Economic Myths #15 – Unemployment

Leave a comment

One of the key indicators of the economic “performance” of any given country is its rate of unemployment. Low rates of unemployment are understood as a sign of prosperity while high rates are taken as a sign of recession and stagnation. Indeed, during the Great Depression, unemployment reached as high as 25% in the United States. Politicians are particularly keen to monitor the rate of unemployment as low unemployment lends credence to the economic policies of those in power while high unemployment stocks the arsenal of those in the opposition. Given also that entire economic dogmas such as the so-called trade-off between full employment and inflation, not to mention the generation-long post-war Keynesian consensus are, at least, part rooted in the concept of unemployment, one would expect unemployment to be a unique and important category in economic theory.

This short essay will not explore in detail the government induced causes or aggravations of unemployment such as the minimum wage and excessive regulations heaped upon the shoulders of employers. Such topics have been examined countless times over by many economists, “Austrian” or otherwise. Rather, what we wish to concentrate on here is the validity of the very term “unemployment” itself and to determine whether it is really a useful concept in shaping so-called “economic policy” or whether it is really redundant and meaningless.

In the first place, as “Austrians” we must be highly suspicious of any concept that is an aggregation and is not explicitly linked to any notion of individual human action. All voluntary actions are, as we know, the result of the best choice of ends available with scarce means. A man who has several million pounds stashed in his bank account may be content to spend all of his time in leisure and would be “unemployed”. Yet aside from any moral wrangling over the worth of such a lifestyle we would hardly view this as a problem. But what about those lesser privileged folk – the ones who are not working but nevertheless have the outward appearance of needing an income from some kind of employment? Shouldn’t we classify these people as “unemployed” and doesn’t this state of unemployment indicate an egregious case of market failure?

The question turns on whether employment at the terms of the available opportunities is worthwhile for the individual person. If there are jobs available yet he refuses to accept them then it indicates that he is not satisfied with the terms of those opportunities. Perhaps it is the wrong industry, it is in wrong the place, or – most likely – the wage offered isn’t high enough for him. He therefore chooses to abstain and holds out for a better opportunity to appear in the future. From the point of view of individual satisfaction with the scarce means available, the outcome of seeming “unemployment” is therefore optimal. Indeed, labour, like anything else, is a resource that is available for an individual to use. Not all resources are deployed 100% of the time as it would be wasteful to do so. Everyone, for example, owns possessions that are not being used at the current moment – food in the fridge, clothes in the wardrobe, books and DVDs on the shelf, etc. Clearly it would be wasteful – nay, ridiculous – to try and use all of these “unemployed” resources at once. They are more valuable being kept in abeyance ready for utilisation when an opportune moment appears, i.e. when the person believes that use of them would yield more benefit than leaving them idle. More widely, there are always buildings to let, oil in the ground, trees that are left standing, water in lakes and reservoirs, and so on. All of these resources remain idle because an opportunity valuable enough for deploying them has not yet arisen. Indeed, consistent requirement for all resources to be utilised would mean that shops should be empty of all goods as they have already been purchased and consumed, and ultimately everything in the world should be consumed right now. To put it at its most basic, a person actively searching for the right job is not, in his mind, unemployed in the sense of carrying out a wasteful activity.

The inability to see labour as a resource that is deployed at the choosing of the individual labourer leads to many related fallacies and reveals the dangers of looking only at surface phenomena and appearance. An individual does not view employment as an end itself – work for work’s sake. Rather, all employment is action aimed at diverting scarce means available to their most highly valued ends. Employment per se is not a goal or achievement. No one would dig a hole in the ground and fill it up again unless the act of doing so led to a valuable end. Governments and people succumb to the illusion of economic activity brought about by “employment” and the apparent lack of it by “unemployment”, with any focus on providing “full employment” never stopping to ask whether the activity in which employment will be created is worthwhile or is wasteful. The most grievous example of this this is, of course, the forced lowering of interest rates to provoke an artificial investment boom. There will be lots of employment, everyone will be engaged in lots of activity and wages will be rising rapidly. But it is clear that everyone’s endeavours are ultimately wasteful and lie on a doomed path. So-called full employment policies are therefore nothing more than a surface coating to prevent social unrest, to make people feel as though they are doing something worthwhile and to put money into their hands that they can spend. To the extent that these actions create no new wealth, however, they should properly be regarded as welfare and not as employment. The wheels may be turning but the carriage goes nowhere and it is simply expending fuel on motionless activity. Far more difficult would be for governments to concentrate on policies that promote full production instead of full employment as this would, of course, require a dramatic reduction in the size and scope of government power and interference.

