Power & Market
As with everything in Venezuela, this week’s attempt at removing the Maduro regime was a mess. It seems to have had no coordination or logical planning. It consisted largely of opposition leader Juan Guaidó calling out civilians to support this attempt to take the control of the Venezuelan state, but with little effect. Some newspapers reported that Guaidó and ally Leopoldo López started to act before the plan was ready. Other sources say that high-ranking officers had negotiated with the U.S to keep Maduro in power. But one thing is sure: the current regime is still in place. Even more troubling is the fact some armored vehicles hit civilians that were on the streets protesting in favor of Guaidó. At the end of the day López with his family sought refuse in the Spanish embassy, and some military officers that were supporting Guaidó requested political asylum in Brazil’s Embassy. El Pais reports at least five people were killed in today’s chaos
Replacing the Current Regime with More of the Same?
Where to go from here? Venezuelans have suffered many disappointments, and there is a lot of skepticism in the population about the likelihood of replacing the current regime with something truly better. Here’s the problem: Venezuelans need to get rid of Maduro and his comrades, but we also need open the road to radical free-market reforms if they want to have a future with a long-run prosperity and liberty. In early March, Ben Powell and I wrote about this conundrum.
Unfortunately, the ideological fuel that would feed the engine of a new regime is not so different from the same that fed Chavez’s project. The “Plan País” supported by those seeking to topple Maduro is just another Keynesian recipe that will apply all the usual failed policies that have been used historically in Venezuela. In my country, this has only ever created a fake short-run “prosperity” which then creates cronyism, corruption, and an enormous states which owns of the commanding heights of the economy. In terms of human rights, a badly managed economy under some other group of hardline Keynesians might still be preferable to the current regime.
Nevertheless, at this time, it looks like an easy victory for replacing the Maduro regime with the opposition is not right around the corner. It looks increasingly like the best way to facilitate improvement would be for Guaidó and López to negotiate with Maduro for new elections, and more importantly to open the country to foreign capital yet again. With that in place there could be hope for an economic rebound. Of course, the government planners would still claim their intervention was the cause of the “economic miracle” that would come with stability, but we could at least hope for a gradual turn toward saner economic policy over time.
Some of his potential 2020 opponents, by contrast, are coherent but crazy.
And economic craziness exists in other nations as well.
In a column for the New York Times, Jochen Bittner writes about how a rising star of Germany’s Social Democrat Party wants the type of socialism that made the former East Germany an economic failure.
Socialism, the idea that workers’ needs are best met by the collectivization of the means of production… A system in which factories, banks and even housing were nationalized required a planned economy, as a substitute for capitalist competition. Central planning, however, proved unable to meet people’s individual demands… Eventually, the entire system collapsed; as it did everywhere else, socialism in Germany failed. Which is why it is strange, in 2019, to see socialism coming back into German mainstream politics.
But this real-world evidence doesn’t matter for some Germans.
Kevin Kühnert, the leader of the Social Democrats’ youth organization and one of his party’s most promising young talents, has made it his calling card. Forget the wannabe socialism of American Democrats like Bernie Sanders or Alexandria Ocasio-Cortez. The 29-year-old Mr. Kühnert is aiming for the real thing. Socialism, he says, means democratic control over the economy. He wants to replace capitalism… German neo-socialism is profoundly different from capitalism. …Mr. Kühnert took specific aim at the American dream as a model for individual achievement. …“Without collectivization of one form or another it is unthinkable to overcome capitalism,” he told us.
What makes Kühnert’s view so absurd is that he obviously knows nothing about his nation’s history.
Just in case he reads this, let’s look at the evidence.
Jaap Sleifer’s book, Planning Ahead and Falling Behind, points out that the eastern part of Germany was actually richer than the western part prior to World War II.
The entire country’s economy was then destroyed by the war.
What happened afterwards, though, shows the difference between socialism and free enterprise.
Before…the Third Reich the East German economy had…per capita national income…103 percent of West Germany, compared to a mere 31 percent in 1991. …Here is the case of an economy that was relatively wealthy, but lost out in a relatively short time… Based on the official statistics on national product the East German growth rates were very impressive. However, …the actual performance was not that impressive at all.
Sleifer has two tables that are worth sharing.
First, nobody should be surprised to discover that communist authorities released garbage numbers that ostensibly showed faster growth.
What’s really depressing is that there were more than a few gullible Americans – including some economists – who blindly believe this nonsensical data.
Second, I like this table because it confirms that Nazism and communism are very similar from an economic perspective.
Though I guess we should give Germans credit for doing a decent job on product quality under both strains of socialism.
I want to call special attention, though, to a column by an economist from India. Written back in 1960, even before there was a Berlin Wall, he compared the two halves of the city.
Here’s the situation in the capitalist part.
The contrast between the two Berlins cannot miss the attention of a school child. West Berlin, though an island within East Germany, is an integral part of West German economy and shares the latter’s prosperity. Destruction through bombing was impartial to the two parts of the city. Rebuilding is virtually complete in West Berlin. …The main thoroughfares of West Berlin are near jammed with prosperous looking automobile traffic, the German make of cars, big and small, being much in evidence. …The departmental stores in West Berlin are cramming with wearing apparel, other personal effects and a multiplicity of household equipment, temptingly displayed.
Here’s what he saw in the communist part.
…In East Berlin a good part of the destruction still remains; twisted iron, broken walls and heaped up rubble are common enough sights. The new structures, especially the pre-fabricated workers’ tenements, look drab. …automobiles, generally old and small cars, are in much smaller numbers than in West Berlin. …shops in East Berlin exhibit cheap articles in indifferent wrappers or containers and the prices for comparable items, despite the poor quality, are noticeably higher than in West Berlin. …Visiting East Berlin gives the impression of visiting a prison camp.
