Building a Libertarian World

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A difficult and perhaps insufficiently understood question concerning libertarianism is how libertarianism will be brought about in the world as we know it and, moreover, precisely what a libertarian world will look like. How can libertarians expect their theoretical understanding of their philosophy to emerge from this present world of seemingly perennial statism and how will the world be shaped once this libertarian world is accomplished? This essay will bring together a number of thoughts of this topic that have been addressed in previous essays, namely the relationship between libertarianism and wider morality, the nature and origin of law and concepts such as rights, obligations and property, and the importance of decentralisation and the relative size of state institutions, in order to try and create a unified picture of how libertarianism in theory can (or will) become libertarianism in practice.

Let us begin our examination, then, with an outline of libertarian theory and the place of libertarianism amongst wider political and moral theory. Libertarianism as a theory is concerned solely with the legitimacy of the initiation of physical force between rationally acting beings and either themselves or other physical matter of which the world is made (i.e. “resources”). Rationally acting beings are those beings who strive to attain their deliberately chosen ends through the utilisation of means, means that are scarce and can only be devoted to one individual’s end at the expense of everyone else’s. Libertarianism asks the question who may act physically in relation to a given piece of matter and who may not. It answers this question by stating that every rationally acting individual owns the physical matter that comprises his body (“self-ownership”) and all external, physical matter either of which he is the first user or of which he has received in trade voluntarily from a previous, legitimate owner (“property”). A violation of these principles – i.e. the uninvited, physical use of an individual’s person or property by another individual – is deemed to be an aggression, an unjust invasion of that which belongs to somebody else (for example, murder, assault and theft). Thus, from these core beliefs we derive the non-aggression principle to encapsulate the basic libertarian approach to all interpersonal conflicts born out of scarcity.

Therefore, libertarianism itself – to use the accepted parlance amongst libertarian scholars – is a “thin” rather than “thick” philosophy, addressing only the legitimate use of physical force. Another way of putting this is that, because everyone’s ends must be accomplished through physical actions which impact, physically, other matter in the real world, libertarianism concerns which persons may act and seek to fulfil their ends in relation to a given piece of matter, and which persons may not. Libertarianism does not, on the other hand, concern the contents of an individual’s ends or goals nor, once it is understood that an individual may act, does it have anything to do with whether or how he should act or which precise choices he should make. Libertarianism addresses neither the wisdom nor the foolishness, and neither the benefits nor the burdens that a given action may bring – merely that the choice to act in a certain way is the individual’s to make and further considerations about whether he should so act is the province of wider morality. A further way of putting this is that libertarianism deals with that which is legally permissible and may be done without response from the force of the law; it does not deal with that which is morally permissible i.e. with which behaviour is either morally accepted or morally questionable – all of which, in contrast to illegal behaviour, cannot be restrained or prevented by physical force, however odious or unpleasant. For example, I have the legal right to refuse to hold open the door for a lady; a SWAT team will not break burst in and arrest me for having refused to act in accordance with this social more. However, from a moral point of view, I have probably behaved quite rudely and in a socially unacceptable manner, meaning that such a choice was, most likely, not a good one to make. However, the choice is still mine to make and no one would have the legal right to use physical force to ensure that I hold the door open. In short libertarianism is about what I may choose to do whereas wider morality concerns what I should choose to do.

Overlooking or disregarding this important point is likely to cause a great deal of confusion. It is the mainstream view today that law and wider morality are not separate endeavours and that the law exists to enforce a positive, moral code. On the one hand the law is used to prevent us from making choices which are morally bad – past and present laws against vices such as drug and alcohol use and against various sexual preferences or adultery are a testament to that. On the other hand the law is also used to force us to act in ways which are morally good – such as the supposed charitableness, selflessness and altruism that is allegedly accomplished by the whole apparatus of the welfare state, which is funded, of course, through legally enforced tax contributions. Morally bad acts are outlawed because they are seen as bad choices to make from which bad consequences will follow and so nobody should be doing them. Morally good acts are forced because they are seen as good choices to make from which good consequences will follow and so everybody should be doing them. When a libertarian, however, then comes along and says that nobody should be legally prevented from injecting or ingesting whatever substances he wants in his body, that no one should be legally restrained from having consensual sex with whomever he wants, and that no one should be forcibly dispossessed of his lawfully earned money to be distributed to others, what he means is that people should be able to choose or to choose not to do these things – that he should have the choice to take drugs, or the choice to have consensual intercourse with a member of the same sex, or the choice to either keep or give away his own money. However, the casual observer, viewing these pronouncements through the prism of an intertwined legal and moral code, looks upon the libertarian desire to legalise acts such as drug taking as a moral endorsement of that act, and the libertarian desire to defund the welfare state as an admonishment of altruism or sacrifice while replacing it with selfishness. He overlooks or refuses to understand the fact that the libertarian is making neither a commendation nor a condemnation of these choices whatsoever – merely that the morality and wisdom of making these choices are no business of the law’s. Unfortunately, many libertarians serve to aggravate this misunderstanding by assuming that there is no further moral question concerning a particular act beyond its satisfaction of the non-aggression principle. Yes, a person should be able to, for example, say whatever words he wants on his own property without any interference from the law – but it does not follow from this fact that it is a good idea to say a particular thing at a particular time, nor does it follow that other people should not withdraw their support of you if they find what you have said objectionable. A person who takes a narcotic does not violate the non-aggression principle but it doesn’t follow from this fact that everything is okay and that there is nothing more to be said on the matter. Indeed, very bad consequences might follow for the drug taking individual and his family if he proceeds to do so and it would be ridiculous to suggest that these are irrelevant considerations. This does not mean to say, of course, that the non-aggression principle should not be primary concentration in building a just and peaceful society. Given that the violation of the non-aggression principle is so endemically legitimised by the institution that is responsible for nearly all of society’s woes – the state – it is, of course, entirely right that libertarians should persistently and consistently emphasise it. However, to view the non-aggression principle as the only worthwhile consideration would, if taken to its logical conclusion, amount to a travesty for the principle only concerns where one may act, not whether he should so act.  Shorn of all other reasons to act or not to act, those who wed themselves to the principle but to nothing else would be devoid of any impetus to make one choice over the other and would, in fact, never act at all! While it is true, therefore, that libertarians in their capacity as libertarian theorists are only concerned with the proper application of the initiation of violence in society, in their role as citizens in society they must also cultivate a positive, personal morality, a personal morality that will permit the libertarian to add value to moral debates far beyond the limits of libertarian theory – while keeping firmly within his sights that none of his views are anything to do with libertarian theory itself.

It cannot be emphasised enough how embracing or understanding the very limited scope of libertarian theory affords a tremendous degree of intellectual clarity for political and moral philosophy. Theories of interpersonal ethics concern how we, as rationally acting individuals, should behave towards each other – the choices we should make that affect our own lives and the lives of those around us. It might be a good thing for each of us to give to charity and to care for one’s elders, for example. However, if theories of interpersonal ethics concern the choices that people should make, then their starting point needs to be that an individual really does have a choice as to whether he should act one way or the other. A person behaves morally or immorally if he has moral responsibility for his actions – i.e. that what he did was born out of his own free will. He does not so behave if his action was forced or if he was otherwise acting as an automaton. This fact is frequently recognised with acts that are seen to be morally bad or evil. For example, if I am holding a knife and somebody grabs my hand and plunges the knife into the body of another person who subsequently dies, few people, if anyone, would agree that I was the murderer as opposed to the person who grabbed my hand. My action was not chosen by me; it was, rather, completely forced and out of my control and thus I do not bear moral responsibility for the ensuing stabbing. Similarly, the law recognises circumstances where an individual is placed under such a degree of duress that his moral responsibility is severely compromised if not totally eradicated. If, for example, someone holds a gun to my head and threatens to shoot me dead unless I stab another person then I am relieved of moral responsibility for the resulting injury or death, at least to a degree. This relief from moral responsibility is seldom, however, recognised with moral goods. If it is morally good for me to give some of my money to the poor then I can only be said to have behaved morally – i.e. to have done a good thing – if I have chosen that act. If, on the other hand, such an action is forced – that I am, Robin Hood-style, robbed of my money and it is then given to the poor – then I have not done anything good at all. I can neither be praised nor condemned for whatever result this action will bring because the choice was not mine – I had to give up that money regardless. It follows from this, therefore, that if giving to the poor is a good thing and is, further, the hallmark of a caring and compassionate society, it is ridiculous for this giving to take place through the forced mechanism of the welfare state. When people pay their taxes to fund the welfare state they don’t give voluntarily at all – rather, the money is forcibly taken from them. The original donors therefore did not behave in any way morally good or morally bad; indeed, strictly, they did not “act” in any way whatsoever. Because they were forced to give up their money, neither care nor compassion was ever shown on their part; in fact, it is more likely they will be extremely resentful. Moral theories that allow for the enforcement of their ends through violence are therefore not really theories of interpersonal ethics at all; rather, they are theories of how the enforcing party – i.e. usually the state’s officials and lackeys – should behave unilaterally, treating everybody else as little more than tools to be wielded towards whatever ends the specific theory so desires. That’s why all socialist and collectivist theories are completely contrary to the reality of human nature – they suppress the very real desires and choices of millions of ordinary people for the benefit of the ends sought or desired by a handful of political masters and bureaucrats. Libertarianism, however, preserves each individual as a moral agent with the ability to make the choices that he wants with the means that he lawfully owns; it forms a true foundation for wider moral theory by reminding such theories that seeking violent enforcement of their ends is no theory of moral behaviour at all, such behaviour requiring moral responsibility for one’s actions. Thus we can see the importance of the place of libertarianism in philosophy as a whole is as a thinly conceived theory concerning the legitimate use of force and violence between rational persons. It is not a complete moral philosophy but it serves as a firm basis for moral philosophy, and this important purpose would be severely impaired if libertarianism as a theory was, instead, conceived of as “thick” or demanding additional moral imperatives.