We submit, therefore, that unemployment is a meaningless concept at least when applied to the unfettered free market. It may have some relevance in economies where governments impede the ability of the supply of labour to meet demand through minimum wages and the like. Apart from shutting out a good number of low-productive persons from the labour market entirely, such interferences ultimately distort people’s views as to which terms of employment are achievable – they hold out for high wages because there is the illusion that that is what their labour is worth. They do not realise, however, that supply is unwilling to meet demand at that inflated level and hence their search for employment is in vain. All of this, however, is simply a particular application of price theory. If the price of any good is fixed too high it will remain unemployed. There is, therefore, no special concept of unemployment applying only to labour that attracts a different body of theory. Furthermore, the whole question of “nominal rigidity” or so-called “sticky wages” is beside the point when it comes to economic theory. If the demand for a particular good – in this case, labour – should drop it is entirely open for the particular labourers to express incredulity at this fact and to stubbornly hold out for wages that will never meet a willing demand. This is not, however, evidence of the market’s “failure to clear”. It is simply that the supply curve remains stuck to the left. There is an misconception that the market is “efficient” because it “values” everything correctly – a doctrine that underpins so-called “efficient market hypothesis”. But the “efficiency” of the market – the  nexus of voluntary exchanges between individual people – comes from its superior ability to channel goods to where they are most highly valued; it has nothing to do with whether a good should be valued or whether any particular valuation is correct. A good could be utterly useless but if a significant enough people chase a small supply it will command a relatively high price. The market will place this ware in the hands of those who value it the most, but the source of that value is the human mind and this valuation can be and often is erroneous. If people remain unemployed, holding out for unrealistically high wages, the fault lies in their incorrect assessment of the value of their labour, not in any market’s failure. Needless to say, however, the causes of these erroneous valuations are government interferences. It is because government creates such macroeconomic calamity that price bubbles and collapses occur and so-called “sticky prices” are a phenomenon associated with post-boom deflations. Having become accustomed to high wages, it is natural for workers to become frustrated and resistant when supply for these wages suddenly dries up and they not only have to face the prospect of lower wages but also a mass shift out of the capital goods industries – where they may have developed significant, specialist skills in the meantime – to consumer goods industries. In a genuine free market it is highly unlikely that workers would be faced with these problems. However, none of this really has much to do with economic theory, the purpose of which is to expound the formal characteristics of human action rather than the substance of those actions. Rather, sticky wages is more a topic for psychology, the field of human action that studies why people make the valuations that they do.

We conclude, therefore, by emphasising that there is no special category of “unemployment” as it applies solely to labour. Any “unemployment” of labour is explained either as the willing choice of the individual worker to withhold his labour from the market (and thus, to him, the best possible outcome), or as the result of government price fixing which is merely a particular instance of the economic effects of that wider category of interference.

View the video version of this post.

Advertisements

Austro-Libertarianism – Three Next Steps

1 Comment

Austro-libertarianism undoubtedly has a long history of scholarship of which it can proudly exemplify as not only providing a coherent body of truthful insights into the way in which the world really works, but also provides a foundation for a just and prosperous society.

However, far from resting on any laurels (and I doubt any scholar in this tradition would ever believe that we are at the stage where we can do such a thing), this essay will suggest three areas of development to which scholars in the Austro-libertarian tradition may wish to focus their research.