The lessons, he explained, should be quite obvious.
…the contrast of the two Berlins…the main explanation lies in the divergent political systems. The people being the same, there is no difference in talent, technological skill and aspirations of the residents of the two parts of the city. In West Berlin efforts are spontaneous and self-directed by free men, under the urge to go ahead. In East Berlin effort is centrally directed by Communist planners… The contrast in prosperity is convincing proof of the superiority of the forces of freedom over centralised planning.
Back in 2011, I shared a video highlighting the role of Ludwig Erhard in freeing the West German economy. Given today’s topic here’s an encore presentation.
Samuel Gregg, writing for FEE, elaborates about the market-driven causes of the post-war German economic miracle.
It wasn’t just Ludwig Erhard.
Seventy years ago this month, a small group of economists and legal scholars helped bring about what’s now widely known as the Wirtschaftswunder, the “German economic miracle.” Even among many Germans, names like Walter Eucken, Wilhelm Röpke, and Franz Böhm are unfamiliar today. But it’s largely thanks to their relentless advocacy of market liberalization in 1948 that what was then West Germany escaped an economic abyss… It was a rare instance of free-market intellectuals’ playing a decisive role in liberating an economy from decades of interventionist and collectivist policies.
As was mentioned in the video, the American occupiers were not on the right side.
Indeed, they exacerbated West Germany’s economic problems.
…reform was going to be easy: in 1945, few Germans were amenable to the free market. The Social Democratic Party emerged from the catacombs wanting more top-down economic planning, not less. …Further complicating matters was the fact that the military authorities in the Western-occupied zones in Germany, with many Keynesians in their contingent, admired the economic policies of Clement Atlee’s Labour government in Britain. Indeed, between 1945 and 1947, the Allied administrators left largely in place the partly collectivized, state-oriented economy put in place by the defeated Nazis. This included price-controls, widespread rationing… The result was widespread food shortages and soaring malnutrition levels.
But at least there was a happy ending.
Erhard’s June 1948 reforms…abolition of price-controls and the replacement of the Nazi-era Reichsmark with much smaller quantities of a new currency: the Deutsche Mark. These measures effectively killed off…inflation… Within six months, industrial production had increased by an incredible 50 percent. Real incomes started growing.
And Germany never looked back. Even today, it’s a reasonably market-orientednation.
I’ll close with my modest contribution to the debate. Based on data from the OECD, here’s a look at comparative economic output in East Germany and West Germany.
You’ll notice that I added some dotted lines to illustrate that both nations presumably started at the same very low level after WWII ended.
I’ll also assert that the blue line probably exaggerates East German economic output. If you doubt that claim, check out this 1990 story from the New York Times.
The bottom line is that the economic conditions in West Germany and East Germany diverged dramatically because one had good policy (West Germany routinely scored in the top 10 for economic liberty between 1950 and 1975) and one suffered from socialism.
These numbers should be very compelling since traditional economic theory holds that incomes in countries should converge. In the real world, however, that only happens if governments don’t create too many obstacles to prosperity.
Originally published at International Liberty
The US military's Afghanistan operation is going so well, the US military wants to stop telling you about it.
According to the AP:
Amid a battlefield stalemate in Afghanistan, the U.S. military has stopped releasing information often cited to measure progress in America’s longest war...
The move fits a trend of less information being released about the war in recent years...
A government watchdog agency that monitors the U.S. war effort, now in its 18th year, said in a report to Congress on Wednesday that the U.S. military command in Kabul is no longer producing “district control data,” which shows the number of Afghan districts — and the percentage of their population — controlled by the government compared to the Taliban.
The last time the command released this information, in January, it showed that Afghan government control was stagnant or slipping.
In other words, the US's 2-trillion-dollar effort there is going nowhere. So they're going to stop telling you about it.
This shouldn't be surprising, of course. Government legitimacy in general relies to a large extent on deception and on withholding information about the true cost, incompetence, and destruction of government programs and government policies.Governments hate releasing data on employee salaries, audits, spending, and metrics. Unless, of course, those metrics make the government look good.
Coming up with that make-us-look-good metric is often easy to do because it's easy for government agencies to track data on "how much stuff bought for x number of people" or "how many jobs created for Y number of government employees." Then, all they have to do is exclude any data about how many people weren't hired in the private sector because of government regulations and government taxes. They never mention the "stuff" that millions didn't get because of higher taxes. Governments naturally don't even try to collect that sort of data.
A similar phenomenon is seen in foreign policy. We hear all about how the government killed a dictator (i.e., Saddam Hussein or Moamar Qaddafi) while conveniently leaving out the fact these "humanitarian" missions just created power vacuums which paved the way for the rise of terrorist organizations like Al Qaeda.
When it comes to government programs, it's all benefits, and no costs.
So who can be surprised the Pentagon now wants to hide the fact the Afghanistan War is accomplishing nothing. After all, this might make it easier to point out the Pentagon is hugely over-funded. Moreover, the Pentagon has no idea what it even does with its money, since, as Reuters reported in 2016:
The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.
Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades.
Unfortunately, it's fairly easy for military organizations to get away with this sort of fraud and data manipulation because they can always claim "national security" demands it. Many voters — often including those who fancy themselves proponents of "limited government" are happy to play along and declare the taxpayers have no right to second-guess the "experts."
