least for the mainstream. This is especially true when considering that the principal reason for the rise in popularity of Austrian economics after the recession of 2007 was their explanation of the causes of the recession — and their predictions of the recession prior to the crash.
Important to understanding the underlying premises behind the theory of the trade cycle is the recognition of the relationship between the supply of money and the rate of interest. This relationship is explicitly rejected by John Maynard Keynes. Keynes suggests that the main contributing factor behind the rate of interest is society's so-called liquidity preference, or the preference of the consumer to hold money in liquid form or surrender it to an investor by saving it in nonliquid forms (such as a time deposit). According to Keynes, "[t]he psychological time-preferences of an individual require two distinct sets of decisions to carry them out completely. The first is concerned with that aspect of time-preference that I called the propensity to consume , which, operating under the influence of the various motives set forth in Book III, determines for each individual how much of his income he will consume and how much he will reserve in some form of command over future consumption. But this decision having been made, there is a further decision that awaits him, namely, in what form he will hold the command over future consumption that he has reserved, whether out of his current income or from previous savings…. It should be obvious that the rate of interest cannot be a return to saving or waiting as such. For if a man hoards his savings in cash, he earns no interest, though he saves just as much as before." (Keynes 2008, pp. 166–67).
Unlike Keynes, Mises recognized the demand for money as time neutral. Keynes conflated the concepts of money and capital, not realizing that to hold money (or to hold a medium of exchange) did not translate into a reduction in the supply of capital on the market. As opposed to Keynes, Mises believed that a decrease in the supply of money-chasing loanable capital would simply manifest itself in the structure of production as a change in the prices of capital goods. On the subject, Mises wrote, "[a] drop in commodity prices, other things being equal, causes a drop in the money equivalent of the various individuals' capital. But this is not tantamount to a reduction in the supply of capital goods and does not require an adjustment of production activities to an alleged impoverishment. It merely alters the money items to be applied in monetary calculation" (Mises 1998, p. 519). Interestingly, Jörg Guido Hülsmann suggests that in an economy using a commodity currency the structure of production will be affected by an increase in demand for money, since an increase in demand for money would raise the return on investment for gold production. As capital flows from other industries into gold production, the rate of investment for gold lowers, while the rate of investment for other industries increases, thus causing a change in the rate of interest. Hülsmann notes that this relationship does not exist with fiat money, given that the marginal cost of production of fiat money is already near zero. See Jörg Guido Hülsmann, " The Demand For Money and the Time-Structure of Production
The rate of interest on a good, or what Mises called the originary interest, is that established by the ratio of the value of future goods discounted against the value of present goods. Mises 1998, pp. 521–34. As explained by Jesús Huerta de Soto, "the term 'interest rate' [denotes] the market price of present goods in relation to future goods." Huerta de Soto 2009, p. 285.
Money relates to the rate of interest in the sense that as a medium of exchange money can be used to acquire a certain amount of goods. Instead of bartering actual capital on the market, money allows for a complex series of exchanges to take place, without one individual having to directly satisfy another by offering the other the exact good in demand. As such, the lending and borrowing of money follows the same praxeological laws as other goods. Like any other goods on the market, as price decreases demand increases. As the supply of money on the market increases the cost of borrowing, or the rate of interest, decreases and the quantity demanded of loanable funds increases. This tends to catalyze investment.
"Praxeology is the science of rational human action, and its a priori methodology makes Austrian theory valid independent of experience."Austrians distinguish between a rise in the supply of loanable funds as a result of an increase in savings and the rise resulting from an increase in the supply of money. The latter is what leads to the business cycle. Providing a complete understanding of the Austrian business-cycle theory would require a deeper foray into Austrian capital theory, which unfortunately is something outside the scope of the present essay. Regardless, using what has been established thus far, the business-cycle theory can be explained as one that predicts discoordination in the market resulting from an artificial decrease in the cost to borrow money. This decrease in the rate of interest is artificial in the sense that it came as a result, not of an increase in loanable funds through an increase in savings, but an increase in loanable funds through an increase in the supply of money. The clearest explanation of the Austrian business-cycle theory, and the necessary capital theory, is provided by Jesús Huerta de Soto and his book, Money, Bank Credit and Economic CyclesLudwig von Mises also gives an overview of the business-cycle theory in Human ActionBusiness-cycle theory reached its farthest intellectual extent, in the sense of development, under Hayek. Hayek's contributions to the theory of the trade cycle can be read in his Prices & Production and Other Works For those interested in capital theory, one of the most complete books on the subject remains Hayek's Pure Theory of Capital. A more popularized explanation of Austrian capital theory is provided by Robert Murphy, " Pure Theory of Capital
Given that a decrease in the market rate of interest will lead to an increase in the quantity demanded of loanable funds, this leads to an increase in investment. Investment leads to the lengthening of the structure of production in the hope of producing future goods.