Beginning from this understanding of libertarianism in theory we can move on to discussing libertarianism in practice. How will a libertarian world be brought about and what will it look like? What kind of institutions will build and preserve this libertarian world? What is it that is preventing us from achieving a libertarian world today? What needs to be the focus of our efforts? In answering these questions we are going to set ourselves the somewhat ambitious task of attempting at least a degree of reconciliation between what are perceived as distinct “camps” within the libertarian movement. First, there are the “thin” libertarians and the “thick” libertarians mentioned just a moment ago; and second, there are the “anarchists” – those who believe that no state is justified at all – and the “minarchists” – those who believe that minimal state is justified for the prevention of aggression. What we will show is that, when it comes to the most likely and practical way that a libertarian society can be introduced, these largely theoretical differences may not be that important and that all libertarians can proceed towards one, common aim.

In beginning our task we first of all need to define precisely what a libertarian society in the real world will actually be. An uncontentious definition would be a society in which the non-aggression principle is adhered to so widely, through one way or another, that violations of it amount to little more than minor incursions and nuisances rather than endemic, perennial societal ills. Some violent invasions against the person or property of other people will always exist – there will always be, after all, criminals and those who are willing to do bad things. The important point, however, is that they do not approach the scale of systematic violence and destruction that our governments heap on us today.

If we accept this definition then there are three problems which we need to consider. The first problem is how to eradicate, from the mainstream consciousness, the legitimisation of the initiation of force or violence – in other words, how do we ensure that the non-aggression principle comes to be viewed as both true and just by almost everyone? How will all persons, regardless of their status or position, come to be subject to this same, basic prescription? The second problem, however, concerns how we will reduce actual violations of the non-aggression principle to a level far below that at which we languish today in order for a very real peace and prosperity to flourish. It would be no good if we achieved the first goal of educating everyone about the injustice of stealing and killing, for instance, yet we all happily stole and killed because the incentives and institutions required to deter such violent behaviour did not exist or, indeed, were impossible to bring about. If this was the case then libertarianism would simply be a theory without any practical application, a whimsical idea that would have no relevance to the real world. The third problem, which is the most difficult of the three to comprehend, is whether a libertarian world will be created from the top down or from the bottom up. Will it be sufficient, for example, for a small band of diehard libertarians to overthrow the existing rulers, install themselves as the supreme leaders and proceed to order everyone to adhere to the non-aggression principle? Or will a sustainable libertarian world be brought about some other way?

Happily, if we examine each of these problems in turn we will find that they point to a common way forward. Addressing the first problem of the legitimacy of force and violence in our world today, we can see that the primary vehicle for this legitimisation is, without a shadow of a doubt, the state – and the democratic state in particular. It is already acknowledged by almost everyone that individual, private citizens cannot steal, murder, thieve, etc. There is no general or widespread problem of people failing to recognise that I, as a private citizen, may not, for instance, steal from my neighbours to fund my business, nor may I use violence to get other people to do what I want with their property. I may not kill someone in the street or bomb houses because I believe there might be some threatening or nasty people inside of them. These acts are, quite rightfully, recognised as unjust and illegal. When it comes to the mechanism of the state, however, people’s attitudes are markedly different. It is, apparently, perfectly legitimate for the state to steal from its citizens in order to fund its business of welfare and warfare; it is legitimate for the state to use force to “regulate” what you do with your own person and property, even though what you may wish to do inflicts no violence or infringement against the person or property of anybody else; the state is allowed to drop bombs on houses if it believes there are nasty people it doesn’t like inside, writing off the innocents who were killed or maimed in the process as “collateral damage” (or at least the state can do this in faraway lands where its voters neither have to see nor think about it). Far from being a check on state power, democracy (the only form of government that is assumed, without argument, to be just by anyone who expects to be taken seriously) has served to increase the power of the state – and thus the extent of its violence – by providing it with a veneer of legitimacy. The only thing that can possibly be said in favour of democracy is that, once one realises that a majority will always get its way one way or another, it provides for a relatively peaceful and bloodless transition of political power from one majority to another. Today, however, democracy has been exalted to a level far removed from what it deserves for providing solely this simple benefit. Because people believe that they are “choosing” their leaders and “choosing” the policies that are implemented by casting their vote or “having their say” this, for some reason, means that it is alright for the state to go about its business of force and violence in almost any way it likes. The power of kings, emperors and those who otherwise claimed some kind of unique, divinely endowed right to rule was kept in its place by the fact that everyone else was shut out from either the use or benefit of state power; no king ever managed to create a world of paper money that could be printed and accepted as payment without limit to fund his warring ventures, nor could he build a redistributive welfare state; no king ever had an alphabet soup of departments and agencies managing your home, your family, your workplace, the products you buy, the services you use, and so on. However, because everyone in a democracy is apparently allowed to “have their say”, such a system not only allows everyone an opening to benefit or even direct the state’s immoral acts via the mechanism of government, but because such acts have been “chosen” by the “will of the people” they are transformed from provoking moral outrage to provoking moral celebration. Never mind, of course, that people do not actually have any meaningful say in a representative democracy – all they are allowed to do is vote, once every few years, between a tiny selection of carefully screened candidates who create the impression that they are bitterly divided yet agree perfectly on all of the fundamental features of the state which libertarians oppose. Only occasionally are the people allowed to come out of their corner to fight, as the British did with the recent referendum on EU membership and the Americans did with the election of Donald Trump as their President. What is important for the legitimisation of force of violence, however, is the fact that people believe that they are in control of the state. It follows, therefore, that delegitimising the state and weakening the power of the state would go a long way to delegitimising the use of force and violence everywhere.

