Shortcomings of Mainstream Thought

Leave a comment

One of the characteristics of mainstream discourse concerning political, social and economic problems is that it frequently proceeds to examine only the surface phenomena of these issues. Court intellectuals and the mainstream media apply their thoughts to just a single order of logic by concentrating only on what is front of their faces. In part this problem is the same as the one identified by Henry Hazlitt in Economics in One Lesson – that there is a perennial failure to examine both the seen and unseen consequences of a particular act or proposal. However, while Hazlitt focussed his attention on economists and economic policy, we will demonstrate here that such thinking permeates a much wider area of thought. While we will not necessarily draw any specific conclusions, we will raise some challenges to some of society’s most rigidly held beliefs and dogmas on its own terms.

Beginning in Hazlitt’s arena, the first such area we will examine is whenever someone appears on the television or in the newspaper, usually brandishing the statistical results of some “study”, in order to declare that “the government must do more to help X”. X, as it turns out, could be almost anything – the elderly in need of care; rural bus frequencies; lowering cancer deaths; children with dyslexia; conservation of trees – any kind of apparently suboptimal situation which the study and its authors have declared is in dire need of address. The particular situation may, of course, be anything from regrettable to tragic, especially when it involves either poverty, illness or death. Nevertheless the only thing that these studies and pronouncements ever achieve is to point out that we do not live in the Garden of Eden; that we live in a world of scarcity where desires remain unfulfilled and where we have to choose which of those unfulfilled desires and purposes to devote what are, at any single point in time, a finite quantity of wealth and resources. The real question we face is not whether more should be done for problems A, B or C – in an ideal world of infinite wealth we would do everything for A, B, C and every other letter of the alphabet and beyond. Rather, because we have only a limited amount of wealth and resources, our difficulty is in choosing which of problems A, B or C should receive funding at the expense of any other. If you have only one hundred pounds in your pocket and ten people turn up each demanding one hundred pounds in order to resolve all of their various ailments and hardships then it is clear that, should you be kind enough to make a donation, you can only ever satisfy one of them at the expense of the other nine. Implicitly, of course, each of these ten people is suggesting that their particular causes are more deserving than any other. Seldom, however, do all of these studies and statistical reports state explicitly why one end should be funded as opposed to another. This is not to suggest, of course, that the state does not spend an awful lot of money on things which, even from a statist’s point of view, could be regarded as wasteful. Merely that, if we accept the mainstream position that the state can improve society (as opposed to the libertarian position where the state should do nothing whatsoever and, preferably, cease to exist), the fact of a finite quantity of resources at the state’s disposal at any one time is completely ignored.

Peculiarly, however, the fact of a finite quantity of resources is tacitly recognised when considering the overall quantity of resources which should be at the state’s disposal – namely, arguments over the rate of taxation. All “soak the rich” arguments and any calls for the increased taxation of higher earners are all based on the premise that if the wealthy are allowed to keep more of their money then, consequently, there will be less money for the government to spend on healthcare, public transport, and keeping us safe from terrorists. Again, however, by examining only what is obvious in front of their faces, the peddlers of such arguments fail to grasp the dynamic (as opposed to the static) nature of economising action. Yes, it is true that if you raise taxes today then you will, right now, have a greater quantity of money to devote to whatever you think the government should spend it on. In the long run, however, such higher taxes result in a lower rate of investment in capital goods, a lower rate of production of consumer goods, and hence higher prices for those goods. In other words, the increased amount of money taken as tax revenue will be able to buy increasingly less and so the aim will be self-defeating. It would be far better to lower taxes in order to encourage investment and economic progress so that the lower amount of money taken as tax revenue could buy infinitely more than the larger quantity of money could at the higher tax rate. You are not wealthy if you possess a million pounds when the price of a loaf of bread is one million pounds; yet you are exceptionally well off if, for instance, just one thousand pounds could buy you food, shelter clothing and transport for an entire year.

The two areas we just outlined are very concentrated examples of where mainstream thought fails to think laterally – namely in regards to economic and fiscal policy. However, we can observe the same failing with regards to much wider areas of discussion. For example, it is fashionable these days for liberal elites and popular intellectuals – such as Richard Dawkins and A C Grayling – to be atheists and/or critical of organised religion, declaring themselves to be “free thinkers” who are beyond what they regard as the mindless adherence to mere superstition. The two main arguments buttressing their point of view, which are joined at the hip, is that there is a complete lack of evidence for the existence of God, and that organised religion is and has been the cause of so much suffering and oppression in the world – the latter being summed up by the popular phrase “the root of all evil”. Needless to say this evil is made all the more tragic on account of the first argument – that it is all in service of a complete illusion or fantasy. If we accept (which the present author does not) that the lack of evidence for the existence of God is sufficient to invalidate a belief in God, then yes, it would follow that all adherences to a deity and all organised religion is, indeed, ridiculous and the pain and suffering it might cause would be regrettable. However, once again this is only true when one focusses on what is in front of one’s very nose – in other words, the things that we see of religion rather than the things that we do not see from an absence of religion. Is it not the case that, beginning with the French Revolution, the struggle to fill the ideological void left by the decline of religion in the West (in tandem with the increasing faith in human reason and design in the sociological arena) has led to a degree of evil and terror far worse than that which can be blamed on organised religion? If we just look at the pure numbers then the biggest killer in history has been the thoroughly anti-religious communism, and for the survivors of both communism and all such collectivist regimes life was utterly miserable and impoverished. Of course, an absence of religion does not necessarily mean that humans are unable to attain moral enhancement through reason or reflection. However, the ideologies that have served to replace religion – having dislodged God and the will of God as their primary focus – have been shorn of any reference to what is good and what is evil other than the contents of the ideologue’s own mind. Hence, the magnitude of all creation – including every other human being who, devoid of his sanctified state as a child made in God’s image, can be safely relegated to the status of a public slave – simply becomes a means or, even a plaything, for the ideologue to realise his grand vision. In other words, the ideologue elevates himself to the role of God and it is him who now throws the thunderbolts down to Earth. Hence, the costs of pursuing these ideologies, heaped onto everyone else, are either casually disregarded – such as crusades for democracy and “regime change” – or viewed as proud achievements when they exterminate political dissenters (the Great Purges), the racially inferior (the Holocaust), or any trace of a class and culture which represented an outdated and contrarian society (the Cultural Revolution). Indeed, the arrival of secular ideologies has truly given birth to the worst type of criminal zealot – the person who commits evil when he thinks he is pursuing good. Those who perform evil deeds with the full knowledge that they are evil, however much they may revel in what they have done, might at least possess some inkling of guilt or conscience. For the secular fanatic, however, the bodies piled high and the rivers of blood neither move nor shake him – they are unquestionably necessary ends towards a bright and happy future. In some ways, however, the casual disregard for the costs and consequences of a particular crusade can be more pernicious than actively pursuing the celebration of death and destruction. For example, the secular crusade to make the world “safe for democracy” during and after World War I fostered the deeply unstable situation in Central Europe which led to the rise of further secular ideologies such as Fascism and Nazism resulting, of course, in the horror of World War II. A typical liberal intellectual today might tell you that removing Saddam Hussein and Muammar Gaddafi were necessary because these men were “dictators”. Yet what he fails to consider, as the architects of interwar Europe failed to consider, is that in their own particular situations the rule of such despots was probably the least bad option, and that their removal has unleashed a whole catalogue of horrors that far exceed those experienced under their aegis. The same attitude is taken towards the Syrian President, Bashar al-Assad. The one line narrative, yet again, is that he is an evil dictator and so should be forcibly removed from power. Yet not only has the attempt to do so resulted in the Western support for and arming of dangerous terrorists and fanatics (the chickens of which are coming home to roost in the form of terrorist atrocities on Western soil), but Assad is supported by Russia and any collision with him risks – as a worst case scenario – war with Russia, which is a nuclear power. Is the removal of this “dictator” really worth risking the incineration of all life on Earth?

If a belief in God and an adherence to an organised religion are based upon superstitions and illusions then it is beyond the scope of this essay to determine whether or not it is, ultimately, a good thing for an individual to live his life and base his moral fervour upon such an illusion. Nevertheless, there is a strong case to be made for the assertion that secular do-gooders, blinded by their own hubris, either deliberately or ignorantly push us onto paths on which we experience far more death, destruction and misery than that caused by any inquisition – and that it may be better to suffer an inquisition based upon an illusion rather than an apocalypse based upon reality.

The final area we will consider, which is equally broad, is the type of state or government that is preferable, should we have to suffer one at all. Although libertarians would prefer for there to be no state or government, they can, of course, distinguish different types of regime as being more or less compatible with liberty. However, this question can also be asked from the point of view of the mainstream – that is, which type of regime is more likely to promote a general peace and prosperity which even the mainstream at least claims to desire? The almost universal answer to this question, by anyone who wishes to be taken seriously, is democracy. Once more, however, this belief is based only upon a very superficial analysis of what is immediately observable. Monarchies are denigrated as being “unfair” because, by pure accident of birth, specific and immovable individuals are blessed with the ability to wield the power of the state while just about everybody else is shut out from such power. Now this is, of course, true enough on the face of it – no human being should be born with any legal rights or privileges that are possessed by no other. Yet by removing such “unfairness” and spreading the ability to access state power to everybody, as we have done in a democracy, we have only served to make things worse. A king, however divinely endowed he might consider himself to be, is still one man, possessing all of the frailties and failings of one man. He personally cannot force all of his subjects to do anything at all; rather, he can only wield his power if he maintains, at the very least, the tacit acceptance of the majority of the population (and very often he need only upset far fewer to lose either his throne or his head – revolutions, rather than being the product of anger and fury among the masses, are, in fact, often triggered by the fact that the monarch failed to keep the upper crust, i.e. the aristocracy, on his side). This fact, therefore, serves to maintain a check on the extent of the power that the king can wield in practice. If he steps too far out of line – by raising taxes too high, by interfering in other people’s lives too much, or by dispensing biased justice – then he will find himself deposed. With democracy, however, all such check on the expansion of state power is eliminated because democracy not only (at least in theory) opens up the corridors of power to every citizen but also serves to offer a veneer of legitimacy for the power that the state wields. In other words, because people believe that they are choosing their leaders or choosing their policies then whatever it is that these leaders do with their power has the backing of the people and “must”, therefore, be legitimate. Needless to say, this if of course, nonsense – theft, for instance, does not suddenly become okay simply because we all band together and the majority choose someone to do all of the stealing from the minority. But the perception that it does has served to increase the growth of the state enormously, turning it into an engine of taxation, welfare and warfare that far eclipses anything achieved by a king or emperor. To take just one instance, a world populated by monarchs never managed to persuade their populations to accept worthless pieces of paper printed out of thin air in exchange for real goods and services – they only ever got as far as coin clipping. Yet a world of democracy achieved this in full by 1971 and it is this that has enabled, more than anything else, the funding of perpetual welfare and warfare, with none of the world’s major conflicts and programmes of socialisation would having been possible without it. The question we are posing here, therefore, is might it not be better to put up with one singular account of unfairness – the hereditary privilege of monarchs – as opposed to the whole, disastrous catalogue of state growth? As with all of the issues we have raised here, we are seeking not to answer this question – merely to raise it in the first place and to demonstrate that what seems to be so blindingly obvious and straightforward in the majority of mainstream discourse might not be so after all.


View the video version of this post.

Advertisements

Regulation

Leave a comment

It is accepted by the mainstream that state regulation of the free market is a necessary feature of the so-called “mixed economy”, the supposed halfway house that allows us to benefit from capitalism without succumbing to its alleged excesses while, at the same time, avoiding the catastrophe of all-out socialisation and state control. This essay will subject this view to a critique and will reveal that, in fact, regulation of markets does nothing more than substitute arbitrary government preferences for the preferences of freely acting individuals, is a cause of the very “excesses” (such as oversized firms) which are blamed on capitalism, and that the best regulator is, in fact, the free market itself.

In examining “regulation” we should first be clear about precisely what it means, which is that the state will use the force of law in order to, compel, prohibit, restrict or otherwise subject to control some targeted behaviour of its citizens. In other words, it is a violent, physical intervention into people’s lives in order to produce one outcome while preventing another. This seems perfectly justifiable in instances when the behaviour that is subject to regulation is neither peaceful nor voluntary and is in fact invasive and predatory – in other words the particular behaviour under consideration constitutes a crime, such as murder and theft. However much libertarians may dispute either the legitimacy or effectiveness of the state in preventing and/or responding to such acts, we can at least understand the need for this kind of regulation – to protect people from the violent, invasive and uninvited actions of others, actions which are, of course, unjustifiable in libertarian theory. But what do we mean by state regulation of the free market? The very phrase “free market” is an abstraction used deliberately by commentators to deflect attention away from what it actually is and to create, instead, the impression that it is some kind of self-aware, self-controlling entity that can indulge in all of its irrational flights of fancy while being subject to neither rule nor reason when it seemingly appears out of nowhere to inflict grave harm upon us in the same way that a criminal might. The free market, however, is nothing more than individual people and institutions trading goods and services voluntarily on terms which they agree amongst themselves. It is a diffuse, decentralised network of people striving to meet their own needs as they perceive them and to seek others to provide the wherewithal to better their lives. It is an entirely peaceful, voluntary operation and no one is forced to participate in any exchange with another individual if he does not believe that he will be better off as a result of the exchange. For the state to regulate the market, then, means that the state will use force in order to diminish, control or otherwise outlaw certain transactions which otherwise may have been undertaken voluntarily had the regulation not been present. For the state to regulate is to introduce a code of violent compulsion into otherwise peaceful and voluntary relationships.

There is something distinctly odd when state “protection” through regulation is extended beyond crimes into the arena of voluntary relations. For what is it that people are really being protected from here? Voluntary transactions do not come out of nowhere to surprise us like an armed robber might do. Rather, they must be chosen freely and consciously by each individual person. So if every transaction in the free market requires a voluntary choice then the only purpose of regulation must be to “protect” us from the results of our own choices and to prevent us from entering certain transactions which we may otherwise like to enter if the terms are attractive to us. People often think that those being regulated are unscrupulous vendors who may try to sell us some kind of snake oil solution to a problem we may have. It is true, of course, that crooked businessmen may try to sell us something that doesn’t really work, is a fake, or causes some kind of fire or damage. However, these instances constitute a fraud or a tort and are already governed by the area of the law that regulates involuntary or invasive acts. Regulation of the free market, on the other hand, is solely concerned with restricting the transactions that people may be happy to undertake voluntarily with no force or fraud. As it takes two to complete a transaction – the purchaser and the vendor – if businesses are prevented from choosing to sell then you are equally prevented from choosing to buy. Our choices are therefore constricted by state regulation as much as those of businesses selling to us are and it is us who are regulated as much as businesses are. It is for this reason that an excessively regulatory and bureaucratic jurisdiction is often nicknamed “the nanny state” – a persistent and seemingly omnipresent matriarch who never ceases to stop interfering in your life in order to make sure that you make the “right” choices, choices that it believes are better for your life regardless of the maturity and sophistication of your own decision-making process.

There are several mantras or excuses that the state uses to justify its regulation of voluntary transactions – the prevention of rash, impulsive or short sighted behaviour; imperfect or otherwise flawed knowledge on the part of one of the parties to the transaction; maintaining standards of quality; and finally, the great all-encompassing excuse that seems to validate the state’s wading into anything it pleases, which is maintaining standards of safety. Doubtless there are other categories of state regulation also (such as environmental regulation and control of so-called “essential” industries) but these four form the backbone of the state’s regulatory bodies. We will proceed now to examine each of them in turn and in doing so we will reveal the damaging effects of state regulation while demonstrating how, in fact, the free market itself is the best regulator.

