Chapter 6—Antimarket Ethics: A Praxeological Critique (continued)
10. Back to the Jungle?
Many critics complain that the free market, in casting aside inefficient entrepreneurs or in other decisions, proves itself an “impersonal monster.” The free-market economy, they charge, is “the rule of the jungle,” where “survival of the fittest” is the law. Libertarians who advocate a free market are therefore called “Social Darwinists” who wish to exterminate the weak for the benefit of the strong.
In the first place, these critics overlook the fact that the operation of the free market is vastly different from governmental action. When a government acts, individual critics are powerless to change the result. They can do so only if they can finally convince the rulers that their decision should be changed; this may take a long time or be totally impossible. On the free market, however, there is no final decision imposed by force; everyone is free to shape his own decisions and thereby significantly change the results of “the market.” In short, whoever feels that the market has been too cruel to certain entrepreneurs or to any other income receivers is perfectly free to set up an aid fund for suitable gifts and grants. Those who criticize existing private charity as being “insufficient” are perfectly free to fill the gap themselves. We must beware of hypostatizing the “market” as a real entity, a maker of inexorable decisions. The market is the resultant of the decisions of all individuals in the society; people can spend their money in any way they please and can make any decisions whatever concerning their persons and their property. They do not have to battle against or convince some entity known as the “market” before they can put their decisions into effect.
The free market, in fact, is precisely the diametric opposite of the “jungle” society. The jungle is characterized by the war of all against all. One man gains only at the expense of another, by seizure of the latter’s property. With all on a subsistence level, there is a true struggle for survival, with the stronger force crushing the weaker. In the free market, on the other hand, one man gains only through serving another, though he may also retire into self-sufficient production at a primitive level if he so desires. It is precisely through the peaceful co-operation of the market that all men gain through the development of the division of labor and capital investment. To apply the principle of the “survival of the fittest” to both the jungle and the market is to ignore the basic question: Fitness for what? The “fit” in the jungle are those most adept at the exercise of brute force. The “fit” on the market are those most adept in the service of society. The jungle is a brutish place where some seize from others and all live at the starvation level; the market is a peaceful and productive place where all serve themselves and others at the same time and live at infinitely higher levels of consumption. On the market, the charitable can provide aid, a luxury that cannot exist in the jungle.
The free market, therefore, transmutes the jungle’s destructive competition for meagre subsistence into a peaceful co-operative competition in the service of one’s self and others. In the jungle, some gain only at the expense of others. On the market, everyone gains. It is the market—the contractual society—that wrests order out of chaos, that subdues nature and eradicates the jungle, that permits the “weak” to live productively, or out of gifts from production, in a regal style compared to the life of the “strong” in the jungle. Furthermore, the market, by raising living standards, permits man the leisure to cultivate the very qualities of civilization that distinguish him from the brutes.
It is precisely statism that is bringing back the rule of the jungle—bringing back conflict, disharmony, caste struggle, conquest and the war of all against all, and general poverty. In place of the peaceful “struggle” of competition in mutual service, statism substitutes calculational chaos and the death-struggle of Social Darwinist competition for political privilege and for limited subsistence.
A. “Other Forms of Coercion”: Economic Power
A very common criticism of the libertarian position runs as follows: Of course we do not like violence, and libertarians perform a useful service in stressing its dangers. But you are very simpliste because you ignore the other significant forms of coercion exercised in society—private coercive power, apart from the violence wielded by the State or the criminal. The government should stand ready to employ its coercion to check or offset this private coercion.
In the first place, this seeming difficulty for libertarian doctrine may quickly be removed by limiting the concept of coercion to the use of violence. This narrowing would have the further merit of strictly confining the legalized violence of the police and the judiciary to the sphere of its competence: combatting violence. But we can go even further, for we can show the inherent contradictions in the broader concept of coercion.
A well-known type of “private coercion” is the vague but ominous-sounding “economic power.” A favorite illustration of the wielding of such “power” is the case of a worker fired from his job, especially by a large corporation. Is this not “as bad as” violent coercion against the property of the worker? Is this not another, subtler form of robbery of the worker, since he is being deprived of money that he would have received if the employer had not wielded his “economic power”?
Let us look at this situation closely. What exactly has the employer done? He has refused to continue to make a certain exchange, which the worker preferred to continue making. Specifically, A, the employer, refuses to sell a certain sum of money in exchange for the purchase of B’s labor services. B would like to make a certain exchange; A would not. The same principle may apply to all the exchanges throughout the length and breadth of the economy. A worker exchanges labor for money with an employer; a retailer exchanges eggs for money with a customer; a patient exchanges money with a doctor for his services; and so forth. Under a regime of freedom, where no violence is permitted, every man has the power either to make or not to make exchanges as and with whom he sees fit. Then, when exchanges are made, both parties benefit. We have seen that if an exchange is coerced, at least one party loses. It is doubtful whether even a robber gains in the long run, for a society in which violence and tyranny are practiced on a large scale will so lower productivity and become so much infected with fear and hate that even the robbers may be unhappy when they compare their lot with what it might be if they engaged in production and exchange in the free market.
“Economic power,” then, is simply the right under freedom to refuse to make an exchange. Every man has this power. Every man has the same right to refuse to make a proffered exchange.
Now, it should become evident that the “middle-of-the-road” statist, who concedes the evil of violence but adds that the violence of government is sometimes necessary to counteract the “private coercion of economic power,” is caught in an impossible contradiction. A refuses to make an exchange with B. What are we to say, or what is the government to do, if B brandishes a gun and orders A to make the exchange? This is the crucial question. There are only two positions we may take on the matter: either that B is committing violence and should be stopped at once, or that B is perfectly justified in taking this step because he is simply “counteracting the subtle coercion” of economic power wielded by A. Either the defense agency must rush to the defense of A, or it deliberately refuses to do so, perhaps aiding B (or doing B’s work for him). There is no middle ground!
B is committing violence; there is no question about that. In the terms of both doctrines, this violence is either invasive and therefore unjust, or defensive and therefore just. If we adopt the “economic-power” argument, we must choose the latter position; if we reject it, we must adopt the former. If we choose the “economic-power” concept, we must employ violence to combat any refusal of exchange; if we reject it, we employ violence to prevent any violent imposition of exchange. There is no way to escape this either-or choice. The “middle-of-the-road” statist cannot logically say that there are “many forms” of unjustified coercion. He must choose one or the other and take his stand accordingly. Either he must say that there is only one form of illegal coercion—overt physical violence—or he must say that there is only one form of illegal coercion—refusal to exchange.