The idea is the taxpaying public is too stupid or too ignorant to have anything other than worthless opinions when it comes to military and foreign affairs beyond the borders of the United States. Modern Americans have typically caved to this bullying tactic. Writing in the 1990s, however, at the end of the Cold War, Samuel Francis noted that such an attitude is incompatible with a free society :
The self-sufficiency, the civic independence, of the citizens of a republic, the idea that the citizens should support themselves economically, should be able to defend themselves,educate themselves, and discipline themselves, is closely connected to the idea of public virtue…A self governing people is simply too busy, as a rule, with the concerns of self-government to take much interest in other peoples’ business…A self-governing people generally abhors secrecy in government and rightly distrusts it. The only way, then, in which those intent upon…the expansion of their power over other peoples, can succeed is by diminishing the degree of self-government in their own society. They must persuade the self-governing people that there is too much self-government going around, that the people themselves simply are not smart enough or well-informed enough to deserve much say in such complicated matters as foreign policy…We hear it…every time an American President intones that “politics stop at the water’s edge.” Of course, politics do not stop at the water’s edge unless we as a people are willing to surrender a vast amount of control over what the government does in military, foreign, economic, and intelligence affairs.
Meanwhile, the government insists that the taxpayers have no right to privacy themselves. It's the taxpayers who need to be monitored, it seems. And Donald Trump apparently agrees. The Washington Post reported yesterday:
The Trump administration has signaled in recent weeks that it may seek the permanent renewal of a surveillance law that has, among other things, enabled the National Security Agency to gather and analyze Americans' phone records as part of terrorism investigations, according to five U.S. officials familiar with the matter.
So, while the military is cutting back on letting the public see its failures, the national security state insists that those who pay the bills submit to ever higher levels of surveillance.
In the wake of the Notre Dame fire, both French politicians and private donors, including billionaires, pledged to rebuild the Church. Emmanuel Macron promised — rather unconvincingly — to have the church rebuilt within five years.
In response, some observers questioned why a government should be in the business of rebuilding churches. After all, doesn't Notre Dame have insurance?
Well, it turns out Notre Dame doesn't have insurance, and that leads us to a larger problem with the church.
Notre Dame is a government-owned building. As a spokesman for the French consulate in New York told Marketwatch :
The French State is self-insured for Notre Dame. It has no insurance. It is supposed to cover its own costs.
Notre Dame has no private insurance because Notre Dame is not a privately owned building. Like all church buildings constructed before 1905, Notre Dame is owned by the French state.
As recounted by Samuel Gregg for the Catholic Herald, the Catholic Church lost ownership of church buildings during the French Revolution. While the Church gained usage of its buildings during Napoleon's reign, state control remains:
The Revolution’s subsequent war against the Church included turning Notre-Dame into a temple for “the Cult of Reason” and “the Supreme Being” in 1793. Shortly after Robespierre’s fall in 1794, the cathedral became a storage place for weapons and food. It was seemingly forgotten to history.
A few years later, Notre-Dame’s fortunes changed when Napoleon determined that his regime’s security required reconciliation between the Revolution and the Church. Though the state continued (and continues to this day) to own the buildings, exclusive use of the cathedral was transferred to the Church following the 1801 Concordat between Paris and Rome. ...Though the Concordat provided the Church with some protection from anti-clericals, it also once again subordinated much of the Church’s life to the French state.
State ownership was again affirmed in 1905 with the "loi du 9 décembre 1905 concernant la séparation des Églises et de l'État." The law affirmed that only church buildings constructed after 1905 could be privately owned by the Church itself.
Today, the French state controls more than 32,000 churches, 6,000 chapels, and 87 cathedrals.
Moreover, any attempts to significantly change church buildings would have to be approved by government officials, and according to The Art Newspaper , this state of "dual administration" has "caused serious problems of management and conservation":
Under French law, the parish council owns the building itself and its furnishings and puts these at the disposal of the clergy for acts of worship. The parish council is responsible for the maintenance and restoration of the building but does not pay for lighting, heating or expenses connected with religious observances, which are the responsibility of the clergy. No building works can be undertaken without the agreement of the parish council, and the parish priest may not sell objects or remove them from the church without the permission of the mayor. If the church is listed, or classified as a monument of particular historical interest, the permission of the Commission on Historical Buildings must also be sought.
This led to conflicts, especially in the wake of Vatican II, when Catholic clergy enamored of the new iconoclasm in the church attempted to destroy altars, railings, light fixtures, and other church elements deemed too old-fashioned. Some secular authorities, on the other hand, valued these items as art, and prevented parish priests from selling off or destroying them.
In those days, the French state served as a bulwark against the clergy's bad taste. Mid-twentieth century clergy, after all, were notorious in their vapid and trite artistic sensibilities, which they pursued as a cloying display of their alleged devotion to the common man.
Had Notre Dame burned sometime between 1965 and 1980, French bishops probably would have insisted it be rebuilt with a brutalist spire of poured concrete.
Fortunately, most of those clerics are now dead, and few Catholics under age 50 think 1970s-style church architecture, furnishings, and art are nearly as charming as their elders seemed to think. This means the primary threat to Notre Dame now comes form the French state itself. Already, the terrible restoration ideas are pouring in, with suggestions ranging from a new glass-and-steel roof, to a spire designed to look like an Islamic minaret.
Since the French state owns Notre Dame, it's not a given the building will be actually rebuilt as a church. As I've noted before, many Frenchmen — including Macron and many of the donors — appear to regard the building's primary importance as that of a museum and community center. This could mean anything goes as far as reconstruction is concerned.
Political Capitalism: How Economic and Political Power is Made and Maintained. By Randall G. Holcombe. Cambridge University Press, 2018. X + 294 pages.
Randall Holcombe is best known as an economist for his work in public choice, but in this impressive new book, he adds a historical dimension to public choice by combining it with “elite theory.” In doing this, he arrives at a controversial thesis: a new economic system, “political capitalism,” has come to replace market capitalism. In arguing for his thesis, Holcombe shows a remarkable knowledge of the literature in economics, political science, and sociology.