Pure Praxeology

The first area is to reconceive “Austrian” economics as a pure (or at least “purer” theory) of praxeology. Although “Austrian” economics is noted for deriving its laws from the theory of individual human action, economics traditionally – not least because concepts such as exchange, production, prices, money, and so on are the complex phenomena that we wish to study and understand the nature of – concentrates only on action above the level of the bilateral exchange of wares for a money income. Our economic categorisations and concepts therefore rest on that limitation. “Austrian” treatises, although they begin quite properly by explaining how economic theory is derived from the action axiom (together also with extremely useful chapters on unilateral or “Robinson Crusoe” exchange), soon begin to espouse their theories in terms of these more aggregative concepts, only occasionally returning to individual action in order to emphasise a particular point1.

A simple example to illustrate this point is the economist’s approach to the classification of goods. A “consumer good” is one that is purchased by a consumer for money without any further sale for money expected. Bread, for example, is treated as a consumer good because it generally goes through no further monetary exchange prior to being consumed. At the individual level, however, the bread may only be a capital good in making, say, a sandwich. Labour is combined with the bread and other goods – say cheese and tomatoes – in order to produce the final consumer good of a cheese and tomato sandwich. We can say the same thing about cutlery and crockery, paper and ink and so on. All of these goods are used at the level below that of exchange for money by individuals to produce further goods. “Land”, on the other hand, is treated as the natural resources which are a gift to all humans, not just an individual human being. However, a good produced by another human being may, to the individual who happens to stumble upon it, comprise “land” in the sense that it is a free gift to him and that he has not had to exert any productive effort in order to bring it into the condition in which he finds it. If, for example, I find an abandoned car in perfect working order and (assuming there are no competing ownership claims), even though the car is a produced good, as far as my action and my computation of costs and benefits towards that action goes, the car is a gift of nature and is in exactly the same condition as, say, a tree that has grown naturally.

It is easy to see why any loss of the connection to individual action can quickly lead economists in the “Austrian” tradition and their fellow travellers down wrong paths. Murray N Rothbard provides an extensive critique of W H Hutt’s aggregative concept of “consumer sovereignty” – the idea that all consumers are sovereign over producers and that the latter exist only for the benefit of the former and not for themselves2. The market place is where everybody seeks to benefit himself through voluntary exchange, and there is not, in fact, a distinct class of labourers, of producers and of consumers with one being “sovereign” over the other. Rather, everybody at differing points of the day (even from minute to minute) participates in a different economic category – a man is a labourer when he goes to work; he is a consumer when he stops by at the shop on his way home; he is a capitalist if he purchases some shares for his pension, and so on. Questions of “sovereignty” – the boundaries of rule – concern only the political arena. Concentration on the basis of economic law in individual human action would have avoided any fallacy and prevented a resort to parcel phenomena into homogenous, collective blocks. However, Rothbard hardly escapes the same danger to which Hutt succumbed, building his entire theory of production using the economic fiction of the Evenly Rotating Economy (ERE), an economy in which all economic activity is repeated and known. Thus, entrepreneurial profit and loss is eliminated. This model allows (or, perhaps, forces) Rothbard to conclude that capital goods earn no net rents and that all rents are paid back to the original factors of production – land and labour – a theme that is oft repeated throughout his entire treatise. It is submitted here, however, that regardless of how such an approach may be helpful in illustrating the complexity of the structure of production, any firm or even implied conclusions drawn from it are likely to be grossly misleading and can only lead to error. The most dangerous false step from this presentation is to assume that the ownership of land – as an original factor – provides essentially free income to those who happen to hold it. Needless to say Rothbard takes great pains to rebut this conclusion, but his attempt could be condensed, with a slight modification, to a single paragraph:

As the only income to ground land that is not profit or interest, we are left with the original gains to the first finder of land. But, here again, there is capitalization and not a pure gain. Pioneering—finding new land, i.e., new natural resources—is a business like any other. Investing in it takes capital, labor, and entrepreneurial ability. The expected rents of finding and using are taken into account when the investments and expenses of exploration and shaping into use are made. Therefore, these gains are also capitalized backward in the original investment, and the tendency will be for them too to be the usual interest return on the investment. Deviations from this return will constitute entrepreneurial profits and losses. Therefore, we conclude that there is practically nothing unique about incomes from ground land and that all net income in the productive system goes to wages, to interest, and to profit3.

