III. The Free Market

What Is the “Free Market”?

Why Is This Relevant?

One might ask why I regard the free market, which appears to be merely an economic concept, to be relevant to a discussion of the state, which at first blush could be conceived of as a purely a political concept.

To survive and flourish, humans have wants that must be satisfied, e.g., food, shelter, clothing, healthcare, education, leisure, etc. The only way to satisfy these wants is to take naturally occurring resources, mix them with labor, capital equipment, and managerial skill, and produce the appropriate goods. However, there are never enough resources to satisfy all human wants simultaneously. Thus man’s central dilemma is how to allocate scarce, productive resources to maximize the satisfaction of wants; this is an economic question. To perform this productive function in a world with more than one person, humans must deliberately organize themselves and interact with one another in society, and human organization as a society is ultimately a political question. Thus politics and economics are integral to each other.

While there are many different spectrums that could be used to analyze human organization, the one that is most critical to understand in the context of the free market is the liberty spectrum: at one end, the principle is one of voluntary human interaction, where liberty is the prevailing norm; at the other end, human interaction is coerced, where liberty yields to force.

Since the state is a coercive entity, it belongs at one end of the spectrum. The absence of a state, where human interaction is voluntary, is at the other of the spectrum. It is when economic decisions are made within this latter setting that I use the term “the free market.”1

We Don’t Have a “Free Market”

What statists fail to comprehend is that when libertarians talk about the “free market” they mean the complete absence of the state (at least in terms of impacting any economic decisions). Accordingly, in any society in which a state exists, there cannot be a “free market.”

Hence while statists like to point to perceived problems in any contemporary economy as evidence of the shortcomings of the “free market,” the libertarian response is that, since there is a state, there is no “free market.” Such problems tend to be caused by one of the following three factors: human error, scarcity of resources, or state intervention.

No political system could eliminate human error or the scarcity of resources. They are natural features of our world, although (as will be discussed later) the presence of a state can exacerbate these two factors. On the other hand, state intervention is entirely of man’s own making, and is usually the cause of most of modern society’s enduring problems.

When a perceived problem in the economy arises, statists always argue that the state needs to intervene because “The free market has failed.” Leaving aside the fact that, by definition, if there is a state to intervene, then there is not a “free market,” the statist claim raises the question, “failed” in what sense? The free market is nothing more than the aggregate of the daily interactions of millions of entrepreneurs and customers each transacting voluntarily in accordance with their preferences. The free market cannot “fail” or “succeed,” it can only operate. However, down at the individual transaction level, since each transaction in the free market is voluntarily entered into by two parties, by definition both parties must expect to be satisfied with the outcome, and thus each transaction must be “a success,” ex ante.2

The reality is that what statists mean when they say “The free market has failed” is that the millions of voluntarily transacting entrepreneurs and customers have failed to transact in the way these statists want them to transact. However, what gives statists the right to prioritize their view on how entrepreneurs and customers “should” transact, and to advocate for coercive state intervention to enforce these priorities?

Economics 101

To better understand the difference between the free market and a statist economy, we must first understand economic activity.

Entrepreneurial Activity

As noted above, the purpose of an economy is to allocate productive resources—natural resources, labor, and capital goods—to maximize the satisfaction of human wants. No one can produce all of his own needs, and thus humans must trade; a person produces what he can, and trades this product with others who are producing what he wants but cannot produce for himself. However, productive resources are scarce relative to human wants. Thus choices have to be made in organizing these scarce resources, to try to satisfy those wants that are ranked most highly by each person. The key question is, how can we know which wants are ranked most highly so that we could then try to organize resources accordingly?

Those who organize these scarce resources are society’s entrepreneurs. Their function is to try to anticipate human wants, bid for and organize the necessary scarce resources to create goods to satisfy those wants, and then price these goods appropriately and deliver them to consumers.3

Those entrepreneurs who are able to successfully bid for and organize resources at a lower cost than what customers are voluntarily willing to pay for the end product would make a profit. Other entrepreneurs who are unsuccessful at this task would incur a loss.4

The key point, however, is that entrepreneurs cannot force their products on consumers; in the free market the consumer is king, and he votes with his dollars every minute of every day. Those entrepreneurs who make profits would be able to purchase further resources, and those who incur losses would have to yield resources, both of which are beneficial for society, as it means resources are flowing to those entrepreneurs who are best at satisfying actual wants.5 Since society is more prosperous the more human wants are satisfied, profits are not something we should disdain but, rather, something we should embrace. The lure of making profits is what draws entrepreneurs to take risk with their capital and time to try to find a way to satisfy customers, and losses are a way to discipline entrepreneurs who make mistakes in this process.

An entrepreneur’s task is very difficult. The knowledge of what his customers want—in terms of price, quality, location, etc.—is not available in any central database, and there are millions of customers in the economy, each with his own specific wants. Entrepreneurs therefore take their cues from signals given by their customers: if a customer is voluntarily willing to pay for a good at the price proposed by the entrepreneur, then the entrepreneur knows he is satisfying a want; if a customer is not willing to transact, then the entrepreneur knows he is not satisfying a want. The entrepreneur tries to anticipate customer demand, but keeps experimenting every day amid continuous changes in demand, competition, and the availability, quality, and pricing of resources.

The Impact of the State

Now consider the nature of the state. The state comprises a small group of people who have enormous power in the economy through their ability to coercively tax and regulate, and provide subsidies to, other people. Taxation is the forcible taking of money from those who possess it, and who would otherwise have spent these funds in accordance with their individual wants. A subsidy is the transfer of the money seized through taxation to those individuals in the economy whom those at the state believe should have this money instead. Regulations coerce individuals to do or refrain from doing things with their bodies and personal property as those at the state decide, instead of as decided by these individuals themselves. Accordingly, through legislation, those at the state can forcibly redirect resources, funds and efforts in the economy as they see fit.

However, those at the state cannot possibly gather the relevant knowledge that entrepreneurs can gather in terms of individuals’ wants, competition, and the availability, quality, and pricing of resources. This is because state personnel are not in the “flow” of signals given to entrepreneurs every minute of every day by customers, competitors, and resource owners.

Moreover, as noted earlier, unlike entrepreneurs, those at the state do not risk their own capital when they act, and thus they do not have the appropriate profit incentives to get things right, nor the same discipline—personal financial loss—to try to avoid making mistakes.