By “political capitalism”, Holcombe means the same as what is often called “crony capitalism,” and as he notes, the concept is a well-established one. There is widespread agreement by people with different political views that the American economy is dominated by an alliance of elite business and political interests. David Stockman and Joseph Stiglitz are usually at odds, but not here. Stiglitz argues, “’We have a political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor.’ Echoing those views, Stockman says. . .’the state bears an inherent flaw that dwarfs the imperfections purported to afflict the free market, namely that policies undertaken in the name of the public good inexorably become captured by special interests and crony capitalists who appropriate resources from society’s commons for their own private ends.’” (p.5) (Besides the many works that Holcombe cites, the outstanding book of Hunter Lewis, Crony Capitalism in America, deserves mention in this connection.)
Holcombe contends that political capitalism is a new system, distinct from market capitalism and socialism. The term, he tells us, comes from Max Weber, who used it to “describe the political and economic systems of ancient Rome.” (p.8). Holcombe applies the concept to contemporary America. “The analysis that follows concludes that political capitalism, in which the political and economic elite control the system for their own benefit, is not market capitalism and should be analyzed as a separate economic system.” (p. ix) It is this thesis that I should like to examine.
He argues for it by extending the public choice analysis of government by James Buchanan and Gordon Tullock. These economists challenged, though they did not altogether reject, the standard neoclassical contention that the free market cannot adequately supply public goods and so needed to be supplemented by state intervention. In the standard view, economic actors motivated by self-interest will tend to “free ride,” relying on others to produce public goods. The consequence is an underproduction of them.
Buchanan and Tullock posed a devastating question that weakened the force of the standard view’s policy conclusions, though doing so without challenging the assumptions of the neoclassical model. Why assume that government policymakers are less self-interested than market actors? “Government is not omniscient. Policymakers do not have all the information necessary to allocate resources to match the theoretically optimum welfare maximum. Government is not benevolent. People in government look out for their own interests just as people do in the private sector. Their incentives need to be taken into account to understand how public policy works in the real world.” (p.14)
Buchanan and Tullock rejected theories of group exploitation, but Holcombe does not agree: “Buchanan and Tullock ‘also reject any theory or conception of the collectivity which embodies the exploitation of a ruled by a ruling class. This includes the Marxist vision, which incorporates the polity as one means through which the economically dominant group imposes its will on the downtrodden.’ The public choice approach to analyzing political decision making, as Buchanan and Tullock see it, leaves no room for the group behavior and elite theories that are the subject of this chapter[and book].” (pp.64-65)
How does Holcombe accept group exploitation theories without rejecting Buchanan and Tullock’s stress on the motivations of individual actors? The key to the mystery lies in the Coase theorem. “When transaction costs are low, people can bargain to allocate resources in a way that maximizes the value to the members of the low-transaction cost group---the people who are able to bargain. When transaction costs are high, people will not be able to bargain to allocate resources to maximize the value to them. . .The people in the low-transaction group bargain with each other to make public policy. The people in the high-transaction cost group . .. .find themselves subject to the policies designed by those in the low-transaction cost group. Those in the low-transaction cost group are the elite; those in the high-transaction cost-group are the masses.” (p.76)
This difference in transaction costs permits the continuity over time that elite theory requires. So long as the difference persists, long-lasting dominance by an elite group or class is possible. For example, incumbents in Congress, regardless of party, are often allied against challengers. Owing to the difficulty of ousting them, they can retain power for a substantial period of time. “Those who have political power conspire to keep it, and have more in common with each other than with others in their same party who do not have that power. . The more significant dimension of political competition is between those who with power versus their challengers for that power, not the competition of one party against another. This is true in political capitalism, but also true of government in general.”(p.191)
Holcombe devotes a great deal of attention to the mechanisms of rent-seeking and regulatory capture, by which elites in government join forces to exploit the masses. It is sometimes difficult to tell whether government or business interests dominate the coalition. In one maneuver, the legislature will threaten to pass laws that would adversely affect certain interests, inducing the interested parties to offer “donations” to induce the legislature to turn its attention elsewhere. “Those in government have an incentive to extract payment in exchange for legislative action, or inaction, and those who are paying have an incentive to continue paying to avoid having costs imposed on them.” (p.129)
Holcombe’s argument within its own terms is powerful, but it suffers from a limitation that the more wide-ranging approach of Murray Rothbard avoids. The public choice school says, in effect, “Politicians are not impartial public servants, aiming for the good of all. They too are self-interested actors.” Everyone’s dominant motivation is to gain wealth, and ideological considerations play a minor role. Why, for example, do incumbents want to remain in power? The primary reason as Holcombe views the matter is to extract economic rents.
Rothbard allows far more room to those dominated by ideas, though he also emphasizes people’s economic self-interest. People made the American Revolution, for example, in part because they genuinely believed in the ideals stated in the Declaration of Independence. Lenin genuinely believed in communism: he did not start the October Revolution to make himself a millionaire. It is of course true that both of these revolutions also benefited some at the expense of others.
To this contention, there is a well-known public choice response, best expressed in Gordon Tullock’s The Social Dilemma. Revolutionary action is a public good, and ideological revolutionaries will prefer to free ride on the actions of other revolutionaries, thus avoiding costs to themselves. Even if this analysis is correct, it proves less than Tullock and other exponents of public choice think it does. Tullock has applied the standard neoclassical analysis of public goods to revolutions, but, as previously mentioned, the standard model concludes that a public good will not be supplied efficiently. It does not hold that the good will not be supplied at all. If Tullock is right, perhaps we have less than the efficient quantity of ideological revolutions. But the historical record shows that we have some of them.
