|The Austrian Economics Newsletter|
Austrians and the Private-Property Society
Volume 18, No. 1
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 G?the University.
AEN: As a student in Germany did you read Mises's National?konomie?
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. National?konomie 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, National?konomie 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 J?rgen 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.