First, then, is the prevention of rash, impulsive, or short sighted behaviour. The implication here is that people may enter a transaction which provides, or has a chance of providing, benefits in the short term while providing a high likelihood of burdens in the future – possibly severely detrimental burdens such as economic ruin, ill health or early mortality. So in other words, people may choose to use tobacco, alcohol or narcotic products to achieve an immediate sense of pleasure without considering the longer term effects, or they may choose to gamble, bet, or otherwise enter some kind of financial arrangement that promises untold wealth if it is successful, but may result in economic ruin if it is not. In economic jargon the complaint here is that people’s time preferences are too high and that the inducement towards the present good is so strong in people’s minds that they heavily discount the possibility of the future bad. People discard prudence, foresight, and good judgment in favour of emotional, impulsive and irrational motives, and so the state should step in, so the argument goes, in order to prevent people from falling victim to their own lack of patience. In the first place we might as well mention that, while it is true that some or, indeed, many decisions may be regretted after the fact, it is the case that all actions can result in consequences that are either detrimental or not as favourable as those that were intended. Prior to an action, costs and benefits are only hypothetical and it is always easy to judge an action with the benefit of a retrospective view. However, as it is also true that some actions are more likely or are guaranteed to produce a longer term detriment in spite of an immediate gain, the more important point is that people’s time preferences are no business of the state’s and it is dubious to assert that people should, in all instances, prefer the longer term to the shorter term – at least not to the extent that the force of law is used to compel such a preference. There is no reason, for instance, why someone should not value the immediate pleasure from a cigarette instead of a longer, healthier lifespan and it is quite possible for an individual to regard a longer life as duller if it is devoid of short term pleasantries. The regulation of an action may stop, restrict, or otherwise control the action but it does not stop the motivating desires behind the action itself which are imbedded wholly within people’s minds. The preferences that influenced them still exist and have not been eradicated, and people are, instead, forced to embrace an outcome which they do not regard as preferable. So in other words, while the individual may have to forego a benefit today, in his own mind the pain of having done so in order to wait for another benefit to come sometime in the future (such as a longer, healthier life) may be worse to that individual. That person, from his point of view, suffered a loss rather than a gain. Regulation doesn’t, therefore, make benefits appear and costs disappear; rather, it simply forces people to endure what are, in their minds, heavier costs.

However, even if we were to accept the premise that people should take the longer view, the irony here is that regulation and state interference into people’s lives is what causes high time preference and rash, impulsive behaviour in the first place, along with the eradication of any kind of prudence, patience, good foresight and self-responsibility. In particular, the existence of the regulatory state fosters the mind-set that if an action is dangerous, or has a high chance of producing an unfavourable outcome, then the state will ensure that it is banned or the dangerous elements are removed. In other words because an army of bureaucrats has gone through the decision-making process on your behalf you simply do not have to care or pay any attention to the possible negative results of your actions because the guiding hand of the state will ensure that only good things can flow from anything you do. Indeed, the regulatory state is little more than a giant, inflatable cushion for people to avoid having to take responsibility for the consequences of their own decisions. When, of course, a decision in an unregulated area turns sour the cry is always “why were they allowed to sell this awful thing to me!” whereas what they really mean is “why was I allowed to choose to buy this awful thing from them!” What results, therefore, is a vicious circle where the growing regulatory state induces less prudence, a lower standard of care and thus more bad decisions that need to be met by increased regulation. To make matters worse if the regulatory state fails and you do happen to suffer some negative consequences, then in comes the helping hand the welfare state to rescue you anyway. If you drink or smoke too much and fall sick then state provided healthcare will look after you; if you gamble away your life savings then state benefits will still keep you fed, watered and sheltered even if you haven’t achieved the riches that you might have had you been successful. The upside of all of these decisions remains intact – that lucky horse may still promise to pay out millions and the whiskey will taste as good – but the downside has been heavily reduced as the state has insulated you from having to realise, or pay for, the full extent of the natural penalties of your actions if they occur. Thus, these types of frivolous and imprudent actions have become more attractive rather than less, and so they will be taken more frequently rather than less, resulting in more negative consequences rather than fewer. The result of this is, of course, moral hazard – carelessness for your actions when you can preserve your gains while heaping your losses onto everyone else. And finally, of course, all of this takes place within the sphere of the state’s inducement of a high consumption, high time preference society through the illusion of prosperity brought about by the forced lowering of interest rates, monetary inflation and the smokescreen of paper wealth.

Obviously, in a society that is wholly unregulated by the state people would be responsible for their own actions, and a culture of better decision making and more prudential planning would be induced. This does not mean, however, that you are completely on your own in determining whether you should proceed with a decision – an allegation of those who believe that the free market leads to an atomistic existence. It is this aspect that we will now explore when we examine the next reason that is proffered for the supposed necessity of regulation – imperfect or otherwise flawed knowledge on the part of one of the parties to the transaction. It is usually the case, of course, that the sellers of everything we choose to buy are experts in that particular product or service they are selling. They developed the product; they know what it should be capable of; they know the science behind it; they know where its raw materials or ingredients came from, who put them all together and how; they spend all day studying and marketing to their target demographic. We, on the other hand, are not so expert in these products, of which we may buy tens or even hundreds in a given week. We do not have the time to sift through mountains of information in order to find out whether a particular product is suitable for us, or whether it is likely to end up being either a waste of money or the cause of a much steeper loss. Surely the state should step in and compel companies to provide more information about their products? Surely it is only because of state regulation that we have mandatory lists of ingredients and nutritional breakdowns on food products and surely it is only because of the mandatory inclusion of warning labels that we know not to iron clothes while we are wearing them?

The key to unlocking this is to realise that the provision of information is an end in itself, an end which consumes scarce resources. Therefore, the value of this information needs to exceed the cost of those resources. To take a ridiculous example, the time it takes to cook an egg on the sunlit body of a car is a piece of information. The vendor of the car would spend valuable resources, such as labour, eggs, a stopwatch, etc. in gathering and publishing this information. However, if this information is useless to prospective purchasers of the car – in other words, it would not affect their desire to purchase the car one way or the other – then the vendor has incurred a deadweight cost and has simply wasted resources that would have been better spent on something else. How much information should be provided is part of the market process and it is consumers themselves who will determine through their purchasing habits whether or not a given set of information is valuable and is a requirement of a purchase. If consumers happily purchase products without receiving certain information then it indicates that the provision of such information would be a waste; if they choose to abstain then it may indicate that the purchase, on its present terms, is too risky and they require extra resources to be spent on providing more information about what it is they would be buying. It is here, of course, where the market’s own key regulator – price – steps in. At a low enough price consumers may be happy to purchase the product without further information as the risk of loss is relatively low so that gathering extra information would not be worthwhile. If the price was relatively high, however, consumers may demand more information so that they are more equipped for making a better decision before committing a relatively larger sum of money. And, of course, products sold with less information will, all else being equal, usually be priced lower than products sold with more information anyway on account of the fact that the vendor of the former products has not had to incur an extra cost. The forced provision of information by the state, however, is markedly different. Because it is not subject to the profit and loss test there is no way of telling whether such information is valuable or not; it is simply an arbitrary decree that resources must be directed in a way other than that desired by consumers. Additional costs are then heaped onto suppliers which, of course, result in higher prices for products – the extra money being spent on something that consumers simply do not want. To take a another extreme example, the state could mandate that an information booklet the size of a telephone directory should be sold with every loaf of bread, detailing the precise ingredients, the transportation process used, a detailed schematic of the ovens used for baking, the life stories of the baker and the wheat farmer and so on. It is obvious that the provision of this useless information would increase enormously the cost of a loaf of bread and thus make consumers worse off than they were before. The principle remains the same when the state requires seemingly more “sensible” – but still useless for the consumer – information to be provided.

The principle is also the same for the next two reasons that the state has for increasing the scope of regulation – maintaining standards of quality and standards of safety. The quality of a product is also part of the market process and cannot be subject to arbitrary standards. At any one time a higher quality product will, all else being equal, cost more than a lower quality product – meaning that more resources must be devoted to producing the higher quality product than the lower quality product. If more resources are used in creating a higher quality product then fewer resources are left over to be devoted to other things. Consumers must choose whether they wish their resources to be spent on a few higher quality or many more lower quality products through their purchasing habits. If they prefer the latter yet the government mandates that higher quality products must be produced then consumers are made worse off than they otherwise would have been. The sustainable way to increase quality is to increase the number of resources available so that such quality can now be afforded. It is here where the free market’s own regulatory mechanisms step in. If consumers, as a result of an increase of available wealth, demand that vendors produce higher quality items then quality standards are likely to develop within each industry. If vendors have to demonstrate that their products have reached a certain standard of quality then it creates a market for reputable, third party certifiers to examine the product and declare that it has met the required standards of quality that are expected by consumers. If it does not then no such declaration is made and the business must go back to the drawing board. Such third parties will be interested in making honest and trustworthy appraisals as it is the trustworthiness of their appraisals that lead to more product sales and hence, more vendors seeking their services for quality certification. Increased quality is therefore achieved through increased wealth creation which makes more resources available for this quality to be achieved, as opposed to state regulation which simply redirects existing resources from places where they are already needed.

Exactly the same is true when it comes to product safety because increasing safety also consumes valuable resources and we as consumers must determine how many resources we wish to divert from providing for other ends towards providing for more safety. With the regulation of product safety, it is important again to emphasise that we are not talking about the regulation of actions which may be defined as crimes or torts. If someone loads a child’s toy with explosives and it detonates then clearly such an action would be unlawful. Rather, what we are talking about is the regulation of safety standards that are accepted by both parties as terms of the contract – in other words, where the standards of safety sold are part of the product’s features or definition. For example, all else being equal, a car built with a thicker chassis, or a chassis constructed out of a stronger material, is likely to have greater crashworthiness than a car with a thinner chassis or a chassis constructed out of weaker material. If the latter car is purchased then the lower crashworthiness – and the resulting lower protection of the vehicle’s occupants in the event of a collision – is an accepted part of the contract and an accepted feature of the vehicle. Once again, the market’s own regulator – price – is king in this regard. All else being equal, the less safe car will be less expensive than the safer car. If consumers choose to purchase the less safe car the resources which could be spent on making the car safer are better off, from their point of view, being used somewhere else. If, however, the state steps in and mandates that, in the name of increasing safety, only the more expensive car should be sold then this would clearly lead to impoverishment. Indeed, some people may not even be able to afford the super safe car at all. They previously chose to purchase the less safe car because the value of the transportation it provided was worth the risk of being more heavily injured in the event of a crash. If state mandated “safety” standards price them out of the market so that they cannot afford a car at all then they have clearly lost very heavily. There is no such thing as a “no brainer” safety requirement that is valid in all places at all time – there is only what can be afforded. Requirements only seemingly become “no-brainer” when they can be easily afforded. And, of course, the way to increase the affordability of safety is to increase wealth creation so that more resources are available to be devoted towards increasing product safety. Just as with the increase of quality, if consumers, as a result of an increase of available wealth, demand that vendors produce safer items then industrywide standards of product safety will develop. If vendors have to demonstrate that their products have reached a certain standard of safety then, once again, the market is opened for reputable, third party certifiers to determine whether a product has achieved the standard that is expected by consumers. Underwriters Laboratories is an example of such a private, third party solution. Increased safety, like increase quality, is therefore achieved through increased wealth creation which makes more resources available for safer products to be made, as opposed to state regulation which simply confiscates existing resources from other ends.

What we have learnt from all of this is that regulation itself consumes valuable resources and so the value it produces must also take place in the societal rank of values. It cannot stand apart from the market process but must, rather, be part of it. The allegation that the markets are never “self-regulating” simply amounts to stating that people are not making the correct choices with resources that they own whereas the budding critic does. If the market is not “self-regulating” then, as we explained earlier, it means that people are not self-regulating and must be forced into making choices other than the ones that they prefer.

Earlier we explained how one of the tragic ironies of regulation is that it creates the very need for its own existence by perpetuating rash and foolish purchasing choices as people come to believe that the state is there to protect them from any possible negative consequence. Unfortunately, such a perpetuation is present on the supply side of the market as well. An increasing regulatory code heaps onto the shoulders of vendors increasing costs of compliance with that code. As well as spending money on market research, developing their products and targeting their advertising, prospective entrepreneurs not only have to hire armies of lawyers to ensure that they are complying with the regulatory code but very often the regulatory code itself will require the business to make an additional outlay – such as the requirement to publish extra information. The costs of compliance with regulation are more easily borne by large, established businesses yet they may be devastating to small start-ups or entrepreneurs with limited capital. For example, in a report for the Office of Advocacy of the U.S. Small Business Administration, Nicole and Mark Crain of Lafayette University calculated that the per-employee cost of federal regulatory compliance was $10,585 for businesses with nineteen or fewer employees, but only $7,755 for companies with five hundred or more. It is for this reason why regulation is, in fact, favoured rather than opposed by large, established businesses – for it creates a cosy cartel between business and the state which shuts out most prospects of new competition while at the same time saving face when they duly comply with these regulations for the “benefit of the consumer”. However, such stifling of competition is what creates some of the very problems that regulations are supposed to solve – poor provision of information, poor quality, and poor safety features. The result, therefore, is that regulation needs to increase in order to produce standards of consumer service that the free market would have produced by itself – except now with the deduction of the enormous cost of passing, complying and monitoring the said regulations. All of the supposed pitfalls and excesses of capitalism are therefore not a product of the free market but are, in fact, spawned by the regulatory state – and the response is supposed to be more regulation and increased oversight by a growing state bureaucracy. The most complained about industries in the world today, such as utilities, public transport and healthcare, supposedly demonstrate the tragedy of allowing private actors to provide so-called “essential” goods and services. Yet it is those very industries that suffer from the heaviest state interference.

State regulation of the free market is, therefore, a truly self-perpetuating, self-growing monstrosity, creating the very problems it seeks to solve – lazy, careless, and thoughtless purchasing choices on the one hand, and an oligarchy of large, greedy, unscrupulous businesses on the other, stifling economic progress and innovation in favour of micromanagement by a faceless bureaucracy. It is also a symptom of the globalist elitist agenda to unify and harmonise state bureaucracies into international trade agreements and treaties so that the reach of control and top-down direction does not stop at the state border – an agenda that was recently rebuffed (although will probably not be solved) by both the Brexit vote and the election of Donald Trump as the next US President. If we wish to regain economic progress and win back our liberty then destroying the regulatory state must be a high priority.


View the video version of this post

Decentralisation and Liberty

Leave a comment

In some recent essays concerning the UK’s referendum in June to determine its membership of the European Union, and the virtues of small states as opposed to larger states, we elaborated some themes regarding how decentralisation and decentralising processes are a boon for individual liberty and a step towards harmony and economic progress. This essay will gather these thoughts together with an emphasis on how small or, rather, optimally sized institutional units pave the way towards two things that not only libertarians, but also everyone else, will claim to want to achieve – economic prosperity on the one hand, and minimal war and conflict on the other.

The mantra of statist and, indeed, mainstream political thinking is that unity, centralisation and the consolidation of states and state institutions is the way forward for peace and prosperity. Not only does this mean larger state institutions with more power but also the fusion of individual states into larger territories under a single jurisdiction. In some ways this seems plausible, even to the libertarian. Wouldn’t unified laws will aid certainty? Wouldn’t we be better off if there were no borders or tariffs to impede the trade goods and workers? And surely the possibility of war will be diminished if we all join together under one, unified banner?