Discoordination is caused by the fact that, given that the supply of money was increased artificially, consumers have not generally sacrificed present consumption for future consumption. Thus, existing capital is divided between continued production of consumer goods, for present consumption, and capital goods, which will be used to finance projects dedicated towards satisfying future consumption. This discoordination leads to widespread malinvestment, and when this discoordination is revealed it leads to an inevitable bust. Thus, Austrians hold that business cycles are caused by intertemporal discoordination, caused by artificial increases in the supply of loanable funds without an equal fall in present consumption. Similarly, popular accounts of the business cycle can be found in books such as Thomas Woods's Meltdownor The Austrian Theory of the Trade Cycle and Other Essaysedited by Richard Ebeling.
Socialist Calculation ProblemWhile business-cycle theory is perhaps what the Austrians are currently most well known for, there is a myriad of other concepts the Austrians introduced or expanded upon. One such insight is that of the socialist calculation problem.
There is no objection amongst economists that given the existence of scarcity, the market is in need of a rationing device. Most economists, except those in extreme favor of centralized rationing, will also agree with the notion that price is the best rationing device of the market. One mainstream macroeconomics textbook states that "[s]carcity implies the need for a rationing device … many other alternatives to dollar price could be used as a rationing device. However, each discriminates against someone, and none is clearly superior to dollar price" (Arnold, Roger A., Macroeconomics . Mason, Ohio: Thomson South-Western, 2008: p. 4). While price hardly acts as a measure of value, due to the fact that no object has an objective value, "Money calculations have their limits. Money is neither a yardstick of value nor of prices. Money does not measure value" (Mises 1951, p. 115). it nevertheless serves as a useful tool to coordinate production by serving as a conveyor of information between different market agents and a method by which an individual can decide whether or not a particular action is economical. Ibid
In a socialistic economy, where prices are absent, this coordination would simply not exist. There would be no host of individual agents communicating through the price mechanism and allocating resources by means of subjective ratiocination. As a result, all meaningful economic activity would come to a halt. Complex programs would be impossible to complete economically, since without a price mechanism there would be no way for a central planner to distribute resources according to their most economical use. Thus, socialist economies are bound to fail. Ludwig von Mises's Socialism is perhaps the single greatest treatise covering the shortcomings of a socialist economy. Human Action also dedicates a chapter to the subject (pp. 694–711). Finally, Friedrich Hayek's Socialism and War offers the reader insight on the progress of the socialist calculation debate up to the 1970s.
These key Austrian positions have been explained in an effort to offer the reader an introduction. Understanding the basics of Austrian methodology, monetary and capital theory, and finally Mises's calculation problem, the reader can now fully plunge into a wider and deeper body of Austrian theory.
A Brief History of the Austrian SchoolAdam Smith is generally considered the father of political economy, and between Smith and the marginal revolution it is traditionally believed that there was a linear progression in the science of economics. The belief that Adam Smith was a negative influence is unconventional and heterodox. As the present overview of the history of economic thought is purposefully brief, a much more complete analysis of the contributions of Adam Smith can be found here: Murray N. Rothbard, The Adam Smith Myth." Schumpeter's History of Economic Analysis suggested otherwise, and since then there has been a wealth of revisionism looking to correct economists' view on the Smithian movement. From an Austrian perspective, Smith did much to damage economic theory. Not only was much of Smithian theory erroneous — including his monetary and value theories — but also The Wealth of Nations effectively blotted out a rich tradition of economics prior to the Scottish enlightenment, including the School of Salamanca and the French liberals. On the progress of economic science as nonlinear, see Rothbard 1995, p. 438. For an overview of Smith's theoretical mistakes see Rothbard 1995, pp. 441–71. Rothbard writes, "The most unfortunate aspect of the total Smithian takeover in economics was not so much his own considerable tissue of error, but even more the blotting out of knowledge of the rich tradition of economic thought that had developed before Smith" (Rothbard 1995, p. 502.) It was left to the marginalists of the late 19th century to "rediscover" much of the pre-Smithian tradition. Ibid., p. 502. "As a result, the Austrians and their nineteenth century predecessors, largely deprived of knowledge of the pre-Smithian tradition, were in many ways forced to reinvent the wheel."The marginalist revolution was spearheaded by William Stanley Jevons, Léon Walras, and Carl Menger through the concept of marginal utility. It was Carl Menger who founded the Austrian School, expounding his ideas in two major economic works: Principles of Economics and Investigations into the Method of the Social Sciences with Special Reference to Economics. While Carl Menger laid the foundations for Austrian theory, his greatest influence was his support of an individualistic approach to economics, or what is called methodological individualism. This would ultimately lead to Mises's development of praxeology. In fact, Mises alludes to the importance of Menger's methodology by describing what was called the Methodenstreit (dispute on method) between Menger and Gustav Schmoller of the German Historical School (and others). While Menger's methodology did not recognize economic logic as all derived from the same axiom, one can certainly find the roots of the schism between a priori reasoning and empiricism in Menger. Mises 1998, pp. 4–5. Also, see Mises's Historical Setting of the Austrian School of Economics Jörg Guido Hülsmann provides a very clear exposition of Menger's methodology: "Menger did not use abstract models to posit falsifiable hypotheses that are then tested by experience. Instead, Menger's was an analytical method that began with the smallest empirical phenomena and proceeded logically from there. This put Menger in a position to consider market exchanges and prices as macro-phenomena and to explain how they are caused by atomistic, but empirically ascertainable 'elements of the human economy' situated in an economic microcosm of individual needs and the marginal quantities owned and acquired" (Mises: The Last Knight of Liberalism. Auburn, Alabama: Ludwig von Mises Institute, 2007: pp. 104–105).