This leads us onto our second problem which is how to minimise the actual incidence of force and violence in society. Unsurprisingly our answer points once again to the primary culprit, which is the state. As we just mentioned, a powerful driving force for the actual commission of violent and invasive acts is their perceived legitimisation under the aegis of the democratic state. After all, if it is okay to relabel theft and violence as taxation and regulation and to do these odious acts through the mechanism of the state, then obviously they are going to be done a lot more often. However, so many of the catastrophes and calamities for which the state is responsible result from the actual, physical wealth and power that many states have managed to accumulate, with that wealth and power concentrated in an ever dwindling number of specific people and institutions. As a result of this the ability for the state to expand its predatory effects has been left almost unchecked. The consolidation of state territories into unified governments has been particularly disastrous in this regard. The two most destructive conflicts in history – the two world wars – occurred after the unification of Germany and Italy, with the drain the Bismarkian welfare state inflicted on the economic prosperity of Germany leading to the drive towards autarky and the perceived need to conquer the largely agrarian lands to the East. The nuclear terror perpetuated by the Cold War was made possible only because such large and powerful states as the United States and the Soviet Union were able to fund the building of their nuclear arsenals. The United States, the only remaining superpower today, has caused havoc in Korea, Vietnam, the Balkans, Iraq, Afghanistan, Libya, Syria and God knows where else simply because it can do so relatively unopposed. Smaller states with smaller tax bases and access to fewer resources simply cannot do this. Yet, ironically, because the state is still viewed as the fountain of all goodness, it is further state expansion which is called for in order to prevent war and preserve peace – as if it is all of us barbarous citizens who are causing all of the strife rather than the political leaders with their armies, navies and air forces. Proponents of such expansion fail to understand the obvious fact that if you wish to minimise war and its effects then the last thing you want to do is to make belligerents bigger and stronger as opposed to smaller and weaker. Nor do they understand that if you wish to promote trade and prosperity then so too must the state be cut down to size. The original project of the European Union was designed to unify and pacify the old warring colonial powers, creating a trading block with tariff free borders through which goods and workers could pass unhindered. We can certainly agree that the aims are broadly correct – if you wish to achieve economic progress then you need to encourage capital accumulation, which can only be done through relatively strong private property rights, minimal taxation and minimal regulation. However, the path that was taken to achieve this was to consolidate and centralise Europe’s political institutions in Brussels and to, eventually, create some kind of European super state. This is the precise opposite of what you want to do if your aim is free trade and increasing prosperity. If Europe, instead, consisted of several hundred, or even up to a thousand small territories and independent cities the size of say, Monaco, Liechtenstein or Luxembourg then the lack of each state’s ability to access both natural and human resources, except through international trade, would be reduced to a minimum; thus such states could only introduce onerous tariffs and border controls at the expense of crippling themselves. Moreover, a small state cannot increase its internal taxes and regulations to levels which are too onerous otherwise residents will simply hop across the border (which, in a small state, is likely to be only be a few miles away) leaving the heavily taxing state drained of its productive population. Thus, what keeps taxes, regulations and border tariffs minimal to non-existent is the competition between many small states so that they can attract investment, talent and resources. In turn, production of these things is encouraged and wealth creation accelerates. However, in a vast super state covering thousands of square miles and controlling an array of natural resources and a population of millions, the taxing and regulating authorities are now left relatively unchecked. No longer do they have to attract resources and talent and neither can these things leave as easily – for they are already there within the territory of the large state and crossing a border that may be thousands of miles away is markedly more difficult. It is for this reason that the EU has become one of the most heavily regulating and interfering state institutions in the world, a fact which incites farcical hilarity, if not utter despair, when you consider that there are more than 12,000 EU regulations concerning milk. If all of these regulations are necessary it’s a wonder how previous generations ever managed to enjoy the stuff at all. It is true that there may be no internal tariffs and border restrictions within the EU and yes, goods and workers can move freely between, say France and Italy. Business leaders acclaim how great this is for commerce and enterprise, yet what these business leaders overlook is that the EU itself has become a burdensome engine of internal taxation and redistribution that far outweighs any gain achieved through the abolition of border tariffs. Indeed, each member state’s contribution to the EU budget effectively amounts to a tariff anyway – the only difference is that the burden of paying it is borne by the citizens of each state as a whole rather than individual industries or businesses which ship goods to the EU. Fortunately the EU does not have any direct, taxing power over the citizens of member states, yet it has been moving to nullify tax competition between states, the very element that is so important for keeping tax rates low and for attracting investment. And let us not forget, of course, that the EU is more than happy to charge onerous tariffs on imports from outside of the bloc. Super states, and prospective super states such as the EU, are not single markets promising trade, prosperity and the best conditions for enterprise – they are, instead, single bureaucracies of heavy taxation, crippling regulation and welfare parasitism.

In his astonishingly perceptive book, The Breakup of Nations, Leopold Kohr pointed out that almost every notable achievement of the human race – great art, great literature, great culture, great technology, great philosophy, and so on – is all but irrelevant to the preservation of peace and prosperity. The only relevant factor is the size, or, rather, the relative size of states. Big states prey on their citizens and their foreign counterparts not because they think they either should or that to do so is good (although they may believe these things), but simply because they can. Great power endows one with great temptation, a temptation which political leaders nearly always cave in to. The evidence for this is difficult to dismiss. Centuries of cultural refinement marked by some of the world’s finest achievements in art, literature and music did not prevent France and Germany from each having their turn at conquering the whole of Europe; the philosophy of freedom and liberty didn’t stop the British from building an empire; the economic and technological progress of the United States has not stopped her from interfering, disastrously, all over the world. Yet the era in recent history which supposedly (but not entirely accurately) marked the nadir of man’s cultural and economic achievement – the Dark Ages – was, by comparison, relatively tranquil, as it was also populated, for much of its history, by relatively smaller, weaker states. From all of this it is clear that the breakup of states into far smaller units – what we might call political decentralisation – should be a clear aim of libertarians.

It is on this note of decentralisation that we move onto our third and final issue which is whether a libertarian world will be brought about from the “top-down” or from the “bottom-up”. Would it be enough, for example, for a defiant band of libertarians to take over the state apparatus and to enforce a libertarian legal code? What we have just said about power and corruption should make our initial answer obvious. If libertarians take over the state won’t they simply become corrupted by its power and influence? Or, more likely, if the populace whom they now govern was not similarly enamoured with libertarian values, wouldn’t the leaders cave into the pressure to use the power of the state to “act” in order to correct some kind of perceived societal ill? A comparable occurrence of this nature in recent history is the American Revolution, which is popularly portrayed as the overthrow of a tyrannous, foreign king by the oppressed but passionate American people fighting for their freedom. Yet, in reality, what occurred was that a new elite simply served to replace the power vacuum that had been left with the departure of the British. Not only were the founding fathers far from unified on the question of precisely which type of government should replace the ejected monarchy, but very quickly aspects of the new United States began to resemble those of their previous colonial masters. We know today, of course, that the Constitution of the United States has utterly failed to constrain the power of the federal government. Yet even reading the original text alone should alert a critical reader to how un-libertarian it was in the first place. It does, after all, preserve the power to tax among a myriad of other horrors in Section Eight of Article One such as declaring war, raising armies and the infamous commerce clause. Within mere years of its adoption, the very same people who were victors over the repressive British provoked the whiskey rebellion, enacted the Alien and Sedition Acts, and even the great Thomas Jefferson found it difficult to constrain himself when, as President, he signed into law and draconically enforced the Embargo Act of 1807. If libertarians simply served to replace the despots they would very soon find themselves acting as the new despots. A genuine libertarian revolution will be impossible unless the power of the state is chopped from the bottom rather than simply given a haircut at the top.