In fact, those at the state have very different incentives than satisfying individual consumers’ wants. Given the awesome coercive powers they exercise, state personnel are intensively lobbied by special-interest groups (e.g., businesses, unions, industries, environmental groups, etc.) to exercise these powers in favor of these groups. In return, these groups offer state personnel such things as electoral support, “freebies,” and future private-sector positions (this is called “crony capitalism”).6

These special-interest groups seek subsidies, tariffs or quotas, restrictive regulations, and/or protection from competition, which are all to the detriment of consumers. Subsidies forcibly divert resources to less efficient entrepreneurs, and tariffs, quotas, restrictive regulations, and protection from competition both stifle innovation, and drive up the prices of goods by restricting their availability. Consumers cannot compete in the lobbying game because they are never as organized as special-interest groups. This is because consumers are a larger and more diverse group, with fewer dollars at stake per individual, than is the case for special-interest groups.7

Another important contrast to make between the state and the free market is how they reconcile different interests. In the free market, if one consumer prefers Coke and another prefers Pepsi, then both consumers’ wishes could be accommodated: Coke would produce and sell to the first consumer, and Pepsi would produce and sell to the second consumer. However, with the state, only one of these two consumers’ wishes could be accommodated at a time, because the state forces a “one-size-fits-all” policy on the population. If one consumer prefers policy X that is campaigned for by party A, and another prefers policy Y that is campaigned for by party B, then whichever party wins in the election would dictate which consumer will be satisfied and which consumer will lose out. To use a Coke/Pepsi analogy, under statism we would all vote on Coke or Pepsi, and if Coke gets the most votes, then Pepsi would be outlawed, and everyone who wanted to drink soda would have to be satisfied with Coke.

For all of these reasons, the state can be described as a relatively small group of people using coercion to reconfigure the economy contrary to how it would be configured if people and resources could flow naturally to maximally satisfy individuals’ wants. Hence, by definition, prosperity is reduced by state intervention.

Of course this is all very dynamic. The tendency of each individual in the economy—consumer and entrepreneur—is to adjust to each state intervention in the direction of their actual preferences. Thus, following an intervention, consumers and entrepreneurs would try to get resources flowing the way they would naturally flow, but now subject to the constraints of the new state intervention and/or any adverse consequences. This is because individuals’ inherent preferences cannot be changed by those at the state; the state can only impact the ability and priority of entrepreneurs to satisfy preferences (this is like water always trying to find the cracks in a rock).8

Once those at the state realize how the private sector has adjusted to try to satisfy actual preferences that are not in accordance with the state’s preferences, they feel compelled to implement more interventions to try again to redirect resources in the way they want. Similarly, once those at the state observe the adverse consequences resulting from their prior interventions (although they rarely confess to appreciating the link), they feel compelled to implement more interventions to try to address those consequences. Then the private sector adjusts again, and/or more adverse consequences arise, and then the state intervenes again.

This is how problems arise in the modern economy. Statists don’t like the choices consumers and entrepreneurs are making, so they exclaim “The free market has failed!” and then the state intervenes. This causes new, artificial problems, and then statists exclaim again “The free market has failed!” and argue for more intervention.

It would not be an exaggeration to claim that all enduring (as opposed to temporary) economic problems in modern society are demonstrably traceable back to state intervention. Relative to the free market, in a market with state intervention there are fewer goods available, and those that are available are more expensive;9 there are fewer jobs available; there are fewer workers available; the purchasing power of money and the benefit from traditional cash savings are lower; capital accumulation is lower, leading to less innovation and lower sustainable economic growth; and we have dramatic, economy-wide business cycles (the more the state intervenes, the more frequent these cycles and the greater their duration and intensity).10

The state is also responsible for broader social problems in two senses: the state creates intra-societal conflict, because different interests aggressively compete to rent the state’s coercive powers to use against others; and there is more inter-societal conflict, because of state-initiated or state-provoked war.

Statists only look at the symptoms of a perceived economic problem and conclude that the free market has failed. They don’t dig deeper to understand the root causes, or consider the logical fallacy behind their conclusion. By its nature, the free market—as defined above—could only naturally act to try to maximize the satisfaction of human wants. On the other hand, as discussed above, the state can never be as efficient towards this end as the free market.

To be clear, free-market advocates do not claim that the free market would be a perfect solution. It could not be perfect because the combination of human imperfection and scarce resources means we could never satisfy all human wants simultaneously. Rather, free-market advocates claim that if the objective is to maximize the satisfaction of human wants, then the free market would be more effective than state intervention. The free market, through the continuous experimentation of millions of entrepreneurs, would represent not one but countless possible solutions to the problem of allocating scarce resources to satisfy human wants. On the other hand, the state represents only one possible solution. Thus we should not think of the comparison as the free market vs. the state but, rather, as the comparison of many experimenters vs. one.

To think of this another way, if an entrepreneur in the free market fails to adequately provide a solution to consumers’ wants, then other entrepreneurs tend to enter the market and try to arbitrage away the imperfection (meaning improve upon this entrepreneur’s shortcomings). However, when the state fails to adequately provide a solution to consumers’ wants, since the state is a coercive monopoly there is no one who could legally try to arbitrage away the state’s imperfection.

Finally, in addition to these utilitarian observations, it bears repeating that, due to the absence of coercion, the free market is also the only moral solution.

Austrian Economics

Technically speaking, economics as a science is supposed to be “value-free,” meaning that it doesn’t seek to prescribe what economic policies a society should or should not adopt; rather, it simply outlines what the consequences would be of adopting specific policies. On the other hand, political philosophy is prescriptive, and thus does seek to suggest a set of principles on which society should be based. So, for example, economics would explain that an increase in the minimum wage would, all else being equal, cause relative unemployment for workers whose productivity is lower than the new wage level, and a higher wage for certain other workers, and leave things at that. It would be up to political philosophy to argue whether, given this outcome, an increase in the minimum wage should or should not be adopted.

Libertarians favor a school of economics dating from the late 19th century known as “Austrian economics” (since the early founders were all from Austria). Austrian economic analysis explains that intervention by the central planners at the state can only hamper the ability of entrepreneurs to maximally satisfy consumers’ preferences.11

Austrian economics differs substantially from Keynesian economics which, as noted earlier, is the statist’s preferred school of economic thought.12 Keynesian economists are famous for simplistically classifying into uniform categories millions of uniquely different individuals, and concepts comprising countless different components, such as “consumers,” “labor,” “the economy,” “the environment,” “the financial sector,” “the money supply,” or “exports,” and then theorizing about how these allegedly uniform groups or things act, or interact with one another, and how the state could forcibly improve such actions or interactions. To lend faux-scientific credibility to their analyses, Keynesians try to reduce human activity to a series of mathematical formula which, through their intricate econometric models, are used to predict with utopian accuracy how an economy or these groups would respond to state action; when reality doesn’t conform to these models, Keynesians question reality, not their models. If the economy is not in equilibrium, then the Keynesian regards this as a problem. To Keynesians, the state has the central role in the economy, and the purpose of economics is to prescribe what the state should do to get the economy “back” into equilibrium.