The correct position, therefore, is that “things” do not “earn” anything. All actions, whether they involve the dispensation of labour, land or capital goods, require the sacrifice of one state of affairs (“costs”) in the pursuit of another state of affairs. It is hoped that the ends brought about are more valuable than the ends given up. The creation of this value if the action is successful (or its destruction if it is not) is the product of entrepreneurial judgment. All income from any action is therefore paid out to cover costs, interest or entrepreneurial profit and loss. All net rents in the economy accrue only to this latter element – successful entrepreneurial judgment with the means at one’s disposal, whether this is your labour, land that you own, or a capital good that you hold. All of these things that can be bought or sold for more or less money than is sufficient to cover their costs plus interest. It is only by remaining firmly anchored to action at the individual level that this realisation can remain in focus4.

Coupled with this endeavour of better preserving the link between the complex phenomena in the economy with individual action is a greater emphasis on “Austrian” methodology not as a separate topic but one to be espoused during the course of the treatise. The reason for this is that a “vulgar” conception of “Austrianism” would state that all economic theory and all of the laws of economics are deduced logically from the action axiom and one or two subsidiary axioms. Truths derived empirically have little or no place in “Austrian” economics. This is not, however, altogether true. Only the core theory concerning the action axiom and its immediately related categories, in addition to some of the more fundamental laws (such as the law of marginal utility) are deduced logically. However, there is a great body of “Austrian” economic law that requires the ascertainment of empirical facts. We cannot, for example, derive economic laws of bilateral exchange without ascertaining the existence of more than one human being, an endeavour which any individual cannot simply deduce. We cannot have an “Austrian” approach to the economic effects of taxation unless one group of persons had, in fact, attempted to tax another group. We cannot have an “Austrian” business cycle theory without first assuming the existence of banks, the practice of fractional reserve banking, a loan market and even money itself must be presupposed. Although the regression theorem, for instance, is a valid praxeological law5, it would only exist if we first of all knew that money existed and that people had chosen to use a good as a general medium of exchange. Now it is true, of course, that these laws would remain valid and true even if the substantive human choices upon which they rely had not been made. If we imagined a world without money, for example, and pondered its existence merely as a hypothetical we could still derive “Austrian” laws concerning it without it ever actually existing. The actual phenomena in existence simply direct our interest to them as those are the areas that matter in our lives and hence are the things we wish to study and understand. No doubt it is also quite impossible to try and “imagine” alternative institutions and choices that have never existed and to apply to them the core “Austrian” theory, especially as our own experience of real concepts such as money, exchange, prices, banking and so on often provides an illustrative tool to our theoretical insights. However, it is more accurate to speak of the entire endeavour of “Austrian” economics not solely as a body of economic law that is deduced logically, but as the application of the core theory, deduced from the action axiom, to the substantive institutional choices that humans have made, the existence of which is verified empirically6. More prominent highlighting of the “Austrian” method and the source of each parcel of knowledge during the course of a treatise would aid greatly any misunderstanding in this regard.

Ethics

The second area of fertile development in “Austro-libertarianism” is the necessity to sever or more sharply delineate the relationship, often casually assumed not only in political philosophy but also in the opinions of lay persons, between legal norms and moral norms. That is, the question of what should be legal – in other words, those norms which may be enforced by the imposition of violence – should be separated from the question of what is good, worthy or preferable. It is submitted that this is one of the greatest barriers to a proper understanding of the role of violence in interpersonal morality, and has been dealt with in detail by the present author here, here and here. Many people happily recognise the illegitimacy of the legal (violent) enforcement against themselves of norms that other people value as moral ends which, as the hapless victims of this enforcement, they themselves do not (or at the very least, they would complain about it). But, because of the prevalence of the legitimising effect of democracy and the blurring of any distinct line between the governors and the governed, most would not think twice to advocacy of the legal (violent) enforcement of ends that they deem good against other people. Indeed, the criterion for what should be legally enforced boils down to little more than what most people think should be legally enforced. Libertarians need to create an understanding that the proper role of violent enforcement is restricted to preserving the physical integrity of each individual’s person and property – and as moral agency requires such integrity in order for a person to choose and act, such an insight is crucial for any proper understanding of interpersonal morality. The examination of whether something is bad, unpleasant or a vice must be separated from the question of whether its prevention should be enforced legally; and, equally and oppositely, the examination of that which should be peacefully permitted by the law should be separated from the question of whether such acts are good and noble things. In addition to aiding moral and political philosophy, this would be of a benefit to libertarianism specifically as it would render inert the perceived support for all of those bad and unpleasant things – drugs, prostitution, gambling, blackmail, and so on – which are non-violent but are nevertheless not necessarily things that we would wish to see in our society7.

