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The Hoppeian Way

Tags Free MarketsPhilosophy and MethodologyPrivate Property

09/11/2006David Gordon

The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy. Second Edition. By Hans-Hermann Hoppe. Ludwig von Mises Institute, 2006. Xii + 433 pgs.

Hans Hoppe is a thinker of striking originality, and this excellent collection of his essays is filled with arguments: it is, as my great teacher Walter Starkie used to say, "packed with matter." I shall confine myself to a few of his points, but it would be an easy task to write several other reviews, each emphasizing completely different arguments.

Among libertarians, Hoppe is best known for his "argumentation ethics", his endeavor to show that acceptance of the principle of self-ownership is a demand of reason. Some people have objected not only to the details of Hoppe's argument but also to his entire project. The purpose of ethics, the objectors allege, is to guide action. If so, then a system of ethics must show why you have an interest in following its dictates. To motivate someone to do something, you must show that doing it is a means to his goals.

If this is right, then Hoppe's ethics fails. He claims that if you deny that you own yourself, then you are enmeshed in a "performative contradiction" (p. 405; see also p. xii): your very assertion presupposes that you do own yourself. Suppose that he is correct.

Cannot someone who wants to violate rights, e.g., a slave owner, respond by saying, "Why should it matter to me that I have fallen into a performative contradiction or, for that matter, an outright logical contradiction? You have not shown that doing so will interfere with my efforts to achieve my goals. Larry Arnhart is right: 'Whenever a moral philosopher tells us that we ought to do something, we can always ask, Why? And ultimately the only final answer to this question is, Because it's desirable for you as something that will fulfill you or make you happy." 1

To Hoppe, this objection misses the essential point. If it is rational to believe something, no room is left for a further question about why we ought to accept it. Hoppe, replying to Douglas Rasmussen, puts the issue in this way: Rasmussen "then asks me [Hoppe] in turn 'So what? Why should an a priori proof of the libertarian property theory make any difference? Why not engage in aggression anyway?' Why indeed?! But then, why should the proof that 1 + 1 = 2 make any difference? One can certainly act on the belief that 1 + 1 = 3. The obvious answer is 'because a prepositional justification exists for doing one thing, but not doing another.' But why should we be reasonable, is the next comeback. Again, the answer is obvious. For one, because it would be impossible to argue against it; and further, because the proponent raising the question would already affirm the use of reason in his act of questioning" (p. 407).

Hoppe rejects the view that ethics is goal oriented. Like Kant, he thinks that the demands of reason are categorical and not only hypothetical. He can thus sidestep altogether the vexed "is-ought problem." No factual statement, it is claimed, implies a judgment of value. Does this not render ethics a mere matter of subjective preference? Hoppe responds in a radical way; "What I [Hoppe] offer is an entirely value-free system of ethics. I remain exclusively in the realm of is-statements and nowhere try to derive an 'ought' from an 'is'" (p. 401).

If Hoppe is correct, we know the form of a system of ethics: it will consists of demands of reason, not hypothetical judgment that tell us how to get what we want. But what is the content of these demands? In Hoppe's view, ethics, more specifically political philosophy, resolves an essential question: it tells us how to settle conflicts over scarce goods:

"The recognition of scarcity is not only the starting point for political economy; it is the starting point for political philosophy as well. Obviously, if there were a superabundance of goods, no economic problem whatsoever would exist … just as the answer to the problem of political economy must be formulated in terms of rules constraining the possible uses of resources qua scarce resources, political philosophy too must answer in terms of property rights. In order to avoid inescapable conflicts, it must formulate a set of rules assigning rights of exclusive control over scarce goods" (p. 333).

Ethics thus deals with objective matters of fact: how can conflicts over actual physical objects be rationally resolved? Your rights give you titles to items that are "out there" in the world. Definitions of freedom that confine the concept to the purely subjective must then be rejected. Hoppe uses this point against F. A. Hayek: "Hayek defines freedom as 'a state in which each can use his own knowledge and for his own purposes,' and coercion means such control of the environment or circumstances of a person by another that, in order to avoid greater evil, he is forced to act not according to a coherent plan of his own but to serve the ends of another,'…Clearly, Hayek's definition contains no reference to scarce goods and real tangible property, and provides no physical criterion or indicator whatsoever for the existence or nonexistence of either state of affairs. Rather coercion and freedom refer to specific configurations of subjective wills, plans, thoughts, or expectations. As mental predicates, Hayek's definitions of freedom are compatible with every real, physical state of affairs" (pp. 260-61; emphasis in the quotation is Hoppe's).

Hoppe's valuable criticism applies I think as well to Israel Kirzner's "coordination of plans," if taken as a criterion of welfare. Such coordination refers essentially to persons' subjective preferences and cannot be "cashed-out" in physical terms. 2

Austrian economics and libertarianism are of course antithetical to Marxism; but with remarkable ingenuity, Hoppe takes over and puts to his own use crucial Marxist insights. According to Marx, there is under capitalism an inevitable tendency for monopoly to develop. The ruthless pressure of competition destroys small businesses until in each major industry, only a few firms remain. As this process goes on, capitalist employers subject workers to ever more severe exploitation.

But not even all this suffices to save the capitalist system from financial crises. To cope with these, the advanced capitalist economies resort to imperialist expansion. New markets permit further exploitation and provide expanded markets for capitalists to sell their goods.

