Capitalism – The Law of the Jungle?

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It is frequently asserted that a system of free market capitalism reduces everyone to the level of animals, subject to the “law of the jungle”. Similar emotive epithets are those such as capitalism being “dog eat dog” or “winner takes all”. Nothing could be further from the truth.

Under a capitalist system all property is privately owned. Therefore, all exchanges are voluntary and not coerced (except, obviously, for acknowledged criminal acts of theft and violence). But for a voluntary exchange to occur then both parties must expect to benefit from the exchange. The exchange has therefore been productive as it has left both parties with something better than what they had before. If they did not expect to be better off then neither would have made the exchange.

Contrast this, however, with Government intervention. Such interventions, such as taxation, are ­non-voluntary, i.e. the taxed individual has no choice as to whether the exchange occurs. But if he would not have made the exchange voluntarily then it follows that he does not regard the post-exchange results as being to his benefit in comparison. Hence while the recipient – Government, or whoever Government distributes the money to – benefits, the forced giver manifestly does not. And as it is not possible to measure utilities between individuals we cannot say that the recipient gains “more” than the tax-payer loses.

Indeed the very essence of capitalism and its ability to lift whole populations out of the slum of poverty is because people produce goods that other people want which they then trade for what they themselves want in return. There is production of new goods that are voluntarily traded to make everyone’s lives better off. It is a plus-sum operation. Taxation and other forms of coerced exchange, however, are fights over existing goods – goods that already have been produced but the Government wades in and decides that someone other than the productive party should have them. This is manifestly a zero-sum game, one party reaping what another loses. And what could be closer to the law of the jungle than this? Animals in the jungle are not productive, they fight with other animals for the restricted goods that nature has offered them so that they may survive. What one animal gains another animal loses. “Dog eat dog” is therefore a more appropriate description of political fights for taxpayers’ money rather than for free exchange.

Finally, “winner takes all” would be a more apt description for democracy than for capitalism. With private property and free exchange the minority does not have to be restricted to the products and services that the majority wants. Most people might decide to shop at the mall but that does not force others to do so and does not stop the latter from spending their pounds or dollars at a boutique. In a Government election, however, the minority – the losers – have to put up with the successful candidate even though they didn’t want him and might find his policies odious. Such a system benefits only the majority – the winners, who take all – at the expense of the hapless losers.

Indeed such epithets as these we have been discussing are usually applied to capitalism by those who do not believe that they have benefited enough from free exchange and to remedy this they want to start taking what other people have, usually in the name of “fairness” and “equality”. Such charlatans should be exposed for what they are honestly trying to do – reduce human civilisation to a very real law of the jungle.

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Universal Healthcare

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“Universal healthcare”, that is an alleged “right” to “healthcare” provided in some form by the Government, seems to be a mainstay in social democratic thought. So much so, in fact, that the UK’s NHS is taken as a given, with any kind of proposed healthcare reform couched in terms of improving “our” Government-funded health service rather than ever considering whether it should exist in the first place.

However the consequences of socialising medicine are grave indeed, including spiralling costs and ever increasing numbers of sick – pretty much the effects of the welfare state in general. This is without even considering the ethics of forcibly confiscating the money of one person to benefit another, although this essay will focus on the economic aspects of what is, in effect, the socialisation of medicine.

Why Healthcare?

A preliminary question to raise is that if healthcare should be provided by Government then why shouldn’t everything else? If Government can work such wonders in the health industry then why don’t we spread this unfettered glory to all areas of the economy? Contrary to what seems to be mainstream opinion there is nothing special about healthcare. Good health and treatment for diseases, accidents and the likes are ends like any other. There is a finite number of resources with which to meet these ends and the ends must compete with other ends that individuals hold dear. There could be little point in having a first class health service if, to pay for it, you cannot afford any roads, shops, schools, etc. No one gives up all their possessions to buy a Ferrari. So how are these scarce means to be allocated? The choice is between two possible options – either through voluntary trade which leads to the allocation of resources through the pricing, profit and loss system; or through Government diktat where resources are directed by the will of bureaucrats.

This is not the place to raise and discuss such important facts as the impossibility of the rational allocation of resources under a fully socialised economy, nor the lack of incentives which necessitate the creation of a climate of force and fear in order for production to continue. But for anyone who believes that healthcare should be socialised, does he/she additionally believe that everything else should be run by the Government also? If direction of resources by a central body is good enough for healthcare why is it not for the rest of the economy? All of the arguments that apply to “free” and “universal” healthcare just could just as easily be applied to anything else. Why not “free food” or “free televisions” or “free football tickets”? And if the budding healthcare socialiser does not take this position then why not?

This issue aside, however, let us proceed to examining the effects of providing “universal” healthcare. To be clear the definition of universal healthcare we shall consider for this essay is that the cost of treating medical conditions shall be borne (in some way) by the State, i.e. the taxpayer. Healthcare costs are not, therefore, paid for or borne by the sick individual at the point of need. Different jurisdictions have enacted this in different ways and to difference degrees but the principle is the same.

Non-contributory Demand for Life-Saving Treatment

The typical justification for universal healthcare runs something like this: a person, through no fault of his own becomes terminally ill. Treatment is so expensive that this person cannot afford to be cured and so has to die. Such a situation is intolerable in a modern society. So enacting universal, Government-provided healthcare will mean that anyone that gets sick can be treated, however rich or however poor.