We have already fully described the sort of society built on libertarian foundations—a society marked by peace, harmony, liberty, maximum utility for all, and progressive improvement in living standards. What would be the consequence of adopting the “economic-power” premise? It would be a society of slavery: for what else is prohibiting the refusal to work? It would also be a society where the overt initiators of violence would be treated with kindness, while their victims would be upbraided as being “really” responsible for their own plight. Such a society would be truly a war of all against all, a world in which conquest and exploitation would rage unchecked.
Let us analyze further the contrast between the power of violence and “economic power,” between, in short, the victim of a bandit and the man who loses his job with the Ford Motor Company. Let us symbolize, in each case, the alleged power-wielder as P and the supposed victim as X. In the case of the bandit or robber, P plunders X. P lives, in short, by battening off X and all the other X’s. This is the meaning of power in its original, political sense. But what of “economic power”? Here, by contrast, X, the would-be employee, is asserting a strident claim to P’s property! In this case, X is plundering P instead of the other way around. Those who lament the plight of the automobile worker who cannot obtain a job with Ford do not seem to realize that before Ford and without Ford there would be no such job to be obtained at all. No one, therefore, can have any sort of “natural right” to a Ford job, whereas it is meaningful to assert a natural right to liberty, a right which each person may have without depending on the existence of others (such as Ford). In short, the libertarian doctrine, which proclaims a natural right of defense against political power, is coherent and meaningful, but any proclaimed right of defense against “economic power” makes no sense at all. Here, indeed, are enormous differences between the two concepts of “power.”
It is quite common and even fashionable to discuss market phenomena in terms of “power”—that is, in terms appropriate only to the battlefield. We have seen the fallacy of the “back-to-the-jungle” criticism of the market and we have seen how the fallacious “economic-power” concept has been applied to the exchange economy. Political-power terminology, in fact, often dominates discussions of the market: peaceful businessmen are “economic royalists,” “economic feudalists,” or “robber barons.” Business is called a “system of power,” and firms are “private governments,” and, if they are very large, even “empires.” Less luridly, men have “bargaining power,” and business firms engage in “strategies” and “rivalry” as in military battles. Recently, theories of “games” and strategy have been erroneously applied to market activity, even to the absurd extent of comparing market exchange with a “zero-sum game”—an interrelation in which A’s loss is precisely equal to B’s gain.
This, of course, is the action of coercive power, of conquest and robbery. There, one man’s gain is another man’s loss; one man’s victory, another’s defeat. Only conflict can describe these social relations. But the opposite is true on the free market, where everyone is a “victor” and everyone gains from social relations. The language and concepts of political power are singularly inappropriate in the free-market society.
The fundamental confusion here is the failure to distinguish between two very different concepts: power over nature and power over man.
It is easy to see that an individual’s power is his ability to control his environment in order to satisfy his wants. A man with an ax has the power to chop down a tree; a man with a factory has the power, along with other complementary factors, to produce capital goods. A man with a gun has the power to force an unarmed man to do his bidding, provided that the unarmed man chooses not to resist or not to accept death at gunpoint. It should be clear that there is a basic distinction between the two types of power. Power over nature is the sort of power on which civilization must be built; the record of man’s history is the record of the advance or attempted advance of that power. Power over men, on the other hand, does not raise the general standard of living or promote the satisfactions of all, as does power over nature. By its very essence, only some men in society can wield power over men. Where power over man exists, some must be the powerful, and others must be objects of power. But every man can and does achieve power over nature.
In fact, if we look at the basic condition of man as he enters the world, it is obvious that the only way to preserve his life and advance himself is to conquer nature—to transform the face of the earth to satisfy his wants. From the point of view of all the members of the human race, it is obvious that only such a conquest is productive and life-sustaining. Power of one man over another cannot contribute to the advance of mankind; it can only bring about a society in which plunder has replaced production, hegemony has supplanted contract, violence and conflict have taken the place of the peaceful order and harmony of the market. Power of one man over another is parasitic rather than creative, for it means that the nature conquerors are subjected to the dictation of those who conquer their fellowman instead. Any society of force—whether ruled by criminal bands or by an organized State—fundamentally means the rule of the jungle, or economic chaos. Furthermore, it would be a jungle, a struggle in the sense of the Social Darwinists, in which the survivors would not really be the “fittest,” for the “fitness” of the victors would consist solely in their ability to prey on producers. They would not be the ones best fitted for advancing the human species: these are the producers, the conquerors of nature.
The libertarian doctrine, then, advocates the maximization of man’s power over nature and the eradication of the power of man over man. Statists, in elevating the latter power, often fail to realize that in their system man’s power over nature would wither and become negligible.
Albert Jay Nock was aiming at this dichotomy when, in Our Enemy the State, he distinguished between social power and State power. Those who properly balk at any terms that seem to anthropomorphize “society” were wary of accepting this terminology. But actually this distinction is a very important one. Nock’s “social power” is society’s—mankind’s—conquest of nature: the power that has helped to produce the abundance that man has been able to wrest from the earth. His “State power” is political power—the use of the political means as against the “economic means” to wealth. State power is the power of man over man—the wielding of coercive violence by one group over another.
Nock used these categories to analyze historical events in brilliant fashion. He saw the history of mankind as a race between social power and State power. Always man—led by the producers—has tried to advance the conquest of his natural environment. And always men—other men—have tried to extend political power in order to seize the fruits of this conquest over nature. History can then be interpreted as a race between social power and State power. In the more abundant periods, e.g., after the Industrial Revolution, social power takes a large spurt ahead of political power, which has not yet had a chance to catch up. The stagnant periods are those in which State power has at last come to extend its control over the newer areas of social power. State power and social power are antithetical, and the former subsists by draining the latter. Clearly, the concepts advanced here—“power over nature” and “power over man”—are generalizations and clarifications of Nock’s categories.
One problem may appear puzzling: What is the nature of “purchasing power” on the market? Is this not power over man and yet “social” and on the free market? However, this contradiction is only apparent. Money has “purchasing power” only because other men are willing to accept it in exchange for goods, i.e., because they are eager to exchange. The power to exchange rests—on both sides of the exchange—on production, and this is precisely the conquest of nature that we have been discussing. In fact, it is the exchange process—the division of labor—that permits man’s power over nature to extend beyond the primitive level. It was power over nature that the Ford Motor Company had developed in such abundance, and it was this power that the angry job seeker was threatening to seize—by political power—while complaining about Ford’s “economic power.”