The main problem with this view, however, is that it places the state, state institutions and what these institutions wish to achieve at the centre of society. All of the millions of individual people and thousands of non-state, voluntary institutions that are motivated by their own desires, values and choices are ignored or at least subsumed by the grander edifice. Most lay people who hold the centralising view probably do so naively, but it is the primary preoccupation of statists and intellectual elites that society is something to be managed, controlled or directed by them and those like them while all of the lesser beings should be made to obey quietly with the confidence that their highly educated masters are doing what is best for them. Indeed, rather than seeing any value in individual, voluntary and non-state institutions, the centralising view treats the human race as one, giant, amorphous blob, like a lump of play dough that can be shaped in any way and manner that can be chosen at will – and that the easier it is for the dough to be shaped then the better society will be. Hence, the holders of this view are likely to look favourably upon institutional centralisation and consolidation which conveniently places more power in the hands of people such as themselves to achieve their shaping of society according to their visions. This attitude was rife, at least implicitly, among the so-called “Remainers” in the UK’s “Brexit” vote on June 23rd. Not only, is it believed, that all good things flow from the top down like manna from heaven, but that anyone who was in favour of leaving the EU was, in some way, stupid, backward or a kind of provincial, country hillbilly. For instance, shortly after the referendum, Professor A C Grayling called on Parliament to block Britain’s exit from the EU on the grounds that it is Parliament’s job to determine what is best for the electorate, the latter of which lack “the expertise, patience and time” to make decisions via a direct vote. The implication of this is that the people do not know what is best for them and they have blindingly walked down the path of sheer folly by voting to leave the EU, and they should instead have placed their trust in those better educated than themselves. However, he has completely missed the lesson that should have been learned from this result. The establishment wheeled out all of the big guns in order to persuade the electorate to vote for “Remain” – including the current and the three former living Prime Ministers, most of Parliament and the Cabinet, the Bank of England’s chief and other big bank bosses, the IMF, directors from at least fifty-one FTSE 100 companies, and many heads of foreign governments including the President of the United States – and yet “Leave” still won the vote. When the advice of all of these heavyweights is rejected by the British public then, instead of stooping into a sulk over the supposed stupidity of the great unwashed and demanding that they defer to the “expertise” of their so-called representatives, Grayling and his ilk should realise that such a rejection indicates that everyone is just a bit fed up of being told what is good for them and having decisions made for them by political elites. Such decisions and endless promises of peace and prosperity have brought us, in the last twenty years, two burst financial bubbles, massive money printing that has made the rich richer while failing to provide productive jobs and increasing incomes for everyone else, and at least half a dozen disastrous wars and interventions that are producing deadly blowback in the form of terrorism. What the elitist attitude ignores is that society is not something that is there to be engineered and moulded like a lump of metal in a blacksmith’s forge. Rather, it is made up of individual people who shape it according to their individual thoughts, feelings and desires, motivated by what they believe is best for themselves and for their families. An economy is not some giant machine into which goes “input” to be processed by “jobs” into some kind of “output”, nor is it necessarily true that the higher the numbers of “input”, “jobs” and “output” the better everything is. Rather, a prosperous economy is the product of individual people trading resources voluntarily in directions that they see fit so that they can satisfy ends that they wish to see fulfilled. “Society” is not a collective that demands broad brush categories such as “food” or “houses” or “better railways” etc. Rather, it is me wanting, say, a ham sandwich at 1pm on Tuesday, or you wanting a small apartment in the Hampstead area of London to rent for three years, a business wanting to invest in a small car factory that will be completed in the five years, and everyone else wanting a myriad of highly specific ends in highly specific places at highly specific times that are the product of our own choosing. The economy is not something to be directed by central banks who squash the rate of interest down to its lowest possible point through so-called “monetary policy” or “quantitative easing” in order to “stimulate” some kind of beast into life. Rather, the rate of interest reflects the strength of everybody’s individual preferences for consumption ahead of investment so that the correct amount of resources can be sustainably channelled into roundabout methods of production. Each of us co-operates, through the division of labour, to accomplish things that we each want with the resources available in varying timescales that we are each prepared to bear. It is this co-operation of individuals to achieve their own ends through the nexus of production, trade and exchange that creates a society and not any management and direction from giant, all-encompassing institutions that achieve their ends through force.

The second problem with the centralising view is that the achievement of peace and prosperity in fact demands the very opposite of state and institutional centralisation and consolidation. As counter-intuitive as it might sound, harmony is achieved by division, not unity, while the growth and strength of the human race as a whole is accomplished by the weakness, relative to each other, of its component parts. Economic prosperity, for instance, is characterised by a growing complexity of the economic system – an increasing division of labour with more and more different people specialising in more and more different tasks to produce more and more different products for more and more different people. In other words, its natural tendency is to spread outwards from the centre with more diffused, decentralised knowledge and specialisation. Growth and centralisation of the institutions that support this prosperity under the banner of unity are therefore likely to stifle rather than aid its progress. Indeed the very concept of “unity” requires the same, repeated rules for everyone and the same approaches towards everything regardless of their individual, specialist needs. Hence you get the proliferation, in large, consolidated states, of “one size fits all solutions” that attempt to force everyone through a single, “unified” channel, as though all of us with all of our differences characteristics and requirements are being squeezed through a sausage maker to create a bland, blended puree. (Curiously, those who champion centralisation and state uniformity are also the ones who squeal for “diversity” and celebrating “difference” – at least when those diverse differences are demonstrated or practised by favoured minority groups). Indeed, it is usually, if not always, the case in nature that as something becomes bigger and more complex it is characterised by greater division and decentralisation, not by increased unity and consolidation. A human being is not simply a larger version of a single cell organism. Rather, he is made up of a countless number of individual cells that coalesce into different organs and tissues, each of which specialises in different life sustaining activities. We do not have one, single “unified” organ that pumps the blood, inhales and exhales air, rids the body of toxins, acts as a nervous system and also as a skeleton. In other words as nature achieved a complex human being by decentralising and delegating various functions to different organs that act independently of, but symbiotically with each other, so too will humans only achieve a complex and prosperous society by increasing the division of labour and the degree of specialisation in more and more decentralised institutions.

Division rather than unity is also necessary for creating and preserving the conditions that economic prosperity requires – strong private property rights, minimal taxation and minimal regulation. The benefits of a large number of divided states as opposed to large, unified states, is that if one tiny state of a size equivalent to Luxembourg implements, say, an onerous tax then only that state is affected and the disruption to everyone else in the world will be relatively minimal. If that state introduces ridiculously high border tariffs then only the small proportion of global trade into that territory will be burdened while freer trade will remain for everybody else. Similarly if that state introduces burdensome laws and regulations that infringe upon people’s lives only those people will be affected. The hampering effects of state action upon economic prosperity will, therefore, be localised and minimalised in a world of deconsolidated, small states. In a world of much larger states and state institutions, however, the introduction of a tax will affect everyone; the introduction of a new regulation will affect everyone, everywhere at all times regardless of their own needs and preferences; and the introduction of a border tariff will affect the trade of everybody who wishes to trade across the lines of the large, unified state. Hence the hampering effects of state taxes and regulations and infringements upon private property are magnified as the state becomes larger. This is not all, however, for the incentives to tax, regulate and otherwise infringe private property rights are much greater in a large, unified state than in smaller states. Smaller states are, by their nature, economically weaker than larger states and are more reliant upon maintaining the free flow of goods and services from abroad which simply cannot be produced with the resources at home. Each state will therefore compete with all other states to attract foreign investment and the unhindered import and export of goods and services by minimising taxes, regulation and border tariffs. Because the jurisdiction of a small state covers only a small area, if its rates of taxation, regulation and border tariffs are relatively high then investment will simply flee to a more competitive jurisdiction which may be only tens of miles away and the standard of living in the small state will plummet. A large state, however, whose jurisdiction covers a larger territory and possesses access to a larger number of domestic resources has no such incentive to keep its tax and regulatory burdens to the minimum. With more domestic wealth and resources available and with the threat of capital fleeing for foreign shores thousands of miles away minimised, large states are free to increase their tax and regulatory predations to a much higher degree than smaller states. One of the supposed benefits of the EU is the so-called common market – the notion that goods and workers may move freely under a single tax and regulatory code. Yet any benefits achieved by having to deal with a single code are likely to be outweighed by its gargantuan size whereas a myriad of small and trifling tax and regulatory codes in a world of greater state division is likely to be a better condition for promoting trade and prosperity. Indeed, former UKIP/Independent MEP Godfrey Bloom has referred to the EU as a “customs union” rather than a market union – in other words, a single bureaucracy rather than a single market, a chance for the state to stamp out the irritating competition between states which forces them to keep their tax and regulatory rates low (as demonstrated recently in the EU’s disagreement over the rate of tax Apple had agreed to pay to the Irish government) and replace it instead with a giant socialistic paradise of government control. Instead of emphasising the “unionisation” of tax rules and regulations, those who wish to encourage economic prosperity should instead concentrate on reducing them – and the only way to do this is to make the state entities which impose them smaller and weaker, not bigger and stronger.

The argument for the “unity” and the consolidation of states becomes even more absurd when we consider the desire to preserve peace and prevent war. Murders are committed by murderers; rapes are committed by rapists; thefts are committed by thieves. If we want to minimise the effects of murders, rapes and thefts then it is obvious that the last thing we want is for all of the murderers, rapists and thieves to join together under the banner of “unity” so they are free to combine their powers to murder, rape and steal to a greater degree with increasing ingenuity. Similarly, wars are started by states and are fought between states. Therefore, if we wish to minimise wars and their effects then it follows that we need to make states smaller and weaker; it makes no sense whatsoever to make them bigger and stronger. The argument that unifying states is likely to prevent wars seems to rest on the assumption that government is the glue that holds society together and it is in fact all of the people whom they govern who are the cause of endless conflict. Thus a bigger and powerful government is able to “unite” all of these people and stop them from fighting each other. Nothing could be further from the truth. Apart from the fact that, as libertarians, we know that the state’s dependence upon force and violence for its wellbeing renders it an institution that is bound to inflict rather than prevent conflict, bigger and more powerful states are the enablers of bigger and more destructive conflicts rather than our salvagers from them. Private actors and institutions are necessarily splintered, decentralised and reliant upon voluntary trade for their sustenance. Tiny states have equally tiny tax bases from which they can command a very limited number of resources. The ability of such persons and institutions to start and sustain wars is extremely limited. Large states, on the other hand, are vast concentrations of wealth and power which not only have enormous tax bases from which to draw the means to fund eminently more destructive firepower but the advent of central banking – another creature of centralisation and “unity” – has allowed large states to fund their conflicts through monetary inflation rather than through demanding their citizens to cough up directly. So does anyone sensibly argue that private actors and small states would achieve the level of carnage and destruction that the large and powerful belligerents managed to reach in the two world wars? Does anyone believe that a decentralised world of small states and private institutions would have had the ability to force us to endure a generation and a half of potential nuclear terror during the cold war as the vast territories of the US and the Soviet Union managed to do? The most spectacular terrorist atrocity (i.e. an attack by non-state actors) of the past generation – the destruction of the World Trade Center in 2001 – killed just fewer than 3000 people, a figure which, while undoubtedly tragic, stands in the shadow of the more than 1 million Iraqis who have died as a result of the US invasion of their country. There would, of course, be fewer states left to fight each other in a world of consolidated, centralised states. However, this completely ignores the fact that the states that remain are armed with a destructive ability far superior to any minor state or territory – and especially compared to any private criminal. Any conflicts in a decentralised world would be localised to small pinpoints on the world map, affecting, at most, a few thousand people and, with the participants lacking the resources to continue fighting and disrupting trade for too long, would probably be over in weeks if not days. Contrast this to the situation in which we languish today where the ridiculous cult of interventionism and “collective security” – another banner of “unity” – forces all such local conflicts to be escalated into drawn out, global catastrophes, as the forays into Korea, Vietnam, Iraq, Afghanistan, Libya and Syria have demonstrated. It is clear that if we wish to preserve peace and prevent war then we need to prevent the institutions that start and fight wars – states – from becoming too big and powerful.

On a related note, there is a distinct air of utopianism in the minds of the centralisers and consolidators when it comes to the issue of preserving peace. War and conflict are doubtless terrible things and we would have a much better world if they did not exist. However, it is also true that, for as long as humans have walked the earth, individuals and institutions have run into conflicts with each other and that these conflicts have been escalated into violence. This is just human nature. Unwittingly, in trying to prevent all war everywhere and at any time by “unifying us” under the yoke of bigger and larger states, the advocates of such an approach have, instead, served to escalate the size and duration of wars and vastly magnify their destructive capabilities. The more sensible approach, we would suggest, is to acknowledge that war and conflict will always exist and to recognise that a superior social system will never eliminate these aspects of humanity entirely, just as in the same way libertarians do not expect a free market in private defence and security to ever completely eradicate murder, rape and theft. Our task instead is to find ways to reduce the frequency, duration and potency of these awful things as much as possible. When it comes to war only cutting the potential belligerents down to size and reducing their ability to wage destructive wars in the first place is likely to achieve this.

As we have seen, the liberating effects of decentralisation owe themselves to the relative weakness of deconsolidated and splintered states and state institutions. However, these liberating effects do not arise out of the smallness of the states and state institutions per se. Rather it is because the individual person becomes stronger relative to an institution the more decentralised and localised that institution is. Within his own immediate family, which may consist of only half a dozen people, an individual person’s needs and views are likely to be highly influential upon the other members of the family. They will attempt to provide for and accommodate these views and needs as an active part of their lives simply because the individual is close to them both physically and emotionally. An individual will have a little less influence in his immediate community or on a civil or parish council, where there are more people involved and few of them will be as familiar with him as his immediate family. However he would clearly have more influence in such a circle than in an entire town or city. And once, of course, we get to the level of an entire country such as Great Britain, a diverse nation of various economic, social and ethnic backgrounds, a single person’s lonely vote in, say, a general election becomes a drop in the ocean along with all of the other c. 45 million votes that are eligible to be cast. And if a country such as Britain was to be absorbed into a superstate such as the EU an individual may be drowned out by a chorus of 500 million other voices. The larger an institution becomes then the more its ability to focus on the “micro” issues that really affect people’s lives is progressively diminished and is replaced by a concentration on “macro” or global issues, the successful tackling of which is determined not by the wellbeing of individual people but, rather, by the measurement of aggregated statistics. So whereas, say, a family will care about whether Dad has a job that he enjoys and pays enough to feed and house the family or whether Grandma can get her hip operation in a hospital local enough for her to travel to, large state governments will instead care about GDP and the size of hospital waiting lists. Whereas a local council might focus on whether there is a sufficient bus service to a small community or whether a particular street is clear of litter, large governments, instead, have transport and environmental policies. Who in the bureaucracy is likely to care whether these policies might overlook the specific needs of one community or street some hundreds or even thousands of miles away from the capital? More local institutions are also likely to be populated more homogenously, with each person experiencing relatively similar priorities and holding a relatively similar worldview. Thus the ability to induce empathy between those who lead and those who are led is much more likely and, indeed, may produce more of a situation of symbiosis, or a sense of “working together” to further common goals as opposed to the “command and follow” routine of large states. In other words, even though a particular institution may still function officially through the methods of power and force, the smaller and more localised it is then the more likely such an institution will approach the individual and his needs in a voluntary and peaceful manner – or at least relatively so compared to much larger, faceless state institutions. Even the socialisation of property – considered to be the antithesis of libertarians, or at least right-leaning libertarians – is less likely to be a problem in, say, a small, voluntary commune where all of the commune’s members can air their views as to how their collective resources should be put to use and where all the members are likely to share a common motivation and purpose. Yet a similar exercise on a nationwide scale has always proven to be a disaster – not to mention, of course, that is easier for someone to leave a small commune than it was to leave, say, the Soviet Union.