This emotive image of why universal healthcare is apparently needed is so engrained in the popular psyche that it is almost always the first line of rebuttal to any questioning of the concept. However even if this type of medical need was prevalent (which it is not, as we shall see below) there is no justification for the Government to step in and solve it. If we elaborate the key assumptions as follows:

  • That no individual has any participation in causing his medical need (or at least that any contribution can be mitigated);
  • That the medical need is expensive as judged by the individual’s means; and
  • It is not possible to state in advance precisely who will require this treatment;

then the Government has done nothing more than enacted a compulsory insurance scheme. People are forced to pay into the system through their taxes and only if they suffer from any illness do they receive any benefit out of it. But why must the Government provide this? Why must everyone be forced into a one-size-fits-all system? Why can’t private insurers, tailoring healthcare packages to a range of needs and suitabilities, do this by attracting customers voluntarily?

A typical rebuttal of this would proceed along the lines of looking at the height of healthcare insurance premiums in the US. The reason why this is a fallacious example will be discussed below. Here we will deal with one concern – that of higher premiums for those more likely to become ill through, say, genetic disposition or for any reason for which the individual concerned cannot be held responsible. Is it not unfair for this person to have to pay higher premiums? It’s not his fault that he is lumbered with this greater risk so why should he pay more? The obvious answer is that while his risk of incurring illness is not his fault it is also not the fault of anyone else either. Why is just to force everyone else to pay for it but not the person himself? It is indeed unfortunate that the individual concerned is prepossessed with a greater likelihood of illness but why should everybody else be forced to bear this burden? If X has something that Y needs is X (or X’s “representatives” in the form of the Government) able to just take it? Or does it just apply to healthcare? After all everyone finds themselves in situations which are not anyone else’s fault but render them in a less fortunate position than another individual. So what if X bears costs that he cannot help in some walk of life other than healthcare? Why should Y be privileged purely because his faultless needs are medical rather than in something else?1

Against the argument that helping one’s “fellow” human being promotes goodness and morality, this only true if one voluntarily donates funds to help the sick. A moral action has to have been chosen, otherwise it is just a plain action, bestowing neither merit nor condemnation on the donor. Leaves display neither morally good nor morally bad behaviour when they blow in the wind. If you reduce human action to that of dead matter purely controlled by external events then morality of that action is an empty consideration. If anything forced charity is likely to begat bitterness and hatred as other people benefit from one’s hard earned money against your own wishes.

Contributory Demand for Life-Saving Treatment

There is therefore no justification for forcing people to pay into a system merely because they might get ill through no fault of their own. However, it becomes almost unnecessary to elaborate this further when we see that a vast proportion of the demand for life-saving medical treatment consists of needs that are generated by at least some kind of contribution from the would-be patient himself. That is that the individual’s lifestyle has in someway caused, contributed to or aggravated a need for life-saving care.

In 2010 there were 494 242 deaths in the UK. Of these the primary causes were:

  • Cancers and Neoplasms – 141 446 (29%);
  • Heart or Circulatory Diseases – 158 084 (32%);
  • Respiratory Diseases – 67 276 (14%).2

Together these three causes accounted for 74% of all deaths in the UK. Worse, they do not include all of the patients who were diagnosed and have either been cured, are in a process of treatment or otherwise have their illnesses under control. Looking at these latter figures for the UK we find that heart failure accounts for 5% of all hospital admissions3 and that, in 2011, there were 309 527 new cancer diagnoses4. Yet how are these illnesses caused? Only 5-10% of the cancer diagnoses are attributed to genetic defects while a whopping 90-95% are attributed to lifestyle and environment, including smoking, drinking, poor diet, obesity and lack of physical exercise5. Heart disease, the biggest killer in the list above (and also worldwide), is nearly always caused by an individual’s lifestyle, pretty much the same factors as for cancer. Indeed lifestyle changes are the primary target for initial treatment6. And respiratory diseases, taking a distant 3rd place in the list, have the same major lifestyle inputs7.

Therefore the largest causes of death in the UK are those that are attributed to the lifestyle and/or the environment of the individual. A person has a very large element of choice as to whether he will pursue a style of living that will or is likely to make him in need of life-saving medical treatment. It seems unlikely that the architects of universal healthcare, past and present, took or take this fact into account. For whether one pursues a course of action or not depends much on its costs versus its benefits. These elements cannot be raised or lowered without precipitating a change in people’s behaviour, all else being equal. People will do more of something if the cost is lower relative to its benefit than if costs are higher relative to its benefit. In short, increasing costs reduces demand and lowering costs swells demand.

When people, therefore, have to face the costs of their own choices the result is that these costs will be accounted for in their action. In a world without universal healthcare if someone does something that will result in life-threatening illness then this person risks having to pay the full cost for their medical treatment8. The result is a very strong disincentive to the pursuit of lifestyles that will result in the need for such treatment. Further to the extent that preventative treatments (including choices such as diet, exercise, etc.) are less costly than remedial treatments there will be greater expenditure on the former as a method of protecting against having to pay for the latter at some point in the future.