Given the malign effects of political capitalism, Holcombe naturally wonders what can be done to restrain it. He says that his book is concerned primarily with an analysis of the system rather than remedial action, but he does suggest that limiting the power of the state through constitutional checks and balances is desirable. Such limits hold some promise to impede a rapacious government. The Progressive movement of the late nineteenth and early twentieth centuries favored government action to limit corporate predation, but this did not work: “The Progressive ideology legitimizes the use of force for the economic benefit of some at the expense of others.” (p.230) Holcombe’s suggestions are all to the good, and he has written in greater detail with insight and erudition about this topic in From Liberty to Democracy.
There is another limit to political capitalism, and explaining it requires us to challenge Holcombe’s central thesis that political capitalism is a new economic system. From a Misesian point of view, there are no intermediate economic systems between capitalism and socialism. As Mises remarks: “With regard to the same factors of production there can only exist private control or public control. “ (Human Action, Scholar’s Edition, p.712) Measures of the sort analyzed in Holcombe’s book hamper the free market, but they do not provide an alternative way to allocate resources efficiently. If political capitalism were a “third system,” it would be faced with the calculation problem. Because economic calculation requires a free market, political capitalism is inherently parasitic on the free market and this is a barrier to the damage it can do. Given its bad results, that is small consolation.
Review of Theoria Generalis: Das Wesen des Politische n by Ulrich Hintze
Reviewed by Paul Gottfried
Review of The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs by John F. Cogan
Reviewed by Mark Thornton
Review of The Problem of Production: A New Theory of the Firm by Per Bylund
Reviewed by Mateusz Machaj
Jeff Deist recently joined our friend Jay Taylor's podcast.
Many billionaires — Ray Dalio, Warren Buffett, and Bill Gates among them — like to call for higher taxes on people such as themselves. But this raises a compelling question: would they have become rich in the first place under the kind of tax system they now advocate? Would they have accumulated a critical mass of investment capital if taxes had consumed more of their profits along the way? Would they have been able to maintain sufficient capital expenditures in their respective businesses to stay dynamic? Or would revenue, capital, and personal wealth lost to the IRS have relegated these super achievers to the status of merely successful? Jeff provides insights into those questions.
Foundations of a Free Society: Reflections on Ayn Rand’s Political Philosophy. Gregory Salmieri and Robert Mayhew, Eds. University of Pittsburgh Press. Xi + 460 pages.1
This excellent book mirrors in its choice of contributors the odd relationship between Ayn Rand and libertarianism. On the one hand, her own proposals for the political organization of society are a version of minimal state libertarianism, and her novels and essays have had an enormous impact on many libertarians. On the other hand, she not only denied she was a libertarian but denounced libertarianism in characteristically fierce fashion. The anarchist position of Murray Rothbard especially aroused her opposition.
Many of the contributors to the book are members of the “official” Objectivist organization of philosophers, the Ayn Rand Society, but others, including Matt Zwolinski, Peter Boettke, and Michael Huemer, are not Objectivists. The “official” Objectivists are more inclined than was Rand herself to acknowledge the similarity between her political thought and libertarianism, but, like her, they criticize libertarianism and denounce Rothbard’s anarchism.
In what follows, I shall address the criticisms of Rothbard’s anarchism, as these are likely to be of most interest to readers of mises.org. Before turning to this, though, I should like to examine the more general criticism of libertarianism raised by the Objectivists, as this has considerable philosophical value.
Given the manifest similarity between Rand’s political proposals and minimal state libertarianism, why are Objectivists so critical of libertarianism? One is tempted to ask them, “All right, you don’t like anarchism, but why isn’t support for a minimal state that has no power to tax and for laissez-faire capitalism enough for you? What more do you want?” Their answer is that non-Objectivist libertarianism lacks proper philosophical foundations. In the absence of these foundations, libertarians are unable adequately to support their political conclusions.
As an example, Darryl Wright, a philosophy professor at Harvey Mudd College and a rising star among Objectivist philosophers, criticizes Rothbard for not grounding his non-aggression principle in normative ethics. Although Rothbard accepted an ethics of natural law, he also held that political philosophy was autonomous, and this was his fatal error: “The source of the difficulties with Rothbard’s conception of aggression. . .lies in a particular way of understanding self-ownership, which in turn proceeds from Rothbard’s commitment to what I will call the autonomy of political philosophy. By this I mean the view that political philosophy should be independent of normative ethics---that is, independent of any substantive ethical theory applicable to the whole of one’s life.” (p.107). More generally, Wright says, “Since Rand’s approach to philosophy is holistic, a proper understanding of the[non-initiation of force] principle requires us to see how it grows out of her more fundamental positions in ethics and epistemology. . .” (p.16)
Harry Binswanger, who along with Leonard Peikoff is the most senior philosopher of the Ayn Rand Society, in his response to Michael Huemer also stresses the need for foundations: “Rand repeatedly criticized the libertarians for treating the non-initiation of force principle as if it were an axiom, observing that is a quite derivative principle, requiring a complete philosophic base.” (p.273)
What are the proper ethical foundations? Here the Objectivists begin from an indisputable truth: Human beings need to use reason in order to survive. Animals survive through instinct, but for human beings, as Wright says, “functioning is not determined by our genetics. . .We must create the equivalent state [to that of animals] in ourselves---in our souls---a state that can underwrite the basic kinds of cognitive and existential actions that our lives require over their entire span.” (p.18) (When I say that this truth is indisputable, I do not mean to endorse the use that Objectivists make of it in ethical theory. That is far from indisputable.)
Human beings need reason to survive, but what is reason? Here Rand’s theory of concept formation comes to the fore. We abstract concepts through “measurement omission” from preconceptual perceptual states. From these concepts, further abstractions take place, and this process continues, creating a hierarchy of concepts. However high the hierarchy grows, it is grounded in first-level concepts abstracted from percepts.