In sum, political-power terminology should be applied only to those employing violence. The only “private governments” are those people and organizations aggressing against persons and property that are not part of the official State dominating certain territory. These “private States,” or private governments, may either co-operate with the official State, as did the governments of the guilds in the Middle Ages, and as labor unions and cartelists do today, or they may compete with the official State and be designated as “criminals” or “bandits.”
A common criticism of free-market decisions is that “luck” plays too great a role in determining incomes. Even those who concede that income to a factor tends to equal its discounted marginal value product to consumers, and that entrepreneurs on the free market will reduce mistakes to an absolute minimum, add that luck still plays a role in income determination. After charging that the market confers undue laurels on the lucky, the critic goes on to call for expropriation of the “rich” (or lucky) and subsidization of the “poor” (or unlucky).
Yet how can luck be isolated and identified? It should be evident that it is impossible to do so. In every market action luck is interwoven inextricably and is impossible to isolate. Consequently, there is no justification for saying that the rich are luckier than the poor. It might very well be that many or most of the rich have been unlucky and are getting less than their true DMVP, while most of the poor have been lucky and are getting more. No one can say what the distribution of luck is; hence, there is no justification here for a “redistribution” policy.
In only one place on the market does luck purely and identifiably determine the result: gambling gains and losses. But is this what the statist critics really want—confiscation of the gains of gambling winners in order to pay gambling losers? This would mean, of course, the speedy death of gambling—except as an illegal activity—for there would obviously be no point in continuing the games. Presumably, even the losers would object to being compensated, for they freely and voluntarily accepted the rules of chance before beginning to gamble. The governmental policy of neutralizing luck destroys the satisfaction that all the participants derive from the game.
Because of its popularity, we may briefly consider the “traffic-manager analogy”—the doctrine that the government must obviously regulate the economy, “just as traffic must be regulated.” It is high time that this flagrant non sequitur be consigned to oblivion. Every owner necessarily regulates his own property. In the same way, every owner of a road will lay down the rules for the use of his road. Far from being an argument for statism, management is simply the attribute of all ownership. Those who own the roads will regulate their use. In the present day, the government owns most roads and so regulates them. In a purely free-market society, private owners would operate and control their own roads. Obviously, the “traffic-manager analogy” can furnish no argument against the purely free market.
Critics often level conflicting charges against the free market. The historicist-minded may concede that the free market is ideal for a certain stage of economic development, but insist that it is unsuited to other stages. Thus, advanced nations have been exhorted to embrace government planning because “the modern economy is too complex” to remain planless, “the frontier is gone,” and “the economy is now mature.” But, on the other hand, the backward countries have been told that they must adopt statist planning methods because of their relatively primitive state. So any given economy is either too advanced or too backward for laissez faire; and we may rest assured that the appointed moment for laissez faire somehow never arrives.
The currently fashionable “economics of growth” is an historicist regression. The laws of economics apply whatever the particular level of the economy. At any level, progressive change consists in a growing volume of capital per head of population and is furthered by the free market, low time preferences, far-seeing entrepreneurs, and sufficient labor and natural resources. Regressive change is brought about by the opposite conditions. The terms progressive and regressive change are far better than “growth,” a term expressing a misleading biological analogy that implies some actual law dictating that an economy must “grow” continually, and even at a fixed rate. Actually, of course, an economy can just as easily “grow” backward.
The term “underdeveloped” is also unfortunate, as it implies that there is some level or norm that the economy should have reached but failed to reach because some external force did not “develop” it. The old-fashioned term “backward,” though still normative, at least pins the blame for the relative poverty of an economy on the nation’s own policies.
The poor country can best progress by permitting private enterprise and investment to function and by allowing natives and foreigners to invest there unhampered and unmolested. As for the rich country and its “complexities,” the delicate processes of the free market are precisely equipped to handle complex adjustments and interrelations far more efficiently than can any form of statist planning.
Since the problem of the nature of man has been raised, we may now turn briefly to an argument that has pervaded Roman Catholic social philosophy, namely, that the State is part of the essential nature of man. This Thomistic view stems from Aristotle and Plato, who, in their quest for a rational ethic, leaped to the assumption that the State was the embodiment of the moral agency for mankind. That man should do such and such quickly became translated into the prescription: The State should do such and such. But nowhere is the nature of the State itself fundamentally examined.
Typical is a work very influential in Catholic circles, Heinrich Rommen’s The State in Catholic Thought.Following Aristotle, Rommen attempts to ground the State in the nature of man by pointing out that man is a social being. In proving that man’s nature is best fitted for a society, he believes that he has gone far to provide a rationale for the State. But he has not done so in the slightest degree, once we fully realize that the State and society are by no means coextensive. The contention of libertarians that the State is an antisocial instrument must first be refuted before such a non sequitur can be allowed. Rommen recognizes that the State and society are distinct, but he still justifies the State by arguments that apply only to society.
He also asserts the importance of law, although the particular legal norms considered necessary are unfortunately not specified. Yet law and the State are not coextensive either, although this is a fallacy that very few writers avoid. Much Anglo-Saxon law grew out of the voluntarily adopted norms of the people themselves (common law, law merchant, etc.), not as State legislation. Rommen also stresses the importance for society of the predictability of action, which can be assured only by the State. Yet the essence of human nature is that it cannot be considered as truly predictable; otherwise we should be dealing, not with free men, but with an ant heap. And if we could force men to march in unison according to a complete set of predictable norms, it is certainly not a foregone conclusion that we should all hail such an ideal. Some people would combat it bitterly. Finally, if the “enforceable norm” were limited to “abstinence from aggression against others,” (1) a State is not necessary for such enforcement, as we have noted above, and (2) the State’s own inherent aggression itself violates that norm.
16. Human Rights and Property Rights
It is often asserted by critics of the free-market economy that they are interested in preserving “human rights” rather than property rights. This artificial dichotomy between human and property rights has often been refuted by libertarians, who have pointed out (a) that property rights of course accrue to humans and to humans alone, and (b) that the “human right” to life requires the right to keep what one has produced to sustain and advance life. In short, they have shown that property rights are indissolubly also human rights. They have, besides, pointed out that the “human right” of a free press would be only a mockery in a socialist country, where the State owns and decides upon the allocation of newsprint and other newspaper capital.
There are other points that should be made, however. For not only are property rights also human rights, but in the most profound sense there are no rights but property rights. The only human rights, in short, are property rights. There are several senses in which this is true. In the first place, each individual, as a natural fact, is the owner of himself, the ruler of his own person. The “human” rights of the person that are defended in the purely free-market society are, in effect, each man’s property right in his own being, and from this property right stems his right to the material goods that he has produced.