However if the cost of remedial life-saving treatment through universal healthcare is reduced to either a very low level to the individual or is removed entirely then precisely what has happened? The cost relative to the benefit of pursuing lifestyles that lead to ill health is lowered. Pursuing such a lifestyle therefore becomes a significantly more attractive proposition. The individual might still be paying through his taxes or through some kind of compulsory insurance scheme but the key difference is that his payment is now separated from his behaviour. Whereas before he only paid if he actually got sick now he has to pay regardless and the amount he pays bears no relation to precisely how many medical services his illness may demand. In short, you can get as sick as you like and you will not pay a penny more or less for your treatment. There will still be costs, of course; illness will still cause pain, interruptions to the normal course of living, and, of course, the possibility or likelihood of death and these elements will still weigh as psychic costs in the mind of the acting individual. The key point, though, is that relatively costs have decreased and relatively pursuing lifestyles that will result in sickness are more attractive.

This is brought into sharper focus when we realise that the cost of preventative treatment is not covered by universal healthcare. Universal healthcare promises to treat you if you get sick but the costs of stopping yourself from getting sick in the first place still have to be borne by the individual. Relatively, therefore, preventing illness has become more costly relative to treating it. There will therefore be less prevention of illnesses, all else being equal, and thus more illness9. The overall result will be an increase in the demand for the treatment of illnesses as the now relatively lower cost of treatment versus the relatively higher cost of prevention causes people to pursue lifestyles that are more likely to lead to illness. Obesity rates, for example (which itself is dependent upon the major lifestyle choices of diet and physical exercise) have ballooned in the last half-century with 2007 rates, according to the WHO, standing at anywhere between 61% and 74% for the UK, US, Canada, Australia and New Zealand10. In the US, the country with the world’s highest standard of living, obesity rates have increased for all population groups over the last few decades11.

Indeed, since the appearance of universal healthcare more than half a century ago, there has been a general shift in the healthcare industry from being one of preventative medicine to being one of remedial medicine, furnishing treatments that don’t often attack the root of the problem but rather try to control symptoms. In the ten years to 2008, the percentage of Americans taking at least one prescription drug increased from 44% to 48%; the use of two or more drugs increased from 25% to 31%, while the use of five or more drugs increased from 6% to 11%. That’s a total of 90% of Americans taking at least one prescription drug in a country with an increasing obesity rate and with a current obesity rate that tops the list for the English-speaking world. In short, the Western world is populated by fat, pill-popping invalids12.

But it gets worse than that. We mentioned above that one of the great fears of getting sick was the unbearable cost. But an increase in demand leads to an increase in costs, all else being equal. Healthcare is so unaffordable not in spite of the fact that people get sick but because the very system is inducing people to demand more and more of it. What else do you expect when you do the equivalent of paying people to get sick?13 Between 1997 and 2009, total healthcare spending in the UK rose from £54.8 billion to £136.4 billion, an average annual percentage increase of 7.9%. As a proportion of GDP healthcare expenditure rose half as much again, increasing from 6.6% to 9.8%14.

Further, not all of the need for life-saving treatment takes the form of an illness. The treatment of accidents and injuries also needs to be considered. On the face of it such incidents appear to be not necessarily blameworthy, freak happenings for which no one can be held responsible. However people are, to a degree, responsible for the conditions out of which accidents arise – conditions that prove injurious or fatal when combined with carelessness or absent-mindedness. In a world where one has to bear the costs of his own healthcare an individual would be ever-alert to reducing the possibility of accidents arising. The conditions for them to occur would therefore be substantially reduced. With universal healthcare, however, where the cost of remedial medical attention is reduced to zero, it suddenly becomes more costly to take this preventative action. All else being equal, therefore, there will be more hazardous situations that arise and hence more accidents. Not only will people carry out more dangerous or “thrilling” activities but the safety features introduced to regular activities will be minimised compared to what they otherwise would be. It is because of this that safety standards appear not voluntarily through market transactions but are arbitrarily imposed by Government fiat as numerous rules and regulations that hamper the activities of businesses and individuals before they can even draw a breath15. The overall result can only be increased demand for healthcare and hence spiralling costs.

Non-urgent and non-life threatening need for medical care

Above we have considered only the most serious of medical needs. Before leaving the demand side of universal healthcare we should also consider the less serious, minor ailments from which people suffer. If people do not have to bear any cost for medical care there is an increased tendency to use it when no treatment at all is required or when a lesser degree of attention would resolve the ailment. The NHS’s “Choose Well” campaign, launched in response to the heavy burden placed on underpriced (i.e. free) healthcare facilities, publishes a list of figures that is worth quoting in full:

  • 51.4m GP consultations are for minor ailments alone, which would clear up by themselves, or with a little help from an over-the-counter remedy; this is 18 per cent of the GP workload;
  • Nearly half of these consultations are generated by people aged 16 – 59 years;
  • Up to 40,000 GP visits per year are for dandruff; 20,000 go to their local surgery for travel-sickness and 5.2 million with blocked nose;
  • Since 2005/6, the number of First Attendances at A&E has gone up from 17,775,225 to 20,717,197 in 2010/11 (16.5 per cent);
  • Two million people who go to A&E could either self-care or have been treated elsewhere in the community;
  • 12 percent of people admit to having used A&E in the past even when they knew there was nothing seriously wrong with them;
  • The estimated cost of treating people who go to A&E but who could have either self-treated or gone else where, is £136 million a year. This is the equivalent cost of 6,500 nurses.16 

In addition to these figures, 40% of A&E visits are related to intoxication from alcohol17. Does anyone deny that if some kind of cost was applied to the use of medical facilities that all of these numbers would not fall dramatically? And would people readily drink to a injurious level of intoxication if they had to pay for the resulting problems to be treated? The very reason that is cited for the alleged necessity of universal healthcare is that private healthcare is unaffordable, and yet it is the very system of universal healthcare itself that causes and perpetuates the extraordinarily high cost through an uncontrollably inflated demand.

