Abundance, Generosity, and the State

8

NATURAL LIMITS
TO GRATUITOUS GOODS

Gratuitous goods are voluntarily provided and received. They are part and parcel of a social order based on private-property rights. But how solid is this connection? Are gratuitous goods truly enshrined in the very DNA of a free society or is this association fragile? Are there forces at work that tend to diminish or destroy gratuitous goods under capitalism? What are the conditions under which gratuitous goods would decline, and possibly disappear altogether?

In what follows, we will explore the extent to which gratuitous goods can be made payable, and to which external benefits can be appropriated, or privatized. We will also examine in more detail than before the impact of economic growth and economic impoverishment on the development of gratuitous goods.

Fundamentally, a gratuitous good would cease to exist if it were no longer a good. If people no longer liked to listen to the stories that a passionate storyteller tells for free, then these stories would no longer be gratuitous goods, even though they would still be told freely. Also, a gratuitous economic good may become so abundant that it is no longer an economic good, even though it remains a good. This may result from a reduction of human wants relative to the available stock or, inversely, from an increase of stock relative to wants. If due to climate change there were suddenly regular rainfall in Mali, then water might very well no longer be scarce in that country. It would still be a good and would still be gratuitous, but would no longer be an economic good.

Similarly, a gratuitous good would also cease to be gratuitous if the causes of its gratuitousness were no longer given. Among the man-made causes, as we have repeatedly emphasized, private property plays a central role. If a law were enacted today to abrogate private-property rights of any sort, both donations and the gratuitous side effects resulting from the market process would evaporate in the same breath. It would no longer be possible to donate anything whatsoever—and it would in fact be meaningless to think and speak of donations at all. Likewise, since without private-property rights there could be no exchange, but only murky tit for tat, it would be absurd to think or talk about any gratuitous effects resulting from it. Nobody would know, nobody could know, what exactly he might claim or owe. Nobody could know whether and to what extent he receives or provides anything for free.

However, man-made gratuitous goods can lose their gratuitous nature even within the confines of a private-property order. This concerns both donations and side-effect benefits. In what follows we shall look in more detail at the circumstances under which man-made gratuitous goods may decline within the setting of a free society. This will lead us to the question of how permanent and resilient the production of gratuitous goods might be in the absence of government interventions.

WITHERING DONATIONS

The gratuitous nature of donations can be obliterated if any one of their four characteristics is no longer given. We have argued that only the combination of abundant resources and selfless purposes and a lack of reciprocity and free choices brings about a genuine donation. The purpose or finality of human action is always decisive. It informs all other aspects of action. A selfless orientation may vanish and give way to selfish motivations, so that gifts turn into grants, outright payments, or tit for tat. The same goods which before served as selfless donations are now brought into the purview of self-interested calculations. We shall call such a change of heart the internalization of a formerly gratuitous good. While it may itself be the origin of withering donations, a change of heart may also be motivated by outside events. Savings may dwindle and their abundance be lost. Finally, coercion may constrain free will and destroy gratuitousness from without. Let us discuss these changes in turn.

Shrinking Abundance

A person disposes of abundant resources when he commands more savings and time than he decides he needs—directly or indirectly—for his own gratification. We emphasized in chapter 2 that our concept of sacrificial abundance is a personal or subjective one. It springs from deliberate choice. It does not refer to the absolute level of a donor’s resources, but to the relative importance of self-oriented as compared to selfless uses of these resources. In other words, it refers to the subjective value of donations as demonstrated through the donor’s actions. If the value of donations increases for a person, then that person will tend to dedicate more of his resources to donations, which is the same thing as saying that his resources will be more abundant. Inversely, if the value of donations diminishes for that person, then abundance takes a hit and so do donations. The person would spend less time with his children and frail parents, less time volunteering, and less money on charity and similar causes. It follows that donations may flourish even though the level of material wealth is low and that they may languish even in the presence of great wealth. It all depends on personal values.

Now, personal consumption tends to adjust to personal resources. Rich people tend to consume more than poor people. If a person becomes richer, his consumption is likely to increase, but so are the resources that he will likely donate. It may very well be that the proportion between the self-oriented and the selfless uses of his resources will stay exactly the same. In this case, the increase of wealth will not have affected the subjective value of donations.