In the second place, alleged “human rights” can be boiled down to property rights, although in many cases this fact is obscured. Take, for example, the “human right” of free speech. Freedom of speech is supposed to mean the right of everyone to say whatever he likes. But the neglected question is: Where? Where does a man have this right? He certainly does not have it on property on which he is trespassing. In short, he has this right only either on his own property or on the property of someone who has agreed, as a gift or in a rental contract, to allow him on the premises. In fact, then, there is no such thing as a separate “right to free speech”; there is only a man’s property right: the right to do as he wills with his own or to make voluntary agreements with other property owners.
The concentration on vague and wholly “human” rights has not only obscured this fact but has led to the belief that there are, of necessity, all sorts of conflicts between individual rights and alleged “public policy” or the “public good.” These conflicts have, in turn, led people to contend that no rights can be absolute, that they must all be relative and tentative. Take, for example, the human right of “freedom of assembly.” Suppose that a citizens’ group wishes to demonstrate for a certain measure. It uses a street for this purpose. The police, on the other hand, break up the meeting on the ground that it obstructs traffic. Now, the point is that there is no way of resolving this conflict, except arbitrarily, because the government owns the streets. Government ownership, as we have seen, inevitably breeds insoluble conflicts. For, on the one hand, the citizens’ group can argue that they are taxpayers and are therefore entitled to use the streets for assembly, while, on the other hand, the police are right that traffic is obstructed. There is no rational way to resolve the conflict because there is as yet no true ownership of the valuable street-resource. In a purely free society, where the streets are privately owned, the question would be simple: it would be for the streetowner to decide, and it would be the concern of the citizens’ group to try to rent the street space voluntarily from the owner. If all ownership were private, it would be quite clear that the citizens did not have any nebulous “right of assembly.” Their right would be the property right of using their money in an effort to buy or rent space on which to make their demonstration, and they could do so only if the owner of the street agreed to the deal.
Let us consider, finally, the classic case that is supposed to demonstrate that individual rights can never be absolute but must be limited by “public policy”: Justice Holmes’ famous dictum that no man can have the right to cry “fire” in a crowded theater. This is supposed to show that freedom of speech cannot be absolute. But if we cease dealing with this alleged human right and seek for the property rights involved, the solution becomes clear, and we see that there is no need at all to weaken the absolute nature of rights. For the person who falsely cries “fire” must be either the owner (or the owner’s agent) or a guest or paying patron. If he is the owner, then he has committed fraud upon his customers. He has taken their money in exchange for a promise to put on a motion picture, and now, instead, he disrupts the performance by falsely shouting “fire” and creating a disturbance among the patrons. He has thus willfully defaulted on his contractual obligation and has therefore violated the property rights of his patrons.
Suppose, on the other hand, that the shouter is not the owner, but a patron. In that case, he is obviously violating the property right of the theater owner (as well as the other patrons). As a guest, he is on the property on certain terms, and he has the obligation of not violating the owner’s property rights by disrupting the performance that the owner is putting on for the patrons. The person who maliciously cries “fire” in a crowded theater, therefore, is a criminal, not because his so-called “right of free speech” must be pragmatically restricted on behalf of the so-called “public good,” but because he has clearly and obviously violated the property rights of another human being. There is no need, therefore, of placing limits upon these rights.
Since this is a praxeological and not an ethical treatise, the aim of this discussion has not been to convince the reader that property rights should be upheld. Rather, we have attempted to show that the person who does wish to construct his political theory on the basis of “rights” must not only discard the spurious distinction between human rights and property rights, but also realize that the former must all be absorbed into the latter.
Some years ago, Professor Henry M. Oliver published an important study: a logical analysis of ethical goals in economic affairs. Professor Kenneth J. Arrow has hailed the work as a pioneer achievement on the road to the “axiomatization of a social ethics.” Unfortunately, this attempted “axiomatization” is a tissue of logical fallacies.
It is remarkable what difficulty economists and political philosophers have had in trying to bury laissez faire. For well over a half century, laissez-faire thought, both in its Natural-Rights and its utilitarian versions, has been extremely rare in the Western world. And yet, despite the continued proclamation that laissez faire has been completely “discredited,” uneasiness has marked the one-sided debate. And so, from time to time, writers have felt obliged to lay the ghost of laissez faire. The absence of opposition has created a series of faintly worried monologues rather than a lively two-sided argument. Nevertheless the attacks continue, and now Professor Oliver has gone to the extent of writing a book almost wholly devoted to an attempted refutation of laissez-faire thought.
Oliver begins by turning his guns on the natural-rights defense of laissez faire—on the system of natural liberty. He is worried because Americans still seem to cling to this doctrine in underlying theory, if not in actual practice. First, he sets forth various versions of the libertarian position, including the “extreme” version, “A man has a right to do what he will with his own,” as well as Spencer’s Law of Equal Freedom and the “semiutilitarian” position that “a man is free to do as he pleases as long as he does not harm someone.” The “semiutilitarian” position is easiest to attack, and Oliver has no difficulty in showing its vagueness. “Harm” can be interpreted to cover practically all actions, e.g., a hater of the color red can argue that someone else inflicts “aesthetic harm” upon him by wearing a red coat.
Characteristically, Oliver has least patience with the “extreme” version, which, he contends, is “not meant to be interpreted literally,” not a seriously reasoned statement, etc. This enables him to shift quickly to attacks on the modified and weaker versions of libertarianism. Yet it is a serious statement and must be coped with seriously, especially if “A” is replaced by “Every” in the sentence. Too often political debate has been short-circuited by someone’s blithe comment that “you can’t really be serious!” We have seen above that Spencer’s Law of Equal Freedom is really a redundant version of the “extreme” statement and that the first part implies the proviso clause. The “extreme” statement permits a more clear-cut presentation, avoiding many of the interpretative pitfalls of the watered-down version.
Let us now turn to Oliver’s general criticisms of the libertarian position. Conceding that it has “great superficial attractiveness,” Oliver levels a series of criticisms that are supposed to demonstrate its illogic:
(1) Any demarcation of property “restricts liberty,” i.e., the liberty of others to use these resources. This criticism misuses the term “liberty.” Obviously, any property right infringes on others’ “freedom to steal.” But we do not even need property rights to establish this “limitation”; the existence of another person, under a regime of liberty, restricts the “liberty” of others to assault him. Yet, by definition, liberty cannot be restricted thereby, because liberty is defined as freedom to control what one owns without molestation by others. “Freedom to steal or assault” would permit someone—the victim of stealth or assault—to be forcibly or fraudulently deprived of his person or property and would therefore violate the clause of total liberty: that every man be free to do what he wills with his own. Doing what one wills with someone else’s own impairs the other person’s liberty.