Unlike Keynesian economics, Austrian economics doesn’t use aggregate mathematical models to quantitatively or temporally predict economy-wide outcomes. This is because these outcomes cannot be modeled, since the economy is simply the aggregate of millions of unique consumers and entrepreneurs interacting continuously, based on their ever-changing subjective preferences and assessments of the future. Accordingly, Austrian economics is focused on using the logic of purposeful human action, and the concept of subjective costs and benefits, to examine cause and effect at the level of the individual consumer and entrepreneur. Instead of looking at all firms as uniform actors, and the economy as a single entity, Austrian economics takes into account differential impacts at different stages of the consumption and production cycles. In fact, while the state is central to Keynesian economics, the entrepreneur is central to Austrian economics, where “entrepreneur” is defined as a profit-seeker who commits and risks his capital in deciding when, what, and how much to produce, under the condition of uncertainty.

Austrian economists focus on the market process as opposed to the market equilibrium, and are not troubled by the fact that the economy is in a perpetual state of disequilibrium because everything is constantly changing; this is the inevitable outcome of purposeful human action amid uncertainty, which is the environment under which the entrepreneur must operate. Keynesianism has no theory of or role for the entrepreneur, because Keynesianism focuses on the long run, where the economy is supposed to be in an idyllic equilibrium, and entrepreneurs could not exist in equilibrium.

The purpose of Austrian economics is not to explain how to guide the economy to a utopian equilibrium, but to describe the less-than-obvious trade-offs involved when humans make economic decisions amid changing circumstances. In this respect, Austrian economics employs the concept—first articulated by 19th century French economist Frédéric Bastiat—to focus not just on what is seen, but on what is unseen, when state interventions occur in the economy.

Austrian economics is also much simpler and more intuitive to understand than Keynesian economics. Austrian economists like to say that Keynesians have “physics envy,” since they are fixated on defining everything via a fancy model. In contrast, Austrian economists are well read in history and philosophy, and seek to understand the reality of purposeful human action, not the fantasy world of mathematical models.

There are other substantial differences between Austrian and Keynesian economics, in areas such as money, heterogeneity of capital goods, savings and investment, anti-trust, entrepreneurship, and the business cycle, just to name a few. A full comparison of the two economic schools is beyond the scope of this book; suffice to say, it is difficult to fully appreciate the economic benefits of libertarianism over statism without a good understanding of non-fiction (i.e., Austrian) economics.13

Myth #7: The Free Market Creates an Inequality Problem

Statists claim that state intervention is needed to address the “inequality problem” which arises in the free market. This is a misguided claim, both because it is “tilting at windmills,” and because it incorrectly attributes causation.14

Equality Is Impossible

To claim that inequality is a problem caused by the free market implies that it is natural for all men to have equal income or wealth, and that this natural state is disturbed by peaceful, voluntary exchange among men.

However, no two men have the same physical or intellectual attributes, nurturing, or luck, and there is a wide variety of other differences that could be important in each man’s economic evolution (such as personal choices, culture, and geography). Accordingly, and assuming no criminal aggression by or against any man, why should we expect any two men to end up in the same place in terms of career skills, family, education, health, etc.? If these and other factors impact what one earns, then why should we expect any two men to end up with the same income or wealth?15

In other words, inequality is actually society’s natural state. And, leaving aside voluntary gifts by those with more to those with less, there are only two ways to change this natural state.

First, by physically rebalancing men’s natural attributes or their developmental environments. Some examples would include: taking one good eye from each person with two good eyes and giving these excess good eyes to the blind; ejecting the more advanced students from school a few years early to let the others catch up; and pulling children out of nurturing households and raising them in less helpful environments.

Second, through forcibly taking income or wealth from one person and giving it to another.

Yet, with respect to either solution, if all men are metaphysically equal, then surely no man possesses the right to initiate force against another man’s body or property? Thus, to ensure income or wealth equality requires acting immorally.

In addition, even if one could, at some point in time, equalize all wealth for a moment, this doesn’t solve the “Day Two” problem. On the day after equalization, if, to satisfy their individual preferences, people were free to trade what they have for what they want, and to build upon what they have, then inequality would immediately arise once again as each individual makes his unique choices. Accordingly, unless we prohibit free trade and entrepreneurship by individuals, the entire effort to achieve the prior equalization would have to be undertaken again and again until eternity. Think of the futile cost, bureaucracy and immoral intrusion into people’s lives that would entail. Well, welcome to the modern state!

Membership of Income and Wealth Groups Is Dynamic

Statists define inequality by using categories. They refer to the “top 1 percent” or the “bottom 10 percent,” and track what happens to the income or wealth of those groups over time. However, those are meaningless statistics because they represent groups in which the members are constantly changing.16

A person’s income and wealth typically change over time. In a normal career, you would start out with low income and few assets; over time, your income might grow as you progress in your career, and you might start acquiring assets; near the end of your career, as you retire, your income might drop significantly but you might have built up a substantial asset base. Along the way you might have had some years where you received a big bonus, and thus your income would have spiked upwards, and you also might have spent some time in between jobs, so your income would have spiked downwards. In some years you might come into an inheritance, or your stock portfolio or house might increase substantially in value, so you look wealthier, and in some years your assets might be worth much less, so you look less wealthy.

Thus, at different points of time when inequality is measured, one could be in the high income group one year but the low income group the next, and similarly be in the high wealth group one year but the low wealth group the next. Any particular person who might fall into the “bottom 10 percent” one year, perhaps early on in his career, could be in the “middle 10 percent” in a few years time, and might even spend some time in the “top 10 percent,” before falling back down again later when he retires or has some bad luck.

Accordingly, measuring income and wealth for categories of people tells us nothing about what is happening to actual people. For that, one must track the ups and downs of those actual people. And it is quite logical that people would move into and out of different income and wealth groups over their lives.17

How Much Inequality Is the Problem?

When a statist claims that there is “too much inequality,” the right response is, “Well then, how much inequality would be appropriate?” The statist cannot answer this question because there is no answer, or at least no objectively verifiable answer.

What the statist really means is that the level of inequality which he perceives to exist is too high for his taste. Presumably, with millions of different statists, there would be millions of different views on this concept. How are we to reconcile all of these views into a target inequality amount that is acceptable to everyone? If we can’t define an objective, then how could we design a process to achieve success?

The statist would likely fall back on the democratic process, i.e., the right amount of inequality is whatever those who hold elected office at any point in time tell us is acceptable. In other words, this is an entirely arbitrary target based on the whims of our rulers.18

And of course, as noted above, whatever the target is, the only way to move towards that target is through immoral action, i.e., the application of force by some men to other men.