It is important to realise that decentralisation is not necessarily about breaking every institution down into its smallest possible parts just for the sake of it. There is nothing wrong with large entities or institutions if such sizes generate advantages that could not otherwise be attained. Rather, the primary purpose of decentralisation is to devolve decision making authority (or what might be called “sovereignty”) to its the lowest possible level and that the closer this is to the individual then the more liberating the decentralising effect will be. So there is nothing wrong with lots of individuals or small institutions deciding to form a large institution to achieve a common purpose. This is precisely what individuals do when they form companies and joint enterprises. Whatever criticism we might hurl at the inadequacy of corporate governance and executive dominance, it is still basically the case that the individual shareholder of such an entity can liquidate his position if he wishes to disassociate himself from the institution. Thus the ultimate fate of the institution is dependent upon the willingness of individuals to continue its existence rather than upon its own volition. When, however, such an institution, which may originally have been organised voluntarily, becomes the ultimate decision making authority – like the modern state has become – and is able to prevent its component parts from exercising any significant autonomous power that would seal its fate, then the anti-liberating effects of consolidation and centralisation will be felt. This has been the case with the United States which, having started off as an association of small, independent, sovereign states has become, at least since the American Civil War, a compulsory union with the power concentrated in Washington DC rather than in the state capitals.

Decentralisation cannot depend solely upon formal, constitutional arrangements or treaties and it is naïve to argue that such set ups are adequate. What matters is where the de facto ability to enforce decision making power lies. An individual shareholder has de facto power over a company, for instance, because a court will enforce the sale of his shares and whatever other rights he may have. Technically, the individual member states of the EU remain wholly sovereign nations and, indeed, are so at this present time – the perceived loss of sovereignty of which its citizens complain has come in part from the fact that the politicians of the individual state governments have been happy to haemorrhage more and more powers to Brussels that override the individual, local needs of each country. However, if all of the military, policing and judicial might of the combined EU member states was to be consolidated in Brussels – which is, of course, the eventual aim of the super-statists – then it would be the case that no individual member state would retain the ability to enforce its sovereignty over the larger entity. Hence, it was a good thing for the UK to vote to leave the EU before such a consolidation occurred. What matters for the process of decentralisation and its liberating effects, therefore, is that any legal or enforcement system must be able to give effect to the decision making authority of smaller and smaller institutions. Therefore, large, standing armies, and consolidated police forces and judicial systems run from vast buildings in the capitals of large states, such as the Pentagon in Washington DC, are the biggest fears for those of us who wish to achieve a world of liberty – and with it, a world of peace and prosperity.


View the video version of this post.

Immigration

Leave a comment

The subject of immigration is keenly debated both within libertarian circles and in the mainstream, having been an important issue in the British referendum to leave or remain in the European Union on June 23rd and also in the forthcoming US Presidential election in November. This essay will outline the core libertarian theory concerning immigration before examining the key area for contention among libertarians – whether, in a world populated by states, any particular state should restrict or otherwise control movements across the border by persons who are not considered to be citizens of that particular state and whether this is in accordance with libertarian theory. We will also explore the additional question, assuming the same, worldwide condition of individual states, of which ways immigration can be said to be a “good” thing and in which ways it can said to be a “bad” thing.

In strict libertarian theory there is no treatment of immigration separate from the general libertarian approach to private property. In a libertarian world all pieces of homesteaded land would be owned by private individuals. Although the owners of neighbouring or otherwise closely situated pieces of land may share a common language, ethnicity and culture, there would be no legally defined national borders; all we would have are the borders, or rather, the boundaries of each parcel of private property marking the point where one person’s ownership ends and another person’s begins. Who, how and when other individuals cross these borders is a private matter for the property owner. It is his property and he can welcome and exclude whomever he likes and on whichever terms he likes. If the property in question is his home then his closest, most immediate family, who may also live there, are likely to have unrestricted access; more distant family and friends may be granted access at mutually agreeable times when they wish to see each other; a lodger will have access governed by a tenancy or licence agreement; and “handymen” or contractors may be granted temporary access to carry out certain work that the owner pays them to undertake. Everybody else in the world, on the other hand, is likely to be excluded. At no point, prior to any agreement or contract with the owner, does any person have a legal right to cross the border of another person’s property. An uninvited crossing is, in libertarian theory, defined as unlawful, aggressive behaviour and may be met legitimately with physical resistance. The only places where people could wander wherever they please, except for their own property, would be onto un-homesteaded or ownerless land as only in this condition would they be undertaking an action which does not interfere with the prior rights of another individual.

In a world populated by states, however, there are not just borders or boundaries between privately owned pieces of land; rather, there are borders between whole swathes of territory which form the landmass of the states. A particular stretch of land immediately on one of these borders need not be privately owned – it may be publicly owned if it is a road or a park or even ownerless if it is, say, an unkempt meadow (although the government will, of course, claim ownership over all un-homesteaded land). In such a world the question concerning immigration would not be whether immigrants would have the right to enter your home or, say, your privately owned business premises; not even the staunchest supporter of immigration contends that this should be the case and if we assume, as minarchists do, that the state has a legitimate responsibility to protect individual parcels of privately owned property from uninvited access by either foreign or domestic individuals then this stance is perfectly in accordance with libertarian theory. Rather, the issue concerns whether the state should grant, without question, prospective immigrants a right to enter the territory of the state at certain, designated  points on the border into publicly owned or ownerless territory that the state nevertheless claims is within its jurisdiction. This, necessarily, raises the further question of whether successful immigrants would be at liberty to access all publicly owned territory, such as roads, to use publicly funded facilities and to claim publicly funded welfare.

In this imperfect world of state borders the question we as libertarians have to answer boils down to how, in libertarian theory, we should treat the ownership of publicly owned land. If the government permits any foreigner to cross the border into publicly owned land can such an arrangement be equivocated with, or approximated to, an uninvited, physical invasion of owned property, in which case it would not be permitted? Or is it an action that is more equivalent to crossing into ownerless or un-homesteaded land and thus does not violate the rights of an existing owner? If we lean towards the first possibility then the resulting situation would be one of “open borders” – the de facto right of any foreigner to cross into publicly owned or ownerless territory of another state. However, if the answer is no then it does not follow that closed borders would result – it is only a quasi-invasion if foreigners cross uninvited. To listen to the mainstream arguments one would be forgiven for thinking that the immigration question needs to be met by an all or nothing answer – it is apparently a contest between liberals, or self-styled “progressives”, clamouring for fully porous borders on the one hand versus conservative, racist bigots who supposedly want to keep everyone out. We reject this false dichotomy and recognise that it is quite possible to be in favour of permitted, regulated immigration – allowing some people to cross the border as immigrants to come and live and work in the territory of the state while denying that privilege to others.

The most convincing reconciliation of this situation with libertarian theory is arrived at by asking a simple question. If the state was to dissolve itself today who, if anyone, would have the strongest ownership claim over the publicly owned land to which immigrants would gain access if they were permitted to cross the border? It is doubtful that such land can be construed convincingly as unowned given that it contains significant infrastructure – roads, railways, utility networks and so on – that have been deliberately engineered, bringing the land into a developed condition that is far from its natural, ownerless state. This infrastructure was paid for by the domestic, tax paying citizens for the benefit of domestic, tax paying citizens, and was not paid for by foreigners who have not been tax payers. It follows, therefore, that the strongest ownership claims to publicly owned land reside with the domestic, tax paying citizens of the state. As long as, therefore, the state owns and operates this land on behalf of the tax paying citizens it should be construed as the owned property of those citizens, to which non-owners can be excluded from entry in just the same way as a house owner may exclude strangers from his house. Thus it is reasonable to suggest that foreigners do not have a legitimate right to cross a state border. Moreover, if the opposite was true and libertarian theory was construed publicly owned land as ownerless then it would seemingly allow foreigners, or indeed, anyone, to homestead this land and take it out of public ownership. The suggestion that one could homestead a major road to the exclusion of the rights of those who were forced, by the state, to pay for that road’s construction, is clearly absurd.

An objection to this suggestion is that non-taxpaying domestic citizens, such as low earners and children, will be permitted access to the publicly funded infrastructure. If we are ascribing ownership of public assets to those who fund them through tax contributions then shouldn’t these domestic, non-taxpayers be excluded too? In the first place we could suggest that the taxpaying citizens – i.e. the taxpaying parents of children and taxpaying businesses who need customers to access them via public roads – have extended a quasi-invitation to non-taxpayers to use the publicly funded infrastructure. However, before we begin to contort our analogy in a tortuous fashion we have to remember that no answer we can give in this regard is going to be perfect. A world populated by states is not a perfect situation with which libertarian theory has to deal. Libertarian theory properly excludes the state entirely; however, if we have to suffer the state in some form then there is an impetus upon us to make it function in the most liberty-oriented way, an endeavour we can only accomplish by approximating ownership as it would be in a stateless society rather than by replicating it entirely. Moreover, it is probably not possible to distinguish taxpaying citizens from non-taxpayers on a public highway, whereas it is eminently possible to exclude foreigners at a frontier.

If we maintain this theme of attempting to approximate ownership in a stateless society we can also determine the situations where foreigners would be permitted to cross a border. As we noted earlier, in libertarian theory owners may invite non-owners onto their property as and when they see fit and upon whichever terms are agreed. Such an entry would not then be an invasion. The most likely way that such invitations could be extended to cross state borders would be if a foreigner is offered employment within the territory of the state, or married into a domestic family. Alternatively, perhaps, a foreigner may purchase property that is within the territory of the state. Critically, however, these invitations should initiate from private sources and private exchanges, not from quota systems or other arbitrary rules and restrictions emanating from the state. Not only does this serve more convincingly our approximation of public ownership with private ownership, but there are also sound economic reasons for stating that this should be the case. If, for example, an invitation to cross the border is dependent upon an offer of employment from a private company or individual it demonstrates that the skills possessed by the immigrant are genuinely in short supply within the domestic population as perceived by the real wealth creators. The immigrant will arrive and will be integrated into the employer’s workforce immediately, co-operating with the existing, domestic co-workers in the production of goods and services. This is less likely to exist with either unlimited immigration, or immigration defined according to government direction, where the influx of immigrants may simply be creating a greater supply of labour which pushes down the wages of existing, domestic workers, and is likely to increase racial tension and xenophobia.

Indeed, the economic cases for and against immigration are rarely stated correctly in the mainstream debate and so it is worth our while to concentrate on these for a moment. Those who advocate open borders will be keen to point out that immigrants bring productivity and skills which serve to increase the standard of living of the indigenous population. Those who argue for restriction, on the other hand, will stress that, in fact, an influx of foreign workers simply competes with domestic workers for employment opportunities, sowing the impression that foreigners are “stealing our jobs”. Both points of view contain kernels of truth yet neither is valid in all situations. Whether or not immigration is a benefit or a burden concerns whether labour and capital goods are balanced in a particular location. The applicable economic theorem in this regard is the law of returns, which states that if the quantity of a factor of production is increased while the quantities of the complementary factors are held constant, there will come a point when the increases will produce diminishing returns and, eventually, no returns at all. For example, a farmer who wishes to grow crops may take land, seeds, water and fertiliser as his factors of production. If he holds the quantity of land, seeds and water constant while increasing the quantity of fertiliser then at first he will experience increasing crop yields per additional unit of fertiliser he deploys. Eventually, however, further increases of fertiliser will produce fewer and fewer crops per additional unit deployed without further increases in land, water and seeds, until eventually there will be no additional returns at all. Finally, of course, production will cease altogether when the land becomes buried under a mountain of fertiliser. If, on the other hand, there are increases in the quantities of complementary factors of production in addition to increases in the quantity of fertiliser, it is possible for the farmer to experience an increase in crop yields per additional unit of fertiliser deployed. Exactly the same is true when the increased factor is not fertiliser on a farm, but is, rather, human labour. If labour is increased, through population increases, but it is not possible to increase the complementary factors of production then the increase in population will simply result in diminishing returns and an overall reduction of per capita real incomes. This will be particularly acute if there is a sudden influx of a particular type of labourer that requires specific types of complementary goods in order to be productive. If there is an increase in low-skilled, manual labourers then a given territory also needs to have the additional factories, machines, tools and equipment for them to use. If it does not then the existing stock of such items simply has to be used more intensively by a greater number of labourers, which, if the increase in labour is left unchecked, is the recipe for diminishing returns. There is no point in shipping in a boatload of carpenters if there isn’t enough timber for them to work on, or if there are not enough workshops to house them; it is futile to welcome more workers onto a car assembly line if the assembly line itself has not been built, or if there is a shortage of steel or aluminium. In principle, at least, this extends to highly skilled labour as well. If a state brings in from overseas a load of doctors then the additional hospitals, surgeries and medical equipment have to be available too. Obviously the situation can become dire if the incoming population cannot work at all – for example, if there are a lot of children suddenly entering a territory, or those otherwise demanding educational services, then there needs to be the additional schools and colleges, otherwise existing class sizes simply swell and the quality of education (i.e. the “returns” on inputs into education services) diminishes. All of these additional capital goods – the machines, the factories, the equipment, the raw materials and so on – are demanded right from the moment that the immigrants arrive and seek work. However, their availability is not immediate as the production of capital goods requires both time and, more importantly, savings. Therefore, if the labour is specific, i.e. specialised to only one kind of occupation, then immigration will serve simply to increase the supply of labour applied to the relevant capital goods, thus pushing down wage rates for the domestic population. If, on the other hand, the skillset of the immigrant labour is unspecific then it may be possible to put them to work in creating these capital goods – i.e. building the very factories and tools they need to increase their productivity. However, capital goods do not yield an increase in productivity until they are completed and if the immigrant population is to go to the effort of creating them then they need consumer goods to sustain them during this phase of construction, a phase which may take a number of years before the additional capital goods are able to increase the supply of consumer goods. The only source of the latter is the prior production of the indigenous population. In other words, the domestic citizens have to reduce their level of consumption today in order to save and fund the additional production of capital goods, thus lowering their standard of living. The only way to induce this voluntarily is to raise interest rates so that more people save out of their current income. However, higher interest rates are precisely what are discouraged by spendthrift governments and economists hypnotised by Keynesianism, who do everything that they can to lower interest rates and decrease the incentive to save. The domestic population therefore continues to maintain its preference for consumption over saving and so all that they see is higher prices for the very consumer goods they wish to buy and lots more people from far flung lands wanting to buy them. It was the understanding of this whole phenomenon which formed the basis of Malthusianism – that if population increases outstrip gains in productivity then society becomes, overall, poorer. For the indigenous population of a given state, the incoming population simply becomes competing consumers of existing, or a barely increasing stock, of goods and services. Indeed, some libertarians have pointed out that this may be the aim of the state in the first place – to bring in more welfare parasites and weaken the wealth and power of the indigenous population, thus expanding the size and scope of government.