(2) A more important criticism in Oliver’s eyes is that natural rights connote a concept of property as consisting in “things” and that such a concept eliminates property in intangible “rights.” Oliver holds that if property is defined as a bundle of things, then all property in rights, such as stocks and bonds, would have to be eliminated; whereas if property is defined as “rights,” insoluble problems arise of defining rights apart from current legal custom. Furthermore, property in “rights” divorced from “things” allows non-laissez-faire rights to crop up, such as “rights in jobs,” etc. This is Oliver’s primary criticism.
This point is a completely fallacious one. Although property is certainly a bundle of physical things, there is no dichotomy between things and rights; in fact, “rights” are simply rights to things. A share in an oil company is not an intangible floating “right”; it is a certificate of aliquot ownership in the physical property of the oil company. Similarly, a bond is directly a claim to ownership of a certain amount of money and, in the final analysis, is an aliquot ownership in the company’s physical property. “Rights” (except for grants of monopolistic privilege, which would be eliminated in the free society) are simply divisible reflections of physical property.
(3) Oliver tries to demonstrate that the libertarian position, however phrased, does not necessarily lead to laissez faire. As we have indicated, he does this by skipping quickly over the “extreme” position and concentrating his attack on the unquestionable weaknesses of some of the more qualified formulations. The “harm” clause of the semiutilitarians is justly criticized. Spencer’s Law of Equal Freedom is attacked for its proviso clause and for the alleged vagueness of the phrase “infringes on the equal freedom of others.” Actually, as we have seen, this proviso is unnecessary and could well be eliminated. Even so, Oliver does considerably less than justice to the Spencerian position. He sets up alternative straw-man definitions of “infringement” and shows that none of these alternatives leads to strict laissez faire. A more thorough search would easily have yielded Oliver the proper definition. Of the five alternative definitions he offers, the first simply defines infringement as “violation of the customary legal code”—a question-begging definition that no rational libertarian would employ. Basing his argument necessarily on principle, the libertarian must fashion his standard by means of reason and cannot simply adopt existing legal custom.
Oliver’s fourth and fifth definitions—“exercise of control in any form over another person’s satisfaction or deeds”—are so vague and so question-begging in the use of the word “control” that no libertarian would ever use them. This leaves the second and third definitions of “infringement,” in which Oliver manages to skirt any reasonable solution to the problem. The former defines “infringement” as “direct physical interference with another man’s control of his person and owned things”; and the latter, as “direct physical interference plus interference in the form of threat of injury.” But the former apparently excludes fraud, while the latter not only excludes fraud, but also includes threats to compete with someone else, etc. Since neither definition implies a laissez-faire system, Oliver quickly gives up the task and concludes that the term “infringement” is hopelessly vague and cannot be used to deduce the laissez-faire concept of freedom, and therefore that laissez faire needs a special, additional ethical assumption aside from the basic libertarian postulate.
Yet a proper definition of “infringement” can be found in order to arrive at a laissez-faire conclusion. The vague, question-begging term “injury” must not be used. Instead, infringement can be defined as “direct physical interference with another man’s person or property, or the threat of such physical interference.” Contrary to Oliver’s assumption, fraud is included in the category of “direct physical interference,” for such interference means not only the direct use of armed violence, but also such acts as trespass and burglary without use of a weapon. In both cases, “violence” has been done to someone else’s property by physically molesting it. Fraud is implicit theft, because fraud entails the physical appropriation of someone else’s property under false pretenses, i.e., in exchange for something that is never delivered. In both cases, someone’s property is taken from him without his consent.
Where there’s a will there’s a way, and thus we see that it is quite easy to define the Spencerian formula clearly enough so that laissez faire and only laissez faire follows from it. The important point to remember is never to use such vague expressions as “injury,” “harm,” or “control,” but specific terms, such as “physical interference” or “threats of physical violence.”
After disposing to his own satisfaction of the basic natural-rights postulates, Oliver goes on to attack a specific class of these rights: freedom of contract. Oliver delineates three possible freedom-of-contract clauses: (1) “A man has a right to freedom of contract”; (2) “A man has a right to freedom of contract unless the terms of the contract harm someone”; and (3) “A man has a right to freedom of contract unless the terms of the contract infringe upon someone’s rights.” The second clause can be disposed of immediately; once again, the vague notion of “harm” can provide an excuse for unlimited State intervention, as Oliver quickly notes. No libertarian would adopt such a phrasing. The first formulation is, of course, the most uncompromising and leaves no room whatever for State intervention. Here Oliver again scoffs and says that “very few persons would push the freedom-of-contract doctrine so far.” Perhaps, but since when is truth established by majority vote? In fact, the third clause, with its Spencerian proviso, is again unnecessary. Suppose, for example, that A and B freely contract to shoot C. The third version may say that this is an illegal contract. But, actually, it should not be! For the contract itself does not and cannot violate C’s rights. It is only a possible subsequent action against C that will violate his rights. But, in that case, it is that action which must be declared illegal and punished, not the preceding contract. The first clause, which provides for absolute freedom of contract, is the clearest and evidently the preferable formulation.
Oliver sees the principle of freedom of contract, because of the necessity that there be mutual agreement between two people, open to even stronger objection than the basic natural-rights postulate. For how, asks Oliver, can we distinguish between a free and voluntary contract, on the one hand, and “fraud” and “coercion”—which void contracts—on the other?
First, how can fraud be clearly defined? Oliver’s critique here is in two parts:
(1) He says that “common law holds that certain types of omissions as well as certain types of false statements and misleading sections void contracts. Where is this rule of omission to stop?” Oliver sees, quite correctly, that if no omission at all were allowed, the degree of statism would be enormous. Yet this problem is solved very simply: change the common law so as to eliminate all rules of omission whatever! It is curious that Oliver is so reluctant even to consider changes in ancient legal customs where these changes seem called for by principle, or to realize that libertarians would advocate such changes. Since libertarians advocate sweeping changes elsewhere in the political structure, there is no reason why they should balk at changing a few clauses of the common law.
(2) He states that even rules against false statements seem statist to some people and could be pushed beyond their present limits, and he cites SEC regulations as an example. Yet the whole problem is that a libertarian system could countenance no administrative boards or regulations whatever. No advance regulations could be handed down. On the purely free market, anyone damaged by false statements would take his opponent to court and win redress there. But any false statements, any fraud, would then be punished by the court severely, in the same manner as theft.