Alternative Rationing of Healthcare Facilities

Perhaps the most sorry tale of universal healthcare is that it isn’t “universal” at all. The additional demand leading to spiralling costs puts pressure on resources meaning that not everyone who demands them is able to receive them at the point of need. The result, in the absence of consumer prices, is that the Government pursues alternative methods of rationing. The most egregious example of this is the infamous NHS waiting list, where instead of having to pay in money you instead have to pay in time and wait for resources to become available for you. What has been gained in having the service provided for free is the pain and agony of having to wait for treatment (which may never come if you happen to die in the meantime). With the free market if you are willing and able to pay for your treatment you at least have the option of getting it there and then and the treatment would be far more affordable than it is under universal healthcare.

Further non-market rationing is the decision of health authorities not to fund certain treatments. A drug could be tried, tested and approved but the particular healthcare authority decides that it is not “worth” funding the drug based on aggregate statistical studies rather than what is suitable for the particular patient. Such a decision can quite literally be a death sentence to someone with a terminal illness and is the source of the feared “death panels” in the US under the Patient Protection and Affordable Care Act, colloquially known as “Obamacare”. Whether you live or die, therefore, depends entirely on precisely what you happen to be suffering from and the precise treatment that is required, not on your willingness to voluntarily contract for the specific services that you need from your healthcare provider. More on the pricing and rationing of drugs will be discussed imminently as we turn now to the supply side of the healthcare industry.

Government as Consumer and Provider

Under a normal, free market in healthcare, the patient would pay his doctor for services that they contract to be rendered. The patient’s appetite for healthcare will be tempered by what he is willing to pay for – none of those 999 calls for blocked noses or headaches – yet the doctor will also be keen to keep the cost of potential treatments low so his services remain affordable and competitive. This, in turn, is imputed back to the manufacturers of treatments who will lose custom if they produce drugs that are too expensive, ineffective or even dangerous. What results is a host of affordable treatments that are suited to the needs of the individual patient.

Under universal healthcare, however, this relationship is severed. Patients, as we have already stated, are now in the position of having an inflated demand for healthcare, their money having been confiscated by the Government regardless of the patient’s need. Patients no longer care about price as this is not borne by them individually but by the multitude of taxpayers. However the revenue from healthcare provision still disappears into private hands, those of doctors and treatment providers such as drug manufacturers. Having been shorn of the discipline to keep prices low, maximising their revenues and profits becomes far easier. There will therefore be more of an incentive to maximise rather than minimise the cost of the services that are provided. Again the result is rising prices. In the middle of the patient and supplier sits the Government holding the cash. Not only is Government, to a large degree, less responsible with funds than with its original owners (all losses and increasing and expenses can simply be borne by higher taxes, borrowing or inflation, made easier by the relatively short terms of office that prevail in a democracy18). But also as Government bureaucrats are not the end users of the treatments that are produced there is no way for them to determine whether certain treatments or courses of action are worth spending their funds on. Instead of the voluntary relationship between a patient and his doctor tailoring the appropriate needs suitable to the individual patient the Government must take refuge in aggregate scientific studies concerning the treatment’s effectiveness and make a purchasing decision accordingly19. But the drug companies themselves are the ultimate experts in the science of treatment whereas the Government and its regulators are not. Shorn of any personal experience of treatment benefits the Government has to rely on the science that the healthcare suppliers churn out and there is every incentive for the latter to proceed down the route of ensuring that this science results in products that are more expensive than they would be on the free market. The result is a cosy relationship between the Government and the largest pharmaceutical providers that results in a stifling of competition for medical services. Indeed, as soon as someone outside of the pharmaceutical lobby appears with a treatment that threatens the profits of the big drug companies everything is done to discredit them, as can be witnessed from the endless harassment of The Burzynski Clinic and its heterodox approach to treating cancer. In short, all patients regardless of what is personally effective and preferable for them are forced to accept expensive laboratory-concocted medicines and procedures from “Big Pharma” that just happen to have received the sanctifying blessing of the Government20. But this is not all because the Government’s own incentive structure serves only to make treatments more expensive21. Private providers of healthcare services on a free market would have every incentive to ensure that affordable and effective treatments are brought to market as soon as possible. If they do not they risk losing business to competitors who are able to do so. To put it bluntly a doctor whose patients all die will lose customers to other doctors who can treat them. When the Government, however, is the sole provider and its services are funded by taxes it never faces the possibility of losing customers or revenue if it fails to perform. The speed with which new treatments are brought to use is therefore diminished and, in fact, there is every incentive to perpetuate endless rounds of testing in the name of “value for money” and “safety”. If someone dies because the Government has not brought a treatment to market it can readily be blamed on the illness itself, with future patients unable to take their custom to more able healthcare providers as a result of this failure. If, however, the Government approves a drug and it turns out to be ineffectual or, worse, actually hastens illness and death, then there is not only negative political publicity but also the individual politicians and bureaucrats themselves stake their own livelihoods on a drug approval. The result, therefore, are endless and unnecessary rounds of testing to make absolutely and devastatingly “sure” that drugs work and are safe, all of which adds to the already inflated cost and casually allows would-be beneficiaries to die because a life-saving drug is held up in regulatory approval for no other reason than saving the skin of some faceless bureaucrat22 23.

