Abstract
We have tried to demolish socialism on the economic as well as moral fronts. Having reduced it to a phenomenon of exclusively socio-psychologi cal significance, i.e., a phenomenon for whose existence neither good economic nor good moral reasons can be found, its roots were explained in terms of aggression and the corruptive influence that a policy of divide et impera exercises on public opinion. The last chapter returned to economics in order to give the final blows to socialism by engaging in the constructive task of explaining the workings of a capitalist social order as socialism’s economically superior rival, ready for adoption at any time. In terms of con sumer evaluations, capitalism was indicated as being superior with respect to the allocation of production factors, the quality of the output of goods produced, and the preservation of values embodied in capital over time. The so-called monopoly problem allegedly associated with a pure market system was in fact demonstrated not to constitute any special problem at all. Rather, everything said about the normally more efficient functioning of capitalism is true also with respect to monopolistic producers, as long as they are indeed subject to the control of voluntary purchases or voluntary abstentions from purchases by consumers.
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Notes
G. de Molinari, “The Production of Security,” Center for Libertarian Studies, Occasional Paper No. 2, New York, 1977, p.3.
Ibid., p.4.
For various approaches of public goods theorists cf. J. Buchanan and G. Tullock, The Calculus of Consent, Ann Arbor, 1962;
J. Buchanan, The Public Finances, Homewood, 1970; and
J. BuchananThe Limits of Liberty, Chicago, 1975;
G. Tullock, Private Wants, Public Means, New York, 1970;
M. Olson, The Logic of Collective Action, New York, 1965;
W. Baumol, Welfare Economics and the Theory of the State, Cambridge, 1952.
Cf. on the following M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, pp.883ff; and “The Myth of Neutral Taxation,” in: Cato Journal, 1981; W. Block, “Free Market Transportation: Denationalizing the Roads,” in: Journal of Libertarian Studies, 1979; and “Public Goods and Externalities: The Case of Roads,” in: Journal of Libertarian Studies, 1983.
Cf. for instance, W. Baumol and A. Blinder, Economics, Principles and Policy, New York, 1979, Chapter 31.
Another frequently used criterion for public goods is that of “non-rivalrous consumption.” Generally, both criteria seem to coincide: when free riders cannot be excluded, nonrivalrous consumption is possible; and when they can be excluded, consumption becomes rivalrous, or so it seems. However, as public goods theorists argue, this coincidence is not perfect. It is, they say, conceivable that while the exclusion of free riders might be possible, their inclusion might not be connected with any additional cost (the marginal cost of admitting free riders is zero, that is), and that the consumption of the good in question by the additionally admitted free rider will not necessarily lead to a subtraction in the consumption of the good available to others. Such a good would be a public good, too. And since exclusion would be practiced on the free market and the good would not become available for nonrivalrous consumption to everyone it otherwise could-even though this would require no additional costs-this, according to statist- socialist logic, would prove a market failure, i.e., a suboptimal level of consumption. Hence, the state would have to take over the provision of such goods. (A movie theater, for instance, might only be half-full, so it might be “costless” to admit additional viewers free of charge, and their watching the movie also might not affect the paying viewers; hence the movie would qualify as a public good. Since, however, the owner of the theater would be engaging in exclusion, instead of letting free riders enjoy a “costless” performance, movie theaters would be ripe for nationalization.) On the numerous fallacies involved in defining public goods in terms of nonrivalrous consumption cf. notes 12 and 16 below.
Cf. on this W. Block, “Public Goods and Externalities,” in: Journal of Libertarian Studies, 1983.
Cf. for instance, J. Buchanan, The Public Finances, Homewood, 1970, p.23;
P. Samuelson, Economics, New York, 1976, p. 160.
Cf. R. Coase, “The Lighthouse in Economics,” in: Journal of Law and Economics, 1974.
Cf. for instance, the ironic case that W. Block makes for socks being public goods in “Public Goods and Externalities,” in: Journal of Libertarian Studies, 1983.
To avoid any misunderstanding here, every single producer and every association of producers making joint decisions can, at any time, decide whether or not to produce a good based on an evaluation of the privateness or publicness of the good. In fact, decisions on whether or not to produce public goods privately are constantly made within the framework of a market economy. What is impossible is to decide whether or not to ignore the outcome of the operation of a free market based on the assessment of the degree of privateness or publicness of a good.