But this is not a necessary outcome. It has been often observed that changes in fortune induce changes in personal character, sometimes of a dramatic and unexpected sort (see for example Schopenhauer, Parerga and Paralipomena [1851] 1905–10, vol. 5, pt. 2). I, chap. 3). Some people fall prey to avarice when they grow rich, others become great philanthropists, still others prodigal spenders under the same condition. Some people turn into misers when they become destitute, whereas others on such occasions develop great liberality in donating their time and the few savings they have left over.

As we argued in chapter 3, such changes in character are likely to depend on the causes of the change in fortune from which they result. If a disciplined man running a multigenerational family business reaps great profits after many years of hard work, he is not likely to change his objectives and habits very much or very suddenly. As a consequence, at least for a while, he will use his abundant savings to feed donations of various sorts. By contrast, a man who comes in to a lottery fortune or who gains millions quickly from stock-market speculation will be much more volatile in his reaction to the change of conditions.

Changes of heart and changes in the subjective value of donations frequently go hand in hand with the transmission of resources from one generation to the next. Usually, the children are less frugal than the parents. Accordingly, the value of donations diminishes and there is less abundance.

Silent Changes of Heart

The decline of donations may also occur without any visible change in behavior and without any expression of the changed objectives. The change of heart may stay in the heart. It may be silent. It may involve nothing more than a shift of attitude and objectives, of such sort that the agent still does what he has always done, with the sole—but decisive—difference that he now expects a return.

Consider the following hypothetical example. Mr. Woods lives next door to Miss Heart. In the course of time, their good neighborly relations have turned into a friendship, and they have started making gifts to each other as expressions of their mutual appreciation. Mr. Woods typically gives flowers or chocolate, Miss Heart some homemade cake. All of these gifts are genuine gifts. They come without strings attached, without any expectation of reciprocity.

But then Mr. Woods develops a great craving for Miss Heart’s cake. There is no place where he can buy anything similar, and he feels he just must have it in regular supply. The trouble is that he is convinced that Miss Heart’s cake is only for friends. She would never sell it. A terrible passion of the senses overwhelms poor Woods and corrupts his mind. Clearly, if he now sets out to gratuitously donate chocolate to Heart in order to receive cake from her, then the chocolate’s economic nature changes. It is no longer a gift. Woods’s change of heart transforms the chocolate into an investment. To be sure, it is still transferred gratuitously, but this is here of no importance. It just means that the investment takes the form of a grant.

From the economic point of view, as we have seen, a grant is a very different animal than a gift. The characteristic feature of the latter is that it is not compared to any of the effects it might entail for the donor. It is appreciated and valued for its own sake, as a token of friendship. By contrast, a grant is part and parcel of a means-ends relationship. It is valued in light of the effects that it is likely to produce. When Woods grants the chocolate, he asks himself whether he gives too much in comparison to the cake that he expects to receive. When he gives the chocolate, he asks himself whether the gift is appropriate—whether it is adequate to himself, to Heart, and to their relationship.

It is impossible to empirically determine how frequent internalization is in practice. If we believe the anthropologists, it is widespread in the case of customary gifts. Our above example concerned customary gifts between neighbors, after all, and it is not difficult to think of similar examples, such as birthday or Christmas presents.

Professionalization of Leisure Activities

Silent changes of heart do not always pop up without any external causes. In chapter 2, we quoted Jean-Baptiste Say, who wrote that prodigal spenders are likely to backtrack from their donations and to ask the donees for a quid pro quo. Their prodigality is bound to entail a deterioration of their material situation, which in turn is likely to bring about a change of heart. But the material context can also change for other reasons. Most notably, vigorous economic growth makes it possible to professionalize various leisure activities, and the gratuitous benefits that result from such activities are then turned into payable products.

As we have seen, when more capital becomes available, the division of labor is reinforced. Activities that formerly have not been profitable are now likely to yield monetary income. As a consequence, the opportunity costs of pursuing these activities as a hobby increase. Some people will then decide to no longer pursue them for their own sake, but to make a living. Many people who would otherwise have remained hobby scientists, hobby musicians, hobby sportsmen, or hobby painters will now turn their hobby into a career. Some American Protestants have demonstrated that even worship may be turned into a business.

PRIVATIZATION

Homesteading Natural Resources

A venerable commonplace in economic thought is the idea that natural resources such as land, plants, and minerals are gratuitous. They are free goods available to all of mankind. They do not have to be produced. They are just “there” to be taken and to be used.