How Inequality Arises in the Free Market

All of the above points aside, one of the biggest misconceptions statists harbor about an economy is how people become wealthy in the free market. This misconception then causes statists to perceive significant wealth as something to condemn, which leads to the misplaced concern about income or wealth inequality.

In the free market, no entrepreneur can force any customer to buy his product. Every transaction is a voluntary exchange: the customer voluntarily gives up some of his money in return for the entrepreneur’s product. By definition, the customer must value the product he receives more than the money he gives up, otherwise why would he trade?

Similarly, no entrepreneur can force any person to work for him. Every labor arrangement is a voluntary exchange: the worker voluntarily gives up some of his time and effort in return for wages. By definition, the worker must value the wages he receives more highly than the time he has given up and the effort he has made, otherwise why would he work?

This is also true for owners of natural resources, capital equipment, and financial capital: they only exchange these factors voluntarily with the entrepreneur in return for acceptable payments (rent, interest, dividends, etc.).

I want to digress for an instant and anticipate an objection at this point from statists. Statists might argue that a consumer or a worker could be in very difficult circumstances with no other attractive options, and thus really is “forced” to buy the product or accept the job offer, as the case may be, and accordingly these are not voluntary exchanges. However, this places the fault in the wrong place. What is forcing the consumer’s or the worker’s hand is not the entrepreneur who is offering the product or the job. Rather, it is reality that is responsible for the consumer’s or the worker’s tough situation: it could be bad luck, bad prior decisions, bad education, etc. The consumer or the worker could always decide not to purchase the product or accept the job offer; he would consider his predicament, and decide whether continuing to look for a different product or job is preferable to buying this product or accepting this job offer.

Moreover, the one party to which the consumer or the worker should be thankful is the entrepreneur who is offering the product or the job. At least this entrepreneur is giving the consumer or the worker a way to improve his situation relative to where things currently stand. Consider all of the other individuals in the economy who are not offering any product to the consumer or any job to the worker. Surely they are not as noble as this entrepreneur when it comes to this consumer or this worker? Yet the statist’s ire (and call for state action) is often directed at this entrepreneur for “overcharging” the consumer or “underpaying” the worker.19, 20

In any event, to return to the main topic, now consider how an entrepreneur runs his business in the free market. He engages in voluntary trades with the owners of productive factors—workers, owners of natural resources, and capital-goods and capital-funds suppliers—to acquire use of these factors. He then organizes these factors in a process over time to produce goods for which customers would voluntarily pay the entrepreneur if the goods satisfy their wants. If the entrepreneur can purchase and organize the productive factors at a cost lower than the price at which customers are willing to buy his product, then he makes a profit.21

Is it wrong for the entrepreneur to seek a profit? As noted earlier, since no human is self-sufficient, every human must produce what he can, and trade it for the product of others who are able to satisfy those of his needs that he cannot satisfy himself. A worker sells his time and effort for wages, and uses those wages to buy what he cannot produce himself; a land owner sells possession of his land for rent, and uses that rent to buy what he cannot produce himself; a capital-goods supplier sells or rents his equipment for proceeds, and uses those proceeds to buy what he cannot produce himself; a capital-funds supplier lends or invests his funds for interest or dividends, respectively, and uses the interest or dividends to buy what he cannot produce himself. Similarly, an entrepreneur employs his expertise for profits, and uses those profits to buy what he cannot produce himself.

How does an entrepreneur in the free market become wealthy? He could only become wealthy if he can consistently satisfy the demands of workers, natural resource owners, capital-goods and capital-funds suppliers, and customers and, while doing so, make a profit. If we ignore the cost structure to make the key point, then the only way an entrepreneur could become wealthy is if he consistently delivers to a large number of customers a product for which they are voluntarily willing to part with their money. In other words, only by satisfying other humans’ wants could he become wealthy.

Why is this worthy of any disdain? The entrepreneur is in the business of organizing resources to satisfy human wants, and if he does a great job, then he becomes wealthy. No free-market advocate argues that the entrepreneur is a “do gooder”; he is in business to make a profit, but the fact is that, in a voluntary economy, he could only make a profit if he made his customers happy. Conversely, those who cannot make their customers happy lose money and do not end up as wealthy, perhaps even living in relative poverty.

This is how inequality of wealth arises in the free market: those who have done a better job for customers end up with more wealth than those who have done a poorer job.

With one exception discussed below, the history of entrepreneurs attaining great wealth is the history of those who have best satisfied customers’ wants on a large scale. They have brought new products at affordable prices to the mass market, raising the living standards of many individuals in the economy.22

When one looks at a wealthy entrepreneur, one only sees his wealth—meaning the assets that define his living standard—but that fails to appreciate that his ability to acquire these assets was bestowed upon him voluntarily by the many customers whose lives or businesses were bettered by purchasing his products. Through the sale of his products on the market, in no sense has the entrepreneur “taken” anything away from those who have less—he has exchanged his products for customers’ money—and therefore he does not deserve to be forcibly required by the state to “give it back” through taxation or other means.

The critical point to appreciate is that “wealth” is not something that descends from heaven and simply cries out for distribution among the population. Too often statists just assume that wealth has always been there and will always be there, and that the only point for discussion is how to distribute it. Statists would do better to consider how wealth is actually generated. The default for most of human existence has been absolute poverty and, if no entrepreneur got up in the morning to produce goods in demand, then poverty is where we’d all be headed. In other words, wealth doesn’t just exist, it has to be created by entrepreneurs in a complex process fraught with risk, and requires that these entrepreneurs have the freedom to organize their activities to produce goods desired by customers, and be able to keep any resulting profits as the reward for taking the risk to create such goods.23, 24

But because the state infringes on entrepreneurial freedom and incentives, and thus the creation of wealth, it can only suppress human well-being, since it means fewer quality goods at affordable prices to satisfy human wants.

Focus on Absolute, Not Relative, Poverty

In focusing on inequality, statists are wrongly concerned with relative poverty; as noted above, there will always be those who are more and those who are less wealthy, given that individuals have different skills, upbringings, and luck. Moreover, relative poverty data tells us very little about someone’s living standards. If A earns $4 million a year and B earns $500,000 a year, then the statist concerned with inequality would complain that A is earning eight times what B is earning (8x!), yet B is not exactly destitute. Now assume that five years later, A earns $10 million a year and B earns $1 million a year; the statist focused on inequality would complain that things are measurably worse because inequality has widened, since now A is earning 10 times what B is earning (which is clearly a sign of the coming Armageddon).