In fact, then, the introduction of the distinction between private and public goods is a relapse into the presubjectivist era of economics. From the point of view of subjectivist economics no good exists that can be categorized objectively as private or public. This, essentially, is why the second proposed criterion for public goods, i.e., permitting nonrivalrous consumption (cf. note 6 above), breaks down, too. For how could any outside observer determine whether or not the admittance of an additional free rider at no charge would not indeed lead to a reduction in the enjoyment of a good by others?! Clearly, there is no way that he could objectively do so. In fact, it might well be that one’s enjoyment of a movie or driving on a road would be considerably reduced if more people were allowed in the theater or on the road. Again, to find out whether or not this is the case one would have to ask every individual-and not everyone might agree. (What then?) Furthermore, since even a good that allows nonrivalrous consumption is not a free good, as a consequence of admitting additional free riders “crowding” would eventually occur, and hence everyone would have to be asked about the appropriate “margin.” In addition, my consumption may or may not be affected, depending on who it is that is admitted free of charge, so I would have to be asked about this, too. And finally, everyone might change his opinion on all of these questions over time. It is thus in the same way impossible to decide whether or not a good is a candidate for state (rather than private) production based on the criterion of nonrivalrous consumption as on that of nonexcludability. (Cf. also note 16 below).
Cf. P. Samuelson, “The Pure Theory of Public Expenditure,” in: Review of Economics and Statistics, 1954; and Economics, New York, 1976, Chapter 8;
M. Friedman, Capitalism and Freedom, Chicago, 1962, Chapter 2;
F. A. Hayek, Law, Legislation and Liberty, vol. 3, Chicago, 1979, Chapter 14.
In recent years economists, in particular of the so-called Chicago-school, have been increasingly concerned with the analysis of property rights (cf. H. Demsetz, “The Exchange and Enforcement of Property Rights,” in: Journal of Law and Economics, 1964; and “Toward a Theory of Property Rights,” in: American Economic Review, 1967; R. Coase, “The Problem of Social Cost,” in: Journal of Law and Economics, 1960; A. Alchian, Economic Forces at Work, Indianapolis, 1977, part 2; R. Posner, Economic Analysis of Law, Boston, 1977). Such analyses, however, have nothing to do with ethics. On the contrary, they represent attempts to substitute economic efficiency considerations for the establishment of justifiable ethical principles (on the critique of such endeavors cf. M. N. Rothbard, The Ethics of Liberty, Atlantic Highlands 1982, Chapter 26; W. Block, “Coase and Demsetz on Private Property Rights,” in: Journal of Libertarian Studies, 1977; R. Dworkin, “Is Wealth a Value,” in: Journal of Legal Studies, 1980; M. N. Rothbard, “The Myth of Efficiency,” in: M. Rizzo (ed.), Time, Uncertainty, and Disequilibrium, Lexington, 1979). Ultimately, all efficiency arguments are irrelevant because there simply exists no nonarbitrary way of measuring, weighing, and aggregating individual utilities or disutilities that result from some given allocation of property rights. Hence, any attempt to recommend some particular system of assigning property rights in terms of its alleged maximization of “social welfare” is pseudo-scientific humbug (see in particular, M. N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” Center for Libertarian Studies, Occasional Paper No. 3, New York, 1977; also, L Robbins, “Economics and Political Economy,” in: American Economic Review, 1981). The “Unanimity Principle” which J. Buchanan and G. Tullock, following K. Wickseil (Finanztheoretische Untersuchungen, Jena, 1896), have repeatedly proposed as a guide for economic policy is also not to be confused with an ethical principle proper. According to this principle only such policy changes should be enacted which can find unanimous consent-and that surely sounds attractive; but then, mutatis mutandis, it also determines that the status quo be preserved If there is less than unanimous agreement on any proposal of change-and that sounds far less attractive because it implies that any given, present state of affairs regarding the allocation of property rights must be legitimate either as a point of departure or as a to-be-continued state. However, the public choice theorists offer no justification in terms of a normative theory of property rights for this daring claim as would be required. Hence, the unanimity principle is ultimately without ethical foundation. In fact, because it would legitimize any conceivable status quo, the Buchananites most favored principle is no less than outrightly absurd as a moral criterion (cf. on this also M. N. Rothbard, The Ethics of Liberty, Atlantic Highlands, 1982, Chapter 26; and “The Myth of Neutral Taxation,” in: Cato Journal, 1981, pp.549f). Whatever might still be left for the unanimity principle, Buchanan and Tullock, following the lead of Wicksell again, then give away by reducing it in effect to one of “relative” or “quasi” unanimity.