Menger influenced two important economists. These were brothers-in-law Eugen von Böhm-Bawerk and Friedrich von Wieser. Böhm-Bawerk considerably developed Austrian capital theory, expounded over two important volumes — Capital and Interest and The Positive Theory of Capital. Perhaps his greatest contributions to capital theory were his concepts of time-preference and roundaboutness. Böhm-Bawerk also wrote a devastating criticism of Marxism and Marxian economics, Karl Marx and the Close of his System. Friedrich von Wieser made great strides in the socialist-calculation debate and would also become widely known for his development of the concept of opportunity cost. One of the best histories of the early years of Austrian thought is provided by Hülsmann 1997, pp. 101–74.
Ludwig von Mises did not become immediately acquainted with Menger's economics. Mises read Menger's Principles only after Menger had retired from the University of Vienna. Jörg Guido Hülsmann believes that Mises became fully aware of Menger after being exposed to Friedrich Wieser, who gave a series of lectures at the university and attempted to expand on Menger's theories on money. Both Menger's book and Wieser's lectures impacted Mises's later writings on money, in many ways providing the basis of Mises's beliefs. While Menger did not immediately persuade Mises to embrace liberalism, it did cause a fundamental shift in the way Mises critically viewed the legitimacy of government intervention. It was this critical approach to theory that slowly converted Mises into the great liberal economist of Human Action, written over forty years after his first encounter with Menger and the Austrian School. Hülsmann writes, "Reading Carl Menger did not immediately produce the author of Human Action. Mises's own statism was too deeprooted: he had absorbed it from the earliest days of his childhood, and he unconsciously applied it in his research for the Grünberg and Philippovich seminars…. What Menger's Principles did was to change fundamentally Mises's outlook on the analysis of social problems…. All government intervention must therefore be considered carefully before it is allowed to disrupt the order of the market" (Hülsmann 1997, pp. 80–93).
"Most economists, except those in extreme favor of centralized rationing, will also agree with the notion that price is the best rationing device of the market."While Human Action can be considered the peak of Mises's intellectual career, it was not long after reading Menger that Mises published his first major theoretical work. This was The Theory of Money and Credit, published in 1912. It was this book that propelled Mises to forefront of the study of economics, although Mises's success was interrupted by the eruption of the Great War in 1914. Also rather unfortunate was the fact that The Theory of Money and Credit was not translated into English until the 1930s. Ultimately, Mises's views on money were drowned out by the views of figures such as Fisher and Marshall. Regardless, after the Great War Mises continued theorizing and developed Austrian methodology (what he would refer to as praxeology), he elucidated the socialist calculation problem, and prepared his great treatise, Human Action. The wide scope of Mises's contributions to Austrian theory, and the depths to which he pursued these topics, makes him the most important Austrian economist — and, to an Austrian, the most important economist of the 20th century.
Apart from directly contributing to the renaissance of Austrian thought, Mises also influenced many other economists, including Friedrich Hayek. Hayek contributed greatly by popularizing Austrian theory. During his stint at the London School of Economics, Hayek enjoyed widespread support of his beliefs, including from Lionel Robbins. Hayek was also awarded the Nobel Memorial Prize in Economic Sciences, a major stimulant in the resurgence of the Austrian School during the last two decades of the 20th century.
Hayek also contributed greatly to the Austrian theoretical corpus. This includes his work on the Austrian business-cycle theory,Hayek's major contributions to business-cycle theory have been condensed into one volume by the Ludwig von Mises Institute: Prices & Production and Other Works. for which he would be awarded the Nobel Memorial Prize, and his writings that further developed capital theory. Hayek never completed his writings on capital theory, with Pure Theory of Capital being only the first part of an at least two-volume series on capital. Nevertheless, in many ways Hayek's theories represent the maximum extent of Austrian theory of capital.Hayek also revisited the calculation problem and was a renowned political scientist. Today, he is probably most well-known for Road to Serfdom, where he warned that all "middle of the road" policies would eventually lead to socialism and tyranny.