On the other hand, it is clear that if there has been an increase in the non-human factors of production but not an increase in labour then these factors too will be subject to the same law, the law of returns. In other words, an increasing number of machines, tools and factories will be used by the same number of labourers, with the result that the latter become spread out more thinly over a burgeoning supply of capital goods. In this instance, an increase in population is precisely what is needed to increase productivity and to make use of the additional capital stock. So, for example, if an empty factory with nobody to operate it, and machines and tools lying idle, is filled quickly by immigrant workers then productivity can rise on account of the fact that there has been a commensurate increase in labour and capital goods. Such a situation is not unheard of in areas where there are extremely favourable reasons for creating capital goods – low tax rates, strong private property rights, good transport links, and good supplies of natural resources – except for a sufficient supply of willing labour. For example, a mining business has to open up shop where the ore it wishes to mine is located. The labour must come to the ore in order to ensure any productivity from the mine. Going back to what we said earlier, if there is an under or oversupply of either labour or resources, only private business owners and entrepreneurs should make decisions as to what moves where – whether labour should be moved to where resources are or whether resources should be moved to where labour is – for only they are in a position to judge, through pricing, profit and loss, which is the most cost effective solution in ameliorating the imbalance between labour and capital goods. Any direct action by the state in this regard will simply create surpluses and shortages either of labour or of capital goods in different areas, as government management of anything always does. Indeed, in a previous essay on “Overpopulation”, the present author argued that increasing population is generally not a concern, from an economic point of view, under conditions of an unmolested division of labour; but it does become a very acute problem when government interferes in population levels, especially in specific areas. In particular, if we look at the two most extreme positions the state could take with regards to immigration – a policy of completely open borders (or even an active pursuit of higher immigration numbers) on the one hand, and a policy of completely closed borders on the other – the former will tend to lead to a surplus of labour while the latter will tend to lead to a shortage. In a world without the state where each parcel of land was owned privately, areas with relatively high populations and low concentrations of capital goods would have higher access costs – higher prices to access roads, higher property prices, higher school prices, and so on, deterring immigrants away from an area where there are already too many people. On the other hand, areas with relatively low populations and relatively high concentrations of capital goods would have lower access costs, encouraging immigrants to move to the place where there are not enough people. Thus, through the pricing system, the market sends signals to prospective immigrants telling them which areas need them and which areas do not. In a world managed by states, however, a policy of open borders will mean that the free cost of access to state controlled territory such as roads, schools and hospitals artificially lowers the cost of immigrating, a situation which is, of course, exacerbated when immigrants have either unrestricted or lightly restricted access to welfare benefits. There will therefore be more immigrants and a higher population than the area requires. On the other hand, a policy of totally closed borders artificially raises the cost of immigration to the level of imprisonment or being shot on the frontier. Thus, while for some this cost is justified (as trying to cross the Berlin Wall was, although this border was directed at keeping people in rather than out), the overall result will be fewer immigrants and a lower population than the area requires. States with heavily restrictive immigration policies, such as the United States, can often find that their domestic companies become exasperated by the difficulty in hiring foreign talent while there will be relatively more attempts to cross the border illegally.

This leads us onto another central theme concerning immigration and that is racism and xenophobia. Any treatment of the topic of immigration cannot avoid addressing these issues, particularly given that any opposition, principled or otherwise, to a policy of “open borders” is often shouted down as racist or at least racially motivated. In the first place, libertarian theory has nothing to do with racism. Our conclusion earlier, predicated on the approximation of ownership rights with regards to publicly owned property, that states may, legitimately, restrict foreigners from crossing the border into the territory of the state says only that the state may choose to exercise such a restriction on behalf of its tax-paying citizens. It may equally choose to relax or forego any restriction. Libertarian theory says nothing about the motivations that the state, its politicians and bureaucrats, and the citizens it supposedly represent, may have for making a choice either way. It states only that they may make such a choice. Libertarian theory is emphatically not motivated by anything that could be construed as racist. Moreover, if one does cross over to a value judgment and state that immigration should be restricted in certain circumstances, as the economic concerns that we just outlined suggest is wise, then it is preposterous to assume that the motivation is necessarily racist. These economic concerns would be true in a world populated entirely by whites, entirely by blacks, entirely by Asians or whomever, all speaking the same language and all with a relative cultural homogeneity. Yet the argument – that an increase of labour without an increase in complementary capital goods would lead to diminishing returns – would still be exactly the same.

Rather, what we will attempt to argue here is that racism and bigotry derive from, rather than precede, a state’s policy of fully open borders and that it is such a policy which aggravates racial tension. A libertarian policy of managed borders, with invitations to cross extended to immigrations extended by private individuals and companies would, in fact, result in a relatively peaceful world where different races would co-exist without difficulty.

The key to understanding why this is so is to do with how the economic aspects we outlined above intertwine with cultural homogeneity in a given society. A society is not simply a collection of atomistic persons doing whatever they like whenever they like, even though such a society may exist hypothetically in libertarian theory. Rather, people in a society embrace a certain culture and the particular morals, rules, habits and hierarchies that are created by that culture. The reason for this is not accidental or spurious. Rather, relatively predictable, reliable, homogenous practices across the populace as a whole not only aid but may even be absolutely necessary for effective social co-operation, and it is through social co-operation – the division of labour – that people are able to raise their standard of living for themselves and for their families.  A common language is, of course, an important, if not the most important homogenous, cultural phenomenon required for social co-operation. It is no accident that in very few places in the world there is a complete mixture of different languages and that, for the most part, different languages are separated geographically. Even a country such as Switzerland, which officially speaks French, German, Italian and Romansch has different areas in which each of these languages is dominant, with only a handful of fully bilingual areas. The barriers to social co-operation if the opposite was the case are obvious. Imagine coming to work one day and finding that your boss speaks only Russian, your co-worker Chinese while the team you manage speaks a mixture of Spanish, Welsh and Punjabi. Cultural practices extend also, however, to such apparently menial aspects as the 9am until 5pm working day, or when the main meal of the day is eaten. If people stroll into the office whenever they please or vanish at 10 in the morning to enjoy a three course meal clearly social co-operation is impaired. This is not to imply, of course, that everybody has to do absolutely the same thing all the time in a given society. However, the exceptions prove the rule and different practices – such as working at night and sleeping during the day – are regarded as unusual. Moreover, there is also the fact that humans are a tribal race – we prefer to associate with those who are familiar to us, those who do what we do and those who agree with us, if only for the comfort of predictability, regularity and routine in addition to the contribution of such aspects to social co-operation. Indeed, if the benefits of cultural homogeneity for social co-operation are true then it is possible that our preference for it is an outcome of evolution, which has biased us towards desiring things, through instinct, that ensure are our survival and betterment. However, it would be a mistake to assume that most specific cultural practices emerged randomly or through simple preferences. Rather, they were shaped and formed by the challenges presented by the specific climate, geography, topography and the available resources of the particular locale. For example, the Mediterranean practice of taking a siesta in the middle of the day originated because the temperature was too hot to work at that time. Indian food makes use of a lot of spices because of the difficulties in preserving food in such a hot climate, a difficulty that was not quite so prevalent in regions further from the equator. The practice of circumcision originated out of the challenges posed to male hygiene and comfort in a hot desert environment. The creation of the family unit and sexual fidelity, which we take for granted today, originated at least in part from the need for fathers to bear the costs of raising their children when population levels in hunter gatherer communities began to outstrip resources, something which could not be managed in a culture of “free love”. The family is a cultural practice we see all over the world because the problem it solved was experienced throughout the world, whereas less universal cultural practices sought to solve only specific, local problems.

When immigrants move from one state to another they are usually moving from one culture to another – from one language, one religion, one set of social norms, one type of cuisine, and so on, to something else with varying degrees of difference. If a relatively homogenous culture is both a natural human preference, is a requirement for effective social co-operation, then it follows that cultures of both the immigrants and the indigenous population of a given state are not likely to mix naturally within the same locale and that, rather, one set of cultural practices must yield to the other. This is particularly so when the cultural practices of the immigrants were developed with regards to the challenges posed by their homeland and may be superfluous or completely contradictory to what is required in the state to which they have emigrated. When, as we outlined above, individual immigrants are invited to the state by individual persons and companies to accept an offer of employment it is because there is a pressing, economic need for their presence – there is a surplus of capital goods and equipment and a shortage of labour. The immigrants, in this instance, will begin work immediately and will mould themselves into the cultural practices and habits of the indigenous population. Furthermore, their skills and abilities, being in genuine short supply, will be recognised and appreciated by their co-workers, with whom they will be co-operating to create more wealth and a greater standard of living, rather than competing to consume an existing stock of wealth. It is true, of course, that immigrants may retain cultural practices of their homeland in the domestic situation of their own home; however, the first generation of children, born in the state to where their parents have emigrated, will become heavily surrounded by its culture. To them, this new state is their homeland and not a foreign place and they will know little to nothing of their parents’ place of origin. Thus they become even more integrated into the culture of the new state and will most likely consider themselves as citizens of the new state even if they retain an obeisance to the state from which their parents emigrated. This is not to imply, of course, that the culture of the immigrants will be completely eradicated. Indeed, in some cases, foreign cultural practices find their way into the indigenous culture. The delights of foreign cuisine, for example, are often embraced by a domestic population, as Indian and Chinese food has throughout the West. All we are saying is that at if social co-operation is to be pursued to its fullest extent, one of the cultures must become recessive and to the extent that the immigrant population form a minority it is likely to be the indigenous culture that remains dominant. The outcome, of course, is a prosperous society where immigrants and natives work together peacefully without racial tension or xenophobia.

Contrast this situation, however, with the case of where it is the government of the state which welcomes immigrants to its territory, either through a policy of open borders or according to some artificial quota system which is wholly unrelated to the genuine demand for additional labour within the state. Here, the immigrants will arrive without offers of employment but they will quickly look for them. However, because there is no demand for additional labour at the existing wage rates the effect of the arrival of the immigrants is to push existing wage rates down for the indigenous population. Thus the latter draws the perception that immigrants are simply creating a crowd, a crowd which competes for existing resources but seemingly does little to add productive value. This becomes exacerbated by minimum wage laws and other costly employment regulations that the state heaps upon employers – if wage rates drop below these levels then unemployment must result. Hence the perception that foreigners are coming over to “steal” jobs from the indigenous population, although both will be afflicted. Moreover, if the immigrants cannot find jobs then it is less likely that they will be integrated into the working practices and the cultural environment of their new state. What results, therefore, is that they form their own communities and their own local economies which, with little impetus to do otherwise, retains the cultural distinction of their homeland. Hence, the perception amongst the indigenous population, that entire towns and communities are being “invaded” by an alien culture and that one’s own homeland is being turned into an outpost of some far and distant country. The stage is set, therefore, for an increase in racial tension and xenophobia, an increase which will be exacerbated if the government follows a deliberate policy of multiculturalism – i.e. the explicit intention to create numerous cultures within the same society where one was previously dominant by inviting immigrants. Multiculturalism has rarely existed under purely voluntary conditions. The only exception is where vast swathes of immigrants from different places move to a previously uninhabited or sparsely habited area. The difference here, however, is that everyone, from wherever they have come, has moved to the new land in order to make a better life for themselves and they are attempting to do so in a place where there are few, if any, indigenous persons of a given culture seeking to preserve an existing culture. Everyone, in other words, is embracing change and the challenges that come with improving their lives, rather than attempting to defend one that already exists. Such was the early history of the United States which, of course, was populated by immigrants from all over the world.

What we can see, therefore, is that policies of open borders and forced integration are the cause of racism and xenophobia through economic and cultural clashes. They are not the solutions to these problems. However, even if there were no economic barriers to welcoming immigrants to a given state and even if the only motivation for indigenous people to exclude them was racism and xenophobia that sprung from their own minds entirely as a matter of preference, our priority is to ensure that all of the six billion people of different creeds, colours, races, and religions are able to co-exist peacefully on this small rock hurtling through space. If different peoples and cultures living in separate geographical locations achieves this whereas mixing them all together in a single place causes them to fight then it is reasonable suggest that preference should be given to the former.

Progressives often label their policy of mixing cultures in the same locale as a policy of achieving “diversity”. Yet the world as a whole already is a diverse place. Some places are hot, some places are cold, some are wet, some are dry, some have fertile soil while some are barren. As we said earlier, this diversity of geography, climate and topography, together with the unique challenges posed by each difference with which humans have to deal, is what creates diverse cultures. The forced creating of “diversity” in every single locale simply amounts to a travesty. Not only does mixing every culture everywhere in every location, in fact, create bland uniformity as opposed to diversity, it is the equivalent of trying to put a mountain, a hot desert, and a jungle all in New York City. To that extent we might say that attempting to create “diversity” is a utopian revolt against nature.

Conclusion

To summarise what we have concluded here:

  • In a world where the existence of states is assumed, the ownership of state property should be approximated to the ownership of the state’s tax paying citizens, thus ruling out a right, in libertarian theory, for non-taxpaying foreigners to cross the border;
  • That invitations to cross the border should be made to prospective immigrants by private companies and individuals;
  • Such a policy would prevent the relative surplus or shortage of labour experienced when the state actively manages immigration policy; labour and capital goods would be channelled, through pricing, profit and loss to where they are most needed;
  • That it is relative surpluses of labour through policies of open borders, forced integration and the pursuit of multiculturalism, which are the causes, and not the solutions to, racism and xenophobia. The prevention of surpluses of labour through the method we described would also prevent such racial and cultural clashes and is more likely to create a world of peace and prosperity for all persons, regardless of colour or creed.

View the video version of this post.

Britain and the EU

1 Comment

On June 23rd of this year, Britain will hold a referendum on its membership of the European Union, voting either to remain (“Bremain”) or to leave (“Brexit”). The present author is rooting for a “Brexit”, which is unsurprising for a libertarian who detests any metastasised growth of the state that the EU certainly represents. Unfortunately, in spite of the passionate rhetoric that the issue tends to inspire in the so-called “Brexiteers”, from a libertarian point of view it is difficult to reconcile oneself with, or to endorse, some of the arguments that are emanating from the “Brexit” camp. In other words, it would be a mistake to characterise the debate as a defiant band of liberty lovers seeking to shake off the tyrannous ogre of a bloated, continental tyrant, although that is surely part of the motivation. Rather, many of the “Brexit” arguments, seeking to respond to the “Bremain” side, are couched in the same conventional, statist terms. They therefore lack any incisive bite that would provide a convincing case for withdrawing from the union.