Hoppe of course rejects all this, as applied to the free market. But Marx correctly saw that the state exploits people, though he missed the reason for this: "the basic proposition of the Marxist theory of the state in particular is false. The state is not exploitative because it protects the capitalists' property rights, but because it itself is exempt from the restriction of having to acquire property productively and contractually" (p. 130).

Once an exploitative state exists, variants of some of the main Marxist contentions become true. There is no inevitable tendency toward monopoly on the free market; but some businesses find it in their interests to join with the extractive state in seizing property from others: "Marxists are also correct in noticing the close association between the state and business, especially the banking elite — even though their explanation for it is faulty…. The more successful a business, the larger the potential danger of governmental exploitation, but the larger also the potential gains that can be achieved if it can come under government's special protection and is exempt from the full weight of capitalist competition. This is why the business establishment is interested in the state and its infiltration. The ruling elite in turn is interested in close cooperation with the business establishment because of its financial powers" (p. 132).

One aspect of this cooperation especially interests Hoppe, and from it he derives an ingenious theory of imperialism. (In doing so, he extends the views of Mises and Rothbard.) Money, as Menger and Mises proved, must arise as a commodity. But unfortunately, once banks arise, trouble develops. Bankers issue certificates for the commodity money deposited with them; these certificates, so long as people believe they can readily be redeemed for the deposited goods, function as money.

Here precisely is the source of trouble. Bankers realize that depositors will rarely all converge on a bank and demand their money. If a bank issues more certificates than it has commodity money on hand, it will rarely be "caught out." Doing this generates profits for the bank, since it can lend the extra certificates at interest. Hoppe contends that banks that do this are guilty of counterfeiting: multiple certificates of title are issued for the same goods.

Bankers are anxious to extend the process in order to increase their profits. In addition, if they can coordinate all banks into a single system, they reduce the chances of being subject to a run on their reserves.

To do this, they must form an alliance with the coercive state. The state and the bankers unite to exploit the public. And the process does not stop at national borders. It is here that Hoppe finds the key to modern imperialism: "And a similarly straightforward yet once again entirely non-Marxist explanation exists for the observation always pointed out by Marxists that the banking and business establishment is usually among the most ardent supporters of military strength and imperial expansionism … from a position of military strength, it becomes possible to establish a system of … monetary imperialism. The dominating state will use its superior power to enforce a policy of internationally coordinated inflation. Its own central bank sets the pace in the process of counterfeiting, and the central banks of the dominated states are ordered to use its currency as their own reserves and inflate on top of them" (p. 135).

Naturally, each state would like to assume the dominant position. Which one will win the struggle for power? Hoppe offers a characteristically original answer. The free market far outstrips its interventionist and socialist competitors; indeed, a socialist economy that could not rely on capitalist market prices would be unable to function at all. If so, then states that restrict the market less than their rivals will triumph in the battle for imperial hegemony.

"Paradoxical as it might first seem, the more liberal a state is internally, the more likely it will engage in outward aggression. Internal liberalism makes a society richer; a richer society to extract from makes the state richer, and a richer state makes for more and more successful expansionist wars" (p. 102).

Do we not have here a succinct explanation for the triumph of the United States over Soviet Russia in the Cold War?

Hoppe's adaptation of Marxist insights should not lead us to suspect him of sympathy for that false doctrine. Quite the contrary, he expertly exposes its mistakes. His demolition of the Marxist theory of exploitation is especially valuable.

"What, then, is his [Marx's] proof of the exploitative character of a clean capitalism? It consists in the observation that the factor prices, in particular the wages paid to laborers by the capitalist, are lower than the output prices … What is wrong with this analysis? The answer becomes obvious, once it is asked why the laborer would possibly agree to such a deal! He agrees because his wage payment represents present goods — while his own labor services represent only future goods — and he values present goods more highly … what is wrong, then, with Marx's theory of exploitation is that he does not understand the phenomenon of time preference as a universal category of human action" (pp. 120-22).

Hoppe finds something of value in Marxism, but he shows no mercy to Keynes. Paul Samuelson and other disciples portray Keynes as a reformer, anxious to save capitalism from the vagaries of the business cycle. To Hoppe, he is a crackpot, in thrall to foolish dreams of unlimited abundance. Keynes believed that if "the supply of money is sufficiently increased, the interest rate supposedly can be brought down to zero. Keynes recognizes that this would imply a superabundance of capital goods, and one would think that this realization should have given him cause to reconsider" (p. 163).

Far from reconsidering, Keynes held that there are "no intrinsic reasons for the scarcity of capital" (p. 163, quoting Keynes). But to bring about this paradisiacal condition, the state must take over control of investment from the market. Hoppe comments, "It is too obvious that these are the outpourings of someone who deserves to be called anything, except an economist" (p. 166). The essays in this book succeed in carving out a highly distinctive point of view, and anyone interested in a free society will find this book of great value.

  • 1. See his Darwinian Conservatism (Imprint-Academic, 2005) and my review in The Mises Review,Winter 2005.
  • 2. See Israel Kirzner, Discovery, Capitalism, and Distributive Justice (New York, 1989) and my review in Review of Austrian Economics , Volume 5, Number 1.

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David Gordon is Senior Fellow at the Mises Institute and editor of the Mises Review.