It is better to focus on the living standards of the least well-off, or absolute poverty. Living standards are a function of the quantity, quality, and price of products available which satisfy consumers’ needs. Absolute poverty has declined—that is, living standards of the least well-off have increased—dramatically thanks to entrepreneurial activity; the poorest individuals in the U.S. live better than European royalty lived a couple of centuries ago, due to the fabulous, plentiful, and affordable innovations produced by entrepreneurs in search of profits.25

How Inequality Arises with a State

There is, however, a form of wealthy entrepreneur who is deserving of our disdain. He cannot exist in the free market, but he is quite common in the statist economy.

This is the crony capitalist: the entrepreneur who gets assistance from the state in generating his wealth, also known as the “political entrepreneur” (as opposed to the “market entrepreneur,” who operates without state assistance). Such assistance could be in the form of monopoly or monopoly-like privileges (through state licensing), subsidies, protective tariffs or import quotas, eminent domain, newly created money, etc.26

Since every action by the state is coercive, any of these forms of assistance means the state has either coercively taken resources from another person and bestowed them on the political entrepreneur, or has coercively restricted the political entrepreneur’s actual or potential competitors from competing as vigorously as they might. As noted earlier, such political entrepreneurs are able to obtain this assistance through aggressive lobbying of the state, and in effect are paying to rent the state’s coercive powers.

It is somewhat obvious to note, but statists often overlook, the fact that if there were no state, then there would be no coercive powers to rent and thus no political entrepreneurship. Statists prefer to believe that crony capitalism is a problem caused by businesses, not the state, but of course there are two parties to every instance of crony capitalism. This is an issue which flows naturally from the very existence of the state, and a proper survey of economic history would reveal that this is an issue as old as the state itself. As long as the state exists, each business’s calculus would be “If I don’t reap the benefits of the state’s coercive powers, then my competitors will.”

Efforts to regulate crony capitalism out of existence have always failed, and will always fail, because they attack the symptom, not the cause.

* * * * *

The implication of the statist myth that the free market creates an inequality problem is that the state is able to provide an appropriate solution. However, all that happens when the state coercively imposes a “solution” in this area is that we shift from inequality of income/wealth to inequality of power. That is, those at the state who would construct this “solution” wield significant power over ordinary citizens, and special-interest groups will lobby state personnel aggressively to rent the state’s coercive powers to influence the alleged solution.

Accordingly, while the outcome might (temporarily) reflect less inequality of income/wealth, it would definitely reflect an enormous inequality of power. Who is to say that this is a reasonable trade-off?

And since such a solution would rely on one man coercing another, we know it cannot be a moral solution.

Myth #8: The Free Market Exploits Workers

Income Inequality among Workers

There are some points I wish to make regarding workers, inequality, and the free market which parallel those made above regarding entrepreneurs.

We could think of a worker as an entrepreneur, whose product to sell is his labor and whose customer is another entrepreneur (who runs a firm). As noted above, in the free market the worker cannot force his product on his customer. He has to offer sufficient value to his customer for his customer to be willing to voluntarily part with some of his income to purchase the worker’s labor.

If the worker could consistently provide enough value to his customer, then he would be paid well and may end up relatively wealthy as a result. The worker can add to the value he can offer his customer through obtaining experience or education in a relevant area, remaining in good health, having a good attitude, etc., and with this increased value may be able to command an increased price for his product in the form of higher compensation (subject, of course, to the impact of competition from other workers competing to sell their labor to the same entrepreneur).

However, a worker who doesn’t have the same experience, education, health, attitude, etc. would not be able to earn as much because he wouldn’t be providing as much value to his customer, and such a worker may end up living in relative poverty.

This is how inequality of income for workers arises in the free market: those who do a better job as employees end up with more than those who do a poorer job. Those workers who attain very high incomes in this manner are not deserving of any disdain. Like the entrepreneur, their high incomes simply reflect the fact that they have contributed significant value to their customers (in this case, entrepreneurs) who have been willing to voluntarily compensate them for such value.

However, there is also a parallel to the “political entrepreneur” who does deserve our disdain, namely, the “political worker.” This is the worker who seeks to use the state’s coercive powers to get special privileges vis-à-vis employers, principally through regulations relating to labor unions, minimum wages, working conditions, and anti-discrimination (affirmative action).

Labor unions are not objectionable per se, since there is nothing wrong with employees banding together to try to negotiate better terms from an employer. However, what is morally objectionable is when unions obtain special rights and protections from the state.27 It is one thing for employees to collectively bargain with an employer where all parties are voluntarily engaging in such discussions, are free to accept or reject any proposal and any representatives without any violent consequences, and are free to enforce their legitimate property rights. It is quite another for a labor union to use the state’s coercive powers to (a) force an employer to negotiate exclusively with the union (including providing the union with organizing space on the employer’s property), and to require all employees to be represented exclusively by such union, whether they want this or not, (b) force an employer to make or accept any particular proposals, or (c) restrict the range of defensive actions an employer may take in response to any threatened or actual violent strike-action implemented by the union against the employer or the employer’s property, as well as against any workers who might not want to abide by the strike action.

Regarding working conditions, anti-discrimination, and minimum wage regulations, I will deal with these below.

Worker Exploitation in the Free Market

Statists often argue that workers are liable to be unfairly exploited economically by entrepreneurs in the free market, and thus state intervention is necessary to prevent this. However, this doesn’t make any sense. It suggests that the relationship is coercive, as if the employer could force the worker to take a job with low pay and terrible working conditions, the worker would have no option but to submit, and the employer would be immune to outside pressures when setting these terms. It also suggests that statist intervention could improve on the free market. There are several points to make about this.

First, a worker’s potential total compensation (comprising cash, benefits, and working conditions) has a lower bound and an upper bound. The lower bound is determined by competition for the worker from other employers. If there is vigorous competition, then the lower bound would be higher, and if there is little competition, then it would be lower. The upper bound is determined by how productive a worker is, i.e., how much value he can provide to the employer. The more skills a worker has, or the more capital equipment or technology available to make the worker more productive, the higher the upper bound. Low-skilled workers and workers in economies with little capital equipment or technology tend to face a low upper bound.

In the free market, both of these bounds would be higher than in a statist economy, and thus workers would tend to do better.

Regarding the lower bound, the free market would be characterized by an absence of artificial restrictions on new firms entering an industry and on small firms competing effectively, i.e., no state-awarded monopoly privileges, no licensing requirements, and no regulatory costs or taxes, thus leaving more financial capital available for businesses to use in productive operations. Hence there would tend to be more firms bidding for a worker’s services.

With respect to the upper bound, there would be no artificial restrictions on human and financial capital formation, i.e., no hindrances to competition among education-providers, leading to higher-quality education; no artificial price inflation in education caused by state subsidies; no taxes on individuals’ incomes, thereby providing workers with more money to invest in their personal development; and no taxes or regulations on financial capital, allowing firms to utilize more of it. Hence workers would tend to be better educated, and have more capital and technology at their disposal, making them more productive.