Additional Effects on the Demand and Supply Side of Healthcare

There are further effects that the distortion of incentives causes to both the demand and the supply side of the healthcare industry. One is an ever-increasing scope of precisely what constitutes a treatable illness. Addressing one’s own personal weaknesses and failings is a costly business but, lo and behold, if you can suddenly have it defined as a treatable illness or condition one is absolved of all blame and responsibility for the said condition and a plethora of free treatment is offered in its place. Conveniently enough the suppliers, promised a gargantuan amount of Government money if they can treat these “problems”, are eager to step in. This has been particularly true in areas such as psychological or mental disorders, possession of which formerly meant that one was simply bone idle, sociopathic, or – shock, horror – just not a very nice person. It is not within the scope of this essay to determine whether such apparent disorders are genuine and treatable but one has to view with suspicion whether their increased proliferation is due to honest developments in medical understanding or whether it is simply a ruse to relieve individuals of the responsibility for their odious personalities and bad behaviour while lining the pockets of the supposed treatment providers.

Indeed their is a distinct selectivity in classifying psychological issues as treatable conditions and it seems that someone is only possessive of a “disorder” if it has negative effects. But what if the effects are overwhelmingly positive? A person who has immense powers of concentration is as deviant from the norm as someone who cannot concentrate at all, yet we call him “talented” rather than “disordered”; a person who showers his friends with gifts and strangers with extreme courteousness steers as much away from typical behaviour as one that loots and assaults, except that we call him “generous” or “friendly”. Shouldn’t, if we were consistent, also treat these people for having disordered minds, or indeed, any person with a mind that steers from the average and dull?

The Case of the United States

It is typically asserted that the high costs of the healthcare system in the United States plus its allegedly grievous inequalities are a strong argument against any free market in healthcare. The only problem with this is that the US does not have a free market in healthcare.

In the first place there is Medicare and Medicaid which are state funded health insurance programmes for the elderly and the poor respectively24. The effects of these upon demand for healthcare will be fully inline with our analysis above, with both programmes forming the lion’s share of the US governments titanic unfunded liabilities, estimated at anywhere between $50 and $100 trillion in present value.

The second big problem is the whole boondoggle of insurance. The majority of the population under 65 is insured for healthcare by their employer, a sorry legacy of the Great Depression. Even Medicare and Medicaid are insurance based social welfare programmes. This has caused two problems. First, insurance, as we noted above, only works for events over which the insured has either no or a mitigated degree of control. If, however, there are events over which the insured does have control then it simply becomes a carte blanche to carry out these activities. Healthcare demand and, therefore, healthcare premiums have to rise to cover the inflated costs. The Government pours fuel on the fire by legislating to prevent insurers from excluding certain medical needs from coverage. Insurance businesses are effectively being told that whenever one of their customers voluntarily does X activity they must, in turn, fork out $Y. Who would ever want to enter a contract such as that? The only result can be a greater incidence of these medical needs and, consequently, that insurance premiums have to rise, driving them into levels of un-affordability. Even more costs are then heaped on top for administering the whole machine. Rather than simply being able to take cash from the patient, individual doctors have to go through lengthy and bureaucratic administrative processes to claim their fees from the patient’s insurance provider. It’s the equivalent of a shopkeeper having to fill in forms and send them away simply to get paid for selling you a newspaper. At least with other forms of socialised medicine such as the UK’s NHS the money just comes from a single, big pot.

Another problem is the whole issue of Government licensing and restriction. The effects of drug regulation by the FDA are as we set out above. But Government interference in the supply side of healthcare dates back to before World War I when the Flexner Report was published, having an enormous impact on the training of physicians that exists to this day. Dressed up, as always, as a concern for the consumer and standards, the result was to vastly restrict the number of people who could and do practise medicine. Murray Rothbard sums it up succinctly:

Flexner’s report was virtually written in advance by high officials of the American Medical Association, and its advice was quickly taken by every state in the Union.

The result: every medical school and hospital was subjected to licensing by the state, which would turn the power to appoint licensing boards over to the state AMA. The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, “allopathic” medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy.

Thus through the Flexner Report, the AMA was able to use government to cartelize the medical profession: to push the supply curve drastically to the left (literally half the medical schools in the country were put out of business by post-Flexner state governments), and thereby to raise medical and hospital prices and doctors’ incomes. In all cases of cartels, the producers are able to replace consumers in their seats of power, and accordingly the medical establishment was now able to put competing therapies (e.g., homeopathy) out of business; to remove disliked competing groups from the supply of physicians (blacks, women, Jews); and to replace proprietary medical schools financed by student fees with university-based schools run by the faculty, and subsidized by foundations and wealthy donors25.