Inflation

The final area for development in Austro-libertarianism, this time in the field of economic history and anthropology, is to engage in a rigorous study of the effects of inflation and inflationism throughout history. “Austrian” scholars have certainly charted well the purely economic effects but, in the opinion of the present author, an exhaustive study of the social, cultural, political, and aesthetic effects of inflation is yet to be written, at least in the “Austrian” tradition. As Henry Hazlitt notes:

[Inflation]…discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse8.

Apart from the wide “macro” effects of inflation – not least of which include the birth of odious ideological movements and regimes and their ability to fund wars and conflict – also of interest is how inflation effects us at the individual level. For example, how many of our day-to-day products that we enjoy today are the result of genuine development by a capitalist economy and how many are simply substitutes developed in an era of inflation to enable people to attempt to salvage some of their previous standard of living? Products such as instant coffee, condensed milk; synthetic clothing; plastic bottles; and so on. How many genuine labour saving products were developed not because people genuinely wanted to save time but because inflation had either reduced their income to such a degree that time came at a premium or because inflation had induced impatience and a present-oriented fervour? Indeed the latter may have had distinct ramifications beyond the economic – the birth of adolescence as a distinct demographic; the sexualisation of society; the preference for entertainment ahead of learning; the attraction to style rather than to substance; the prominence of sound bites and “tweets” rather than in-depth analysis; the emphasis on youth and adaptability to an ever changing world rather than on age and accumulated wisdom. All of these things have significant consequences for which inflation much at least be partly responsible. Further, how much does inflation distort our views of reality and of what is possible? Inflation, as Hazlitt noted, makes speculation rather than production profitable – the image of productivity and wealth creation rather than the very thing itself. It makes big or easy wins more attractive than patient investment in a lifelong endeavour. But at the extreme we might say that we have attempted to replace reality itself with dreamed ideals. Government, has taken over and replaced real money (gold and silver) with a fake paper counterfeit. Having replaced reality with one form of fakery, we expect government to be able to legislate to replace reality with our pseudo visions, to carry out the miracle of transforming stones into bread. Thomas Nast’s cartoon, Milk Tickets for Babies in Place of Milk (below), concerning the inflation during the American Civil War, perhaps captures the foundation of this mindset in artistic form. The cartoon contains representations of reality that are passed off, for example, by Acts of Congress as reality itself. As English professor Paul A Cantor explains:

Nast’s illustration brilliantly captures [the confusion of] things with representations of things. Like Magritte [in the painting The Treachery of Images], Nast reminds us that a picture of a cow is not actually a cow, but he is not making a merely aesthetic statement. He is drawing a more serious analogy between the duplicity involved in artistic representation and the duplicity involved in the government printing money and forcibly establishing it as legal tender, an analogy embodied in the parallel “This is a Cow By Act of the Artist” and “This is Money by the Act of Congress”9.

Given that “Austrians” lead in the way in a providing a genuine understanding of the definition and effects of inflation it would be appropriate for an historian versed in “Austrian” theory to undertake a full study along the lines that we have suggested here.

View the video version of this post.

1It is also the case that most “Austrian” scholars writing today received their initial education in the mainstream economics tradition and only later “turned” to “Austrianism”. Thus one senses a tendency, if not a persistency, to lapse into the comfort of aggregative and pseudo-concepts, at best obscuring the essential connection to individual human action, and at worst completely losing it and ending up in the rhetoric of collectivist and societal-oriented action.

2Murray N Rothbard, Man, Economy and State with Power & Market, p. 631-6

3Ibid., p.530, emphasis added.