The more important point, however, is revealed when we consider what it is that institutions such as property, rights, obligations and laws – the backbone of a libertarian society – are supposed to serve and how these institutions developed historically. The mainstream point of view in this regard is hopelessly confused, wallowing in a misunderstanding of the abilities and extent of human design and ingenuity. The results of such ingenuity are, of course, all around for us to see. We can easily marvel, for example, at the achievements of humans in the fields of science and engineering, at how we have transformed barren, dead matter into great structures such as buildings and bridges, how we have harnessed the power of electricity to provide us with heat and light, and how a device as small as a microchip can process information many times faster than the human brain. Every way we look we see the results of humans striving to shape the world in the way that we wish in order to meet our needs and improve the quality of our lives. Since the advent of Cartesian rationalism in philosophy, it has seemed almost obvious that if humans can shape the resources we have around us to do what we want them to do then so too can we apply this same engineering bent to society itself and to societal institutions. In other words, that we can deliberately shape society and design its institutions to do what we want them to do. If we can construct the Empire State Building then surely we can construct laws, regulations, rights, and obligations in order to make society a better place? That is the fundamental view of statists today – that society is something there to be managed, pushed in certain directions and squeezed into certain shapes by our political masters served by an army of elite intellectuals. The laws that are enforced are to be designed and enacted through legislation in order to push, from the top down, society onto a particular economic and moral path. Society, however, exists only because individual people perceive that social co-operation is essential for meeting their needs and for vastly improving their quality of life. In contrast to this, it would be quite possible for each person to be content to live an atomistic existence, finding his own food, building his own shelter and entertaining himself devoid of all social relations and interaction with anybody else. If this was the case then society, as such, would not exist. If the population of a territory consisted of 1,000 people yet each of those people lived such an isolated existence then that is all you would have – a piece of land with 1,000 people on it; you would not, however, have a society of 1,000 people. Because, as should be obvious, such an existence would result in the starkest and most brutal impoverishment, humans have, instead, decided to come together and co-operate. Such co-operation has developed from our existence as hunter gatherers, through the Neolithic Revolution and has reached its most advance form in the division of labour – the specialisation of each individual in a particular task which serves the needs of others. It is this social co-operation which is, in and of itself, society. Because the purpose of this co-operation is to further the needs of individuals it is the case also that the institutions that are required to facilitate this co-operation appeared because they made the pursuit of our individual needs and wellbeing easier. The great societal institutions – such as the family, the law, money, and morality – were never explicitly designed or “invented” by anybody. Rather, they were the product of centuries of evolution or of what we might call a “spontaneous order”, and the precise content of their makeup was determined by what facilitated the needs of individual people. The family, for example, developed during an era in which humans were pure consumers of what the Earth had to offer rather than producers – much like animals are. The availability of resources in a society which only consumes and never produces is heavily dependent upon the height of the population. As humans could keep on breeding merrily the population quickly rose to a level where the quantity of resources was insufficient and hence everybody suffered from a reduced standard of living. The family unit developed as a response to this problem in order to make fathers bear the cost of their own children. The more children they have then the more food and shelter they would have to provide for and so this furnished a powerful incentive to keep the population relatively in check. It is from this that our current code of sexual ethics has also developed – the requirement of sexual fidelity and the moral penalisation of sex out of wedlock, for example, all stem from the fact that such acts defeated, or could potentially defeat, the object of controlling the levels of population vis-à-vis resources. Money, which today is printed and controlled entirely by the state, was never explicitly designed by anyone but, rather, arose as a product of barter, whereby one or a handful of goods (usually, except for specific situations, precious metals) became more marketable than any other and hence came to be regarded as valuable not for whatever practical use they may serve but precisely because they could be exchanged. Nobody woke up one morning and, surveying the difficulty of trading individual goods directly, decided to say “I know! Let’s invent a good that we can all trade for everything else and call it money!” No wise leader started, out of the blue, to produce money or manufacture money, nor was the precise monetary commodity in a given situation explicitly chosen by anyone. Rather, given the immense power it afforded, the minting and issuing of money was usurped at a much later date – a usurpation which, of course, was only completed in 1971 when the US dollar’s last tie to gold was severed (and which may not be finally complete until states have succeeded in issuing a common, worldwide, paper currency). Law similarly evolved over centuries, or even millennia, out of interpersonal conflicts people ran in to over resources. The source of a legal case was the fact that two people each wanted to use the same resource to meet their own ends whereas, owing to the fact of scarcity, only one could do so. In other words the precise areas in which the law was concerned were decided by whether or not people could peacefully meet their needs in a given situation. If they could not then it was their perception of a conflict that gave rise to legal rules and principles. This is very important lesson that many libertarians, let alone everyone else, are yet to understand; the precise boundaries of aggression cannot be decided from on high by a wise and powerful leader because the elements of aggression – a physical invasion of another person’s property – are all dependent upon the parties’ perception of those physical transgressions as preventing them from fulfilling their needs with the resource in question. What is aggressive behaviour and what is not cannot be based upon what a political leader thinks is a conflict between two people (as all political leaders do when they enact legislation), nor can it be based upon some precise, scientific measurement of whether one body collided with another. If I shake a bed sheet and a piece of dust travels through the air and lands on your shoulder then, even though I have initiated an action which physically impacts on your person, this is not aggressive behaviour because such an action does not interfere with your ability to use your body to meet your ends. Indeed, most likely, you wouldn’t even be aware of the speck of dust at all. If, however, I threw the bedsheet over your head and wrestled you to the ground then this would probably be regarded as assault and the law would find me liable as such. Both actions concern a physical transgression of your person or property initiated by me, but only the one which interferes with your ability to use your person and property to meet your needs as perceived by you is the aggressive action. None of this should be taken to suggest, however, that the precise content of legal rules is purely subjective, nor should legal liability follow merely from somebody’s whim. Rather, objectively defined rules are drawn from typical experiences of what is and what is not aggressive, such typical situations arising before legal adjudicators again and again. Most people do not want to be killed by another person; most people do not want their belongings taken; most people do not want to be raped. So, for example, if one person kills another then it is presumed that the deceased did not so wish to be killed and the accused must adduce evidence to the contrary if he is to avoid liability. On the other hand, most people do not perceive that a speck of dust landing on their shoulder as a result of someone shaking a bedsheet is aggressive and invasive behaviour. So anyone who turned up before the court alleging that such an incident was aggressive would most likely be told that, even if, subjectively, this speck of dust prevented him from enjoying his person or property, he alone should bear the burden of protecting himself from this unusual sensitivity, rather than forcing everyone else to tiptoe around him. What we can see as a result of this, therefore, is that the precise boundaries of aggression which are expressed in precise laws are very much determined by the customary and conventional context. This is perhaps best illustrated when determining the requirements to enter contracts. If I sit down in a restaurant in Great Britain and order from the menu then that action is sufficient to make me liable to pay for the meal as that is how the situation is understood in this society. My refusal to do so on the grounds that I had not been told explicitly that I would have to pay would be laughed out of court. On the other hand, in another society, it might be the case that you are assumed to be a guest unless the proprietor of the establishment states that you must pay for your meal. If I raise my hand at an auction I might find myself liable to pay for one of the lots; if I do it outside in the street I am merely saying hello to someone. The action is the same but whether I am placing a bid or simply making a greeting has to be judged by the context. So the same thing can not only mean different things in different societies, with different consequences following, but so too might they mean different things in the same society depending upon the precise situation. Legal adjudicators have to assess what the actions of the parties meant and what they intended through their actions according to the social, customary and conventional context in order to determine the precise limits of legal liability. Because, as we said earlier, society is emphatically not something that is managed from on high but is, rather, motivated by individuals, this is an evolving rather than a static process. Such evolution can evolve only through case law, i.e. through law made or “discovered” through actual cases involving real people in real conflicts, rather than through legislation which involves only conflicts manufactured or perceived by politicians and bureaucrats. The importance of the customary and conventional context also applies to which beings may enjoy legal rights and which may not. Libertarians are often chided for their lack of agreement over the issues of abortion and the rights of children but, strictly speaking, these issues cannot be resolved theoretically. Libertarian theory will tell you which kinds of beings enjoy rights and which types of action are aggressive; it does not, however, tell you whether a specific being enjoys rights or whether a specific action is aggressive. The questions concerning the legal rights of foetuses and of children are of this latter category – do they qualify as the kind of beings to whom rights apply, i.e. are they rationally acting beings? And, if not, at which age or ages will a foetus or child be deemed, or at least presumed, to be a rationally acting being capable of enjoying rights? Is the fact that a foetus grows inside the mother an invasion of the mother’s body or has she demonstrated some kind of consent to the foetus’s growth? None of these questions are answered by libertarian theory but, rather, they concern the application of libertarian theory according to the customary, social and conventional context. To take a deliberately extreme example in order to illustrate this, early, primitive societies ascribed natural phenomena to the will of deities, and were unable to differentiate between inanimate phenomena (such as the sun or clouds) on the one hand and conscious beings on the other. Let us suggest that, in such a society, trees are perceived to possess personalities and to have rational thoughts and feelings which could, through some way, influence the course of events (in a similar vein, the present author, as a very young child, believed that trees shaking their branches were the cause of the wind, rather than vice versa). The legal system (or other social rules acting as a precursor to a legal system) of this society would recognise each tree as a legal person endowed with rights, and that to invade the tree’s physical presence would be an unlawful aggression against the tree’s person. Today, however, due to the advances of our scientific understanding, we have sufficient reason to believe that trees are not, in fact, rational beings nor do they possess the will or ability to alter the course of events. Although “living” they are not conscious and simply occupy the sphere of natural resources which can be owned by actual rational beings.

To re-emphasise, the important point about all of this is that, given that both the nature and the content of the elements that preserve societal order – such as rights, obligations, property – are determined by the needs of individual people, it follows that these elements can be neither determined nor shaped by groups of leaders or intellectuals acting from on high – in other words, by centralised, state institutions. Libertarians and free-market economists wax lyrical about how the state cannot hope to run and control specific industries productively in order to meet the needs of individual people and how the state has no rational method of directing resources in ways that best meet the needs of those people. Rather, such industries always end up succumbing to the priorities of the political leaders, the bureaucrats and the employees. Exactly the same is true of the institutions that concern societal governance. The entire state apparatus of legislatures, courts, bureaucracies, and their supporting police and military forces are designed not to give effect to and to prioritise the needs of individual people but, rather, to promote, enhance and push forward the visions of society held by liberal elites – visions of collectivism, equality, uniformity, and multiculturalism that destroy private, voluntary allegiances to localised institutions such as families, communities, and places of worship to direct it towards the glorification of the ever expanding state. The move towards greater state consolidation through supranational outfits such as the United Nations, the European Union, the IMF and so on is designed to concentrate decision making authority in an ever dwindling number of colossal institutions, centralising power and control in the handful of powerful oligarchs. A genuine libertarian society – a society distinguished by freedom for the individual – will therefore only come about through the destruction or dismemberment of the institutions which are diametrically opposed to this freedom. In practice this will mean halting and reversing the current trend towards state consolidation and inter-state co-operation, and seeking the breakup of individual states into as smaller territories as possible. This will scatter decision-making authority away from the centre and towards the individual as close as possible by achieving the increasing localisation of institutions which bear the responsibility for preserving order and governance.