Second, the employment arrangement in the free market is voluntary, and thus the worker could always refuse to work under the proposed terms and seek employment elsewhere if he thinks he could do better. And it’s wrong to characterize the situation as the worker being the only one in need: the employer obviously needs the worker to perform some labor, otherwise he wouldn’t make an employment offer. It is just a question of price and conditions.

As noted above, the employer would offer no more than the value he thinks the worker could add relative to the total cost of employing him.28 In the free market, other employers who are interested in the worker are free to make competing offers, and thus if the worker wants to figure out what he’s worth, then he could solicit as many offers as possible. If there are no competing offers, or the worker doesn’t like the best terms available to him, then this is not the fault of any employer. It’s the fault of reality. Perhaps the worker doesn’t have as valuable a skill set as he thinks he has.

The important point to note is that if an employer has a need for a worker, then it makes no sense to intentionally underpay him and risk losing him to another firm. However, “underpay” always means relative to the lower and upper bounds noted above, as subjectively assessed by that employer, and not according to some third-party-determined, utopian, centralized, “objective” value, such as that often imposed by the state or its proxies.

Third, the whole notion of “exploitation” is a misnomer, since it implies some wrong on the part of the employer. Yet there is no principle which supports this conclusion.

No worker can possess a positive “right” to a job, nor to any particular compensation. If an employer makes an offer to a worker, then the employer is making a voluntary decision to divert some of his income to purchase the worker’s services and to provide particular working conditions. To claim that a worker has a “right” to a job, or to any particular compensation or working conditions, implies that the worker has a right to the employer’s income that is superior to the employer’s right! What principle could justify this?

To illustrate this in a different way, consider another type of commercial relationship, namely, the customer/vendor relationship. No statist ever accuses a customer of “exploiting” a vendor if the customer decides to withhold his dollars and not purchase a product from the vendor for any reason whatsoever, or requires a lower price before he would purchase that product. In fact, customers regularly bankrupt vendors whose products they no longer wish to purchase for whatever personal reasons they have. Statists are rightly of the view that the customer is free to do with his income as he pleases.

So how could it be that there is a different principle when the customer is an employer and the vendor is a worker selling his services? The explanation cannot be that the worker is a unique vendor case because he is not a product but, rather, a person offering a service; there are plenty of personal service vendors in business. What if a vendor is operating a business as a house painter or a gardener? For a customer to withhold a purchase of those services, or require a lower price, is to act exactly like the employer who decides not to employ a worker or to offer lower wages than a worker is demanding. Is one case “exploitation” and the other not?

What if the same person is both a customer and an employer? For instance, consider the following example: businessman X decides to purchase outsourced janitorial services from A and not B, because A’s prices are lower, and when X advertises for a new receptionist, he prefers C to D, because C is willing to accept a lower wage. Would the statist argue that, to avoid the charge of “exploitation,” X must spend his income on both of the higher priced vendors (B and D)? If not, why not? To ask these questions is to answer them.29

The folly of the “exploitation” thinking can also be illustrated by considering the proposed employment relationship from the reverse perspective. If a worker decides to work for an employer, then he is making a voluntary decision to use his body in the employer’s production process. It would not be wrong for the worker to withhold his body, nor to demand more attractive compensation before he supplies his body. Would this mean that the worker is “exploiting” the employer? No! The employer has no right to the worker’s efforts that is superior to the worker’s right; that would be chattel slavery. If this is true, then why should the worker have any superior right to the employer’s income? That would be theft.

Statists are conditioned to assume that the employer is always in the superior bargaining position compared with the worker, and that it is the task of those at the state to use coercion to balance this out. As noted above, even if that were true, the worker’s bargaining position would be a function of reality (or of prior state intervention), not a fault of the employer against whom the coercion would be levied (i.e., why punish the employer for committing no wrong?). And using coercion is never moral.30

However, even this assumption is not generally true; in fact, anyone who claims it is has probably never run a business, since the biggest ongoing concern of most managers is attracting and retaining productive employees. Moreover, if employers always had the superior bargaining position, then presumably they would only pay employees the legislated minimum wage (why pay more than the state forces you to pay?). Yet the vast majority of employees in the U.S. who are paid on an hourly basis are paid more than the relevant minimum wage, suggesting the importance of non-state factors, e.g., competition for workers.31

Fourth, statists also overlook the fact that in the free market, where the customer is free to purchase the employer’s product or not, it is the customer who ultimately controls the employer’s revenues, and therefore the funds from which the employer could purchase future factors of production, including labor. If customers turn against the employer because they wish to use their dollars elsewhere, and the employer anticipates that this will continue in the future, then the financial pressure on the employer would cause him to recalibrate the mix of factors to purchase, and how much he could pay for them if he wished to remain in business and generate an acceptable return on capital.32

In this respect, for the most part (activists aside), customers are cold hearted. They care not one whiff about the plight of the employer or his workers, and would pull their dollars for the most feckless or even indiscernible reasons. Thus, if the statist wants to levy blame at any party in the free market for downward pressure on workers’ compensation, then he ought not forget the customer.

Discrimination in the Free Market

Statists also worry about another form of exploitation in the free market, namely, class discrimination. It is claimed that if the state does not protect certain classes of individuals, then some employers would simply not employ them due to their race, gender, sexual orientation, etc.33

Once again this shows a profound misunderstanding of how the free market would work.

In the free market, discrimination has an economic cost to the discriminator. For instance, if an employer refused to employ Jews, then he would be artificially reducing his supply of labor; as basic economics teaches, if there is a reduced supply, then, all else being equal, the price would be higher. Thus this employer would end up paying more for his labor than if he did not discriminate. If he were willing to bear that cost, then that would be his choice—employing someone means using the employer’s own income, which surely he must be free to spend as he sees fit—but his competitors who are willing to employ Jews would have a cost advantage in terms of a wider pool of labor.

Similarly, if an employer decided to underpay women relative to men for the same value labor, then his competitors would be able to offer more to entice his women employees away, and he would be left with higher-priced male labor and thus lower margins than before.

The other aspect to bear in mind is social ostracization.

If an employer is known to refuse to employ (or serve) a certain group, such as blacks or Asians, then, as word gets around, those customers who object to his views would cease patronizing his business, which would have a real economic cost. Competitors may open up close by and make it very clear that they employ and serve everyone, thereby putting acute pressure on the employer in question.34

In other words, in the free market, class discrimination would likely not endure, as a discriminating employer would be at an economic disadvantage relative to those who don’t discriminate, and thus he would likely not survive.35

This is why so much of the history of class discrimination has been brought about by the state itself: those who favor class discrimination cannot reliably depend on the free market to help their cause, and thus they have always resorted to lobbying for legislation to legally discriminate by coercive means.