4The present author is not enthusiastic about the excessive use of equilibrium constructs and they should, at the most, be used as a tool in order to distinguish one concept from another, an endeavour that would be impossible without such a construct. Nevertheless, it is possible that a dynamic equilibrium – a fiction in which there is change and entrepreneurial profit and loss but where all forecasts of the particular entrepreneur in the model are correct – together with a focus on the costs of land acquisition and of the dispensation of labour would have created a better illustration than the ERE. But whatever model is used, it is submitted that the illustration of every stage of production, whether it is with land, labour or capital, necessitates the elements of costs, interest and entrepreneurial judgment and that, contra to Rothbard’s assertion that the mental construction of the ERE is necessary in explaining the structure of production, a much clearer grasp of reality can be and, indeed, is attained without omitting any of the crucial elements.

5Although this is disputed. See Gary North, The Regression Theorem as Conjectural History, Ch. 7 in Jörg Guido Hülsmann (ed.), The Theory of Money and Fiduciary Media – Essays in Celelbration of the Centennial.

6If anyone should doubt this and remain steadfastly wedded to the idea that “all” of “Austrian” economics is deduced logically this then he should attempt to present an “Austrian” treatise written in formal logic.

7The present author has dealt with the so-called “thick” or “thin” libertarian debate here.

8Henry Hazlitt, Economics in One Lesson, p.157.

9Paul A Cantor, Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics, The Review of Austrian Economics, Vol. 7, No. 1 (1994), 3-29.

Libertarians Beware?

Leave a comment

An article concerning the libertarian attitude towards the black market by Robert Wenzel entitled “A Warning to Libertarians: Please Do Not End Up Like Ross Ulbricht” recently appeared on the libertarian site Lewrockwell.com. Wenzel’s basic premise is that libertarians in their capacity as libertarians should not celebrate the black market, let alone get involved in it as budding entrepreneurs:

The trial of Ross Ulbricht, admitted founder of Silk Road, is over. He has been convicted on all the charges brought by the government. It is a terrible tragedy.

[…]

Ubricht faces somewhere between 20 years to a life sentence. To be sure, from a libertarian perspective, there does not appear to be much that Ulbricht is guilty of. He simply provided a market for individuals willing to exchange, certainly not a violation of the libertarian non-aggression principle.

[…]

BUT, despite the libertarian perspective, he is going to spend a a [sic] very, very long time in prison.

This is part of the reason, [sic] I find it remarkable that some libertarians are cheering on further efforts in the murky dark internet.

[…]

The Ross Ulbricht trial marks a turning point for the darknet. Originally created to combat a problem, DNMs have now become a rallying point for the adherents of Libertarian [sic] ideology. Ulbricht himself described the Silk Road as an “economic experiment.” Many see him as a martyr and have supported him through it all, from patronizing the Silk Road via contraband purchases to donating over $339,000 via Bitcoin toward his legal defense fund. His downfall was an inspiration to push further, to continue the economic experiment, for the betterment of humanity (hopefully).

[…]

As long as a commodity needs physical delivery, there is no protection from the government, even if it is done via the dark net – and that supposes the government isn’t watching on the dark net in the first place, before physical delivery.

There are just so many things that can go wrong operating in the dark net, with very heavy downside, it makes no sense for a libertarian, qua libertarian, to get involved, especially by running such an operation.

Just becasue [sic] libertarians are in favor of free exchange, where does it say they have to run underground markets?

He then quotes Murray Rothbard’s discussion of Samuel Konkin’s agorism:

If the black market should develop, then the successful entrepreneurs are not going to be agoric theoreticians…but successful entrepreneurs period.

[…]

As much as I love the market, I refuse to believe that when I engage in a regular market transaction (e.g., buying a sandwich) or a black market activity (e.g., driving at 60 miles per hour) I advance one iota nearer the libertarian revolution.  The black market is not going to be the path to liberty, and libertarian theoreticians and activists have no function in that market.

[…]

Historically, classical liberal political parties have accomplished far more for human liberty than any black markets.