The way forward for libertarians to bring about a libertarian world is therefore relatively clear – we must seek, emphatically, the de-legitimisation the state, the dilution of the power of the state, and the reduction of the size and territorial reach of each state. If, however, we needed to select just one of these elements – one call to action that could be regarded as the libertarian rallying cry – it appears that the third aim of reducing the size of each state is likely to have the greatest impact. Not only is it from this achievement that the other two are likely to follow but it is also the one which, at least after 2016, gives the appearance of being most likely to succeed and of being brought about in the right way from the bottom up rather from the top down. Ethno-nationalism and secessionism has returned to our world as a reaction against the forced centralisation of state institutions and metastasising of supra state bureaucracies; open borders, forced integration and globally managed trade are giving way to each state and smaller territories determining their own policies in this regard. Although our faith in the political process – the game that the statists want us to play – should be cautious, we have to hope that events such as the “Brexit” vote and the election of Donald Trump indicate only the beginning of this rebellion from the masses, a rebellion against the globalising, centralising and bureaucratising forces that will far eclipse the significance of those two events alone.

Moreover, this aim of seeking to reduce the territorial size of states and state institutions achieves also a degree of reconciliation between the distinct camps within the libertarian community we described earlier – between “thin” libertarians and “thick” libertarians on the one hand, and between “minarchists” and “anarchists” on the other. For libertarian “thickests”, we are fully conceding  that the move towards decentralisation and to smaller state territories to likely to be dependent upon the willingness of people to place their trust in more localised, informal, and voluntary institutions such as a common culture, a common language, common customs, a common morality and a common (or a common absence of) religion. It is these alternative elements which are required to shift people’s reliance away from the formal apparatus of the state for their feeling of identity, security and community, and also to generate a feeling of empathy and friendliness within each locale which is needed to grease the wheels of social co-operation. It is precisely because these common elements are the antithesis of statism and state growth that all socialising theorists and politicians have sought to denigrate and destroy them – as they are largely trying to do now through mass migration and the fostering of welfare dependency. By eradicating cultural, community, conventional, customary identities (as well as traditional morality) through its egalitarian, all-inclusive, non-discriminatory, socialising programmes, the state simply sows distrust, hatred, and envy which makes easier its task of theft, violence, and welfare statism. We as libertarians, therefore, should regard the promotion of these common elements and informal institutions as necessary for bringing about a libertarian world. For libertarian “thinnests”, however, we are also acknowledging that we, as libertarians qua libertarians, need not promote a particular culture, a particular language, particular customs, or a particular moral code. It is true that certain cultures, customs and moral codes may be more conducive to sustaining the non-aggression principle than others (and, as I have argued elsewhere, the requirement of non-aggression is, in and of itself, likely to promote and emphasise certain, broadly conceived values). However, it is not our job to determine from on high what these customs and cultures might be and to enforce them upon everyone else. Our focus, rather, is on breaking up the giant, behemoth states so that people can find their own way, building their own communities based upon their own values. Without the power of vast states to enforce and support them, the flourishing of these individual communities will undoubtedly depend upon them being able to adopt values which promote proper order, governance and social wellbeing. However, much of this is largely achieved by the fact of cultural harmony in the first place – that everyone in a community largely agrees on the same basic values and that everyone’s behaviour is broadly acceptable to everyone else. In short, that all members of a given society are basically kindred spirits. Determining precisely what these values will be is, for libertarians, a secondary task at best. Moving on to minarchists and anarchists, if we break up states into relatively smaller sizes then minarchists can be satisfied that each territory still has some official institutions that are responsible for law and order; anarchists, however, will be relieved to know that because such decentralisation and deconsolidation increases the relative power of the individual vis-à-vis the state then the practical distinction between the state as a compulsory association on the one hand and as a voluntary association on the other becomes much less clear. Indeed, at some degree it will be completely abolished. At the extreme end, a small commune on a few acres of land comprising merely tens of people will be heavily reliant upon gaining the continual trust and enthusiasm of each of those people if the commune is to survive. However, a vast commune such as the former Soviet Union can treat each individual person however it likes – stealing from them, forcing them to do what it wants, and, of course, murdering them. Moreover, the ability of a small state to launch any foreign wars – which, in the long run, is the source of the loss of most of our freedoms – is vastly reduced, if not eradicated.

This, then, should be the goal of all libertarians, lovers of freedom, and those who are passionate about free enterprise and free association – breaking up the state into as smaller territories as possible and rendering state power and influence as inert as possible. We can hold some hope that this may be the way in which the tide is turning and that we can finally bring to a close this chapter in human history that has been marked by socialisation, collectivism, statism, bureaucratism and endlessly destructive warfare built on a cushion of false prophets, false values, false money, and a false prosperity.


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Economic Myths #15 – Unemployment

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

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

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

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

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

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

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

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Economic Myths #14 – Share the Wealth

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Clement Attlee is, with little doubt, one of the more notable of Britain’s former Prime Ministers. Apart from the long lasting effects of his legacy he was, in 2004, voted the “Greatest British Prime Minister of the Twentieth Century” in a poll of 139 academics. Needless to say, with such a high ranking in academic circles, almost every “accomplishment” of the post-war government that he led (with the possible exception of decolonisation) is likely to be an anathema to libertarians. Not only did he nationalise key industries such as the railways, canals, road haulage, coal mining, gas, electricity, telephones and steel manufacturing, he practically created the “cradle-to-grave” welfare state, the jewel in the crown of which was the now untouchable sacred cow, the National Health Service. Furthermore, he successfully entrenched the “Keynesian consensus”, the idea that full employment would be maintained by Keynesian fiscal policy, that was to unite all parties of any stripe for another three decades until the election of Margaret Thatcher’s government.

With such profound and fundamental changes to British society, many of which are still felt today, it is important to have an insight into Attlee’s motivations towards the legislation that his government passed. His own background, (not unlike that of most left wing intellectuals) was decidedly non-working class. The son of a solicitor, he was raised in Putney, an area of London populated by the professions. He was educated at an independent school and later read Modern History at University College, Oxford. He was not exactly born with a silver spoon in his mouth but neither was he consigned to life working in factories or in the coal pits. According to Wikipedia, his original political leanings were conservative. It was after he spent three years managing a charitable institution for working class boys in Stepney, East London, that he “came to the view that private charity would never be sufficient to alleviate poverty and that only direct action and income redistribution by the state would have any serious effect”. Thereafter, he became a “full-fledged supporter of socialism”. Which such self-assuredness, can we expect Attlee’s post-war government (to borrow a phrase from the infamous Beveridge Report that influenced his government’s policies) to have come close to completely “abolishing want”? Unfortunately, the facts speak otherwise:

  • Coal production in 1947 fell seven million tons below the output of privately owned mines ten years earlier, resulting in a three week industrial power cut in London and the Midlands;
  • The government constructed 134,000 fewer homes per year at a higher cost per unit than were built in either of the two years preceding the war;
  • Wages were frozen to wartime levels while the cost of groceries soared as their supply declined;
  • When US and IMF loans dried up, the costs had to be borne by the British working man, leading to the “taxation and tears” budget of 19491.

And summing up the welfare state:

The [Beveridge] plan merely furnished a thin cushion against total disaster for the most impoverished third of the population. True, every citizen (whether or not he needed it) was entitled to prenatal care, a birth subsidy, hospitalization and medical care of sorts, unemployment insurance, an old-age pension, funeral costs, and an allowance for his widow and dependent orphans. The subsidies and allowances were tiny, and, with mounting inflation, barely sufficed for the poorest – sixteen dollars at birth and eighty dollars for a pauper burial. Medical services were spread so thin that even at the price of nationalizing the existing medical profession, it was impossible to guarantee first-rate care. With food rations hovering near the starvation level, sickness became more frequent and national; production fell still lower. So poverty was not eliminated but increased to plague proportions, and life was a nightmare for everyone but the most dedicated bureaucrats. A man might have “social security,” yet he could not go out and buy a dozen eggs. After four years of Socialist government, he was only entitled to an egg and a half per week, as decreed by Marxist No.1, John Strachey, Fabian Minister of Food and Supply2.