If this were the case, then it would seem to be difficult to justify the privatization of natural resources. Privatization literally means that one person or group (the owner) has the power to deprive other people of that resource. Why should John own a piece of land that neither he nor any other human being has created? Why should he be allowed to pick the beneficiaries of the land and of its fruits? Privatization seems to be a zero-sum game in which the lucky winner takes it all, at the expense of the rest of mankind. Natural resources could be gratuitous for all. They should be gratuitous for all. But then one man or one group comes along and prevents all others from enjoying them.

In chapter 1, we emphasized that this way of seeing things is not quite right. From the mere fact that a natural resource exists somewhere in the world it does not follow that it is freely available for just about anyone to pick it up and use it. Virtually all minerals are buried deep in the ground. Fish and animals need to be hunted or raised. Even apples and wheat do not spontaneously grow in such quality and quantity as needed. They are farmed, too. In other words, natural resources virtually never come “free.” They are only available when considerable human intelligence and human labor are spent to make them available. They need to be homesteaded, transformed from their state of nature into a form that might serve human needs. Their existence is gratuitous, but not their serviceability. To be serviceable, natural resources need to be available at the right time, at the right place, and in the right form.

At the beginning of the human experience, before the Neolithic Revolution, our human ancestors survived as hunters and gatherers. As long as they were not too numerous, they did not need to privatize land and raise animals. When resources start to become scarce, privatization becomes necessary at some point, even though not always in the form of individual property. At the onset of the Neolithic Agricultural Revolution, for example, farmland was more often than not held collectively. It was private in the sense that only the members of the community had access to it, not outsiders, but there was no significant individual property in land. The use of the communal land was gratuitous for all inhabitants of a village.

Communal land tenure may last for centuries. In some places with static economic conditions, it has lasted into the present. But more often than not, land ownership has been individualized, for five main reasons: congestion, real-estate development, mining, violence, and political collapse.

Congestion is a typical consequence of economic growth. As the population size increases, the commons tend to become overcrowded and overused. Privatization for the benefit of individual persons or families is then a suitable and clear-cut solution. The Ostroms and others have studied the economics of privatization in some detail, duly stressing that individual property is but one of its variants. The salient point in all cases of privatization is that the use of the resource is now restricted even for some members of the community. In that sense it is privatized. The restriction is unavoidable irrespective of whether privatization comes in the form of individual property. The latter is just one of the solutions to the basic problem (congestion); it is not the cause of the problem itself.

Real-estate development, too, is a consequence of population growth and economic growth. As families and businesses grow, it becomes necessary to add residential and commercial buildings to the existing settlements. The least costly extension is horizontal, but this conflicts with the collective use of the common land. Privatization of the commons is a sensible solution for this problem.

Mining gives access to minerals and water in the ground. Because mining projects involve heavy investments with uncertain results, they usually cannot be carried on by village communities, but require organizations with clear hierarchies and responsibilities. When communal land is sold to a private investor, the community members lose the gratuitous benefits of the land. But on the other hand, the resources in the ground become available. As Bastiat emphasized, in a competitive economy, there prevails a tendency to remunerate the services of labor and of capital, whereas the minerals taken out of the ground—with the help of labor and capital—are not remunerated. This implies that land privatization does not amount to a net destruction of gratuitous goods, but to a restructuring of gratuitous goods. Some of them disappear, and new ones become available.

Finally, land can be privatized by violence. Land grabs probably go back to the Neolithic era, and they continue to plague humanity.Modern governments have institutionalized land grabs in the name of spatial planning and of protecting the environment. But the artificial concentration of landed property that results from land grabs is likely to implode in the absence of sufficient political power to back it up. A recent example is the transition of formerly socialist countries to more open markets in the 1990s, which involved the privatization of collectively held land and capital goods (overview in Schönfelder 2012).

Privatizing Side-Effect Goods

Is it possible to privatize side-effect goods? As we shall see, side-effect goods are in general much more robust than donations. This springs most notably from the fact that they do not depend on the corruptible human will. But side-effect goods are not completely immune to human scheming.

The most robust forms of side-effect goods seem to be pure side-effect goods such as friendship and happiness. Similarly, privatizing the value effects or the side effects of other people’s errors seems to be out of the question. However, while the existence of these side-effect goods seems to be very robust, their quantitative dimension may vary considerably.