Secondly, Oliver wants to know how “coercion” can be defined. Here, the reader is referred to the section on “Other Forms of Coercion” above. Oliver is confused in contradictorily jumbling the definitions of coercion as physical violence and as refusal to exchange. As we have seen, coercion can rationally be defined only as one or the other; not as both, for then the definition is self-contradictory. Further, he confuses physical interpersonal violence with the scarcity imposed by the facts of nature—lumping them both together as “coercion.” He concludes in the hopelessly muddled assertion that the freedom-of-contract theory assumes a meaningless “equality of coercion” among contracting parties. In fact, libertarians assert that there is no coercion at all in the free market. The equality-of-coercion absurdity permits Oliver to state that true freedom of contract at least requires State-enforced “pure competition.”
The freedom-of-contract argument, therefore, implies laissez faire and is also strictly derivable from the postulate of freedom. Contrary to Oliver, no other ethical postulates are necessary to imply laissez faire from this argument. The coercion problem is completely solved when “violence” is substituted for the rather misleading term “coercion.” Then, any contract is free and therefore valid when there has been an absence of violence or threat of violence by either party.
Oliver makes a few other attacks on “legal liberty”; e.g., he raises the old slogan that “legal liberty does not correspond to ‘actual’ liberty (or effective opportunity)”—once again falling into the age-old confusion of freedom with power or abundance. In one of his most provocative statements, he asserts that “all men could enjoy complete legal liberty only under a system of anarchy” (p. 21). It is rare for someone to identify a system under law as being “anarchy.” If this be anarchism, then many libertarians will embrace the term!
On the free market every man obtains money income insofar as he can sell his goods or services for money. Everyone’s income will vary in accordance with freely chosen market valuations of his productivity in fulfilling consumer desires. In his comprehensive attack on laissez faire, Professor Oliver, in addition to criticizing the doctrines of natural liberty and freedom of contract, also condemns this principle, or what he calls the “earned-income doctrine.”
Oliver contends that since workers must use capital and land, the right to property cannot rest on what human labor creates. But both capital goods and land are ultimately reducible to labor (and time): capital goods were all built by the original factors, land and labor; and land had to be found by human labor and brought into production by labor. Therefore, not only current labor, but also “stored-up” labor (or rather, stored-up labor-and-time), earn money in current production, and so there is as much reason why the owners of these resources should obtain money now as there is that current laborers earn money now. The right of past labor to earn is established by the right of bequest, which stems immediately from the right of property. The right of inheritance rests not so much on the right of later generations to receive as on the right of earlier generations to bestow.
With these general considerations in mind, we may turn to some of Oliver’s detailed criticisms. First, he states the basic “earned-income” principle incorrectly, and this is a standing source of confusion. He phrases it thus: “A man acquires a right to income which he himself creates.” Incorrect. He acquires the right, not to “income,” but to the property that he himself creates. The importance of this distinction will become clear presently. A man has the right to his own product, to the product of his energy, which immediately becomes his property. He derives his money income by exchanging this property, this product of his or his ancestors’ energy, for money. His goods or services are freely exchanged on the market for money. His income is therefore completely determined by the monetary valuation that the market places on his goods or services.
Much of Oliver’s subsequent criticism stems from ignoring the fact that all complementary resources are founded on the labor of individuals. He also decries the idea that “if a man makes something, it is his” as “very simple.” Simple it may be, but that should not be a pejorative term in science. On the contrary, the principle of Occam’s Razor tells us that the simpler a truth is, the better. The criterion of a statement, therefore, is its truth, and simplicity is, ceteris paribus, a virtue. The point is that when a man makes something, it belongs either to him or to someone else. To whom, then, shall it belong: to the producer, or to someone who has stolen it from the producer? Perhaps this is a simple choice, but a necessary one nevertheless.
Yet how can we tell when a person has “made” something or not? Oliver worries considerably about this question and criticizes the marginal productivity theory at length. Aside from the fallacies of his objections, the marginal productivity theory is not at all necessary (although it is helpful) to this ethical discussion. For the criterion to be used in determining who has made the product on the market and who should therefore earn the money, is really very simple. The criterion is: Who owns the product? A spends his labor energy working in a factory; this contribution of labor energy to further production is bought and paid for by factory owner, B. A owns labor energy, which is hired by B. In this case, the product made by A is his energy, and its use is paid for, or hired, by B. B hires various factors to work on his capital, and the capital is finally transformed into another product and sold to C. The product belongs to B, and B exchanges it for money. The money that B obtains, over and above the amount that he had to pay for other factors of production, represents B’s contribution to the product. The amount that his capital received goes to B, its owner, etc.
Oliver also believes it a criticism when he states that men do not really “make goods” but add value to them by applying labor. But no one denies this. Man does not create matter, just as he does not create land. Rather, he takes this natural matter and transforms it in a series of processes to arrive at more useful goods. He hopes to add value by transforming matter. To say this is to strengthen rather than weaken the earnings theory, since it should be clear that how much value is added in producing goods for exchange can be determined only by the purchases of customers, ultimately the consumers. Oliver betrays his confusion by asserting that the earning theory assumes that “the values which we receive in exchange are equal in worth to those which we create in the production process.” Certainly not! There are no actual values created in the production process; these “values” take on meaning only from the values we receive in exchange. We cannot “compare received and created values” because created property becomes valuable only to the extent that it is purchased in exchange. Here we see some of the fruits of Oliver’s fundamental confusion between “creating income” and “creating a product.” People do not create income; they create a product, which they hope can be exchanged for income by being useful to consumers.
Oliver compounds his confusion by next taking up the laissez-faire theorem that everyone has the right to his own value scale and to act on that value scale. Instead of stating this principle in these terms, Oliver introduces confusion by calling it “placing values on an equal footing” for each man. Consequently, he can then criticize this approach by asking how people’s values can have an “equal footing” when one person’s purchasing power is more than another’s, etc. The reader will have no difficulty in seeing the confusion here between equality of liberty and equality of abundance.