Cf. on this argument M. N. Rothbard, “The Myth of Neutral Taxation,” in: Cato Journal, 1981, p.533. Incidentally, the existence of one single anarchist also invalidates all references to Pareto-optimality as a criterion for economically legitimate state action.
Essentially the same reasoning that leads one to reject the socialist-statist theory built on the allegedly unique character of public goods as defined by the criterion of nonexcludability, also applies when instead, such goods are defined by means of the criterion of nonrivalrous consumption (cf. notes 6 and 12 above). For one thing, in order to derive the normative statement that they should be so offered from the statement of fact that goods which allow nonrivalrous consumption would not be offered on the free market to as many consumers as could be, this theory would face exactly the same problem of requiring a justifiable ethics. Moreover, the utilitarian reasoning is blatantly wrong, too. To reason, as the public goods theorists do, that the free-market practice of excluding free riders from the enjoyment of goods which would permit nonrivalrous consumption at zero marginal costs would indicate a suboptimal level of social welfare and hence would require compensatory state action is faulty on two related counts. First, cost is a subjective category and can never be objectively measured by any outside observer. Hence, to say that additional free riders could be admitted at no cost is totally inadmissible. In fact, if the subjective costs of admitting more consumers at no charge were indeed zero, the private owner-producer of the good in question would do so. If he does not do so, this reveals that to the contrary, the costs for him are not zero. The reason for this may be his belief that to do so would reduce the satisfaction available to the other consumers and so would tend to depress the price for his product; or it may simply be his dislike for uninvited free riders as, for instance, when I object to the proposal that I turn over my less-than-capacity-filled living room to various self-inviting guests for nonrivalrous consumption. In any case, since for whatever reason the cost cannot be assumed to be zero, it is then fallacious to speak of a market failure when certain goods are not handed out free of charge. On the other hand, welfare losses would indeed become unavoidable if one accepted the public goods theorists’ recommendation of letting goods that allegedly allow for nonrivalrous consumption to be provided free of charge by the state. Besides the insurmountable task of determining what fulfills this criterion, the state, independent of voluntary consumer purchases as it is, would first face the equally insoluble problem of rationally determining how much of the public good to provide. Clearly, since even public goods are not free goods but are subject to “crowding” at some level of use, there is no stopping point for the state, because at any level of supply there would still be users who would have to be excluded and who, with a larger supply, could enjoy a free ride. But even if this problem could be solved miraculously, in any case the (necessarily inflated) cost of production and operation of the public goods distributed free of charge for nonrivalrous consumption would have to be paid for by taxes. And this then, i.e., the fact that consumers would have been coerced into enjoying their free rides, again proves beyond any doubt that from the consumers’ point of view these public goods, too, are inferior in value to the competing private goods that they now no longer can acquire.
The most prominent modern champions of Orwellian double talk are J. Buchanan and G. Tullock (cf. their works cited in note 3 above). They claim that government is founded by a “constitutional contract” in which everyone “conceptually agrees” to submit to the coercive powers of government with the understanding that everyone else is subject to it, too. Hence, government is only seemingly coercive but really voluntary. There are several evident objections to this curious argument. First, there is no empirical evidence whatsoever for the contention that any constitution has ever been voluntarily accepted by everyone concerned. Worse, the very idea of all people voluntarily coercing themselves is simply inconceivable, much in the same way that it is inconceivable to deny the law of contradiction. For if the voluntarily accepted coercion is voluntary, then it would have to be possible to revoke one’s subjection to the constitution and the state would be no more than a voluntarily joined club. If, however, one does not have the “right to ignore the state”--and that one does not have this right is, of course, the characteristic mark of a state as compared to a club-then it would be logically inadmissible to claim that one’s acceptance of state coercion is voluntary. Furthermore, even if all this were possible, the constitutional contract could still not claim to bind anyone except the original signers of the constitution. How can Buchanan and Tullock come up with such absurd ideas? By a semantic trick. What was “inconceivable” and “no agreement” in pre-Orwellian talk is for them “conceptually possible” and a “conceptual agreement.” For a most instructive short exercise in this sort of reasoning in leaps and bounds cf. J. Buchanan, “A Contractarian Perspective on Anarchy,” in: Freedom in Constitutional Contract, College Station, 1977. Here we learn (p. 17) that even the acceptance of the 55 m.p.h. speed limit is possibly voluntary (Buchanan is not quite sure), since it ultimately rests on all of us conceptually agreeing on the constitution, and that Buchanan is not really a statist, but in truth an anarchist (p.11).
M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, p.887.