The most prominent issues where this is visible are economic growth and trade. When it comes to the former, both sides fling at each other hypothesised GDP figures that show either a marked gain or reduction in the number. Obviously “Brexiteers” are attempting to show that the figures would be higher outside the EU whereas “Bremainers” are attempting to show the opposite. However, simply adding up flows of monetary expenditure (and then expecting the public to comprehend the methods and assumptions involved in doing so) in order to try and get a bigger, magic number than the other guy tells you very little. If you had a billion pounds yet the only thing to spend it on in the entire world was a loaf of bread then you would be in abject poverty in spite of your nominal wealth. The key to encouraging economic progress is increased investment in capital goods such as factories, machines and tools developed with ever better technology, which permits more consumer goods to be produced per worker, thus lowering prices and making more things affordable for everyone. The kind of economic system that best incentivises this accumulation is one of strong private property rights, minimal regulation and minimal taxation. GDP figures can be high in spite (or even because) of the fact that these things may be absent, as it is buoyed by monetary inflation and government spending. The relevant question, therefore, is whether the EU is likely to either promote or discourage this kind of environment. Instead of arguing over GDP projections the answer that “Brexiteers” should be giving is that the consolidation of states makes it more likely that property rights will be diminished while taxes and regulations rise. Smaller states do not usually possess within their territories all of the resources they need to build a strong economy. In much the same way as a single household or individual needs to go shopping at the grocers, the butchers, the bakers and so on, so too does an individual state need to go “shopping” in other countries, trading what they have for things they do not have. Burdensome regulations simply discourage this trade, while high taxes and insecure private property rights will deter foreign investment, all of which will seek more favourable markets as a result. Moreover, if the state becomes too onerous it is far easier for citizens of even modest means to leave a small state than it is for them to leave a larger state. Large, consolidated states, on the other hand, usually have access to a wide labour market and a greater number of resources, and are better equipped for a degree of autarchy. Moreover, the large state’s sheer, geographical size makes it more difficult for a citizen to emigrate to a similar country which is unaffected by the large state’s diktats. The large state will therefore step up its plundering of the citizenry as it is shorn of any real impetus to cease doing so. What produces trade and economic progress, therefore, is not consolidating states into one giant monopoly, which has a reduced incentive to relax its depredations upon its citizens. Rather, it is allowing states to compete with each other to attract entrepreneurial migrants, investment and trade. In other words, while creating a trading block may give the appearance of vanquishing border controls, tariffs and other trade restrictions it does not stop the trading block from imposing internal taxes and regulations that are more burdensome to trade and prosperity than those between independent states. Indeed, a high rate of internally imposed Value Added Tax (VAT) can be worse than a tariff. And, as the “Bremainers” trumpet, while it is true that within a single market companies no longer have to deal with a myriad of different tax rules, different regulatory codes, and so on, it is likely to prove less costly in the long run to deal with many light and fleeting taxes and regulations than it is to deal with one behemoth. Just to give an idea of how big and bloated the EU bureaucracy is, one source (Brexit: The Movie) lists a whole host of household items one encounters between waking up in the morning and eating breakfast:

  • There are 109 regulations for pillows, and 50 for duvets and bed sheets;
  • 65 EU laws cover bathrooms;
  • 31 for toothbrushes and 47 for toothpaste;
  • 172 laws for mirrors, for some reason;
  • 91 for showers, 118 for shampoo, and an incredible 454 for towels;
  • At the breakfast table, there are 1,246 regulations for bread, 52 for toasters, 64 for fridges, 99 for cereal bowls, 201 for spoons, and 625 for coffee;
  • Far ahead, however, is milk which has been deemed to deserve an incredible 12,653 EU regulations.

None of this is to imply, of course, that a world without the EU would be wholly unregulated. Rather, regulation will come from the market place and it is consumers who will decide whether products should meet certain standards. Moreover, increased quality and better safety comes about through the wealth creating endeavours of free individuals so that these things become more affordable, not through the wealth distributing fiat of faceless bureaucrats in Brussels.

Concerning specifically the issue of trade is the argument over whether Britain would, outside of the EU, be able to negotiate so-called “trade deals” without the backing of the EU. In his final visit to the UK as President of the United States, Barack Obama indicated that Britain would be “at the back of the queue” for trade deals owing to what is presumed to be its diminished influence outside of the EU (although this attitude did not stop him, in the same trip, from preaching to an audience of young gullibles an instruction that they should “reject pessimism and cynicism”). The response of “Brexiteers” has been to try and demonstrate how trade agreements would, in fact, be possible and how Britain would open itself up to being able to deal with other large markets, such as China and India, independently. While the latter is certainly true, all of this is wide of the mark. For trade agreements between states are precisely what we wish to avoid. Trade agreements do not open up trade at all; rather they stifle it. Genuine free trade can be accomplished by adhering to a single principle that can be written in a single, short sentence: no restriction of trade across borders. Trade agreements, however, which frequently masquerade as free trade agreements, are simply government managed trade. The North American Free Trade Agreement (NAFTA), for instance, runs to more than 1,200 pages across two volumes of government imposed rules and regulations, usually in order to grant protectionist privilege to a handful of powerful firms and interests. Indeed, one of the motivations for “Brexit” is for Britain to avoid the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US, which is seen as giving too much power to overseas corporations and ignoring environmental concerns. However, “Brexiteers” do not augment this rejection of a specific trade agreement to a rejection of trade agreements as a whole. One possible retort to this argument is that, in the absence of any kind of trade agreement, other countries could simply whack enormous tariffs and regulatory burdens on imported British goods, almost like some kind of punishment. In the first place it is, of course, far-fetched to believe that every one, or even most, of the significant markets with which British companies trade would do this. If a state shuts off or otherwise burdens trade from another state it ultimately harms itself as much as it harms the state upon which it has imposed the restriction. For if, prior to the elevated tariffs or increased regulations, certain resources or products were purchased from Britain it is because Britain produced these products at the best value compared to anyone else. Therefore, after the restrictions, the citizens of the other state must now pay more to produce the same goods internally or buy them from an alternative state, or must be content to purchase goods of lesser quality. Moreover, shutting off imports weakens a demand for a state’s exports as ultimately all imports are paid for with exports. It would, therefore, be foolish for states to respond to a “Brexit” in this way. The same argument applies to the EU itself. Another of the arguments from the “Bremainers” is that if Britain left then the EU would still be Britain’s largest trading partners with the power to impose its regulations on trade entering the block, in addition to newly imposed tariffs. Britain would be shorn of any influence whatsoever to change these rules, and would end up in much the same condition as some of the proximate outliers such as Switzerland and Norway are alleged to languish (never mind, of course, that GDP per capita in those countries is markedly higher than in every EU country). In the first place this argument shows just how few clothes the emperor is wearing. On the one hand, the EU is supposed to be committed to promoting trade and commerce yet on the other hand, if you dare to leave it, you will be shut out by tariff walls and have to suffer whatever burdens the EU rains down upon you. Clearly, therefore, the EU is far from being a promoter of peaceful trade and prosperity. Rather, it is really nothing more than a protectionist club, like a gang of bullies in the school yard who look after each other yet terrorise the other kids. That aside, however, Britain’s “influence” does not come from its membership of the EU – rather, it comes from the value that the EU places on its partnership with Britain, which will ultimately boil down to Britain’s economic clout. If trade with Britain is valuable to the EU then Britain will have as much real influence outside of the club as it does inside; you do not stop talking to someone you need simply because you are not in a political union with them. If, on the other hand, Britain was a tiny, unproductive state that produced little then it would be ignored as a member of the EU just as it would be largely ignored as outside. That is why the larger, more prosperous states in the EU, such as France and Germany have most of the influence. Most of the arguments concerning the loss of any “influence” for Britain, both within the EU and on the so-called “world stage”, do not refer to the diminished influence that the average British citizen would have in improving his life and furthering his goals. Rather, it refers to the diminished influence that the British politician will wield following “Brexit”. Being a representative of a large territory such as the EU gives the state’s lackeys a much more prominent position at the table when they jet off, at taxpayers’ expense, to their plush conferences and summits to devise an ever increasing number of predatory ways in which they can burden the real wealth creators. In any case, however, the “loss of influence” argument seems to have received the final nail in its coffin in early May when it was alleged that Germany had a de facto veto over Prime Minister David Cameron’s renegotiation of Britain’s terms of EU membership. However, even if we imagined the worst case scenario where all of the countries of the world, including the EU, imposed punitively high tariffs and onerous regulations on British imports and refused to engage with Britain in any way shape or form, the latter would still benefit from making a universal declaration of free trade – no tariffs on imported goods and little or no regulation. This sudden reduction in cost would then make Britain a highly competitive market, reducing costs of inputs for British businesses, attracting investment, expanding output and lowering prices for British consumers.

Looking more broadly, what are we to make of the argument that the EU was the supposed solution to centuries of war and human rights abuses? Strictly speaking, the human rights obligations of European states depend not so much upon the EU but, rather, upon whether they sign up to the European Convention on Human Rights (ECHR), which dates from 1953. The Convention is used as a convenient short hand for states to demonstrate their commitment to human rights, which is a condition of EU membership, and jurisprudence from the European Court of Human Rights normally plays an important role in determining how member states should implement EU law in accordance with their human rights obligations. Nevertheless, even though, as libertarians, we must be suspicious of any kind of government implemented human rights charter, which simply cherry picks certain pleasantries, subjects them to state regulation, and calls them “rights”, it would be possible for a member state of the EU to leave and still remain a party to the ECHR. Somewhat perversely it is, in fact, prominent “Bremainers”, such as Home Secretary Theresa May, who are campaigning for Britain to withdraw from the ECHR while remaining in the EU. The possibility of war however, is an important issue, with Mr Cameron himself having argued that leaving the EU would increase the risk of Europe descending into war. In the first place we have to wonder why, if the situation was that grave, Mr Cameron’s commitment to the EU was so ambiguous before he achieved his so-called “reform deal”, which renegotiated Britain’s EU obligations in areas such as welfare and immigration. Prior to this he supposedly had no “emotional attachment” to the EU and at least gave the impression that he may campaign to leave if the reforms failed. Mr Cameron was effectively saying that if he was devoid of an “emotional attachment” to the EU he was also devoid of an “emotional attachment” to avoiding war, the latter of which is surely more important than tweaking the conditions of EU membership. That aside, however, we have to wonder what this argument – the possibility of European war – makes of the so-called “democratic peace theory”. This is the idea that democracies are less likely to go to war with each other, and is peddled by pretty much the same people who crow for political unity. Weren’t the continent’s wars started by despotic monarchs and crackpot dictators? Surely now that we all bask in the bliss of democracy we won’t be so eager to fight each other? Why do we need something more? Regardless of this, however, the argument that a diminution of the EU will lead to war is ridiculous – indeed, it is the opposite that is more likely. Wars are started and fought by states; human rights are abused by states; the state, in the twentieth century alone, caused more deaths than private criminals in the whole of human history. Even the greatest efforts of sub-state, politically motivated actors – i.e. “terrorists” – pale in comparison to the carnage and destruction wrought by states. If this is true, it stands to reason that the solution to preventing this is to make states smaller and weaker, not bigger and stronger. The most destructive, and most potentially destructive conflicts we have ever experienced – the two world wars and the Cold War – occurred after the consolidation of smaller states into large territories, namely Germany, Italy and the Soviet Union. The origins of both of the world wars is complex, of course, but a fundamental cause was the drive of the unified Germany towards autarchy. As an industrialised country, Germany relied upon the import of food and the export of manufactured products in order to pay for it. The costs and burdens heaped upon German industry in order to fund the Bismarckian welfare state hampered German production, leading to fewer exports and fewer imports of food. Thus Germany looked to conquer the agrarian lands of Eastern Europe to overcome this self-inflicted handicap. What is clear, however, is that this problem was facilitated by the unified state, which was endowed with the wherewithal to grow the depredations of the state upon its industry and the might to launch invasions. Later, the persistent nuclear terror that was extant during the Cold War was made possible because territories as large and as rich as the United States and the Soviet Union could afford to fund things such as the Manhattan Project. The most aggressive and belligerent state today is the United States, which, together with its fawning collection of NATO allies, is driven by the neoconservative foreign policy agenda that seeks a unipolar world of American dominance. The greatest threat to peace is that such ambitions emanating from a large, rich and powerful state run head first into the ambitions of other large, rich and powerful states – namely, China and Russia, as we are seeing lately with the expansion of NATO to Russia’s border, the demonization of the Russian president and the altercations in the South China Sea. The worst case scenario is that the world will be vaporised in a nuclear holocaust, something which is likely to get worse if the next US President, who will be elected in November of this year, continues down this path. It is clear therefore that the consolidation of states may reduce the number of potential warmongers – but the stakes are far, far bigger. The key to achieving peace and prosperity is free trade in a sound money environment. You do not have to point a gun at your butcher or your baker in order for him to hand over what you want; you simply have to offer him something that he wants and then you both get on with the rest of your day. Exactly the same is true on a global scale; individuals engaging in voluntary exchange without interference across borders will not fight each other. War and conflict result only when states infringe this harmony.

This leads us on to the so-called “democratic deficit” argument – the idea that the EU’s governance and institutions somehow lack democratic legitimacy. It is true that if the EU is perceived as beyond the control of the voters then tolerance for it will dissipate quicker than if they believe they are “having their say”. On the other hand, however, democratic legitimacy is something of a red herring. People possess a de facto control over the state, with or without democracy, the smaller and more local it is. Even if the EU reformed all of its institutions in order to eradicate the “democratic deficit”, the EU would remain as a vast territory in which the individual voter vanishes into an ocean of 500 million others and its institutions would still amount to a vast bureaucracy awash with special interests that speak umpteen foreign languages making it impossible for the voter of any individual country to understand precisely what is going on. This can point can be made without us having to resort to the wider libertarian critique of democracy as an enabler of, rather than a restriction upon the state.

In drawing all of what we have said together, we will conclude with an observation that is likely to resonate with libertarians. When it comes to the big issues such as economic progress, trade, and promoting peace and prosperity, all of the arguments in favour of the EU boil down to the assertion that the EU makes it easier to get rid of state imposed restrictions and to vanquish ills that are created by the state. In other words, the EU is supposed to be good not because it actually achieves a positive accomplishment over the restrictions imposed upon humans by nature (such as a new product or service), but because it clears away artificial roadblocks that states have put in the way. If this is true, perhaps it would be better to address the question of whether we need the state at all, rather than whether we need a giant one such as the EU.

Altruism, Freedom and Economic Progress

Leave a comment

The virtue of altruism is held in immeasurably high esteem in our society today. Selfless benevolence at one’s own expense is regarded as the pinnacle of human endeavours, with societies and cultures often reserving their most coveted honours and elevations for people who have apparently undergone acts of selflessness and generosity. Contrary to mainstream thought (and contrary to the thought of some free market proponents), there is nothing in either libertarianism or free market economics that disputes this view. It is true that, strictly speaking libertarians qua libertarians neither promote nor condone any voluntary act; rather, they simply take the position that such acts should not be countered with violent repressions. Whether such acts are good in and of themselves is another matter. Further, free market economists will note that although voluntary exchanges create net wealth (including gift giving in which the donor never “loses” as such but, rather, gains a psychic profit that, to him, must be worth more than what he gave up), there is no part of their science in and of itself that compels them to promote or encourage giving any more than they are required to promote any other type of exchange (although economists may of course note also that increased wealth creation usually goes hand in hand with increased generosity). Nevertheless, as a private individual, it is possible for libertarians and free market economists to regard such specific, overt acts of kindness and generosity – especially those that cause the donor to incur at least the risk of a great material cost, such as wading into a strong river to save a drowning child – as worthy of praise and adulation and that the congratulation of such individuals is far from being out of place.

On the other hand, mainstream thought has extrapolated, erroneously, from these individual, voluntary acts the conclusion that economic progress, the vanquishing of poverty and the path towards a greater and better society are themselves dependent upon altruism and self-sacrifice to the extent that these virtues can cohere into a social system – a system, that is of course, managed by state fiat, such as the welfare state. This belief is dependent upon a further error which is that, in the free market order, the fundamental interests of each member of society are pitted against each other and that one person’s profit must automatically transform into another person’s loss. In other words, the profit and loss system results in benefits to the few (or, at most, some) at the expense of the many. From this incorrect assumption one naturally leads to the conclusions that the only way to benefit more or the many is if these profits (or the wealth that is possessed by the few) are turned over to the many. It is these conclusions with which libertarians and, in particular, free market economists disagree. If that was not bad enough, however, we shall also see that the implementation of systemic methods of wealth distribution is, in fact, completely antithetical to and destructive of altruism and generosity.