Another of Oliver’s critical objections to the earned-income theory is that it assumes that “all values are gained through purchase and sale, that all goods are those of the market place.” This is nonsense, and no responsible economist ever assumed it. In fact, no one denies that there are nonmarketable, nonexchangeable goods (such as friendship, love, and religion) and that many men value these goods very highly. They must constantly choose how to allocate their resources between exchangeable and nonexchangeable goods. This causes not the slightest difficulty for the free market or for the “earned-income” doctrine. In fact, a man earns money in exchange for his exchangeable goods. What could be more reasonable? A man acquires his income by selling exchangeable goods at market; so naturally the money he acquires will be determined by the buyers’ evaluations of these goods. How, indeed, can he ever acquire exchangeable goods in return for his pursuit (or offer?) of nonexchangeables? And why should he? Why and how will others be forced to pay money for nothing in return? And how will the government determine who has produced what nonexchangeable goods and what the reward or penalty shall be? When Oliver states that market earnings are unsatisfactory because they do not cover nonmarket production as well, he fails to indicate why nonmarketable goods should enter the picture at all. Why should not marketable goods pay for marketable goods? Oliver’s statement that “nonmarket receipts” are hardly distributed so as to “solve the nonmarket part of the problem” makes little sense. What in the world are “nonmarket receipts”? And if they are not inner satisfaction from inner pursuits by the individual, what in the world are they? If Oliver suggests taking money from A to pay B, then he is suggesting the seizure of a marketable good, and the receipts are then quite marketable. But if he is not suggesting this, then his remarks are quite irrelevant, and he can say nothing against the earned-income principle.
Also, it should not be overlooked that all those on the market who wish to reward nonmarketable contributions with money are free to do so. In fact, in the free society such rewards will be effected to the maximum degree freely desired in it.
We have seen that the marginal productivity theory is not necessary to an ethical solution. A man’s property is his product, and this will be sold at its estimated worth to consumers on the market. The market solves the problem of estimating worth, and better than any coercive agency or economist could. If Oliver disagrees with market verdicts on the marginal value productivity of any factor, he is hereby invited to become an entrepreneur and to earn the profits that come from exposing such maladjustments. Oliver’s problems are pseudo-problems. Thus, he asks, “When White’s cotton is exchanged for Brown’s wheat, what is the ethically correct ratio of exchange?” Simple, answers the free-market doctrine: Whatever the two freely decide. “When Jones and Smith together produce a good, what part of that good is attributable to Jones’ actions and what part to Smith’s?” The answer: Whatever they have mutually contracted.
Oliver gives several fallacious reasons for rejecting the marginal productivity theory. One is that income imputation does not imply income creation, because a laborer’s marginal product can be altered merely by a change in the quantity or quality of a complementary factor, or by a variation in the number of competing laborers. Once again, Oliver’s confusion stems from talking about “income creation” instead of “product creation.” The laborer creates his labor service. This is his property, his to sell at whatever market he wishes, or not to sell if he so desires. The appraised worth of this service depends on his marginal value product, which, of course, depends partly on competition and the number or quality of complementary factors. This, in fact, does not confound, but rather is an integral part of, marginal productivity theory. If the supply of co-operating capital increases, a laborer’s energy service becomes scarcer in relation to the complementary factors (land, capital), and his marginal value product and income increase. Similarly, if there are more competing laborers, there may be a tendency for a laborer’s DMVP to decline, although it may increase because of the wider extent of the market. It is beside the point to say that all this is “not fair” because his service output remains the same. The point is that to the consumers his worth in production varies in accordance with these other factors, and he is paid accordingly.
Oliver also employs the popular but completely fallacious doctrine that any ethical sense to the marginal productivity theory must rely on the existence of “pure competition.” But why should the “marginal value product” of a freely competitive economy be any less ethical than the “value of the marginal product” of the Never-Never Land of pure competition? Oliver adopts Joan Robinson’s doctrine that entrepreneurs “exploit” the factors and reap a special exploitation gain. But on the contrary, as Professor Chamberlin has conceded, no one reaps any “exploitation” in the world of free competition.
Oliver makes several other interesting criticisms:
(1) He maintains that marginal productivity cannot apply within corporations because no market for a firm’s capital exists after the initial establishment of the company. Hence, the directors can rule the stockholders. In rebuttal, we may ask how the directors can remain directors without representing the wishes of the majority of stockholders. The capital market is continuing because capital values are constantly shifting on the stock market. A sharp decline in stock values means grave losses for the owners of the company. Furthermore, it means that there will be no further capital expansion in that firm and that its capital may not even be maintained intact.
(2) He maintains that the marginal productivity theory cannot account for the “lumpy,” “fixed” contribution to all incomes of the services supplied by the State. In the first place, marginal productivity theory does not at all, in its proper form, assume (as Oliver believes) that factors are infinitely divisible. Any “lumps” can be taken care of. The problem of the State, therefore, has really nothing to do with lumpy factors. Indeed, all factors are more or less “lumpy.” Furthermore, Oliver concedes that the services of the State are divisible. In one of his rare flashes of insight, Oliver admits that there can be (and are!) “varying degrees of police, military, and monetary (e.g., mint) services.” But if that is the case, how do State services differ from any other?
The difference is indeed great, but it stems from a fact we have reiterated many times: that the State is a compulsory monopoly in which payment is separated from receipt of service. As long as this condition exists, there can indeed be no market “measure” of its marginal productivity. But how can this be an argument against the free market? Indeed, it is precisely the free market that would correct this condition. Oliver’s criticism here is not of the free market, but of the statist sphere of a mixed statist-market economy.
Oliver’s attribution of income creation to “organized society” is very vague. If by this he means “society,” he is using a meaningless phrase. It is precisely the process of the market by which the array of free individuals (constituting “society”) portions out income in accordance with productivity. It is double- counting to postulate a real entity “society” outside the array of individuals, and possessing or not possessing “its” own deserved share. If by “organized society” he means the State, then the State’s “contributions” were compulsory and hence hardly “deserved” any pay. Furthermore, since, as we have shown, total taxation is far greater than any alleged productive contribution of the State, the rulers owe the rest of society money rather than vice versa.
(3) Oliver makes the curious assertion (also made repeatedly by Frank Knight) that a man does not really deserve ethically to reap the earnings from his own unique ability. I must confess that I cannot make any sense of this position. What is more inherent in an individual, more uniquely his own, than his inherited ability? If he is not to reap the reward from this, conjoined with his own willed effort, what should he reap a reward from? And why, then, should someone else reap a reward from his unique ability? Why, in short, should the able be consistently penalized, and the unable consistently subsidized? Oliver’s attribution of such ability to some mystical “First Cause” will make sense only when someone is able to find the “first cause” and pay it its deserved share. Until then, any attempt to “redistribute” income from A to B would have to imply that B is the first cause.