For instance, in the antebellum north in the U.S., a number of states, such as Illinois, Indiana, and Maryland, passed legislation to prevent or restrict free blacks from moving to these states, owning property, and working in certain trades. Similarly, in the post-Reconstruction south, the “Jim Crow” legislative enactments were passed to mandate segregation of blacks and whites in many areas of society. In all of these cases, those who wanted to discriminate against blacks saw that too many whites were willing to trade with, employ, and generally fraternize with blacks, and thus the only way to enforce discrimination was to use the state’s coercive powers. This was also the reason for the enactment in South Africa of its apartheid legislation in the mid-20th century.

The same theme applied in Nazi Germany in the 1930s: those who wanted to discriminate against Jews couldn’t depend upon the free market, and thus they had to pass numerous pieces of anti-Jew legislation.

As a final example, labor unions in the U.S. aggressively lobbied the federal government in the early 20th century to pass minimum-wage legislation. The unions would not accept black workers as members, but black workers were willing to work for lower wages than the white union-workers, and employers were willing to employ black workers at these lower wages. Thus the free market was a threat to white union-workers’ jobs. However, by setting the minimum wage above the black workers’ productive value, state intervention effectively priced black labor out of the market.

State Discrimination

Through today’s affirmative-action legislation, individuals at the state routinely intervene on behalf of protected classes of workers, either requiring employers to hire workers in these classes, or fining employers if they don’t treat such workers the way the individuals at the state deem appropriate.36

However, what exactly is denied to a worker when they are discriminated against? As noted earlier, from the employer’s perspective, offering a job requires the diversion of some of the employer’s income to the employee. How could a worker have a “right” to that portion of the employer’s income? Also as noted earlier, if the worker could deny his bodily efforts to the employer for any reason whatsoever, then why could the employer not similarly deny the diversion of some of his income to the worker for any reason whatsoever? In other words, if it is deemed actionable if an Asian employer refuses to employ a Hispanic worker because he is Hispanic, then why is it not also actionable if the Hispanic worker refuses to offer his labor services to the Asian employer because the employer is Asian?37

And, to extend a broader analogy raised earlier in the customer/vendor situation, why is it not also actionable if an Asian customer refuses to buy from a Hispanic vendor because he is Hispanic?

What state action in this area represents, in essence, is the individuals at the state arrogating to themselves the right to tell an employer how to spend his income and how to treat others; in other words, the individuals at the state (on behalf of the protected classes) claim a priority property right in the employer’s personal resources and body. From where do these individuals at the state get this right?

Moreover, the state divides the world into two groups—the protected classes and everyone else—and uses its coercive powers in a discriminatory manner in favor of the protected classes and therefore against everyone else. Predictably, this leads to aggressive lobbying by groups not in a protected class, either to be defined into the existing protected classes or to expand the range of protected classes to cover their own situations. In other words, there is now lobbying to rent the state’s coercive powers to discriminate.38

This is the solution to the perceived free-market “problem” of discrimination?