The material side effects springing from leisure activities are much less robust. Suppose James knows that on Free Avenue certain neighbors traditionally keep the street clean and safe by their own initiatives. He might then be tempted to move there in order to free ride on the services of this community. He would be ready to pay a higher price than he otherwise would for a house on Free Avenue. The value of the ostensibly free services would in this case be integrated into the price of the house. A good that was formerly gratuitous, or which could have been gratuitous, then turns into a commodity, into a price.

Things are quite different when it comes to technical externalities. An entrepreneur who provides gratuitous goods to other firms may of course try to get payments from them. Whether he will succeed depends essentially on the costs of excluding these beneficiaries. Similarly, the wealth effects which result from the pricing process of the market and from savings can be privatized only if it is possible to exclude any competitors. If that is not possible, our entrepreneur can only try to negotiate an amiable compensation.

But then another problem appears. Our entrepreneur would need to know whose income rises by how much as a consequence of an x percent lower unit price of good A. But even this would not be enough. He would also need to know how exactly the beneficiaries of this additional real income would spend their dollars. Such knowledge is impossible to obtain. One may very well spend a lot of time and resources studying how people behaved in the past. But one should not expect to infer therefrom how they would behave today nor how they will react to price changes tomorrow.

There is a further difficulty in internalizing wealth effects of the pricing process into the economic calculus. For the sake of argument, suppose that it were possible to know the concrete wealth effects in advance. Then the producers could indeed consider making contracts with the prospective beneficiaries or they could try to exclude these beneficiaries. But it would by no means be certain that such arrangements would be worthwhile. The prospective benefits would have to be higher than the costs of harvesting the wealth effect. As in the case of harvesting positive externalities, it is likely that harvesting wealth effects would be just a waste of time and money. This is especially likely because of the informational problem that we highlighted before. Positive externalities may be estimated, as we have argued in chapter 7, whereas wealth effects can only be guessed. This implies, of course, that the gratuitous character of wealth effects is particularly solid. They have a double protection, so to speak.

For these reasons, the wealth effects that spring from the market process are unlikely to ever be privatized in a free economy. However, as we shall see in subsequent chapters, they can be privatized with government support. For example, the liquidation of bankrupt firms can be controlled by the law and through public institutions. Any wealth effects that spring from the liquidation of assets at bargain prices (below production costs) can then only be obtained through the state-commissioned liquidator. The latter is then materially the private owner of these wealth effects and can sell them to the highest bidder.

QUACKS AND MUGGERS

We have highlighted the many goods that man enjoys without payment. Each healthy person gratuitously controls his body, and a healthy body gratuitously features the powers of the brain, of the inner organs, of the sense organs, and of the immune system. Similarly, the manifold goods that each person may enjoy as the spontaneous consequence of his natural, social, and political environment need to be counted among such gratuitous benefits—for example, the benefits of tranquil possession of property; the benefits of belonging to a family, a tribe, a nation; the benefits of sharing a common cultural heritage and of sharing goals and ideals with other persons.

Now, there are people who seek to make a living by having other people pay for things that these others objectively do not need or do not need to pay for. Quacks instill false beliefs in their victims. They affirm that a pill or potion will protect the purchaser’s health or improve his well-being, while objectively these products have no such effect, with the possible exception of a placebo effect. As a consequence, the victim is induced to pay for something that he does not need. In the worst case, he pays for something that he already possesses (health).

Other people try to make a living by coercing people to make payments. “Your money or your life.” The mugger takes without consent and thereby deprives his victim of a good that he already owned or enjoyed.

The case of the mugger is of fundamental importance for the theory of gratuitousness in that it represents the logical antipode of the gratuitous acquisition of property (see pp. 77–78; Mueller 2010, pp. 2, 20, and passim). The opposite of receiving goods gratuitously is being gratuitously deprived of goods that one already possesses. The opposite of a gratuitous good is a gratuitous evil. The mugger has no legitimate claim on the life or purse of his victim. He takes gratuitously. It is true that mugging is not completely gratuitous for the mugger because it carries the risk of criminal prosecution and social stigma, among other costs. But criminal activity by definition is gratuitous evil in that it illegitimately brings about adverse consequences for other people.

But how does this square with our previous contention (pp. 31–33) that gratuitous goods are the binary opposite of market exchange? How can gratuitous goods be at the same time the opposite of mugging and of market exchange?