Finally, we may also mention the burdensome and expensive cost of medical malpractice insurance and litigation. Not only do these impose direct costs upon healthcare supply, but doctors and physicians may also practise “defensive medicine”, ordering swathes of unnecessary tests on a single patient just to eliminate any chance of being subjected to a malpractice lawsuit, swelling demand for medical supplies and thus raising prices.

Reviewing this record renders it impossible to view the US healthcare system as bearing any kind of resemblance to a free market.

What Should be Done?

The most cogent, succinct and principled programme for restoring an efficient and affordable healthcare system is the four steps outlined by Hans Hermann Hoppe26. Adapting and adding to this for socialised medical systems in general:

  • Private, voluntary insurance programmes should cover medical needs over which the individual has no control;
  • Needs over which the individual has control should be paid for by that individual; prevention will therefore become more attractive than cure and medical costs will decline; people would lead stronger and healthier lives;
  • Eliminate Government licensing and restriction of doctors and treatments, increasing their supply and allowing patients to determine precisely who they want to be treated by and how;
  • Restore the role of private charity and mutual organisations in providing assistance to the less well-off27. To the cries of letting the fortunes of the poor sick be subject to the vagaries of private charity, the latter is already the only route if the Government healthcare system refuses to fund a treatment because the cost isn’t “justified”. As we noted earlier giving voluntarily is also a moral good whereas being compulsorily deprived of your funds for enforced charity engenders bitterness towards and hatred of those in need.

This is the only way if anyone in the future is to enjoy an efficient, affordable and ethical healthcare service.

1To elaborate private health insurance would operate by categorising policyholders into definable classes, a class being a category of persons sharing a common characteristic. Of those in this class it must be possible for the risk of diagnosis of the insured event (i.e. the illness) to be quantified. A simple classification and quantification of an event would be “this year 1% of all men will be diagnosed with cancer”. By knowing the costs of medical care and the number of people who will require it the insurer is able to set the premium rate. It follows that if one class is at a greater risk of acquiring an illness than another class then the premiums for the latter will be lower. The most successful insurance operation is one that defines its classes and its resulting qualifications very precisely as those in less risky classes can be offered lower, more competitive premiums. It is these nuances of classification that are objected to as they are not the fault of the individual. The point we are offering in rebuttal here is that they are not the fault of anyone else either so this is no basis for everyone else to have to pay for the individual’s healthcare needs.

2Office for National Statistics, Statistical Bulletin, Deaths registered in England and Wales in 2010, by cause, 28th October 2011.

3Dr Rob Hicks, Heart Failure, BBC Health.

4Cancer Research UK, Cancer in the UK: December 2011.

5Anand P, Kunnumakkara AB, Kunnumakara AB, Sundaram C, Harikumar KB, Tharakan ST, Lai OS, Sung B, Aggarwal BB, Cancer is a preventable disease that requires major lifestyle changes, Pharm. Res. 25 (9): 2097–116.

6Ornish, Dean, “et al.”, Can lifestyle changes reverse coronary heart disease? The Lifestyle Heart Trial, Lancet 336 (8708): 129-33, doi:10, 1016/0140-6736(90)91656-U, PMID 1973470; Ornish, D., Scherwitz, L. W., Doody, R. S., Kesten, D., McLanahan, S. M., Brown, S. E. “et al.”, Effects of stress management training and dietary changes in treating ischemic heart disease, JAMA 249 (54), 54.doi:10.1001/jama.249.1.54, PMID 6336794; Ornish, D., Scherwitz, L. W., Billings, J. H., Brown, S. E., Gould, K. L., Merritt, T. A. “et al.”, Intensive lifestyle changes for reversal of coronary heart disease, JAMA 280(23): 2001–7, doi:10.1001/jama.280.23.2001, PMID 9863851.

7WHO, Global Surveillance, prevention and control of chronic respiratory diseases: a comprehensive approach, p. 37.

8Insurance would be useless in this scenario as it is impossible to insure against events over which the insured has control, unless this control can be rendered obsolete and a risk of the insured event not dependent upon control still remains

9As a general rule prevention of illnesses is costly even if only psychically. There is always a degree of discipline required in the abstinence from or moderation of certain harmful but pleasurable pastimes such as smoking, drinking, taking recreational drugs, etc. and in sticking to a diet and exercise regimen.

10Lauren Streib, World’s Fattest Countries, 8th February 2007, Forbes.

11Blackburn, G L; Walker, W A, Science-based solutions to obesity: What are the roles of academia, government, industry, and health care?, The American Journal of Clinical Nutrition (American Society for Clinical Nutrition) 82 (1): 207–210, PMID 16002821.

12Qiuping Gu; Charles F Dillon; Vicki l Burt, Prescription Drug Use Continues to Increase: U.S. Prescription Drug Data for 2007–2008, NCHS Data Brief No. 42 September 2010.

13We might add that recently jurisdictions have started targeting prevention as a result of their own spiralling costs. However these often take the form of paternalistic and invasive intrusions into people’s lifestyles such as bans and prescriptions of certain types of behaviour – we might mention the recent smoking ban and the suggested minimum price for alcohol in the UK as examples, classic cases of one Government intervention arising because of the consequences of another. If healthcare wasn’t universal not only would unhealthy lifestyles be curbed but people would still have the freedom to pursue and enjoy them provided that they were prepared to pay for the consequences.