1All references to the “state” in this book include all arms of the state: the legislature, executive, judiciary, bureaucracy, agencies, etc. While they each have different functions, substantively they are all funded in the same manner, they all have the same inherent characteristics, and they are all responsible for appointing one another and/or working together. The differences between these different arms of the state are trivial compared with the differences between how the state acts and how private citizens act, which is one of the key points of this book.
2In this book, when I talk about “moral acts” and “morality,” I am referring only to an evaluation of inter-personal behavior, and not to the evaluation of any actions only involving oneself, which might be better described as “virtues” and “vices.”
3I still believe that there is a role for utilitarian analysis, but not the one that is usually cited. If economists believe that a particular outcome would lead to greater benefits (however defined) than the outcome that would result from individuals acting based on their own preferences, then these economists should publicize their analysis and use it to try to persuade individuals to change their decision-making processes. The real problem with utilitarian analysis is that it is used by statists to justify forcing individuals to make different decisions, instead of merely trying to persuade them.
4The last term refers to Murray Rothbard, who was the libertarian historian, economist, and philosopher who really ignited modern libertarianism in the 20th century.
5Just checking that you were paying attention.
6In the case of resisting prison labor, the punishment would be a longer sentence than would otherwise be the case.
7If you want a pithier and more articulate version of this idea, read libertarian philosopher Robert Nozick’s piece, “The Tale of a Slave” in his book, Anarchy, State, and Utopia.
8Lest there be any confusion, for the remainder of this book I will use “coercive” to mean using or threatening force against those who don’t agree with the state’s existence or actions. Obviously the state is not seen as coercive by those who accept the state’s legitimacy in any particular instance under discussion.
9As the saying goes, under this way of thinking it would be reasonable for two wolves and a sheep to vote on what’s for lunch.
10The argument would be similar within a U.S. state with respect to that state’s constitution.
11As libertarian attorney Stephan Kinsella has put it, it’s as if statists are saying that only the first generation had the freedom to make a choice, but no subsequent generation had or will have this freedom.
12This is not an entirely fair analogy, since it is conceivable that Customer Service representatives might be paid to retain customers, and thus they might try to be helpful when you call. On the other hand, Supreme Court justices are appointed for life, regardless of how helpful or destructive their decisions might be to the cause of liberty.
13In the U.S. (although this is likely true elsewhere too), as populations have grown substantially, the increase in the number of elected representatives has not kept pace, thereby increasing the number of people “represented” by each elected official well beyond what might have been considered reasonable originally. For instance, the Constitution specifies a minimum House of Representatives district size of 30,000; today, the average is over 730,000 (put another way, were the House of Representatives to operate at that original ratio, there would need to be over 10,000 members). This severely further diminishes any notion of “representation” of any individual voter’s interests by his elected member of Congress.
14To renounce U.S. citizenship is not easy, fast, or cheap. One must fill out a number of forms, participate in several interviews with the state, pay a fee of over $2,000, obtain a certificate of renunciation, and pay an “expatriation tax” on one’s entire wealth. The relevant legislation also requires publication of one’s name in the Federal Register, meant to “shame” those who expatriate, and expatriates can be barred from re-entering the U.S. if the state determines that they expatriated to avoid U.S. tax legislation (generally the main reason for most!). Moreover, the Internal Revenue Service (IRS) has the power to direct the U.S. State Department to revoke or not renew a citizen’s U.S. passport if the IRS claims that the citizen owes more than $50,000 in back taxes (note, the IRS does not have to prove this, just allege it).
15One way to effect this governance separation would be through secession, which I discuss in more detail later.
16The astute reader will note that the state is no different from the Mafia in this respect.
17It would be a circular response for a statist to retort “Because the Mafia is criminal but the state is legitimate.” We are here asking why the state is legitimate when it does exactly what the Mafia does.
18Other renditions include for the “general welfare” or the “public good.”
19Note that it is possible for a group of people to contractually agree to a common objective, such as in a homeowner’s association. But that is a voluntary arrangement in which each member explicitly consents to the definition of the objective, in contrast to the state, which forces a definition upon everyone, whether they agree to it or not.
20To the statist who responds that it is impractical to have continuously changing definitions of the “common good,” and that once an election cycle is the best we could hope for, I would respond that this is precisely an argument for the stateless society. In that society, each individual could continuously change and acquire his preferences at his own pace, regardless of what others want, without coercing others into his regime nor being coerced by others into theirs. Just because the statist cannot imagine a better system doesn’t mean such a system cannot exist.
21In addition, as explained by the public choice theory branch of economics, it’s not even clear that the majority view prevails in political deliberations. The sequence in which proposals are put up for debate and vote, and the framing of those proposals, impact the actual outcome, which does not necessarily match the alleged preferences of the majority. The individuals who control the proposal process have a huge degree of influence.
22As libertarian economist and philosopher Walter Block has noted, there are over 30,000 deaths each year on state-managed roads. Imagine if there were this many deaths on private properties, such as in malls, parking lots, or department stores. There would be public outrage, a loss of confidence in the managers of these properties, and calls to do something about it. Yet there is virtual silence from the public about the state’s appalling road management.
23Perhaps by one of the Tooth Fairy Theories?
24Not to mention (but I will) the fact that since those at the state can prohibit peaceful individuals from doing relatively mundane things with their person and property, such as opening a business, renovating a house, etc., state personnel can and do extort favors from private individuals in return for not enforcing these prohibitions.
25Strictly speaking, there are private-sector security firms and arbitration tribunals operating in parallel with the state’s police and courts, respectively. However, taxpayers have to pay for the state’s provision of these services even if they choose to use private-sector alternatives. Thus the total cost to a taxpayer of using these alternatives is significantly higher, making for an uneven playing field (and only the well-off can afford to use the generally better private-sector alternatives). The state also coercively limits the activities of private-sector security firms.
26Imagine how much success an underperforming private vendor would have if he tried to increase his pricing!
27Of course those statists who subscribe to one of the Tooth Fairy Theories would object to this characterization, but that rejection practically indicts itself.
28Statists may respond that state personnel sometimes do get regular feedback from polls. However, polls group individuals into artificial categories rather than treating them as individuals, so they don’t reveal individual preferences. Also, polls suffer from sample size and bias issues. Most importantly, however, individual preferences are only revealed through purchase decisions, not answering surveys; the former has a real financial cost, whereas the latter is costless to the respondent.
29Another contributing factor to the police using excessive force in the U.S. is the fact that the police are increasingly recruiting or being trained by former soldiers who previously prosecuted the state’s brutal “War on Terror,” and are also using surplus military equipment from that conflict. Treating civilians like enemy combatants and the streets like battlefields, with the aid of military equipment and tactics, can only lead to bringing the brutality of war to our towns and villages.
30Note that these war activities mostly cause death, injury, and destruction to foreigners, for which state personnel are rarely held liable. Yet there is no cogent, logical principle which argues that death, injury, or destruction is excusable if the victim of a state’s violence is not currently under that state’s territorial control; that victim is still another human being.
31This thesis is laid out methodically in Hoppe’s book, Democracy—The God That Failed. Note that Hoppe is not suggesting that a monarchical state is acceptable, only that it exhibits characteristics that make it preferable to a democratic state. Hoppe’s thesis has been challenged in at least one academic article: see Jacek Sierpinski’s work, “A Critique of Hans-Hermann Hoppe’s Thesis on Lesser Harmfulness of Monarchy than Democracy,” Res Publica Revista de Historia de las Ideas Politicas, Vol. 19 Num. 2 (2016): 521–559.
32In using the term “democracy” here, I am using it loosely to describe any political system without hereditary rule in which the broad population elects government officials in periodic elections, where such officials are drawn from the general populace and serve for limited terms. Technically, however, “democracy” refers to a specific political system in which, among other things, there is unlimited majority rule and direct self-governance. Contrast this, for instance, with the U.S., which is not technically a democracy but, rather, a constitutional federative republic, because (a) there are elected representatives, and (b) in order to protect the minority, the majority is theoretically limited by a fundamental written law (the Constitution) and the system’s structure (different horizontal and vertical branches of government). However, for all purposes going forward I will treat the U.S. as a democracy, since the key point is to distinguish it from monarchies.
33Whereas war between monarchs was not ideologically motivated, but, rather, a limited dispute over specific property, democratic states make war on broad, nationalistic lines, and seek cultural, linguistic, and/or religious domination of the vanquished population. In addition, democratic states make “total war,” as will be discussed later.
34These trends in democracies are empirical, and, as with all historical events, it is difficult to use these observations alone to definitively conclude that this shows causation, as opposed to mere correlation. Thus one needs a plausible theory to explain the different types of decision-making and officeholders in democracies compared with monarchies, which is what Hoppe has attempted to do in his work.
35Although it should not be overlooked that dictatorships are states too, and in fact dictators sometimes come to power through elections or, once in office, hold elections as a means to justify remaining in power. While one may be skeptical about elections in dictatorships—due to claims of voter fraud, intimidation, and suppression, and limitations on opposing candidates—those issues are regularly cited as issues in democracies too! In any event, when we include dictatorships, the number of citizens or other subjects killed by their own state totals over one hundred million in just the 20th century alone (this excludes the millions of people killed in wars, which are also initiated by states of all types).
36While Germany was a totalitarian state by the time the German government invaded Poland in 1939 at the beginning of World War II, Adolf Hitler and his Nazi Party colleagues were duly elected into office in 1933 as in any other democracy. While the Nazi Party did not initially hold a majority of seats in the Reichstag (parliament), Hitler was appointed by President Hindenburg as Chancellor to head a ruling coalition. Subsequently, Hitler was given emergency powers by Hindenburg according to the Weimar Constitution, and the Nazi Party then won a majority in a general election (in which the Socialist and Communist Parties were banned and their voters intimidated). Hitler’s Enabling Law, which gave him vast power, was passed through a vote by the Reichstag, although members of the Reichstag who would presumably have voted against this legislation were not allowed into the Reichstag building at the time of the vote. This is when Hitler began his totalitarian takeover of Germany, and the vestiges of democracy began to disappear.
37The “War on Drugs,” like Prohibition, should really be called the “War on People Who Believe That They Own Their Own Bodies.”
38Note that, in many of these conflicts, the U.S. government was joined by the governments of other democracies (such as Australia, Canada, France, and Great Britain).

Busting Myths about the State and the Libertarian Alternative