After Hayek came a host of new Austrians. Many of them were not Austrians of the same ilk as Mises, but were nevertheless greatly influenced by Austrian methodology and theory. The post-Hayek generation of economists includes Israel Kirzner and Murray Rothbard, the latter of which heavily influenced the Austrian School by merging the school's classical-liberal ethical foundations with anarchism. Although the Austrian School had already become much more than a school of economics, Rothbard fully broadened the scope to cover ethics and political science. The state of modern "Austrianism" owes much to Rothbard, even if many Austrians disagree with Rothbard's conclusions. Disagreements with Rothbard range from political science, to ethics, to economics. Some main examples include the dichotomy between "free bankers" and "hundred-percent reservists," and anarchocapitalists and minarchists.
Today, the Austrian School has grown to include an even larger body of professional economists, and a previously inconceivable body of followers and students. There is no doubt that great strides will be made in theory, throughout the multitude of fields that now completely fall within the scope of the school.
RelevanceApart from the school's valuable insight in academics, how is the Austrian School relevant to current events? What makes Austrian theory important to the common man?
The answer to these questions can be deduced praxeologically, beginning with the axiom of human action. If we accept society as merely a web of purposeful interactions between individuals, then we begin to realize the potential distortions caused by exogenous factors — namely government through regulation. As a value-free science, praxeology cannot tell you whether or not government intervention is good or bad but it can tell you the consequences of exogenous distortion of human action. "Austrian" ethics, on the other hand, do serve the purpose of deciding between "good" and "bad," but in the purest sense the Austrian School can at least enlighten the layman by suggesting what effects certain economic policies will have.
This idea that government distorts, for better or for worse, is important. In a world where government is an irrefutable reality, and where intellectually the concept of anarchism has not been accepted by the mainstream, Austrian economics becomes very relevant in the sense of aiding individuals to judge the value of certain government programs. With an ongoing financial crisis and an impending greater crash, there is no better time to become aware of the consequences of interventionism. It was the aim of the present essay to skim the surface of Austrian theory, in the hope that those interested will further explore Austrian thought. The message is not necessarily that one should uncompromisingly accept the views of the Austrian School, only that these insights are valuable and can add to whatever knowledge is already held by any given individual.
Nevertheless, the rigor of the Austrian method makes its methodology incomparable to that of any other school, which certainly makes the case for Austrian theory that much stronger.
As interviewed by Dan Cofall on the Wall Street Shuffle radio program; CNN Radio; Dallas, Texas, 10 May 2010. [17:15]
The recent battle between a property owner and the Morrison Historic Preservation Commission in Illinois has again reinforced the importance of private-property rights.
The battle centers around a property owner in Morrison who purchased four older properties along the main thoroughfare with plans of demolishing some of them, apparently for business-development purposes. The Morrison Historic Preservation Commission would not allow this demolition because the properties were located within the city's Historic District, and the city council "declined to overrule" the commission (although it now appears that, after months of meetings and wrangling back and forth, demolition on two of the properties may be allowed).
The reasoning behind historic-preservation ordinances was voiced by an alderperson who said,
I understand that this may not be in your best interest, but the council has to act in the best interest of the community as a whole — how this will affect the community 5 years, 10 or 25 years down the road.… There is all kinds of research to show that historic preservation pays off.
The most glaring part of this statement, of course, is the complete disregard for the wishes of the private-property owner — the person who has assumed all of the risk by purchasing older properties in hopes of converting them into a productive and useful business (as will be determined by consumers). It is also puzzling as to why this particular alderperson does not understand that the voluntary exchange of goods and services for money that would result from such development would surely "affect the community … down the road" in a positive way.
Perhaps this should not be too surprising, considering that property owners in Illinois (and most other places, too) must pay property taxes and meet zoning requirements, a sort of collective-ownership arrangement. Pay your taxes and meet the zoning requirements, or your property will eventually be taken from you. Instructing you as to whether or not development is permitted, in the name of historic preservation, seems to fall in line with these practices.
Other troubling statements were uttered at meetings on this subject. When providing more details on the rules involving historic preservation, the chair of the Morrison Historic Preservation Commission stated:
General maintenance and up keep on property residing within the District does not need to be brought before the Commission.… The Maintenance Zoning Officer is the gatekeeper. When you file for the appropriate permits, he [the zoning officer] will direct you to the appropriate applications and inform you as to whether you need to go before the Historic Commission.[1]
The answer to the next question, as to whether or not detailed guidelines on historic preservation were available, was more troubling:
Not at this time.
The chair went on to say that the commission has plans from another city available for viewing.
"General maintenance and up keep" are permitted (that this has to be stated is scary); however, as we heard from the chair himself, the rules governing historic preservation are not even written down anywhere. Guidelines from another city are pointless — the private-property owner surely cannot rely on these when he does not reside there. Thus, the private-property owner in the district is at the mercy of the "gatekeeper" in terms of what can and cannot be done to his own property.
Not only that, but the "gatekeeper" may force the property owner to go before the preservation commission and plead his case. With guidelines not even written down, this is truly a case of "living" legislation in the extreme. Private property owners must follow unwritten rules — rules that could change at any moment. Whether or not the "gatekeeper" or the preservation commission is having a bad day, for example, could affect what the private-property owner can or cannot do to property he has obtained.