This, first of all, should be kept in mind whenever one has to assess the validity of statist-interventionist arguments such as the following, by J. M. Keynes (“The End of Laissez Faire,” in: J. M. Keynes, Collected Writings, London 1972, vol. 9, p.291): “The most important Agenda of the state relate not to those activities which private individuals are already fulfilling but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the state does not make them. The important thing for government is not to do things which individuals are doing already and to do them a little better or a little worse: but to do those things which are not done at all.” This reasoning not only appears phony, it truly is.
Some libertarian minarchists object that the existence of a market presupposes the recognition and enforcement of a common body of law, and hence a government as a monopolistic judge and enforcement agency. (Cf., for instance, J. Hospers, Libertarianism, Los Angeles, 1971;
T. Machan, Human Rights and Human Liberties, Chicago, 1975.) Now, it is certainly correct that a market presupposes the recognition and enforcement of those rules that underlie its operation. But from this it does not follow that this task must be entrusted to a monopolistic agency. In fact, a common language or sign-system is also presupposed by the market; but one would hardly think it convincing to conclude that hence the government must ensure the observance of the rules of language. Just as the system of language then, the rules of market behavior emerge spontaneously and can be enforced by the “invisible hand” of self-interest. Without the observance of common rules of speech people could not reap the advantages that communication offers, and without the observance of common rules of conduct, people could not enjoy the benefits of the higher productivity of an exchange economy based on the division of labor. In addition, as I have demonstrated in Chapter 7, independent of any government, the rules of the market can be defended a priori as just. Moreover, as I will argue in the conclusion of this Chapter, it is precisely a competitive system of law administration and law enforcement that generates the greatest possible pressure to elaborate and enact rules of conduct that incorporate the highest degree of consensus conceivable. And, of course, the very rules that do just this are those that a priori reasoning establishes as the logically necessary presupposition of argumentation and argumentative agreement.
Incidentally, the same logic that would force one to accept the idea of the production of security by private business as economically the best solution to the problem of consumer satisfaction also forces one, as far as moral-ideological positions are concerned, to abandon the political theory of classical liberalism and take the small but nevertheless decisive step (from there) to the theory of libertarianism, or private property anarchism. Classical liberalism, with L v. Mises as its foremost representative in this century, advocates a social system based on the fundamental rules of the natural theory of property. And these are also the rules that libertarianism advocates. But classical liberalism then wants to have these laws enforced by a monopolistic agency (the government, the state)-an organization, that is, which is not exclusively dependent on voluntary, contractual support by the consumers of its respective services, but instead has the right to unilaterally determine its own income, i.e., the taxes to be imposed on consumers in order to do its job in the area of security production. Now, however plausible this might sound, it should be clear that it is inconsistent. Either the principles of the natural property theory are valid, in which case the state as a privileged monopolist is immoral, or business built on and around aggression—the use of force and of noncontractual means of acquiring resources-is valid, in which case one must toss out the first theory. It is impossible to sustain both contentions and not be inconsistent unless, of course, one could provide a principle that is more fundamental than both the natural theory of property and the state’s right to aggressive violence and from which both, with the respective limitations regarding the domains in which they are valid, can be logically derived. However, liberalism never provided any such principle, nor will it ever be able to do so, since, as I demonstrated in Chapter 7, to argue in favor of anything presupposes one’s right to be free of aggression. Given the fact then that the principles of the natural theory of property cannot be argumentatively contested as morally valid principles without implicitly acknowledging their validity, by force of logic one is committed to abandoning liberalism and accepting instead its more radical child: libertarianism, the philosophy of pure capitalism, which demands that the production of security be undertaken by private business, too.
Cf. on the problem of competitive security production G. de Molinari, “The Production of Security” Center for Libertarian Studies, Occasional Paper No. 2, New York, 1977;
M. N. Rothbard, Power and Market, Kansas City, 1977, Chapter 1; and For A New Liberty, New York, 1978, Chapter 12; also:
W.C. Wooldridge, Uncle Sam the Monopoly Man, New Rochelle, 1970, Chapters 5–6; M. and
L Tannehill, The Market for Liberty, New York, 1984, part 2.
Cf. M. Murck, Soziologie der oeffentlichen Sicherheit, Frankfurt/M., 1980.
On the deficiencies of democratically controlled allocation decisions cf. above, Chapter 9, n. 4.