The origin of Attlee’s political views betrays his belief in a common economic error, a belief that can clearly have disastrous consequences if its holder happens to one day become the leader of his country. This view of either private charity or forced redistribution as the solution to poverty is based on the flawed notion that there is a fixed pool of wealth for everyone – that when one person possesses wealth it necessarily results in another person being without it. From this false premise it follows that the alleviation of the poverty of one person requires wealth to be disgorged from another. The solution to poverty, however, is that wealth is created and not simply redistributed – the pie gets bigger and not just chopped up in a different way. Capitalism and the free market, far from creating haves and have-nots, involves the progressive accumulation of capital that produces more products at cheaper prices that everyone can buy. More factories, more machines, and more tools that produce a greater supply of goods for less and less effort serve to alleviate material poverty. All of us become better off as a result. If, on the other hand, wealth is to be confiscated from some and redistributed to others, it retards this very process of wealth creation. While a specific redistribution may allow the beneficiaries to afford to purchase a bit more in the short term, in the long run there will be less work, less saving, and less capital investment and accumulation. The number of products produced will fail to increase and thus their prices will remain high and out of the reach of the poor. Redistribution is, therefore, a temporary solution at best. At worst, it traps the people permanently in the stagnant poverty that you are trying to get rid of.

Let us imagine ourselves, for one minute, as employees of the charitable institution of which Attlee was manager. How do we interpret that which we may see every day? From some kind of absolute standard, the poverty and destitution of the slums in the East End of London may have been “terrible” or “bad”. No one would ever seek to deny this. It is important to realise, however, that poverty, fundamentally, is not caused by humans but by nature. The earth is and never has been the Garden of Eden, full of delicious goodies that are ripe for our picking. The first person who trod the virgin soil of the Earth was in a position of absolutely crippling poverty by our modern standards. All he had was himself and his bare hands – no shelter, no food, no clothes, no tools, absolutely nothing. (Indeed, we might ask, how on Earth would “redistribution” have helped him when there was nothing to distribute!). But from the moment he dug the soil with his hands, from the moment he picked up the first plank of wood to build into a shelter, from the moment he fashioned a tool from basic materials such as a rock and a stick, so began the long, slow process of capital accumulation and wealth creation, a process that only really began to accelerate in the early 1800s. Humans, in other words, have to work to overcome the natural state of poverty in order to build up a civilisation as prosperous as the one we have today. To view a snapshot of this process at any one moment in history and to declare self-righteously that “those people over there are in poverty!” is to judge this march of progress against an ideal – as if earth should be the Garden of Eden. The appropriate standard against which to make a judgement however, is the best that can be done given the eternal condition of scarcity. If one cries “something must be done” it ignores the possibility that something is already being done and has currently reached its best possible stage before moving forward to bring greater things. Wealth creation and capital accumulation takes time – we did not get refrigerators and cars the very moment the first person on earth decided to get off his backside and start working. But this process has caused the percentage of people living on one dollar a day to fall from 85% to 20% in two hundred years – and that achievement has been accomplished while the population has multipled five or six times.

The only way, then, by which we can judge that there is “too much poverty” at any one time is to ask a single question – is there anything that is slowing down or causing an artificially imposed constraint upon the process of wealth creation? The answer can only be what Franz Oppenheimer referred to as the “political means” for an individual to gain wealth – that, rather than work oneself to use unowned resources, or to trade goods voluntarily with others, one confiscates them violently from people who already own them. Although we can see that Attlee’s solution – redistribution through the welfare state – is a major part of this, so too is any restrictive and regulatory encroachment upon private property. In Attlee’s day, we can point to the fact that the decade of his birth, according to historian David Cannadine, marked the peak of aristocratic power and influence in British society. Today, it is the power of the privileged financial barons of Wall Street that benefit from cheap, freshly printed money, robbing the poor of the their purchasing power and ploughing it into assets, causing bubbles, malinvestments, booms, busts, unemployment and misery. If we really want to solve poverty, we should be removing these barriers to wealth creation that favour the privileged elites rather than compounding the entire sorry state of affairs with further economic evils.

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1Rose L Martin, Fabian Freeway – Highroad to Socialism in the USA 1884-1966, Ch. 7.

2Ibid. p. 76.

Economic Myths #13 – Wealth Inequality and “The 1%”

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The inequality of wealth and income has been in the news again lately. According to the Daily Telegraph, 1% of the world’s population will own half of its wealth by next year. The Executive Director of Oxfam, who provided the figure, said that “an explosion of inequality was holding back the fight against poverty”, asking the rhetorical question “do we really want to live in a world where 1% own more than the rest of us combined”?

The mainstream debate over this issue fails to understand the true nature of the problem. The pro-free market side are wont to point out that such inequality “doesn’t matter” and governments should not do anything to interfere with the progress of business. The likely call from the opposite side, however, is for increased taxation and redistribution and, indeed, Oxfam itself stressed the need for a greater crackdown on tax avoidance by large, multinational corporations. However, the reality is much more subtle than simply left vs. right and, indeed, the debate produces a false dichotomy between “pro-business” and “pro-government/anti-poverty”.

On the one hand, we can agree that wealth inequality does not, on its own, create any problems for the generation of wealth and the reduction of poverty. The common attitude towards the rich appears to assume that someone like Warren Buffett or Bill Gates has tens of billions of dollars lying around in a bank account for them to spend and enjoy. The reality is that these figures represent the value of capital goods – machines, tools, factories and so on – that are invested in producing goods and services that everyone wants to buy. If these resources are in the hands of just a few people – say, “the 1%” – who most accurately devote them to the most urgently desired needs of consumers, then there is nothing economically deleterious with wealth inequality. Indeed, wealth inequality, in this scenario, is exceedingly good as any attempt to reduce it would divert resources into the hands of those less capable of directing them to the ends that people desire, or into those who would consume them. It is capital investment – more capital invested in more production processes to churn out more products that people need – and not taxes and redistribution that solves the plight of poverty.

However, this scenario is conditional upon the crucial aspect that resources must be in the hands of those who are best suited to serving the needs of consumers. In other words, those who are rich must have become so by meeting those needs. However, it is patently obvious that the current ownership structure does not reflect the voluntary choices of consumers. Rather, it is the product of crony capitalism, of cheap printed money that is ploughed into malinvestments and of taxpayer funded bail outs when it all collapses. The growth in wealth inequality is due not to the fact that consumers are voluntarily choosing to place that wealth in the hands of a few select people; it is because the government is throwing cheap money at this tiny elite so they can steal all of the world’s assets.

What, then, is the solution to this problem? Taxation and redistribution would clearly compound the economic evils rather than solve them. And, in any case, in spite of the hullaballoo about tax avoidance, the rich will always be able to influence tax policy to their benefit and to arrange their affairs so as to avoid it as much as possible. Rather, what is needed is a wholesale withdrawal of government from either supporting or hindering anyone in the pursuit of gaining wealth. All wealth should be obtained through the voluntary nexus of serving the needs of consumers and everyone should gain their wealth through their abilities and not through their political connections. What might such a world look like? Would it encourage wealth inequality or would such inequality be unlikely? One the one hand, it is arguable that wealth would still be highly concentrated. Genuine entrepreneurship is a rare talent and is likely to always remain so. However, if that is the case it is also likely that those particular individuals who own the world’s resources will rotate relatively quickly, with the top dogs remaining on the pedestal for only a short time. Indeed one aspect of the current wealth divide that is ignored is whether the same people remain stuck within their wealth/income group or whether there is relatively fluid movement between the different groups. Successful entrepreneurs make their biggest successes when they are small, nimble and contrarian. Once they have achieved their wealth, however, and their enterprises have morphed into large, multinational companies, they become large, unwieldy, inefficient and complacent. A former rebel becomes a part of the establishment who then becomes vulnerable to the insights of later entrepreneurs. Part of this can perhaps be seen with the technology industry where no, single player has managed to dominate each successive era. Microsoft put a PC into everyone’s home in the 1980s-90s; Google was the number one in internet search; Facebook was on top with social networking; and we are now, seemingly, entering a fourth phase where Apple seems to dominate smartphone technology. No single outfit has been able to carry through its dominance from one era to the next. Corporate dynasties and everlasting companies controlling everything will certainly not be a feature of a genuinely free market. Even a stock investor such as Warren Buffett, who has profited from a great many businesses in numerous decades, would be unlikely to achieve the wealth that he has done. Buffett’s mantra of value investing relies upon the price of a stock to become undervalued relative to the underlying value of the business, and for the price to then reach parity with, or exceed, that value. But the large distortions in stock prices – both up and down – have been precisely because of central bank flooding the markets with cheap, freshly printed money that results in excessive booms and busts. It is unlikely that Buffett, in a genuine free market, would have been able to buy and sell at such favourable prices as he was able to do in recent decades. On the other hand, however, it is also possible that a free market would reduce wealth inequality. As wealth creation ensues and the standard of living rises, ordinary people will find themselves with increasing amounts of disposable income that they may decide to divert into saving rather than increased consumption. Such funds, through savings accounts and the bond market, may form the backbone of investment funds that are ploughed into productive use. Thus, ultimate ownership of wealth may be more diverse than it is at present. Either way, however, we can be sure that the resulting structure of production and ownership will be one that best serves the desires of consumers and changes and adapts as the tastes of consumers change. Ultimately, it will always be the everyday folk, through their purchasing habits, who decide on the level of wealth inequality – not governments and central banks handing out favours to their political cronies.