Aside from these important practical considerations, the inherent flaws that come along with the disruption of private-property rights are clear. For example, property rights provide the foundation upon which conflicts are resolved, as Jeremiah Dyke's recent article on whaling demonstrated.
$30 $28
In the case of Morrison, the property owner has stated that he will not invest more money into his properties as long as they can't be developed. The owner has no incentive to develop, or even keep up, his property. Rather than working hard to create an enterprise that would benefit everyone through voluntary transactions, the owner may try to sell his property or simply allow it to fall into disrepair. This will deter others from owning property in the area, further exacerbating the problem.
The recent actions by the preservation commission against a private-property owner are nothing less than aggressive theft by a third party. The current and former owners of the properties in question here entered into a voluntary contract of exchange. The current property owner then was in the process of entering into voluntary, mutually-beneficial exchanges with his customers once his property had been developed. The abrupt disruption of this process, in the name of historic preservation, only reinforces the collective nature of American property ownership, minimizes human achievement, and encourages disputes.
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Notes[1] "Property owners gather to discuss 'A Contentious Set of Issues,'" Whiteside News Sentinel, v. 150, no. 8, Feb. 23, 2010.
Even Marx did not contest the fact that private initiative and private ownership of the means of production were indispensable stages in the progress from primitive man's penury to the more satisfactory conditions of the 19th century, writes Ludwig von Mises (1881–1973).
This audio Mises Daily is narrated by Jeff Riggenbach.
Previously, I, Walter Block, published an article on the use of the word "capitalism." I defended the employment of this nomenclature in the promotion of libertarianism, criticizing the formation of a group, lead by my old and good friend, Sheldon Richman, called Libertarians Against Capitalism. I am now coauthoring this reply to Sheldon with Jackson, who wrote me a letter very supportive of my side of this debate; I have edited this letter of his and included it in this response.
In due course, Sheldon published a rejoinder to my article. As is his wont, it was thoughtful and knowledgeable. So much so, that it almost convinced me. But, not quite. However, he might well have made one good point, about which I was, I confess, ignorant. I had stated that the bad guys were trying to steal the word "libertarian" from us; but Sheldon, perhaps a better historian than me, has pointed out that we free enterprisers were the initial "thieves." (I place scare quotes around "thieves" to indicate that poaching of language is not akin to stealing real property. As Stephan Kinsella begin_of_the_skype_highlighting end_of_the_skype_highlighting begin_of_the_skype_highlighting end_of_the_skype_highlighting has so masterfully shown, there can be no such thing as intellectual property in the libertarian law code; thus, there can be no theft of it, either.) It was my supposition that Spooner and Tucker were the first to use this word in the modern (political economic) manner, but, alas, I may well have been mistaken in this.
I did some (belated) research on this question; see here, here, and here. The first two links still seem ambiguous to me; the latter clearly supports Sheldon's position. As well, I have been told that a forthcoming book of Murray Rothbard's letters, edited by David Gordon, buttresses Sheldon's interpretation. On the other hand, this essay would tend in the other direction, and I am not historian enough to come to a definitive conclusion. So, let me stipulate, arguendo, that I was wrong in my contention, and Sheldon correct. I nevertheless persist in thinking that this error of mine, and thus Sheldon's correction of me, if that is what it indeed is, is really irrelevant to the point I was initially making: that it would be a grievous mistake to jettison the word "capitalism" from our libertarian lexicon. I think Sheldon agrees with me as to the relative unimportance of the (well nigh possible) error of mine, as he says, "But let that pass."
Now we come to the crux of his rejection of "capitalism." Sheldon says, in response to my request that he disband this initiative of his:
Sorry, can't do it, old friend. It's not worth the candle. The word was tainted from the start — free-market radicals uses [sic] it disparagingly – and it has never lost its taint, despite the efforts of Mises and Rand. It creates confusion not clarity. We have perfectly good words for what we want: the free market and laissez faire, voluntarism and market anarchism. We don't need the poisonous word capitalism.
But the most widely understood meaning of "anarchism" is, surely, "chaos," or, maybe, "bomb throwing" (against innocent people). Libertarian anarchists, of course, mean by this word, absence of archy; that is, no arbitrary unjustified rule of one man by another. Should we therefore give up on the word anarchy because it is misunderstood?
A similar challenge to Sheldon's position emanates from the word "individualism." In our camp, this certainly evokes a positive reaction. Some libertarians go so far as to equate our libertarian philosophy with individualism, and to denigrate what they see as "collectivism" as its polar opposite. I don't go out that far on the limb at all (it is not for nothing that I am widely known, at least within the libertarian community, as Walter "Moderate" Block). For this would put us in opposition to voluntary collectives, such as the kibbutz, the monastery, the nunnery, the convent, even the typical nuclear family which lives according the doctrine of "from each in according to ability, to each according to need." It would also denigrate team sports (football, soccer, baseball, basketball) as collectivist, and unduly elevate individual sports (swimming, track, handball, tennis) as a matter of libertarian principle. Further, "individualism," too, is under dispute; it is also claimed by our political enemies. It would be a sad day if we ever had to give up on this word, but that, as I see it, is the logical implication of Sheldon's perspective.