This error is similar in nature to another error encountered in mainstream economics – that of supposed shortages of “demand” on an economy-wide sale. In the particular situation of an individual firm or industry, a withdrawal of demand from the firm’s products will result in a slowdown of business for that firm. If the firm is to recover then it is obvious that a recovery of demand for its goods and services is necessary. However, from this entirely correct conclusion regarding a particular circumstance is extrapolated the utterly false conclusion that increases in demand must benefit the economy as a whole. Or, in other words, that where there is a general economic malaise the effective response is to encourage a general increase in demand for an alleged “glut” of supply. As we know from Say’s Law, however, demand and supply are opposite sides of the same coin – the demand for one product is formed by the supply of another. Therefore, one cannot increase general demand without also increasing general supply, i.e. the production of real products. Simply printing more money or lowering borrowing costs does nothing to increase demand; it simply raises the prices of what is already available and shifts the purchasing power over these existing resources from the last or later recipients of the new money to the first or earlier recipients. The real problem in an economic bust is a relative glut of some products, namely, capital goods that are further up the chain of production, and a relative shortage of other products, namely consumer goods and capital goods lower down the chain of production. So too is a similarly false conclusion drawn with regards to altruism and self-sacrifice – that what may be good in one, specific situation is good for society as a whole; and so good, moreover, that the state should systematically force us all towards altruism and self-sacrifice. Let us now explore the reasons why this is false.

First, with particular, individual acts of kindness or generosity it is possible for a bystander to appreciate and form judgments concerning the variables that are weighed in the consideration of whether someone has performed a virtuous deed; the initial helplessness or the “worthiness” of the recipient; the magnitude of relief that the voluntary act of kindness provides; and the magnitude of at least the material cost to the donor. One can therefore form a personal judgment, based on empathy, of the positions of the particular giving and receiving parties as to whether the act of altruism is a good thing. On an economy-wide scale in a society of tens (may be even hundreds) of millions of people, however, it is not possible to form such judgments with any degree of specificity, and much blunter tools such as “income” are needed in order to judge who should be donors and who should be recipients. But such blunt tools tell us nothing about why, for example, someone’s income is low, whose responsibility it is and who should bear the burden of doing something about it. Moreover, there is no reason to suppose that someone who has a “high” income necessarily has cash to spare and does not have other commitments for those funds which the government wishes to redistribute – commitments which, even to others, may be valued as worthy, such as investing in his children’s education.

Second, in the long run massive transfers of wealth from the class of “haves” to the class of “have nots” does not benefit the latter in the long run. One of the most serious misconceptions concerning the ownership of wealth is that one must own it in order to benefit from it and thus only divesting wealth from those that have it and giving it to those that do not have it can ameliorate the plight of the poor and needy. What benefits the latter, however, is not the turning over of wealth to their hands so that it can be consumed and lost forever. Rather, what really hauls the poor up from the depths of despair is the investment of wealth in capital goods which are then able to produce more and more products and services at increasingly lower prices so that the poor can afford to buy them. We can illustrate this by adapting a well-known proverb: give a man a fish and he will feed himself for a day; invest that fish in a business that will produce fishing tackle that the man can afford and he will feed himself for a lifetime. The man in need never owned that original fish nor the capital goods that were produced from consuming it, yet it is clear that his life benefitted from its investment in a productive enterprise to a far greater extent than if he had ever gotten his hands on it directly.

Third, the very motivation towards altruism is most often dependent upon a close family or friendly relationship between donor and recipient where the welfare of the latter is of great importance to the former. Such a motivation is destroyed when your money disappears into a bureaucrat-run black hole. The result is that, as people lose their ability to spend their money in ways that they want, the motivation to producing wealth in the first place is destroyed. There is therefore less wealth to distribute anyway. Critics may, of course, argue that such a result is owing to the alleged “selfish” and self-centred nature of humans and that surely we – i.e. the state – has a duty to attempt to overcome this? There are at least two responses to this. First, it is part of the natural condition of humans that the primary ends and values that they hold are concerned with their immediate environment – that is, the welfare of themselves, their friends and their family; in other words, people whom they know, care about and have the ability to form empathetic judgments about. It is the stimuli from these sources that most potently determine our desires and choices. Everything else that goes on in the world is, for the most part, out of sight and out of mind, or at least very remote and can be brought to us only electronically through the media. But one does not even need to go that far, as most people are unlikely to even be able to appreciate the conditions, needs and desires of people in another neighbourhood in the same town – or even in the same street. People do, of course, devote themselves to causes that aim to help people far away about whom they may know very little; but these are specific causes towards which one may have a specific motivation. Wealth redistribution, however, aims at ameliorating hundreds, if not thousands of afflictions across many millions of faceless people. It is simply not possible for any human to form empathetic appreciations of all of those individual circumstances and, thus, neither will they be able to appreciate any kind of amelioration of these afflictions if they happen hundreds of miles away (this is before we get into any discussion of whether wealth distribution does, in fact, accomplish such ameliorations). Therefore, it is not possible for the typical human to motivate himself towards striding towards providing for a giant pot that aims to solve these problems, or at least not to the same degree he motivates himself towards providing for ends of his choosing. Moreover, we may ask whether a person with the ruddiest bleeding heart would, if it came to a choice, prefer to work towards contributing to the tax pot ahead of, say, caring for his sick and dying mother. Second, the very fact that wealth redistribution is forced (by the threat of imprisonment) rather than undertaken voluntarily does nothing to promote altruism in any way at all. Indeed, we might say that genuine altruism and selfless behaviour worthy of praise and recognition relies upon the fact that someone could have chosen, freely, to have done something “worthy” with his time and money. When I am forced to hand over my money, however, I have in no way “behaved” altruistically; in fact I haven’t really “behaved” at all – rather the money was simply taken from me. Further, rather encouraging any feelings of generosity the forced appropriation of my property it is likely to make me bitter and resentful and, moreover, to curb any desire to be generous with the remainder of the funds that I have left. To make matters worse, the welfare state does not leave the recipients of welfare spending as kindly and grateful beneficiaries who feel they were lucky to have avoided misfortune. Rather, the welfare state begets a sense of “entitlement” and dissolution of personal responsibility – that it is the state’s responsibility to provide for their needs and that they have a right to the state’s assistance. Ironically, therefore, the welfare state itself increases antagonism and selfishness rather than promoting their antitheses.

The attitude of selfless altruism can also be seen also in the elevation of those who devote themselves to so-called “public service” above those who compete in the allegedly greedy and grubby business of the private marketplace. Although positive views of politicians have soured considerably in the past generation, it is still widely believed that private industry is where people go to make lots of money to keep for themselves, while those who seek public office shun such squalid and base motivations and, with their visions of a “greater” society, can almost single-handedly make everyone better off without a thought of any benefit to themselves. Indeed, to the present author, it beggars belief that people are gullibly hypnotised by the illusion that all of their hopes and dreams are dependent upon a tiny minority, or even (when you witness the almost messianic reverence devoted to presidential candidates) a single person out of a society of millions gaining a job ahead of somebody else. It is in no doubt true, of course, that many people seek to enter politics with the desire, albeit the naïve one, to help people and to improve society. It may also be true that they could have amassed greater private fortunes by seeking employment in the private sector. Nevertheless, all political accomplishments (other than the few and far between measures that seek to roll back the interference of the state) necessarily produce a negative sum result – negative because what is given by government to one set of people must be taken by government from another, minus a cut to pay the salaries of the politicians and bureaucrats. This is before we consider the destruction of the incentives to create wealth that we outlined above. Even if, therefore, we stretched credulity and viewed politicians as truly angelic and selfless they would still not accomplish anything that would produce a net gain to society.

It is not the aim of our discussion here to suggest that a society distinguished by capitalism and free enterprise would suddenly create some kind of utopia where rank selfishness is without any negative consequences. Rather, it is simply to point out that, in the long run, the vanquishing of poverty is achieved by the investment of more capital goods in order to make more products affordable to people with the existing money that they earn themselves; not through giving them more money that is earned by and forcibly confiscated from somebody else. In such a society the high incidence of people needing the help of others would be prevented, not just cured. Nevertheless we might also note that it is a society that is highly prosperous and without a systematic welfare state that encourages rather than obliterates charitable endeavours. Overwhelmingly this is because people simply have more to give – it is no great mystery as to why most of the world’s great charitable foundations and societies originated in the nineteenth century, the era of the relatively most capitalistic progress and the least intervention by a formal welfare state. Ironically, it is the welfare state that has squeezed out private charity and genuine altruism from having any mainstream role in society. Additionally, however, in the absence of a compulsory so-called “social safety net” people rely on maintaining good relationships based on trust, reliability and selflessness with family and friends precisely so that they may be there for each other to cushion the consequences of the occasional unforeseen circumstance. Far from provoking any atomistic and individualistic existence freedom promotes and encourages a strong community and family spirit. If the virtue of altruism is to be nurtured then there cannot be a better place for it than there.

View the video version of this post.

“Capitalism – A Treatise on Economics” by George Reisman – A Review

Leave a comment

It is not often that the present author is moved to review any particular publication by a specific author, let alone one that was published nearly twenty years ago. However, Capitalism by George Reisman, at more than one thousand pages long, is the first major treatise that is at least related to the “Austrian” tradition since the publication of Murray N Rothbard’s Man, Economy and State in 1962.

Although Reisman is a contemporary of Rothbard and a fellow student of Ludwig von Mises, Reisman’s approach to economics is markedly different from either. Indeed, armed solely with knowledge of his pedigree one might be forgiven for wondering why more attention has not been directed towards to Reisman’s work from within “Austrian” circles. It is only after having read this treatise that one can see why. Although Reisman claims that Mises is his primary intellectual influence, there is very little of this treatise that could be regarded as distinctly Misesian. Rather, Reisman’s direct influences are the classical economists (especially Smith, Ricardo and J S Mill, upon whom he relies for support to an extent far beyond his reliance upon Mises) and Ayn Rand. Reisman specifically rejects the categorisation of economics as the science of human action, and prefers, instead, to regard it as “the science that studies the production of wealth under the division of labour”. He therefore willingly abandons any analysis of individual values, means, ends, and choices, and restores economic theory to the study of holistic aggregates; indeed we might say that his definition of economics, which views wealth as an entity possessing some kind of objectively determinable magnitude, demands such a restriction. Reisman positions the businessman, rather than the consumer, as the centre of the economic system, stating that consumers (as a whole) are largely dependent upon businessmen (as a whole) rather than vice versa. While, according to Reisman, consumers provide the direction of economic activity (i.e. the precise direction of resources to fulfilling specific industries), businessmen and capitalists are responsible for its extent, i.e. the limits of saving and capital investment. In other words, it is the decisions of capitalists that determine the extent of “economic progress” (a term Reisman prefers to “economic growth”) rather than those of consumers. A corollary of this is that production and producers are reinstated as the keystones of economic activity rather than consumption and consumers (there is at least an implication in parts of the treatise that production is good and proper whereas consumption is bad and wasteful, although this is much muted compared to the same in Reisman’s classical influences). Furthermore, it is clear that Reisman does not regard his approach to economics as a wertfrei science and, instead, believes his economic theory to be a rigorous promoter and defender of the capitalist system – an attitude that cannot be avoided by his definition of economics as the study of the accumulation of wealth under the division of labour, a division that he says is only possible under private ownership of the means of production. Thus, in Reisman’s world, a discussion of economics is a discussion of capitalism which, presumably, explains the book’s title.

What can we say about Reisman’s approach? Without beating about the bush we must state at the outset that Reisman, who is thoroughly acquainted with “Austrian” economics, has jettisoned a tremendous degree of sound theoretical understanding from the science. Although Reisman, who self-identifies as an “Austro-classical” economist, endeavours to restore to economics many of the (in his opinion) sound doctrines of the classical economists that were allegedly rejected following the discovery of the law of marginal utility and the backlash against Marxism, we must conclude that the result is something of a retrogression rather than a synthesis of two, hitherto quite disparate, schools of thought. In Reisman’s world, the achievement of all ends and their associated costs never advance deeper than the objective measurement of exchanges for money. He never advances any exposition of individual ends and subjective costs (indeed, he explicitly rejects the doctrine of opportunity cost). Hence the entire purpose of the economic system as serving the needs of individuals and the types of decisions that individuals must make in order to achieve these ends is missing, subsumed by the supposedly limitless need of man as a whole to accumulate “wealth” in perpetuity. In other words, Reisman’s restoration of the primacy of the production of “wealth” overlooks the fact that all production is ultimately aimed at providing for consumers and that it is the ends of consumers to which the economic system is geared. It is perfectly consistent to state, as does the wertfrei “Austrian” school, that the purpose of all economic endeavour is to provide for consumption while on the other hand remaining firm that the means of achieving this consumption can only be served by increased production. Therefore, while we can hold that the desire for consumption is the ultimate cause of economic progress, we can also state that production is the proximate cause. Thus, while Reisman’s categorisation of economic theories under the headings of either “productionism” or “consumptionism” – the former of which involves the promotion and encouragement of increased production as the means towards economic progress, the latter the promotion and encouragement of increased consumption – provides an instant and convincing cognitive aid, it obscures the clarity afforded by this insight of the “Austrian” school.

Furthermore, Reisman’s repositioning of the capitalist/businessman as the driver of economic progress relies upon capitalists providing the bulk of investment funds, i.e. that it is the consumption/saving decisions primarily of businessmen that determines the extent of economic progress. He argues that the wages of labourers do not provide a significant source of investment funds and are usually consumed either immediately or are saved in order to purchase durable consumer goods such as housing or automobiles. Any investment saving that labourers do happen to undertake is likely to be wholly disinvested at retirement, thus netting out the saving of younger generations. However, there is no reason for Reisman to think that this this must be the case. It is just as possible for investment funds to come from the savings of everyday individuals that are then lent to businessmen for them to deploy in their enterprises via a conduit such as bank savings accounts (and such a view would greatly undermine any opinion that capitalism keeps the masses in servitude as wage labour). The distinctive role of the businessman is that he provides entrepreneurial talent in order to generate economic progress by directing those saved funds to where they are most urgently desired by consumers. Yet Reisman’s treatise lacks any extensive theory of entrepreneurship and only passively recognises the need for superior decision-making in order to fulfil the ends of consumers. This lacuna in Reisman’s theory means that in order to position the businessman as the driver of economic progress he has to paint him as the primary provider of investment funds. This contrasts greatly with Reisman’s mentor, Mises, who makes entrepreneurship a hallmark of Human Action, thus giving us an insight into the economic significance of the businessman that extends far beyond the fact that he simply didn’t consume his wealth. (Some of Reisman’s views on what determines an individual’s consumption/investment preferences, which inform his theory here, are also incorrect and we will explore these below). In any case, however, Reisman seems to support his theory through a blurring of economic categories, such as labourers, consumers, capitalists, etc. (something which, irritatingly, is done all too frequently). In reality, all individual people in the economy participate in different categories at different times – a man is clearly a labourer when he goes to work, a consumer when he spends his wages in the shops, and a saver when he buys a corporate bond. However, when we are discussing, for the purposes of conceptual clarity, the roles of individuals in these economic categories, we isolate those specific roles from other categories and thus we always talk of labourers qua labourers and consumers qua consumers, etc. So even if it may happen be true that the particular people who are businessmen are responsible for the greater part of saving and investment, businessmen are consumers too and considering them as consumers qua consumers it is their decision to refuse to consume their wealth today in favour of accumulating greater wealth for consumption tomorrow that provides the source of investment funds. It is therefore true to state that it is the choices of consumers who determine both the direction and extent of economic progress. Moreover, as Mises also recognises, any consumer who is currently a wage earner can transform himself into a businessman, entrepreneur or capitalist by saving and investing his wages (while, equally and oppositely of course, any businessman who decides to consume his fortune may end up as a wage earner).