(4) Oliver confuses private, voluntary charity and grants-in-aid with compulsory “charity” or grants. Thus, he misdefines the earned-income, free-market doctrine as saying that “a person should support himself and his legitimate dependents, without asking for special favors or calling upon outside parties for aid.” While many individualists would accept this formulation, the true free-market doctrine is that no person may coerce others into giving him aid. It makes all the difference in the world whether the aid is given voluntarily or is stolen by force.
As a corollary, Oliver confuses the meaning of “power” and asserts that employers have power over employees and therefore should be responsible for the latter’s welfare. Oliver is quite right when he says that the slave-master was responsible for his slave’s subsistence, but he doesn’t seem to realize that only the reestablishment of slavery would fit his program for labor relations.
To say that the feeble-minded or orphans are “wards,” as Oliver does, leads to his confusion between “wards of society” and “wards of the State.” The two are completely different, because the two institutions are not the same. The concept of “ward of society” reflects the libertarian principle that private individuals and voluntary groups may offer to care for those who desire such care. “Wards of the State,” on the contrary, are those (a) to whose care everyone is compelled by violence to contribute, and (b) who are subject to State dictation whether they like it or not.
Oliver’s conclusion that “Every normal adult should have a fair chance to support himself, and, in the absence of this opportunity, he should be supported by the State” is a melange of logical fallacies. What is a “fair chance,” and how can it be defined? Further, in contrast to Spencer’s Law of Equal Freedom (or to our suggested Law of Total Freedom), “every” cannot here be fulfilled, since there is no such real entity as the “State.” Anyone supported by the “State” must, ipso facto, be supported by someone else in the society. Therefore, not everyone can be supported—especially, of course, if we define “fair chance” as the absence of interference or coercive penalizing of a person’s ability.
(5) Oliver realizes that some earned-income theorists combine their doctrines with a “finders, keepers” theory. But he can find no underlying principle here and calls it merely an accepted rule of the business game. Yet “finders, keepers” is not only based on principle; it is just as much a corollary of the underlying postulates of a regime of liberty as is the earned-income theory. For an unowned resource should, according to basic property rights doctrine, become owned by whoever, through his efforts, brings this resource into productive use. This is the “finders, keepers” or “first-user, first-owner” principle. It is the only theory consistent with the abolition of theft (including government ownership), so that every useful resource is always owned by some nonthief.
Some years ago we were promised a “refutation” of the libertarian position—one which never appeared. It was to be entitled, “Back to the Jungle.” See Ralph L. Roy, Apostles of Discord (Boston: Beacon Press, 1953), p. 407.
On the spurious problems of “bargaining power,” see Scoville and Sargent, Fact and Fancy in the T.N.E.C. Monographs, pp. 312–13; and W.H. Hutt, Theory of Collective Bargaining (Glencoe, Ill.: Free Press, 1954), Part I.
 Nock, Our Enemy the State.
Here we refer to pure gambling, or games of chance, such as roulette, with no intermingled elements of skill such as in race-track betting.
It is curious that so many economists, including Alfred Marshall, have “proved” the “irrationality” of gambling (e.g., from the diminishing marginal utility of money) by first assuming, clearly erroneously, that the participants do not like to gamble!
Heinrich Rommen, The State in Catholic Thought, a Treatise in Political Philosophy (London, 1950).
Thus, see Leoni, Freedom and the Law.
Rommen, State in Catholic Thought, p. 225.
See Murray N. Rothbard, “Human Rights Are Property Rights” in Essays on Liberty (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1959), VI, 315–19. See also Rothbard, “Bertrand de Jouvenel e i diritti di proprietá,” Biblioteca della Liberta (1966, No. 2), pp. 41–45.
Paul L. Poirot, “Property Rights and Human Rights” in Essays on Liberty (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1954), II, 79–89.
Henry M. Oliver, Jr., A Critique of Socioeconomic Goals (Bloomington: Indiana University Press, 1954).
Kenneth J. Arrow, “Review of Oliver’s A Critique of Socioeconomic Goals,” Political Science Quarterly, September, 1955, p. 442. Arrow is correct, however, when he says, “It is only when the socio-economic goals have been made clear that we can speak intelligently about the best policies for their achievement.” Such clarification has been attempted in the present chapter.
Oliver, Critique of Socioeconomic Goals, pp. 1–12.
Oliver, Critique of Socioeconomic Goals, pp. 12–19.
In objection to this clause, Oliver states that “Anglo-American law traditionally has voided certain types of contract because of the belief that they are against the public interest.” Ibid., p. 13. It is precisely for this reason that libertarians suggest changing traditional Anglo-American law to conform to their precepts. Furthermore, “public interest” is a meaningless term (an example of the fallacy of conceptual realism) and is therefore discarded by libertarians.
Oliver, Critique of Socioeconomic Goals, pp. 26–57.
Edward H. Chamberlin, The Theory of Monopolistic Competition, 7th ed. (Cambridge: Harvard University Press, 1956), pp. 182ff. “Pure” competition is an unrealistic—and undesirable—model admired by many economists, in which all firms are so tiny that no one has any impact on its market. See, Man, Economy, and State, chapter 10.
Oliver often cites in his support the essay of Frank H. Knight, “Freedom as Fact and Criterion” in Freedom and Reform (New York: Harper & Bros., 1947), pp. 2–3. There is no need to elaborate further on Knight’s essay, except to note his attack on Spencer for adopting both “psychological hedonism” and “ethical hedonism.” Without analyzing Spencer in detail, we can, by a proper interpretation, make very good sense of combining both positions. First, it is necessary to change “hedonism”—the pursuit of “pleasure”—to eudaemonism—the pursuit of happiness. Second, “psychological eudaemonism,” the view that “every individual universally and necessarily seeks his own maximum happiness,” follows from the praxeological axiom of human action. From the fact of purpose, this truth follows, but only when “happiness” is interpreted in a formal, categorial, and ex ante sense, i.e., “happiness” here means whatever the individual chooses to rank highest on his value scale.
Ethical eudaemonism—that an individual should seek his maximum happiness—can also be held by the same theorist, when happiness is here interpreted in a substantive and ex post sense, i.e., that each individual should pursue that course which will, as a consequence, make him happier. To illustrate, a man may be an alcoholic. The eudaemonist may make these two pronouncements: (1) A is pursuing that course which he most prefers (“psychological eudaemonism”); and (2) A is injuring his happiness, this judgment being based on “happiness rules” derived from the study of the nature of man, and therefore should reduce his alcohol intake to the point that his happiness is no longer impaired (“ethical eudaemonism”). The two are perfectly compatible positions.