"Free market" is a wonderful banner. I would not jettison it for all the tea in China, so to speak. However, it really doesn't do all the work we need it to do. As far as I am concerned, there is not one but rather three arenas in which we contend against our competitors on the political spectrum: not only economics, but also personal liberties and foreign policy. Someone who favors freedom only in the commercial field is not really one of us, if he is "weak" on the other two. For example, he favors economic liberties, but wants to put people in jail for prostitution, pornography, gambling, drug use, and supports US imperialism. There are plenty of "free-market" advocates like that; they are not one of us. They are, rather, conservatives, and are just as much the enemies of libertarianism as are the left liberals. If you ask a typical lefty what "free market" means to him, undoubtedly, he will associate it with exploitation of the poor. If you ask this of the modal mainstream economist, you will hear a litany of "market failure," and economic inefficiency.
Here is my edited version of my coauthor's brilliant letter to me (I agree with every word of it, or I would not have invited Jackson to coauthor this rejoinder with me):
I find the attempt to popularize phrases like "laissez-faire" or "market anarchism" so as to avoid the negative connotations of "capitalism" more than a little silly.
For those of us who are anarchocapitalists, the phrases are interchangeable; clarity is not an issue. I doubt there has ever been any confusion when one Mises Institute Senior Scholar says "capitalism" and another says "laissez-faire." The only reason I can find as to why one would attempt to change the vocabulary of our message would be to appeal to people who do not share our economic views. I cannot see this little ploy as anything but a waste of time.
The first reason I believe this to be foolish is that if anyone is under the impression that "laissez-faire" or "market anarchism" will be an easier pill for the general public to swallow, they need to do a bit of thinking.
"Laissez-faire" will make the average Soccer-Mom-Mandi think of Dickensian orphans having to beg for pennies on a muddy street (in the rain) because they lost one or more limbs in a coal mining accident and their mustached robber-baron employer threw them out into the wilderness because of their reduced productivity. She will be overcome with a fear for the safety of not only her tow-headed children, but of all tow-headed children in the Good Ol' USA. As fearing for children makes her feel unpleasant, and as the phrase "laissez-faire" was used disparagingly by both her matronly 11th grade social studies teacher who inspired her and her EN 211 American Lit. professor who she had a crush on, she will not like it.
I also do not believe that "market anarchism" will accurately communicate the message of liberty and win the hearts and minds of the masses. If we were to take Teamster Union Randy the Welder from Local 102 and do a bit of word association, I would imagine we would end up with something like this: "Market"; "Wall Street." "Market"; "Exploitation." "Anarchism"; "Chaos." "Anarchism"; "Arson." "Market"; "Madoff." "Anarchism"; "Africa." "Market Anarchy"; "Workers of the World Unite." To the average American whose reason is constructed by either The Daily Show, pop music, or whatever blockbuster is playing at the cinema, the phrase "market anarchy" would lead one to think of a Hollywood-envisioned dystopian future in which a large pharmaceutical company controls every aspect of our lives so that a few privileged crooks at the top can live in ivory towers. I cannot see people flocking to this phrase.
If you want to proselytize to the masses, "capitalism" is your best bet. It's not threatening to most people as both Republicans and Democrats generally speak of it as a kind of good thing. It is what made "us" great and all that blather. The fact that it is commonly used and commonly misused is its best quality. Every time someone incorrectly equates capitalism to corporatism, mercantilism, bailouts, price fixing, subsidies, natural monopolies, central banking, etc. we are given an excellent opportunity to say "Well, that's not exactly what capitalism is … " We have the perfect icebreaker which enables us to wax poetic about how you agree that these things are unjust but are really examples of interventionist policies and state reallocation of resources not intrinsic qualities of capitalism. And then we can smoothly transition the conversation into free market solutions and extol the virtues of economic liberty.
But now to the second reason I think this is pointless: the ideas of absolute liberty will never, ever, ever be popular to the masses. The values that have led us to our vision of rights, justice, and liberty are less popular than the values that lead others elsewhere. There is something within many people that finds a calming satisfaction in dependence. Depending upon the state does offer a lot of stability to many people who would rather not be bothered with trying to steer a course through the "tumultuous sea of liberty." Trying to put a pretty bow on our ideas by abjuring all words with negative connotations will not help promote liberty. If anything, we should focus on bracing the remnant, as it were. The people who will find the message of liberty appealing will do so because of the philosophy, not because of the label, indeed, in spite of the label.