Sums up Molinari (“Production of Security,” Center for Libertarian Studies, Occasional Paper No. 2, New York, 1977, pp. 13–14): “If...the consumer is not free to buy security wherever he pleases, you forthwith see open up a large profession dedicated to arbitrariness and bad management. Justice becomes slow and costly, the police vexatious, individual liberty is no longer respected, the price of security is abusively inflated and inequitably apportioned, according to the power and influence of this or that class of consumers.”
Cf. the literature cited in note 21 above; also: B. Leoni, Freedom and the Law, Princeton, 1961; J. Peden, “Property Rights in Celtic Irish Law,” in: Journal of Libertarian Studies, 1977.
Cf. T. Anderson and P. J. Hill, “The American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West,” in: Journal of Libertarian Studies, 1980.
Cf. on the following H. H. Hoppe, Eigentum, Anarchie und Staat, Opladen, 1987, Chapters.
Contrast this with the state’s policy of engaging in battles without having everyone’s deliberate support because it has the right to tax people; and ask yourself if the risk of war would be lower or higher if one had the right to stop paying taxes as soon as one had the feeling that the state’s handling of foreign affairs was not to one’s liking!
And it may be noted here again that norms that incorporate the highest possible degree of consensus are, of course, those that are presupposed by argumentation and whose acceptance makes consensus on anything at all possible, as shown in Chapter 7.
Again, contrast this with state-employed judges who, because they are paid from taxes and so are relatively independent of consumer satisfaction, can pass judgments which are clearly not acceptable as fair by everyone; and ask yourself if the risk of not finding the truth in a given case would be lower or higher if one had the possibility of exerting economic pressure whenever one had the feeling that a judge who one day might have to adjudicate in one’s own case had not been sufficiently careful in assembling and judging the facts of a case, or simply was an outright crook.
Cf. on the following in particular, M. N. Rothbard, For A New Liberty, New York, 1978, pp.233ff.
Cf. B. Bailyn, The Ideological Origins of the American Revolution, Cambridge, 1967;
J. T. Main, The Anti-Federalists: Critics of the Constitution, Chapel Hill, 1961;
M. N. Rothbard, Conceived in Liberty, 4 vols., New Rochelle, 1975–1979.
Naturally, insurance companies would assume a particularly important role in checking the emergence of outlaw companies. Note M. and L. Tannehill: “Insurance companies, a very important sector of any totally free economy, would have a special incentive to dissociate themselves from any aggressor and, in addition, to bring all their considerable business influence to bear against him. Aggressive violence causes value loss, and the insurance industry would suffer the major cost in most such value losses. An unrestrained aggressor is a walking liability, and no insurance company, however remotely removed from his original aggression, would wish to sustain the risk that he might aggress against one of its own clients next. Besides, aggressors and those who associate with them are more likely to be involved in situations of violence and are, thus, bad insurance risks. An insurance company would probably refuse coverage to such people out of a foresighted desire to minimize any future losses which their aggressions might cause. But even if the company were not motivated by such foresight, it would still be forced to raise their premiums up drastically or cancel their coverage altogether in order to avoid carrying the extra risk involved in their inclination to violence. In a competitive economy, no insurance company could afford to continue covering aggressors and those who had dealings with aggressors and simply pass the cost on to its honest customers; it would soon lose these customers to more reputable firms which could afford to charge less for their insurance coverage. What would loss of insurance coverage mean in a free economy? Even if [the aggressor] could generate enough force to protect itself against any aggressive or retaliatory force brought against it by any factor or combination of factors, it would still have to go completely without several economic necessities. It could not purchase insurance protection against auto accidents, natural disasters, or contractual disputes. It would have no protection against damage suits resulting from accidents occurring on its property. It is very possible that [it] would even have to do without the services of a fire extinguishing company, since such companies are natural outgrowths of the fire insurance business. In addition to the terrific penalties imposed by the business ostracism which would naturally follow its aggressive act [it] would have trouble with its employees.... [For] if a defense service agent carried out an order which involved the intentional initiation of force, both the agent and the entrepreneur or manager who gave him the order, as well as any other employees knowledgeably involved, would be liable for any damages caused” (M. and L Tannehill, The Market for Liberty, New York, 1984, pp.110–111).
The process of an outlaw company emerging as a state would be even further complicated, since it would have to reacquire the “ideological legitimacy” that marks the existence of the presently existing states and which took them centuries of relentless propaganda to develop. Once this legitimacy is lost through the experience with a pure free market system, it is difficult to imagine how it could ever be easily regained.
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Hoppe, HH. (1989). Capitalist Production and the Problem of Public Goods. In: A Theory of Socialism and Capitalism. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-7849-3_10
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