Finally, it is one thing to state that the preoccupation of the economic activity of any one (or even most) individuals may be with the accumulation and augmentation of their own wealth. But it does not follow from this that the science of economics itself concerns the accumulation of wealth. Animals preoccupy themselves with the need to attain food and shelter but this does not mean that the focus of zoology is with the achievement of these things.

Examining Reisman’s treatise on its own, non-wertfrei terms as a rigorous defence of the capitalist system, much of its earlier part is a detailed offence against the fallacies of socialism, collectivism, interventionism and environmentalism (and later, Keynesianism and inflationism). These devastating, if often heavy handed, critiques are likely to be viewed as by Austro-libertarians as Reisman’s greatest achievement in this work, even if some of it was previously published as The Government Against the Economy. A specific and lengthy chapter is possibly the most passionate assault against the ecology movement, a chapter that could easily be expanded and published as a separate treatise (Reisman’s stress of the anti-human zeal of environmentalism resonates with that of environmentalists, such as former Greenpeace Canada President Patrick Moore, who have become disillusioned with the movement). Reisman’s explanation of various forms of government intervention, such as price fixing, with reference to specific notable examples such as the oil recession of the 1970s, in which he traces out all of the effects (and effects of alternatives to) government meddling have rarely been matched. Yet much of the remainder of Reisman’s exposition does not in fact read as a promotion or a defence of the capitalist system; rather it is more akin to an aggregative, accountancy-laden explanation of what the capitalist system does, much like a description of some giant machine that swallows up inputs measured in numbers and churns out some kind of output, also measured in numbers. Reisman categorises an endeavour as productive according to its ability to earn money voluntarily through exchange. Hence all government functions, relying upon taxation, must necessarily be classified as consumption and not production. In other words, government can never produce and must always be a leech on the genuinely productive, capitalist system. Moreover, his excellent critique of socialism recognises that socialism must entail tyranny and a replacement of the ends sought by individuals with the ends sought by leaders. However, Reisman’s aggregative, accountancy approach never builds upon this insight. In the depths of the latter half of the treatise one almost forgets any connection between these accounting entries and how the capitalist economy serves the needs of individual people. One of Reisman’s stated aims in the treatise is to show how a proper understanding of the capitalist system should prevent one from feeling any kind of “alienation” from or subjugation by the capitalist system – something which Reisman comes closest to achieving through his analysis of the division of labour. Yet in the main it would appear that the Mises-Rothbard approach of detailing the economy as a network of bilateral, voluntary exchanges between individual people striving to meet their own needs through voluntary co-operation (and how these disparate and often conflicting goals and purposes nevertheless mesh into a harmonious, productive society) is much more conducive to achieving this than is Reisman’s aggregative, accountancy method. While it is true that the ability of capitalism to manifestly increase the standard of living and the degree of material wealth lends it a tremendous amount of moral weight, we can suggest here without too much elaboration that any rigorous defence of capitalism and, moreover, freedom can proceed only by focussing on the primacy of the needs of each individual person, not all of which can be measured or attained though objectively viewable exchanges for money. This omission in Reisman’s work also weakens the distinctly economic flavour of this treatise, as individual choices, desires, wants, decisions and actions do not seem to matter.

Turning now to some of Reisman’s theoretical contributions to the science of economics, there are two that stand out in particular. The first is his attempted demolition of the “conceptual framework” of the Marxist exploitation theory by asserting the primacy of profit rather than of wages. In Reisman’s view, critics of Marxism, including Böhm-Bawerk, have accepted the categorisation, originating with Adam Smith, of profits paid to capitalists as deductions from wages, and have sought explanations in order to justify this deduction. Reisman, however, asserts that wages, paid to labourers, are, in fact, a deduction from profits. If profits are calculated by subtracting business costs from business revenue, it is clear that if a person undertakes an enterprise to achieve, say, 100 units of revenue then every monetary outlay he expends in order to achieve that 100 units of revenue must count as a deduction from it. The fewer costs he has the more profit he is left with. Thus it is profits that represent the primary economic income, not wages. It is conceivable for the economic system to have profits but not wages in the event that every individual person operated as a sole trader and employed no other individuals. If, however, a businessman hires labourers to assist in his enterprise, the wages he must pay to these workers for their assistance are deducted from the ultimate sales revenues. Therefore, according to Reisman, wages only appear in the economic system on account of the help that other people provide to a businessman’s enterprise, and their help stakes a claim on his revenue. Thus it is wages that are deducted from profits, not vice-versa.

Whatever the merits of this view we must conclude that, to the dyed-in-the-wool Marxist, it is likely to be beside the point. The source of contention in the exploitation theory is that the businessman doesn’t do anything and simply leeches off the productivity of the worker; in other words by hiring labourers the businessman simply abdicates any participation in the act of production yet still gains an income. Reisman himself provides the answer to this by pointing out that labour is not the only source of productivity in a division-of-labour society and that it is, in fact, decision making, risk-taking, management and oversight that are also essential – in other words, entrepreneurship. And yet, as we noted, any extensive treatment of entrepreneurship is precisely what is missing from Reisman’s theory. Therefore, it must be submitted that an understanding of entrepreneurial profit and loss and the insulation of the labourer from business risk coupled with the time preference theory of interest provides a more effective demolition of Marxism than the primacy of profit theory which, if correct, provides only additional ammunition for it.

This brings us to Reisman’s next theoretical contribution which is his net-consumption/net-investment theory of aggregate profits, profits which he tries to explain in an environment of an unchanging supply and flow of money. The attempt to explain profit in terms of physical goods is relatively straightforward. Goods, of course, can increase or decrease and thus there can be absolutely more (profits) or fewer (losses) of them across society as a whole. We can also understand clearly, across the time structure of production, how the consumption of a smaller quantity of physical goods can be foregone today in order to produce a larger quantity of goods tomorrow. This is not so when it comes to accounting for profits and losses in terms of money which is assumed to be fixed in supply and flow. For every transfer of money that represents a credit to ones businessman’s income must show up as a corresponding debit to another businessman’s costs. Hence, while some individual businesses would earn profits and others would suffer losses, all profits and losses across the economy as a whole would net out and hence any question of aggregate profit would be impossible. The only method of solving this conundrum is to somehow, on the societal balance sheet, create a credit entry to income/equity without a corresponding debit entry to costs. It is the explanation of how this is possible that Reisman sets out to achieve.

The first element of aggregate profits – “net consumption” – derives from the fact that business revenues from consumption spending by labourers (and, as we noted, Reisman categorises all spending by labourers as consumption spending) shows up also as a business cost in the form of wage payments. Therefore, revenue and cost cancel each other out on the societal income statement. Similarly, business to business spending will be counted as both an equal and opposite revenue and cost and will net to zero. However, “the payment of dividends by corporations, the draw of funds by partners and proprietors from their firms, and the payment of interest by business firms” (which Reisman regards as “transfers”) to business owners, which provide the latter with a source of consumption spending, does not show up as a business cost yet does, once spent, show up as a business revenue. Thus the rate of profit is determined solely by the desire of the capitalists to consume. This element of profit has, Reisman claims, the ability of providing continued aggregate profits in an environment of unchanging money. For example, if the volume of spending is 1000 units of money each period, business costs could be 900 while business revenues could be 1000 and profits 100 in each and every period. (Reisman uses similar reasoning to explain how the rate of profit is increased by taxation as all taxation is consumption spending). The second element, “net investment”, derives from the fact that business spending on assets to produce business revenue are capitalised as assets and only later depreciated incrementally as a business cost. Thus, in an environment where the volume of spending is the same, business revenue exceeds business cost. For example, if 100 units of money are expended on capital assets, 800 units are spent on business costs, and there are 1000 units of business revenue, profits would be 200 as the 100 units spend on capital assets are not charged as a cost. Reisman believes that net investment provides a finite outlet for aggregate profit because, eventually, depreciation charges from assets previously capitalised will equal the value of new assets capitalised. For example, if 100 units of monetary spending on assets per year are capitalised and then depreciated at an uncompounded, annual rate of 10%, depreciation charges will be 10 units in year one, 20 units in year two, 30 units in year three, and so on until, in year 10, depreciation charges will exactly equal the 100 units of additional investment and so net-investment will provide no source of aggregate profit in that year. Thus, Reisman believes, only net consumption is capable of providing continuous, aggregate profits period after period. Net consumption and net investment are, however, joined at the hip. Reduced net consumption provides increasing funds for net investment to be capitalised on the balance sheet and charged as business costs only at increasingly remote points in the future.

What can we say about this theory? It should not be surprising to “Austrians” that Reisman’s theory is based upon net-consumption and net-investment as it those elements that are determined by the “Austrian” theory of time preference, which affects the rate of interest. (What Reisman refers to as “profit” is what most “Austrians” would refer to as “interest” – Reisman offers no explicit distinction between entrepreneurial profit and loss on the one hand and what “Austrians” would regard as interest on the other). Yet Reisman regards his theory as standing in opposition to the time preference theory and, moreover, the older productivity theory of interest. However, Reisman’s approach, characterised as simply a description of accountancy practices and the summation of money flows, does not challenge the time preference theory at all. The primary question of profit and interest that is answered by this latter theory is why do businessmen not impute the full value of the final product to the factors of production. In other words, why, even after businessmen are compensated for their managerial or oversight activities as a factor of production, is there always a further residual surplus that is not eliminated by competitive bidding amongst entrepreneurs? Why is there, to use Reisman’s terminology, a “going rate of profit” at all? The net-consumption/net-investment theory, while explaining that rises in net consumption will increase the rate of profit while reductions in them will lower it, only really explains how, from an accounting point of view, profits are possible. Reisman offers no extended treatment of the motivations of capitalists in paying (and of labourers in accepting) a sum lower than the total of business revenues and thus it is difficult to regard this as a distinctly economic theory. A more convincing explanation of his theory would detail how, with decreasing time preference, more funds are advanced to factors of production yielding revenue in the future, thus diminishing net consumption and the rate of profit, while these expenditures will be capitalised at increasingly higher amounts, depending on the time period when they come to fruition, relative to the ultimate business revenue that is earned. Thus Reisman’s accountancy-laden approach would, in this way, be fully reconciled with the “Austrian” approach to profit, or, rather, to what “Austrians” would call interest.

When Reisman does address the motivations that determine net-consumption and net-investment he does so erroneously. Reisman defines time preference as the determinant of “the proportions in which people devote their income and wealth to present consumption versus provision for the future.” It is Reisman’s link between this posited desire to provide for the future and net-investment that causes him to declare that net investment can provide only a limited contribution to net profit. To quote: “As capital and savings accumulate relative to income, the need and desire of people to increase their accumulated capital and savings still further relative to their income diminishes, while their desire to consume their income correspondingly increases”. In other words, the more saving and capital people possess the more they have provided for the future and thus productive expenditure will fall and consumption will rise, choking off net investment in the form of further additions to the asset side of the balance sheet. Thus depreciation charges begin to equalise new investments and aggregate profits from net-investment begin to fall. This view, however, is mistaken. Time preference has nothing to do with the desire of people to provide for the future. The need to provide for the future is always a present end just like any other and could be achieved by plain saving rather than investment. Time preference, rather, is the rate at which individuals prefer a larger quantity of goods available at some point in the future ahead of a smaller quantity of goods available today. It is perfectly possible for people to continue to invest sums of capital that will not produce consumer goods for well after they are deceased. Indeed, this is precisely why people have inheritances to bequeath. Many of the buildings, factories and infrastructure we have today were created not in our own lifetimes but were handed down to us from past generations. And it is further possible that capital accumulation and technological progress, which Reisman himself stresses enhances the ability to produce capital goods, will enable the production of capital goods that last further and further into the future. People would not even need to create capital goods that last so long with the purpose that they do so – in other words they could be perfectly limited in their own time horizons and yet still produce capital goods that yield a product well after the elapse of this time horizon. Let’s say, for example, that the current rate of time preference means that the produce from all assets appearing after thirty years hence is fully discounted to zero. In other words, only what the assets can produce in the next thirty years is valuable to present persons. If a capital good was created that could yield produce for sixty years, after the elapse of each year, another year’s discounted produce would be capitalised as this year is drawn into the thirty year time horizon. Therefore, such assets will provide a continued source of credits to business equity (and, thus, profits) without corresponding business costs. This is precisely the case with some of the most valuable patches of urban land which, for all intents and purposes, will go on producing well beyond the lifetimes and time horizons of any living person. Thus there is no reason for net-investment to be so limited in its contribution to aggregate profits in the environment of unchanging money. Moreover, we can see in this way how accumulating, aggregate profits that are capitalised for longer and longer periods is the hallmark of an economically progressing society – one where more and more capital is invested for longer – while the opposite, aggregate losses, represents retrogression through capital consumption.

Finally, as we noted above, there is no reason to discount saving by labourers a source of investment funds. This would divert spending from business revenue as the funds would be lent to businesses who would then spend it on “productive expenditure”. Without any corresponding business revenue the rate of profit would fall. (Thus we can see why increased funds that are made available for lending must be made at increasingly lower rates of interest).

There are one or two further disagreements we can cite here. First, “Austrian” business cycle theory, the jewel in the crown of “Austrianism”, is never explained at length and instead takes its place in a wider treatment of the effects of inflation. Second, his treatment of neoclassical price theory is too aggregative and does not explain how individual bidders and suppliers bring about a harmony between the quantity demanded and the quantity supplied. Third, as in his critique of the time preference theory of interest, Reisman often perceives differences or disagreements where there are none, such as that alleged between his productivity theory of wages and the marginal productivity theory of wages, the latter of which he describes incorrectly. And finally, in spite of having been the translator of Mises’ Epistemological Problems of Economics, Reisman has little to say concerning method – something which perhaps descends from his rejection of economics as the science of human action, which underpins Mises’ methodological dualism that divides economics from the natural sciences.

Overall, therefore, the question of whether Reisman’s approach to economics has successfully synthesised the “Austrian” and classical schools, and, moreover provided a progressive outlook for the science of economics must, regrettably, be answered in the negative. Rather, Reisman’s positive economic theory in this treatise comes across more as a restatement and re-polishing of classical economics (with some corrections to that school of thought), peppered with insights from neoclassicism and the “Austrian” school. Reisman’s rejection of the primacy of human action as the subject matter of economics has been at the expense of not only losing a great deal of theoretical understanding in the wertfrei science that this affords, but also weakening any positive promotion for capitalism and freedom.

Nevertheless, while this review has been mainly been critical of Reisman’s positive economic theory, we must end by celebrating the fact that our author has, in this treatise, many great things to say concerning socialism, environmentalism, interventionism, inflationism, Keynesianism and all other manner of false doctrines rejected by “Austrians” and libertarians alike. What Reisman has put to paper here are among the finest critical analyses of these areas ever written and, even if one cannot agree with Reisman’s specific, economic outlook, these contributions alone place Reisman in the top rank of economists whose work should be studied avidly.

View the video version of this post.

Older Entries