I do not propose here to dispute this account of concepts, but two uses of the theory, much emphasized by Objectivists, do not follow from it. Suppose it is right that the mind acquires concepts in just the way that Rand suggests. It is a further step, and one that seems to me unsupported, to say that we ought to bring this process of hierarchical concept formation under our conscious control. That is to say, Objectivists hold that we ought to trace our concepts back to their perceptual foundation and that, at each stage in the hierarchy, we should be able to produce a clear definition of the concept abstracted at that stage.
Perhaps the process of abstraction operates better when it proceeds without conscious direction. What exactly is the argument that it does not? Are those who endeavor to bring concept formation under conscious control better able to survive than those who do not? That seems a matter open to investigation, and I am unaware of any studies that show this to be the case. To sharpen what is at issue, the question I raise is not whether those who are rational are more likely than the irrational to survive. Rather, it is whether rationality requires, or even suggests, that consciously tracing concepts to their grounding in perception is more rational than not doing so. To anticipate an objection, in speaking of the need for investigation I am not assuming the truth of the analytic-synthetic dichotomy, brought into question in a famous essay by Leonard Peikoff. I do not claim that all truths not in a narrow sense “analytic” are contingent; rather, I question whether a particular claim about reason is true, let alone necessarily true. Objectivists have moved uncritically from the obviously true claim that we need reason to survive to the unsupported claim that using our reason in a particular way aids our survival.
There is another claim made by Objectivists that seems to me dubious. They stress a proper hierarchy of knowledge, in which one begins with a theory of concepts, used to ground ethics, which in turn grounds political philosophy. The theory of concepts on this view is at the most fundamental level. It does not follow from this that the hierarchy may be without argument transmuted into a theory of historical causation, according to which beneficial or harmful political doctrines stem ultimately from the theory of concepts held by their advocates. This theory of causation is basic to the account of Nazism in Dr. Peikoff’s well-known book The Ominous Parallels a book that in my opinion does not succeed in making its case. 2
Before getting to the criticisms of Rothbard’s anarchism, I should like to make one further point about Rand’s philosophy. Objectivists contend that the concept of value stems from life. Not only is the Objectivist account of value better than rival theories of value, it is the sole basis for the concept of value. As Dr. Binswanger states, “The essential point is this: only life makes possible an objective, nonarbitrary distinction between value and disvalue, or good and bad. . .It is the conditionality of life upon action that creates good-for and bad –for.”(p.265, emphasis in original)
That is a possible story about how the concept of value is acquired, but I cannot see why it is more than that. (Again, in raising this objection, I take as given that we need to use reason in order to survive and I do not challenge Rand’s account of concept acquisition.) What precludes defenders of other theories of value from suggesting their own theories of how the concept of value---of course using another definition of value from that of the Objectivists—is acquired? Life is conditional on action, but how exactly does this generate an account of how the concept of value must be acquired? Why is this particular conception of value the concept of value?
Let us now turn to the criticisms of Rothbard’s anarchism. To a large extent, these criticisms rest on a misapprehension of Rothbard’s position. For example, Dr. Binswanger assumes that on an anarcho-capitalist view, people are free to exercise force at their discretion. He contrasts this with Rand’s position, in which the use of force is based on objectively true standards. “The attempt to invoke individual rights to justify ‘competing’ with the government collapses at the first attempt to concretize what it would mean in reality. Picture a band of strangers marching down Main Street, submachine guns at the ready. When confronted by the police, the leader of the band announces: 'Me and the boys are only here to see that justice is done, so you have no right to interfere with us.’ According to the ‘libertarian anarchists,’ in such confrontation the police are morally bound to withdraw, on pains of betraying the rights of self-defense and free trade.” (p.229)
Against this, Dr. Binswanger says: “In fact, of course, there is no conflict between individual rights and outlawing private force: there is no right to the arbitrary use of force. No political or moral principle could require the police to stand by helplessly while others use force arbitrarily—that is, according to whatever private notions of justice they happen to hold.” (p.229)
This objection has no relevance to Rothbard’s position. He too believed in an objective law code, largely based on the tradition of common law, not on agencies with conflicting views deferring to one another or “fighting it out.” In a review of Bruno Leoni’s Freedom and the Law, he says: “In short, there exists another alternative for law in society, an alternative not only to administrative decree or statutory legislation, but even to judge-made law. That alternative is the libertarian law, based on the criterion that violence may only be used against those who initiate violence, and based therefore on the inviolability of the person and property of every individual from "invasion" by violence. In practice, this means taking the largely libertarian common law, and correcting it by the use of man's reason, before enshrining it as a permanently fixed libertarian code or constitution. And it means the continual interpretation and application of this libertarian law code by experts and judges in privately competitive courts.” law without legislation.
Another objection to anarcho-capitalism also fails. Dr. Binswanger advances a startling claim: “Ultimately, anarchists who oppose monopoly government have to end up as pacifists. This is because all force is monopolistic. . .There is no such thing as force that lets dissenters go their own way. Force does not tolerate ‘to each his own.’ Force is precisely the attempt to subjugate another’s will to one’s own. If force in self-defense is justified, this means that monopolizing an interaction is justified. If I use force to defend myself against an aggressor I am not trying to persuade him---I am attempting to stop him from acting as he chooses. If the government monopolization of force were wrong, so would be the private use of force by individuals. The argument against government’s monopoly on force is thus an argument against self-defense, and it leads to pacifism.” (p.278)
This objection baffles me, because it has nothing to do with the dispute between Rothbard and supporters of Rand’s minimal state. Whether using force against an aggressor is inconsistent with persuasion may well be a significant topic, but the question at issue is whether objective law requires a state. Even if Dr. Binswanger is right about persuasion and the aggressor, so what?