I have a hunch that making a big ado about not supporting "capitalism" because the word is misused and preferring to support whatever alternative word its critics agree upon will further alienate proponents of economic liberty, on the part of both like-minded individuals and potential converts. People who do this will just look pedantic, as if they are trimming their sails to be agreeable. "Um … yeah, I like supported Capitalism before it was cool … then everyone else started digging it. But they didn't really get it, ya know? So now I'm into Anti-Capitalist-Market-Anarchy. It's really rare, I doubt you've heard of it."
Now, back to me. This is Walter Block writing again. While my coauthor and I are taking on Sheldon Richman on this issue, we might as well widen the debate and consider the mistaken views of some others.
According to one contributor to Sheldon's web: Since "leftists like Noam Chomsky and right-wingers like Glenn Beck keep calling themselves 'libertarian,' let's ditch that moniker, too, and reclaim 'liberal' to mean both personal and economic liberty." (By the way, Milton Friedman is another who promiscuously used the word "libertarian" to apply to himself. On this, see here, here, and here.) But, if we are losing "libertarian" what makes us think we can re-attain "liberal"? Why not play defense as well as offense? Try to keep both. The more words we can use to express ourselves the better. We already have "capitalism." Sheldon is willing to jettison it even when no one else is trying to seize it from us.
In the view of one over-the-transom remark: "Since the word "capitalism" does not have the meaning we intend, (we should) cease using it incorrectly. From its historical roots and etymological derivation it does not and has not meant 'free markets.'" Yes, but the meanings of words change according to usage. There is no intrinsic meaning of a word. For example, black people have been called the N word, negroes, Negroes, African-Americans, blacks. The same object, different appellations. Even the objection mentioned just above takes cognizance of the malleability of language, as this one does not.
"I'm as much in favor of 'lucid discourse' as is the next fellow, I suppose. But there is something I rank even higher: promoting liberty."The next objection comes from Clarence B. Carson who published "Capitalism: Yes and No" some 25 years ago in the Freeman. He praises "lucid discourse" and on this ground prefers "free enterprise" to "capitalism" as a description of our perspective. Well, I'm as much in favor of "lucid discourse" as is the next fellow, I suppose. But there is something I rank even higher: promoting liberty. And when the two diverge, as I claim they do in this case, my way forward is clear. Yes, "capitalism" may be more "in your face" than the "free enterprise" that was criticized above. And, some people may be put off by it, preferring more gentle terminology. But if there is anything I have learned from the methodological individualism taught by Mises, it is that people are different. Other people may need the "slap in the face" that, on this supposition, only "capitalism" can supply.
In Carson's view, there is a commonly accepted understanding of "free market" and it is a pretty good one: "A free market is a market open to all peaceful traders." This sounds good, but, I fear, Carson is living in a dream world, at least based on the common understanding of this word, in terms of exploitation. In contrast, he avers, "capitalism … does not have a commonly accepted meaning." Well, yes, but, it has been used effectively, and neither does his favorite appellation, "free enterprise."
I don't really regard the debate over nomenclature as a substantive one. It merely concerns strategy, branding, labeling. And, as with all such issues, it is difficult to say which side is definitively correct. If we win, and economic freedom is maximized, will it be because of, or in spite of, our positions on this question? I think it will be difficult to ever know for sure. However, my "instinct" is that we should keep for ourselves as many words as we can.
The most powerful argument on this score I save for last. Sheldon Richman states: "(Capitalism) has never lost its taint, despite the efforts of Mises and Rand." Yes, yes, but as my coauthor and I have shown above, every other word we use is also "tainted," or problematic on other grounds. What is "tainted" in the minds of the people is not the word. Once they even partially understand the concept, the booboisie doesn't much like it.
"What are you, crazy?" they would say. "Turning back the clock and getting rid of welfare, unemployment insurance, the central bank, the minimum-wage law, social security, protective tariffs? We'd have mass starvation. Not make war all over the place? How else can we protect ourselves? You people are insane."
So, I ask, who have been the people in the recent past who have done the most to promote our movement, whatever we call it? And, surely, it cannot be denied that Rand has converted the most ordinary people to our movement, and that Mises, along with Rothbard have made the most serious inroads amongst professional scholars. So, here we have Richman, who has had, oh, I don't know, an impact of one millionth of a per cent of Rand plus Mises, criticizing them for poor word usage. (I am not trying to denigrate Sheldon here; my own impact has been much more like his than these two GIANTS of our movement.) I hope and trust no one thinks me guilty of an ad hominem argument here. I am not saying Richman is wrong, and Rand and Mises are right because they are more famous than him. What I am saying, instead, is that one of the vehicles used by Rand and Mises in their successful promotion of liberty is the word "capitalism." Surely, this must count importantly in our debate.
Ayn Rand converted more people to libertarianism than anyone else, and she used that word often, and with great effect. Indeed, if there was any one word associated with her, it was "capitalism." Are we really to believe that she would have converted even more people without the ceaseless and unrelenting use of this nomenclature? Although it is difficult to draw certain conclusions from contrary-to-fact history, it is difficult to see how this could have been the case then, or, indeed, is at present. If there is one description of Ayn Rand that strikes to the core of her being, it is "in your face." She was no shrinking violet. She made the case for the freedom philosophy in the most aggressive manner possible, bless her. And, "capitalism" was a crucial element of that effort. It makes far more sense to follow her in this regard than to jettison this word in an attempt to be historically "accurate," or indeed, for any other reason — that is, if we really want to promote liberty efficaciously.