14Uma Qaiser, Expenditure on Healthcare in the UK, May 2011, Office for National Statistics.

15Safety is an end just like any other in that it consumes scarce resources. There is no objective standard of safety but rather each person must decide how much of his resources he is willing to devote to safety at the expense of other ends. Every pursuit of safety is a resource denied to another end. Wealthier societies will therefore be able to afford more safety. A safe car, for example, would be one that is built like a tank yet it would cost so much that no one would be able to afford it nor would it probably go very fast. People have decided, in this instance, that the end of being able to afford a car that gets them to where they want to go quickly is worth pursuing ahead of the safety offered by a tank-like car. Because of universal healthcare the voluntary trade of safety standards is skewered, allowing more accidents to arise then there otherwise would. The resulting Government imposition of standards must necessarily be arbitrary and is unable to calculate where the trade-off between the pursuit of safety and other ends should be. The Government could, for instance, legislate that all cars should be built like tanks in the name of “protecting people from road accidents”, but the resulting loss of productivity from the unaffordability of the vehicles produced would be enormous.

16www.northwest.nhs.uk/yournhs/choosewellthiswinter/

17TNT Magazine, Crazy A&E visits revealed in Christmas hospital warning, 12 Dec 2011.

18For an elaboration of how the stewardship of a nation’s resources under democracy increases their squandering, see Hans Hermann Hoppe, On Time Preference, Government, and the Process of Decivilization, Ch. 1 in Democracy, The God that Failed.

19Roberts Higgs, The US Food and Drug Administration – A Billy Club is not a Substitute for Eye Glasses, Ch. 9 in Against Leviathan, p. 59 highlights the relative ineffectiveness of such testing: “Largely because of the differences among patients in their physiological responses and their psychological inclination to accept various trade-offs, the typical medical product produces a range of expected outcomes among its users. No amount of pre-market testing can eliminate such uncertainties.” The remainder of this chapter is a brilliant survey of the disastrous and deadly consequences resulting from the dictatorial stifling of diversity and perverse incentives of Government regulated medicine.

20We are not, of course, endorsing treatments such as those offered by the Burzynski Clinic nor are we necessarily condemning the drugs that are produced by the large pharmaceutical companies. Our point is that under universal healthcare the needs and desires of the individual patient are necessarily supplanted by the profit motive of healthcare providers. Burzynski’s treatment may well be ineffective for the most part, but this is for the individual patient to decide, not a swathe of Government bureaucrats in the pockets of “Big Pharma”.

21A commonly held fallacy is that anyone who works in private industry is automatically interested in their own gain at the “expense” of others whereas anyone who enters the public arena is a selfless altruistic angel who is suddenly devoid of all human desires and incentives. Perhaps to swallow the fleecing nature of the state people willingly mask the truth in their minds that Government officials are just as human as everyone else.

22Higgs, pp. 61-2.

23This is not to suggest, of course, that efficacy and safety would never be considered on the free market. Far from it. The important aspect to stress, however, is that there has to come a point where testing must stop and the drug is either abandoned or is offered for sale. On the free market precisely where this point lies will, again, be determined by how much consumers are willing to spend on safety. What is being demonstrated here is that the incentive structure of Government is likely to increase the testing and experimental process beyond what would be seen on the free market and, hence, increase costs.

24One of the myths of the US healthcare system is that if you are poor you cannot afford healthcare. This is not true; it is the middle income earners who cannot afford health insurance and who do not qualify for either of these two programmes who have difficulty accessing healthcare.

25Murray N Rothbard, Government Medical “Insurance”, Ch. 20 in Making Economic Sense, pp. 76-7.

26Hans Hermann Hoppe, A Four-step Health-care Solution, No, 4 in The Free Market, Volume 11, April 1993.

27Mutuals were once the mainstay of providing relief but have been rendered almost obsolete since the advent of universal healthcare. It is ironic that the supporters of mutual and co-operative organisations are of the ideological left and, hence, supporters of the welfare state as it is the latter than has driven mutuals to the fringe of economic relevance.

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Social Utility and Envy

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In a previous essay the present author commented on the role of envy in relation to greed. This short post will seek to comment on the relationship between social utility and envy, elaborating on a position put forward by Murray N Rothbard.

Rothbard treated the problem of envy and societal wealth in the following way:

If A and B trade two goods or services, they each do so because they will be, or rather expect to be, better off as a result of the trade. Surely it is legitimate then to say that A and B are both better off, and “therefore” that “society is better off,” since no one demonstrably loses by the exchange. It is implicit, and even explicit from the use of the value-loaded term “optimal,” that this exchange is therefore a “good thing.” I am sympathetic to the view that this exchange is a good thing, but I do not believe that this can be concluded merely from the fact of exchange, as the Pareto Optimum does. In the first place, there might well be one or    more people in existence who dislike and envy A or B, and who therefore experience pain and psychic loss because the object of their envy has now improved his lot. We cannot therefore conclude from the mere fact of an exchange that “everyone” is better off, and we can therefore not simply leap to the valuation idea of social utility. In order to pronounce this voluntary exchange as “good,” we need another term to our syllogism: we must make the ethical pronouncement that envy is evil, and should not be allowed to cloud our approval of the exchange. But in that case we are back to the need for a coherent ethical system. I believe, as an “ethicist,” that envy is evil, but I see no willingness among economists to admit the need for, much less set forth, any sort of coherent ethical position.1