All of the essays in this collection merit careful study. I especially admire Lester Hunt’s outstanding analysis of rights as side constraints in “Ayn Rand and Robert Nozick on Rights”
Ayn Rand was an important thinker, but she was not always right.
- 1. I am grateful to Mr. Neil Parille for sending me a copy of this book and asking me to review it.
- 2. I hope I may be allowed a personal note. My review of the book, written for Inquiry so long ago as 1982, has been the second most criticized of all my reviews. My most criticized review was of a book written by an admirer of a well-known painting by Frans Hals.
Libertarianism. By Eric Mack. Polity Press, 2018. Vi + 167 pages. + online bonus chapter http://politybooks.com/wp-content/uploads/2018/07/Mack-Libertarian-FINAL-Online-Chapter-pdf.pdf
Eric Mack, for many years a philosophy professor at Tulane University, has a well-deserved reputation as a critic of philosophical arguments, and that talent is on abundant display in Libertarianism. In what follows, I shall comment on only a very few of Mack’s penetrating discussions.
The book is intended as an introductory guide to libertarianism, which Mack characterizes as “advocacy of individual liberty as the fundamental political norm. An individual’s liberty is understood as that individual not being subject to interference by other agents in her doing as she deems fit with her own person and legitimate holdings.” (p.1) The position may be defended with varying degrees of strictness, ranging from hardcore libertarians, who confine coercion to the protection of individual liberty, to soft-core libertarians, who allow coercion for a few additional reasons, such as aid when people are in “dire straits.” As the extent of permissible coercion grows, libertarianism shades into classical liberalism.
What is the justification for libertarianism? Mack distinguishes three principal answers, though noting that libertarianism can be defended in other ways as well. “There is the natural rights theme, according to which certain deep truths about human beings and their prospective interaction allow us to infer that each person has certain basic (‘natural’) moral rights that must be respected by all other persons, groups, and institutions.” (p.40)
Here I wonder whether one should make a distinction. Sometimes people use the term “natural rights” to mean basic rights, but sometimes people have in mind a narrower usage. In this understanding, it follows from human nature that human beings have certain rights. For example, in the Objectivist philosophy, because you need freedom in order to survive as a rational being, you have a right to freedom. There is no “is-ought” gap. Philosophers like Nozick, who accept the is-ought gap, would in this usage count as supporters of basic rights but not of natural rights.
The second justification for libertarianism “is the cooperation to mutual advantage theme, according to which general compliance with certain principles of justice engenders a cooperative social and economic order that is advantageous to all its members.”(pp.4-5) These two justifications vie in popularity among libertarians, but there is a third justification as well, though this has been less influential. “A third possible approach. . .is a form of utilitarianism that maintains that the greatest happiness must be pursued indirectly through steadfast compliance with certain constraining moral norms—as it turns out, pretty much the same constraining norms that are celebrated by the natural rights and mutual advantage approaches.” (p.5)
Mack takes Locke to be an example of the first approach, Hume of the second, and John Stuart Mill and Herbert Spencer of the third. Among twentieth-century figures, he concentrates on Robert Nozick as a representative of the natural rights approach and Friedrich Hayek as a representative of the mutual advantage approach. Mack devotes most of the book to a close analysis of these two great thinkers. He mentions Murray Rothbard, who exerted a profound influence on Nozick, several times, but I wish he had devoted more space to him. Mack in the bonus online chapter subjects to critical scrutiny a number of contemporary libertarians: Hillel Steiner, Doug Rasmussen and Doug Den Uyl, Loren Lomasky, and David Schmidtz.
In what follows, I shall comment on only a few points. These concern Robert Nozick though some of the issues are relevant to others as well. This makes for an idiosyncratic review, but Nozick’s thought has fascinated me since I first encountered it some forty-five years ago, and that is why I have chosen this path. Despite the narrow scope of my review, I hope that readers will gain some idea of Mack’s concerns and his style of argument.
Mack gives an excellent account of the argument, given by both John Rawls and Nozick, that utilitarianism does not take seriously the separateness of persons. The greatest happiness principle may require that you sacrifice yourself for the benefit of society. But, so the objection goes, this wrongly assimilates an individual’s sacrifice of part of himself for his overall good to the sacrifice of a person for the good of society. You may need to have your leg amputated to save your life, but there is no social entity having persons as its parts.
Mack considers a utilitarian response to the point raised by Rawls and Nozick, which does not rely “on the conflation of persons into a social entity.” (p.45) This response is that “what makes it rational for an individual to incur a lesser cost within her own life in order to attain a greater benefit within her own life is simply that the benefit is greater than the cost. The fact that the cost and the benefits are hers---that they both occur with her life---plays no role in making rational the production of the greater benefit at the lesser cost. Therefore, no contentious inference is needed to get from the so-called principle of individual choice to the principle of social choice.” (p.45, emphasis in original)
Mack responds on behalf of Rawls and Nozick to this rejoinder. They might reply that the rationality of prudential sacrifices within the life of one individual is “far less contentious” than the utilitarian’s balancing of costs and benefits across lives. (p.46) Can one show that utilitarian balancing is rational, without assuming the existence of a social entity with persons as parts? It seems doubtful that one can.
Mack’s response is excellent, but another answer is also worth considering. James Buchanan maintains that if one takes adequate account of the subjectivity of costs and benefits, a cost or benefit exists only relative to a single person. Your cost or benefit may be a cost or benefit to me, but only if I view it as one. I do not say that this view is correct, but it is at least worth considering. (Amartya Sen, like Buchanan a Nobel laureate in economics, thought there was a great deal to be said in favor of Buchanan’s view) If it is correct, benefits and costs cannot be added up across persons.