Economic Myths #10 – Taxes Benefit “Us”

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During the revelations that large corporate entities such as Amazon, Google and Starbucks were arranging their affairs so as to pay as minimal tax as possible on profits earned in the UK, the indignation from the general public seemed to centre on the belief that the “lost” government revenue was somehow a “lost” benefit to the average citizen. After all, won’t lower tax revenues result in fewer hospitals and worse schools? Indeed tax avoidance (together with the deliberate blurring of the legal and moral distinction between that concept and that of the explicitly illegal tax evasion) has become a favourite topic of heavily indebted governments as they attempt to balance their books without reducing their profligate spending. The speech of Danny Alexander, Chief Secretary to the UK Treasury, to the Liberal Democrat Party Conference this Autumn is typical of their hubristic attitude but now with a somewhat chilling veneer:

Liberal Democrats have led the crackdown on tax avoidance. The investment I announced at this conference in 2010, is now bringing in an extra £7bn. We are now insisting that tax dodgers pay the right tax up front – they will only get any money if their scheme is later proved in the courts to work. And we are using psychologists and behavioural economists in HMRC to get the money quickly. Tax dodgers beware – we know where you live, we know how much you owe, and now we know how you think. Your behaviour is unacceptable, and we are coming for our money.

Part of the vitriol of the general public is explained by the fact that people want some kind of tax equality and don’t want to be shouldering the burden of public expenditure themselves when others appear to be shirking their alleged responsibility. Indeed many of the cries for reform all appear to be in the direction of making people their “fair share” of taxes – an amount that is, conveniently, never quantified but always means more. Yet the core focus appears to be that life will somehow be worse off without Amazon and Google paying tax in the UK.

All of this is nonsense. Profits that are retained by private shareholders do not magically “vanish” from the economy. Rather, they are reinvested in productive enterprises that create capital in order to churn out more products that people want to buy at lower prices. Fewer profits retained by investors means fewer capital goods and fewer products on the shelves. If that money disappears into the hands of the government, it is not invested prudently in productive business. Most of it vanishes into the pockets of favoured government contractors to spend on wasteful projects – with very little resulting in marked improvements for the average citizen. This government demanding more money is the same government that, in 2012-13, wasted £1.2bn on subsidising foreign farmers through the Common Agricultural Policy, £20.6bn on public sector fraud, £3.0bn on benefits to people who don’t need them, £145m on “ghost patients” on the books of GP surgeries, £300m on unused medicine, and £113m in subsidies to trade unions1. Every pound that is taken by government to be spent on these wasteful ends is one pound less that can be invested in genuine, private enterprise that must produce products that people wish to buy. Which category of spending – public or private – are we really worse off without?

Some of the more extreme rhetoric – that the likes of Amazon and Google have “blood on their hands” because of all of those patients in hospitals who cannot be treated because of the lost tax revenue – is akin to a sick joke. What about the lives saved because government was not able to use Amazon’s tax revenue to throw bombs at civilians in the Middle East? Yet even if we ignore this the prevailing attitude is that these companies should be punished for setting up businesses, creating jobs and producing stuff that people want to buy – and right at the time when we are at the depths of a deep, government-induced economic malaise when we should be celebrating what little success there is. In any case, every company has to pay tax somewhere even if it is at a lower rate in an alternative jurisdiction. If Google pays tax in Ireland then what is wrong with that? To the rejoinder that this means a foreign government and foreign public services are benefitting from profits earned in the UK, well doesn’t the £11bn foreign aid budget do the same thing?

Increased taxes on the people that take risks to provide us with jobs and produce goods and services that improve our lives do not make things better for “us”. It only benefits the government and those recipients of its bloated, wasteful spending. Fewer taxes and vastly reduced spending would be far better for all of “us”.

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1The Taxpayers’ Alliance, Bumper Book of Government Waste 2014. From the same report: £32K was paid by a council to compensate a man who slipped on a berry in a churchyard; £1K was spend on a council officer to investigate a picture taken of the mayor looking at her phone during an Armed Forces Day ceremony; £4K was spent by a council on a whisky tasting event for international golfers; and £70 was spent by the Forestry Commission on a bunny outfit.

Economic Myths #9 – Social Safety Nets

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It is often trumpeted as a virtue that “civilised”, social democratic countries offer their citizens one or more types of “social safety net” in attempt to eliminate the most dire effects of, say, unemployment, illness or some other kind of incapacity that could inflict a condition of extreme poverty upon the individual members of the citizenry. The idea is that the most basic wants will always be guaranteed by the state should one be unable to provide them for oneself and no one need have any fear of hunger or lack of shelter – situations that are said to be “intolerable” in a modern, 21st century society.

The first problem with this theory is that poverty is not some selectively appearing disease that crops up every now and then to infect an otherwise healthy and wealthy society. Rather, poverty is the natural state in which human beings first found themselves. When Adam and Eve were expelled from the Garden of Eden they saw the world to be a barren and harsh place that is capable of providing precious little – may be just oxygen to breathe – without the conscious effort of its inhabitants. The only way to alleviate this harsh situation is for humans to work to produce the goods that they need and, eventually, to bring about capital investment in order to expand the amount of consumer goods that can be enjoyed – whether it’s cheap food, housing, education, holidays or whatever – a process that only really got underway in any significant form in the 1800s. If the individual beneficiaries of a social safety net are not able to produce these goods themselves then somebody else must do so. Simply legislating the welfare state into existence does not create the goods and services it needs to dispense to the poor and needy in order to banish poverty and want. Rather, existing goods have to be forcibly confiscated from those who have produced them and dished out for free to those that haven’t. Social safety nets are compulsory redistribution programmes, not wealth creation programmes and any benefit one receives under them will be at the expense of another person.

The economic effects of this are familiar to economists not only in the “Austrian” tradition but of other free market persuasions also. The most naïve error made by any proponent of redistribution is to believe that people’s behaviour is somehow hermetically sealed from the government intervention that seeks to achieve a certain end – i.e. that increased taxes on activity A will not discourage people from carrying out activity A; or increased funding to eliminate a “dire” situation will not, in fact, exacerbate that situation. Whenever a new tax is proposed the estimations of new revenue to be raked in are always based, incorrectly, on the assumption that people will still wish to carry on doing the taxed event just as they did before, as if the tax makes no difference. And if some new programme to be financed by this revenue is proposed, they will calculate the amount of money needed to cure the existing problem without considering whether throwing money at it will make it worse. All else being equal, if you pay people to when they do something they will do more of it; if you charge someone when they do something they will do less of it. In the case of social safety nets, if people are charged to produce wealth in order to fund it the cost of creating wealth is forcibly raised. Relative to other activities such as engaging in more leisure time, the attractiveness of producing more goods, more capital and more resources is reduced. There will, therefore, be less production, less capital investment and fewer consumer goods at higher prices – hardly the situation that one would expect to be conducive to the abolition of poverty. Similarly, if you grant a guaranteed right to be paid upon the occurrence of a bad event – such as sickness and unemployment – then you lower the cost of that event and the relative cost of preventative measures is raised. All else being equal, you will have more sickness, more unemployment and so on.