The answer is that there are two sorts of opposition involved. Within the confines of a private-property social order, gratuitous goods are the logical antipode of commodities purchased on the market (horizontal opposition). But mugging and other forms of invasion of property are even more fundamentally opposed to the noncoercive gratuitous acquisition of property (orthogonal opposition). In fact, they are not only opposed to the latter, but also to market exchange. Mugging is a frontal assault on the tranquil possession of all economic goods.

While crimes against persons and property are black holes of gratuitousness, quackery involves imaginary benefits that are voluntarily imagined. Nobody forces the victim of quackery to purchase and swallow a pill or receive an inoculation which he believes will improve his life. But the victim of mugging loses something of which he enjoyed tranquil possession.

Quackery is widespread and even endemic to the civilized world. It is part and parcel of Schopenhauer’s “grand masquerade” (see pp. 102–7). Muggers are similarly widespread and ineradicable. However, in a free society, quacks and muggers only lead marginal existences. They may find occasional victims, but they cannot operate on a large scale and lastingly in broad daylight. They are overwhelmed by the combined forces of reason and law enforcement.

Things may change when reason and law enforcement become corrupted by political power. Then quacks and muggers may grow big. In the worst case, quacks and muggers come to run the government, as will be shown in part three.

ROBUST GRATUITOUSNESS

It is difficult to assess the robustness of the different forms of gratuitous economic goods in the light of empirical information. Statistics do not tell us anything about the intentions of donors. There are no statistics about the spontaneous wealth effects of the market process. Therefore, we have to satisfy ourselves with some general considerations about the vulnerability of the different forms of gratuitousness.

Donations of time and material goods are inseparable from the passage of generations. Along with side-effect goods, they have been part of the human experience since the dawn of mankind. Gratuitous goods therefore truly belong to the DNA of a free society. But their quality and quantity may greatly vary under the impact of the factors that we have discussed in the present chapter, starting with the central importance of private-property rights.

It is possible that the visible gift economy is overappreciated as compared to spontaneous gratuitousness, which is currently immeasurable. While this limitation is regrettable from a scientific point of view, it has important and beneficial practical implications. Indeed, as we have seen, the impossibility of quantifying spontaneous gratuitousness protects the latter against the human cunning and corruption that are likely to infect the gift economy.

Side-effect goods are fruits of a loving and virtuous life, but also of ordinary market activity. The side effects of market exchange and for-profit activities depend on the motivation of market participants to improve their services, which in turn depends most notably on their ability to learn from nature and from other humans (processing information), as well as on the capital that can be deployed to sustain the consumption of people who not are producing capital goods. None of these factors seems to be threatened in a free-market setting. The greatest threats come from moral temptations and from a lack of economic growth.

A virtuous life is an important source of gratuitous goods. Precisely for this reason, there are great temptations to harvest these goods. Why, then, should a man choose virtue over payments? It appears that a free society seems to suffer from a fundamental incentive problem in regard to virtuous behavior. It does not pay. So why do people still do what is definitely not in their material interest to do? Why do they make the sacrifice? A religious person may answer in perfect devotion: because it is pleasing to my dear God. Or in imperfect devotion: because that is the way to paradise. All others can only answer: because virtuous behavior is in tune with the rational nature of man and therefore beautiful and desirable in itself. Reason leads man to seek what is true and good and beautiful. And the quest for truth, goodness, and beauty leads man to search for the source that generates all true, good, and beautiful things.

Free societies tend to be affluent societies. They do not lack abundance and generosity. Their main problem is to use them wisely. Abundance may lead to consumerist attitudes. It may pave the way for sloth and mindless indulgence. Generosity may degenerate into self-righteousness and dependence. When material growth is not accompanied by moral and spiritual growth, these risks almost certainly turn into reality. Moral and spiritual growth involves self-restraint and circumspection. It requires genuine benevolence toward others, which can only spring from love and truth. In other words, there is nothing automatic in the evolution of abundance and generosity. There is no virtuous cycle leading from liberty to abundance and from there to ever-greater liberty and liberality on an exponential growth path. A permanent growth of abundance and generosity is possible, but it is a thorny and increasingly steep path, similar to a mountain passage.

An important threat for gratuitous goods comes from coercion. In part three, we will see that the nefarious consequences of coercion are greatly reinforced when coercion is institutionalized through the interventions of the state.

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See, for example, Karl Polanyi’s (1944, pp. 34ff.) comments on the enclosure movement.