Returning to his own commentary, Wenzel continues:

Advancing liberty is not about selling hooch or weed, though there is no reason to condemn those who enter into these noble professions. If you want to advance liberty, you do so by writing, speaking and reading about liberty. This requires that very little be done beyond libertarian study and actual libertarian activities, even at the early stages of developing such a career.

[…]

Leave the drug dealing to drug dealers, There’s this thing called the division of labor and there is no path where drug dealers and libertarians have to pass, anymore [sic] than libertarians have to cross paths with fire eaters and sword swallowers, though I doubt many fire eaters and sword swallowers are paying much in terms of taxes, something that libertarians can appreciate, as much as they can appreciate the efforts of drug dealers, without getting into the business.

Indeed, just becasue [sic] street hookers must operate on the black market doesn’t mean we should be encouraging libertarian women to become hookers, even if they would only accept bitcoins.

One can agree that this appeal to libertarians to heed a bewaring of the black market makes several important points. First, a libertarian is certainly not necessarily a good entrepreneur and regardless of whether he is he would still need to devote a lot of time to reading, studying, absorbing, understanding and debating libertarianism. One cannot pursue a cause unless one has a thorough understanding of that cause. Second, simply because libertarian theory permits certain activities that are currently illegal (the vending and use of drugs being a pertinent example) does not mean that libertarians promote such activities as a good thing to be encouraged. Such a question concern’s one’s personal morality and not libertarianism as such. The libertarian movement itself seeks to neither promote nor disparage any substantive choice of action whatsoever and there is a genuine risk that libertarians will either be labelled as the “anything goes” crowd or, worse, may be identified with the active encouragement of acts which, while they do not breach the non-aggression principle, are otherwise odious, unpleasant and/or lacking in social acceptance.

However, where the present author parts company with Wenzel is the suggestion that a) operations such as the black market and entrepreneurship in general fundamentally do not matter very much in the fight for liberty and b) that painstaking education of the populace is likely to be far more productive in this regard. There is also the suggestion, exemplified by the Rothbard quotation, that traditional political parties that are organised to promote liberty are the way forward and have worked in the past. However, it is our contention here that these propositions are likely to be untrue and that, in fact, entrepreneurship will have a far more effective role to play in the practical matter of bringing about a world of liberty while education and political parties may, in fact, have a minimal effect.

Many libertarians probably have it in their head that a free world will one day be achieved through a giant revolution where the inspired masses rise up and force the transition from an imperialist-statist regime to one of liberty. But one has to wonder precisely how this is going to happen. Even if a majority of the world’s population became educated enough about the benefits of liberty, a transition to a world of liberty is one from a state of power to one of an absence of power. Revolutions, however, are fundamentally the replacement of the holders of power. In other words, the power vacuum left by the vanquished rulers is filled quickly by the revolutionary leaders – and we all know how potently power corrupts. It did not take altogether too long, for example, for the post-revolutionary United States to begin centralising power and even so ardent an advocate of liberty as Thomas Jefferson left a questionable record once he became President. A libertarian revolution, the end product of which is a fragmentation and scattering of power from central concentration in governments and states down to the individual, is therefore likely to be largely leaderless and lacking any concentration in terms of personalities, places and also times. Rather, different people, in different places at different times will carry out independent acts to move the world one step closer towards freedom. Libertarianism is, therefore, fundamentally about rejecting the world of political parties, political leaders and electioneering – not seeking to emulate them or join in their game.

Underestimated, therefore, is the possibility that rather than government being overthrown the likeliest route for the achievement of liberty is for government to simply dissolve through circumvention. Given this, the importance of black and regular markets starts to become apparent. For even if the population becomes educated enough to be inspired towards liberty, in order to truly achieve such a world through a de-homogenised process lacking in central control and leadership, small, local and independent circumventions of government authority – as exemplified by the black market where scattered, independent entrepreneurs attempt to meet the people’s needs that happen to be contrary to the proscriptions of the government – are likely to be a key route to in bringing this about. In other words, government simply drowns in a sea of non-compliance with its diktats. Indeed one of the reasons why, for example, the underground drugs industry is so difficult for government to even scratch the surface of, let alone conquer, is because there is not one giant overarching drugs lord sitting on his throne dispensing all of the world’s drugs, ready for the government to take out and thus win the war. Rather, it is because there are a multitude of relatively small, independent suppliers, with their own locations, their own partners and stakeholders, their own methods and techniques, and so on. Taking out any one of them does not necessarily stop the rest, and even if it did what is there to stop someone new from springing up and setting up shop? The seizure of a large drugs shipment, usually celebrated as a grand achievement, barely makes a dent in the ability of the black market entrepreneurs to continue to produce and supply these substances.