Property is that beautiful foundation from which libertarians approach conflicts. Accepting that the rights to property come through the rights of original homesteading, appropriation, and exchange eliminates the need to question motives or intentions in action. Without defined property rights, the public is left squabbling for some other rubric from which to judge action. The purpose of this article is to demonstrate the foolishness of this squabbling on the topic of whaling.
Only within the sphere of communal property could two vessels manage to collide in the vast openness of the Antarctic Ocean — an ocean of nearly 21 million square kilometers. Only within the sphere of communal property could such a collision leave all parties faultless.
The collision of the two vessels, the Japanese harpoon ship, Yushin Maru No. 2, and the whale-conservation Sea Shepherd ship, Bob Barker, is but another round in the many conflicts between whalers and antiwhaling conservationists. Each party maintains its innocence, and both parties sustain damages.
Whaling can be traced back to as early as 6000 BC. Yet, despite its long heritage, whaling is no longer the primary source of any nation's financial system. Past uses of whale typically revolved around illuminants in lamps and candles. It was industry, not animal ethics, that eventually replaced the whale-based illuminants with kerosene and petroleum (both of which burn longer, more cheaply, and without such a distasteful odor).
Despite this transition, 5 of the 13 great whales are on the endangered species list, and there is some evidence of whale extinction within certain geographical areas. By the late 1930s, more than 50,000 whales were killed annually, enough to alarm conservationists into pushing for a commission to preside over these issues.
Figure 1Population Estimates for Whale SpeciesThe outcome was the International Whaling Commission (IWC). Although its membership is voluntary, the commission soon set forth a wide array of whaling quotas in order to protect whale stocks.
On the one hand, the United States acts as a membership financer to budding nations who are sympathetic to the ICW. On the other, the United States also bullies those unsympathetic to the ICW by threatening to ban their various fish imports. Thus, many countries that have no investment in whale conservation will still side with the United States on this issue.
Indeed, according to a paper by Anthony Matera, "The current moratorium on whaling, instituted by the International Whaling Commission (IWC), continues to restrict the rights of these countries to whale, even though the moratorium's original purpose, a recovery in whale stocks, has been achieved."[1]
It has also been shown that whale domestication and breeding can replenish depleted whale stocks without the use of whaling quotas or other IWC measures. So why is there still a vacancy in this market? Why has no individual or company entered the market to fill the void in whale supply? The reason is clear — regulation. According to the IWC, countries are only permitted
to harvest whales for scientific research and sustenance use for approved communities. Japan and Iceland both maintain scientific research programs.… [Yet] members of the commission have increasingly lobbied for the suspension or reduction of these research programs, maintaining that whale harvesting does not address any critically important research needs.
Therefore, we are left with a void in the market in exchange for a cluster of normative goals. Conservationists would rather regress into infinite dialogue over what "should be" rather than embrace the solution of privatization.
Conservationists are actually gambling with the whales' prospects of survival by concentrating their efforts on a war against whaling, instead of embracing solutions to the problem of supply, such as whale breeding.
Simply limiting the supply of whales only increases the price per unit of whale on the market. Fisherman who would normally seek other ocean inhabitants may actually be enticed to hunt whales, instead of fish, by the new, inflated price. Thus, like our abysmal record in attempting to battle the supply of illegal drugs,[2] our whaling efforts only help solidify the elementary economic knowledge that you cannot wage a war on supply!
Returning to our original story of the recent collision between antiwhaling conservationists and their fishing/science counterparts, we begin to understand why organizations like the US-based Sea Shepherd have done so little to deter whaling off the coast of Antarctica.
The governments of New Zealand and Australia, who have jurisdiction over the waters in which this crash took place, have opted not to rule in favor of either party, instead urging each group to take caution and remain civil.
$30 $28
Remain civil?
Can you imagine such a scenario anywhere else? Can you imagine dog poachers roaming our backyards in search of pets to use for science or industry? Even if we can imagine such a silly scenario, we could never imagine the adjudicator of such a conflict merely urging each party to "remain civil." One of the parties is surely at fault!
It is, therefore, legal consequences that prevent backyard dog poaching, but it is ownership that gives the authority to inflict such consequences. It is the ownership of the dog and the backyard that allow one to judge that a crime has been committed. This silly scenario does not occur for the simple reason that property rights are better defined in backyards; it is only in absence of defined property rights that these vessels could collide in the vast openness of the sea without either being identified as the aggressor.
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Notes[1] Matera, Anthony. "Whale Quotas: A Market-Based Solution to the Whaling Controversy." Georgetown International Environmental Law Review.
[2] Of which we cannot even keep out of our prisons or jails