The focus of many of these social safety nets today appears to be on so-called “hardworking families” – never mind the fact that single people also work hard and struggle to make ends meet. Children, in particular, appear to be little more than a metaphorical blank cheque that the state writes to “protect” them from poverty and hardship. Yet children do not appear out of nowhere and a conscious decision must have been made at some point to have a child – or at least to carry out the act of procreation. The same economic effects will therefore result from any safety net that benefits parents with children. If you pay people when they have children then there will be more children in families that struggle to pay the bills. The resources to feed these hungry young mouths must be confiscated from those who do not have children – either through inability, a lack of desire or good old fashioned financial prudence – and redistributed to those who do.

The running theme through all of this, therefore, is that throwing free money at a problem in which people have at least some kind of influence will only aggravate that problem. Indeed, in spite of more than half a century of the welfare state we in the Western world still seems to be afflicted with the scourge of poverty – although a rather bizarre form of it where those who are poor appear to suffer more from obesity rather than from starvation. One would associate progress with a reducing, not widening social safety net. We might as well also mention the “cynical” view that government prefers to retain people in a state of dependence because it means more reliance upon the state and more votes.

A powerful weapon in the arsenal of proponents of the welfare state is the false dichotomy – that the choice is either between a government social safety net motivated by care and compassion on the one hand or some kind of selfish, greedy, sink-or-swim and dog-eat-dog society on the other. This is plainly ridiculous; the free market exists precisely because people have needs and others are willing to advance the means to fulfil them. The whole purpose of insurance – presently and regrettably distorted by government interference – is to protect from genuinely catastrophic events that are not your fault in return for a premium paid in advance. Furthermore, opting for the alternative of the free market does mean the abolition of care and compassion – rather, it gives people the freedom to be caring and compassionate. Indeed it is such private benevolence that is discouraged by the welfare state as it obliterates the need to cultivate personal relationships upon which you can rely. Real benevolence, selflessness and caring for one another springs from these relationships and from private choice; the forced redistribution demanded by the state, however, leads to the very opposite – bitterness, antagonism and cynicism when your hard earned money is taken to be given to others, all of whom – in spite of whether they are genuinely needy or not – are tarnished as workshy and endless breeders. It is no accident that many of the great charitable foundations appeared in the nineteenth century, the most relatively free and capitalist period in history – and not in the era of the welfare state. As for the argument that social safety nets are necessary for civilisation, what could be less civilised than violently wrestling something you want from someone at the point of a gun?

The social safety net therefore needs to be realised for the destructive force that it is – not as a hallmark of economic and societal progress but as one of retrogression of civilisation and as a retarding influence on the very real cure for poverty and illness – more capital, more production and more goods for everyone to be able to buy at cheaper prices.

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Economic Myths #8 – Capitalism is Exploitative

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The myth that capitalism is exploitative – or rather, that capitalists, the private owners of the means of production, and entrepreneurs – exploit both workers and consumers is as old as the history of this political-economic system itself and has been a primary driving force behind the growth of the state and, indeed, of outright socialist and communist revolution. Although much watered down from those early days, the idea that there is some kind of antagonism between the capitalist “class” and the rest of us persists.

As “Austrian” economists we know, of course, that it is absolutely and undeniably true that any free and voluntary exchange, upon which capitalism and private property must rely, only takes place because each party expects to benefit from the transaction. This alone is sufficient scientific proof to dismiss any idea that capitalism exploits one party for the benefit of another. Nevertheless we should, of course, tackle directly the specific incarnations of this myth as they appear today.

The myth has its roots in the Marxian confusion of political castes with economic classes – the idea that the relationship between capitalists and workers, which is free and voluntary, was akin to that of king and subject, or landed aristocracy and peasant – relationships that were involuntary and subjected the masses to servitude. Caste systems were static and designed to keep people in their place; under conditions of free exchange, however, economic classes have a continually changing membership based upon one’s ability to serve consumers. This ability varies from person to person, of course, but nobody is legally prevented from becoming an entrepreneur and nobody, once they are a successful entrepreneur, has their wealth and status legally protected. A wealthy capitalist might find his fortune decimated when he loses this crucial ability to serve consumers and the latter turn to other suppliers for their wares; he may have to re-join the ranks of salaried employees if he is to make ends meet. On the other hand, an ordinary worker may see a gap in the market unnoticed by the current entrepreneurs of the day and set up a successful business accordingly. This does not mean say, of course, that political castes do not exist today. We can see quite clearly from bank bailouts that there are a distinct upper caste that is protected from its mistakes and is able to retain its wealth and status at the expense of the rest of us. Indeed all the similar injustices that did occur during the early history of capitalism were not owing to the capitalists’ reliance upon genuine private property and free exchange – rather, they used the power of the state to enforce their illegitimate property interests. The mercantilist corn laws, for instance, which artificially propped up the price of corn for the benefit of cereal producers are a good example from the early nineteenth century. Capitalism itself, however, does not produce these injustices.

Moving on to some more contemporary arguments, do businesses exploit the “needs” of consumers for whatever it is that the latter want? Do they withhold “vital” and “necessary” wares releasing them only at extortionate prices thinking only of their selfish greed for profits? The argument is ridiculous because all trade and exchange relies upon the desires of the trading parties – whether it is for food, housing, cars, computers, or trips to the cinema. The entrepreneurs in business exist to fulfil and satisfy, not exploit these needs. If they are able to charge high prices it is only because the supply, relative to demand, is low and has to be rationed to those who value the goods the most. This argument regarding exploitation usually surfaces today in one of two situations. The first is during sudden supply shocks or demand spikes that send prices soaring and allows suppliers to book large profits as they obviously paid for the inputs at much lower, wholesale prices. As these usually occur during times of emergency or crisis, aren’t the businesses exploiting the dire need of the consumers for such staples as water, canned food and fuel? Such an argument ignores the fact that it is not the businesses driving the demand – it is the other people who are willing to pay more to get their hands on the suddenly scarce items. The only options are to allow other entrants into the marketplace to bring more resources into the production of scarce goods and lower their price, which would satisfy everyone with more supply of those goods that are most needed in these crisis situations; or, to fix the prices of the wares below their market clearing level which would lead to guaranteed shortages. Needless to say, government always opts for the latter. The second situation that attracts criticism is when the entrepreneur is in the business of providing something “essential” such as energy or healthcare. Yet these businesses are almost always cripplingly regulated and interfered with by government that it is impossible to define them as anything approaching free markets. Britain’s Energy market is a case in point. Apart from the vast government bureaucracy that oversees the industry, idiosyncratic interferences such as the announcement by the leader of the opposition Labour Party, Ed Miliband, that his government would freeze energy prices if his party wins the 2015 general election also take their toll upon consumers. Firms are not passing on the reduction of wholesale Energy prices to consumers and are booking profits now for fear that they will be locked into furnishing energy at low tariffs in a period when wholesale prices are rising, should Miliband make good his threat. In contrast if you look to any industry that government tends to leave alone you do not find the same criticisms hurled at the dominant suppliers. Up until now we have seen that supermarkets, although subjected to food standards regulations that no doubt have raised prices, have benefitted from relatively less government interference and, apart from a few murmurings from food purists and local activists, inexpensive food has ensured that they have never been a serious political issue. However, now that food prices are starting to rise can we expect government to start poking its nose increasingly into the food industry and blaming the resulting shortages and disarray on the “exploitation” of the big supermarkets? Furthermore, given that trade is always a two-way process we could also say that the consumers “exploit” the need of businesses for money. These entities have suppliers and employees to pay and they are often desperate to get their hands on your cash – if someone else offers a lower price they could be left high and dry by your decision to shop elsewhere, threatening the employment and livelihoods of all of those people that work in the business you shun simply because you have the guile to want to pay less! It is partly for that reason that the supply curve for consumer goods is generally vertical, with merchants selling goods for any price they can get simply to shift them and have at least some cash to meet their future outgoings.

In a genuine free market businesses can never exploit anyone or hold anyone to ransom. A consumer would have the power to take his custom elsewhere if the business failed to meet his needs at an agreeable price. Although businesses as a whole set prices for consumer products and wages, no one individual business can do so and each one must be prepared to sell goods for, at most, as much as the next business, and to pay wages at least as high. These boundaries can be crippling if the selling prices are lower or insubstantially higher than the prices the business must pay out. Businesses, unprotected by government privilege, therefore have to be on their toes constantly in case someone comes along with a better offer. The beneficiary of this process is the consumer-employee, who always knows he is paying the lowest price for what he buys and receives the highest wage for his work that can ever be paid.

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