However, even this path – that of the black, underground and regular markets providing an outlet for an educated public – is probably not going to be the way in which a world of liberty will be achieved and we can suggest a far more likely, praxeologically supported scenario of what will happen. All governments require at least the tacit support of a majority of the population in order to retain their power. But it does not follow that the breaking of this tacit support necessarily requires the people to become educated about the ethics of private property and the moral odiousness of the state (although one can hardly deny that such an education would be a good thing). Whatever regime exists humans will always think and feel as individuals – they have ends as individuals, they act as individuals and they feel gain or loss as individuals. Their support, or tacit acceptance of government, relies not only on the fact that government is seen to be legitimate but also on the fact that it is perceived to accomplish certain ends for the individual. In particular, protection from crime, and the sustenance and stability of a peaceful order are seen by almost everybody to be the primary function of and justification for government. Like any other means to an end, government will cease to be supported when its costs, real or perceived, outweigh its benefits.

In the first place, as bankrupt governments unload increasing privations and annoyances upon the daily lives of their citizens, it is precisely the shrewd entrepreneurs who will find a market of people who seek to overcome these irritations. We can see this already with innovations such as Bitcoin and 3D printing seeking to overcome the government monopoly over the financial services and firearm restrictions respectively. But the march of technological progress does not even require entrepreneurs to be consciously aware that it is curbing government power. The internet, for example, has practically obliterated the government monopoly over information. The very pinnacle of market circumvention of government would be to shatter its very raison d’être – the monopoly of force and the dispensation of justice – without which it would simply not be able to impose its oppressive and parasitic existence upon the citizenry. What if there was some way of not overcoming or overthrowing government’s force but of simply circumventing it and making it a practical non-entity in people’s lives? As the present author stated in a previous piece, “Making Government Irrelevant,

What if […] an invention would enable any person, at extremely low cost, to protect his or her person and property from all forms of force? I have very little idea as to what this could be – an invisible force field around each object you own, perhaps? This is a matter for the genius of inventors. But imagine the result – in one swoop you would eliminate both the ability of government to tax, steal, imprison, kill, maim and live off the fat of everyone else and you would completely eradicate its reason for existence. For if people can now protect themselves from invasion of their person and property at very low cost, why bother with government? Why would anyone pay taxes for an army or police force when this new, cheap, method prevents the very reason for their existence? Of course, people may continue to pay “taxes” voluntarily for some service that the current administrative set up may be perceived to be providing. But there is nothing wrong with this if that is what people want to do with their own money. The bite of force, however, will be lost and government will be relegated (one might say promoted) to the same level of every other market player – having to offer people a valuable service in return for its voluntarily paid revenue.

Therefore, people do not necessarily need to overthrow government or come to understand how evil and immoral it is – it simply needs to made irrelevant in their lives. And it is entrepreneurs, either existing in the black or mainstream markets who are the most likely to be the path through which a world of liberty is achieved. It is submitted that, given the innovations in this regard that have been accomplished so far and the difficult government is having in coping with them, this route will be the most successful in building the road to liberty than any attempts to educate the populace towards revolution. Education will, of course, always be important and every libertarian has a duty to read, learn and debate libertarian theory. And certainly no libertarian has any business engaging in entrepreneurial ventures if he is completely lacking in the required talent. But so too should we be prepared to recognise the fact that entrepreneurial invention and ultimately the market, the very thing itself that we as libertarians champion – individual people seeking to peacefully and voluntarily meet their ends through means – is the most likely thing that will bring about the world that we believe is right.

View the video version of this post.