After a careful discussion of Nozick’s condemnation of using others as means, Mack says, “Nozick is concerned that his unqualified condemnation of using others as means will support anti-libertarian prohibitions, , for example, taking pleasure in another person’s appearance or trading with another person to one’s advantage. He then rules out such implications by declaring that, for the purposes of political philosophy, we need only be concerned ‘with certain ways that persons may not use others: primarily, physically aggressing against them. [quoting Nozick, Anarchy, State, and Utopia]However, this restriction is ad hoc because no reason is given for why political philosophy should only be concerned with this subset of usings.” (p.49, emphasis in original)
I do not think this objection altogether fair to Nozick, though it would be no doubt desirable to show how this view of political philosophy can be deduced from moral theory, as Nozick acknowledges. Confining political philosophy to the topic of when force is permissible (or obligatory) is not idiosyncratic to Nozick but a commonly used approach, especially among libertarians. He might respond to Mack, applying a strategy he often used on critics, ---much to their frustration, I might add---- that the problem of why political philosophy is thus confined is no more a problem for him than for anyone else. As such, it should not be taken as a decisive criticism of him.
Mack makes an excellent criticism of Nozick’s argument that if one starts with a network of competing protective agencies, as free market anarchists like Rothbard wish, “one of the protective agencies or the cooperative network as a whole seems to attain a natural ( non-coerced) monopoly in the provision of protective services.” (p.117), Nozick contends that if an agency or group of agencies attracts more clients than its rival agencies, there will be a cascade of new clients to it, because people will find it less costly to settle disputes if they are in the same agency. This will enable the largest agency to become a de facto monopoly. Mack is skeptical: “The fact that it may be less complicated and costly to resolve automobile collision claims when both parties are customers of the same insurance company has not led to one company having a virtual monopoly within the automobile insurance business. In addition, Nozick’s argument seems to overestimate the homogeneity of the services that competing protective agencies would offer.” (p.117)
There is an additional point here that seems worth making. Suppose that the process Nozick describes results in everyone’s joining the same agency. In that case, we would not have a state as Nozick characterizes it, because one of his requirements for a state is that it offers free or low-cost protective services to disadvantaged independents who are not its clients. Thus, Nozick requires for his argument to the minimal state to succeed that the very process by which the derivation starts will come to an end before it completes itself, but he offers no reason for this.
Mack raises against Nozick the specter of public goods. “For our purposes here, we can think of a public good as a good which, if it is produced and enjoyed by some members of a given public, cannot readily be withheld from other members of that public. . .The standard and useful example of a public good is national-scale defense. . . The conventional economic wisdom. . .is that the total value of the orders that the state or firm [ that offers defense services]will receive will be markedly less than it naively expects.”(p.122) People will prefer to free ride, hoping that others will pay for the good; but if everyone reasons this way, the good will not be purchased.
Mack is certainly right that if anarchist protective agencies or a Nozickian minimal state, lacking the power of taxation, proved unable to supply effective defense, that would be a serious objection indeed. But I think his argument has moved too fast. According to the customary neoclassical analysis, public goods will not be supplied efficiently. It does not follow from that, though, that the good will not be supplied at all, or in a quantity insufficient to “do the job.” The extent of the supply is an empirical matter. It is not a requirement for a theory of libertarian rights that it never requires efficiency losses, as neoclassical theory defines these. (The same difficulty also applies to Mack’s argument for a “dire straits fund” on pp.39-40 of the online bonus chapter.)
Suppose, though, that the free market turns out to be unable to supply defense. Would Mack then be correct when he says that a taxation minimal state may be justifiable on Nozickian grounds? He says, “Persons’ rights indicate what must not be done to them---or more specifically, what must not be done to them without their consent. But what about cases in which consent is not feasible?. . .A person’s right over her own body entails that she has a right not to be cut open without her consent even by an expert surgeon seeking to save her life. However, what if the person who needs that surgery to save her life is already unconscious and, hence, unable to give consent? If it is permissible for the surgeon to proceed with the needed surgery on the already unconscious individual, this seems to be true because the requirement that the subject consent to the physical intervention is really a requirement that she consent if and only if consent is feasible.” (pp.123-124)
If this is right, then, “the libertarian advocate of the TMS may argue that, precisely because of the non-feasibility of attaining consent from individuals to make payments in exchange for the public good of rights-protection, it is permissible to impose those payments without actual consent.” (p.124, emphasis in original)
I do not think this argument succeeds. In the first case, it is permissible to proceed with the life-saving operation because there is reason to believe that is what the patient would want. Most people would. Had she given instructions beforehand not to operate, then the operation would not be permissible. In the taxation case, the reason consent is not feasible is that people refuse to consent. It is hardly plausible to say that I may force you to pay me for my services, because, owing to your refusal of my services, getting your consent is not feasible.
Mack himself raises an important problem for the argument for the taxation minimal state. ”Recall. . . . .that this defense of the TMS turns on a striking assumption about information. It assumes that the state’s tax assessors would know, for each assessed party, what magnitude of taxation would leave that party net better off in light of the value for that party of her receipt of the tax-funded public good of protective services.” (p.124)
In Libertarianism, Mack does not, for the most part, discuss his own views but confines himself to the exposition and criticism of others. An exception is his brilliant presentation of Mises’s calculation argument against socialism (pp.58 ff.), one of the best known to me, where it is clear that he endorses the argument. Readers should be aware though, that Mack has written a large number of papers setting forward his own views in great depth and detail. Readers of Mack’s work will encounter a very fine philosophical intelligence. Few can approach his power of critical analysis. Libertarianism is must reading for anyone interested in libertarian theory.
 For challenges to the neoclassical analysis of public goods, see Ludwig von Mises, Human Action, Chapter 23, pp.650 ff; and Anthony de Jasay, Social Contract, Free Ride. See also the discussion in David Schmidtz, The Limits of Government.