In an earlier article he provided an elaboration as to why the potential for envy does not prevent us from saying that societal wealth increases from free exchange:

But what about…the envious man who hates the benefits of others? To  the extent that he himself has participated in the market, to that extent he reveals that he likes and benefits from the market. And we are not interested in his opinions about the exchanges made by  others, since his  preferences are not demonstrated through action and are therefore irrelevant. How do we know that this hypothetical envious one loses in utility because of the exchanges of others? Consulting his verbal opinions does not suffice, for his proclaimed envy might be a joke or a literary game or a deliberate lie. We are led inexorably, then, to the conclusion that the processes of the free market always lead to a gain in social utility. And we can say this with absolute validity as economists, without engaging in ethical judgments.2

In other words because of the concept of preference demonstrated through action it is not possible to determine whether a third party is envious:

Actual choice reveals, or demonstrates, a man’s preferences; that is, that his preferences are deducible from what he has chosen in action. Thus, if a man chooses to spend an hour at a concert rather than a movie, we deduce that the former was preferred, or ranked higher on his value scale. Similarly, if a man spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses he could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis.3

Nevertheless I believe a stronger and more precise elaboration can be made. From the fact of action we are able to deduce that a person acts to bring about a set of circumstances that he prefers to those that exist prior to the action. But this valuation of circumstances is made ex-ante, a fact to which Rothbard alludes but passes over, in the first passage quoted above. It is an assessment of the value of that which is against that which he/she wants to bring about. It is only in this ex-ante sense that we are able to say that if A and B participate in a voluntary exchange that they are “better off”. The envy of a third party, however, can only arise at the ex-post stage, that is after the completion of the action – the envy is of the circumstances that have arisen as a result of the action. In the ex-ante position the action exists only in the mind of the acting individual/s. Any feelings of third parties must necessarily arise because of the state of the world as it is prior to action, not because of it. When we say that societal wealth increases from a voluntary action we mean that this is true only ex-ante.

The situation ex-post is markedly different. At this point we are, in fact, not able to deduce if anyone is better off, even the parties to the exchange let alone potentially envious third parties. So not only may third parties be envious and bitter at what has arisen from A and B’s exchange but A and/or B themselves may feel that they have suffered a psychic loss and, if they could have their time again, would not repeat the exchange. Once the actions are completed and the desires of the minds of the acting individuals have expressed themselves through real actions we move into the ex-post world where nothing more about the action can be said.

Why are we not able to determine this ex-post situation? Precisely because of the concept of demonstrated preference elaborated above. Unless valuations are expressed through action we cannot deduce at all the ex-post position. A person may be profitable, loss-making, envious, hurt or whatever but this is merely hypothetical without the specific evaluation of the individual being deducible through his actions.

It follows that when different methods of economic organisation are being compared, it is only the ex-ante consideration that is relevant as this is the only one that can be deduced through actions. For the actions of all individuals, whether they are of an individual, a corporation, a Government or the Central Planning Board only demonstrate their ex-ante valuations. And it is only with free exchange that both parties to the transactions expect to be better off. All other forms of organisation necessarily involve involuntary actions where at least one party does not expect to benefit (otherwise they would have made the action voluntarily), the impossibility of measuring this loss meaning that we cannot conclude there has been any increase in societal wealth.

In sum, therefore,

  • Under conditions of voluntary action all parties to an action will benefit ex-ante;
  • Ex-ante an action exists only in the mind of the acting individual/s. Third parties can neither gain nor lose ex-ante as nothing has happened in the world for them to assess;
  • It can therefore be said that voluntary action will increase societal wealth ex-ante.
  • Under conditions of involuntary action at least one party will not benefit ex-ante. It cannot be said, as a consequence, that societal wealth increases;
  • Ex-post it is not possible to deduce whether anyone has gained or lost; this can only be evaluated through further, concrete actions which themselves can only be analysed according to the criteria just elaborated.

Nevertheless it must be stressed that this is insufficient to justify free exchange unless we insert ethical norms that state why we should want societal wealth to be increased; indeed, why should we want everyone to be better off? Why not a majority or a minority? There is nothing to stop someone from saying “I accept that free exchange makes everyone better off but I don’t want everyone to be better off. I think that a person should make sure that himself and his friends are better off regardless of the consequences to everyone else.” Rothbard again:

The fact that the free market maximizes social utility, or that State action cannot be considered voluntary, or that the  laissez-faire economists were better welfare analysts than they are given credit for, in itself implies no plea for laissez-faire or for any other social system. What welfare economics does is to present these conclusions to the framer of ethical judgments as part of the data for his ethical system. To the person who  scorns social utility or admires coercion, our analysis might furnish powerful arguments for a policy of thoroughgoing Statism.4

Such a possibility cannot be ruled out from the fact of free exchange alone. They can be ruled out praxeologically but this must be the subject for a later essay.

1Murray N Rothbard, Value Implications of Economic Theory, Ch. 12 in Economic Controversies, p. 243.

2Murray N Rothbard, Towards a Reconstruction of Utility and Welfare Economics, Ch 14 in Economic Controversies, p. 320.

3Ibid., p. 290.

4Ibid., p. 333.

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