Capitalism and Consumerism

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The Christmas shopping period, beginning almost with a starter pistol on so-called “Black Friday” in November and culminating in the January sales, is one of the busiest in the year for the retail industry. The period of celebration, feasting and gift giving is critical to the annual revenue and profits of hundreds of consumer-facing industries, with the volume of spending increasing by more than 50% according to some estimates.

Against all of this is the charge that consumerism and capitalism has distorted and destroyed the older traditions and practices of the holiday season. What was once a period of religious observance and a time for more modest celebrations with one’s friends and family has mutated into a mass shopping frenzy where people care more about what they can buy rather than on the meaning and significance of Christmas. Greedy retailers encourage us to spend increasing amounts of money on clothes, furniture, electronics, and entertainment that most of us probably do not need. We merrily guzzle on tons of unhealthy sugary and fattening food and alcohol which simply expand our waistlines through a myriad of parties and get-togethers during the festive period. Once we have stuffed ourselves we then happily “invest” in our new year’s resolutions by forking out on so-called “detox” and exercise regimens, healthy foods and tight fitting clothes to the very same peddlers who made us fat in the first place.

Moreover, there can be little doubt that this “consumerism” has changed the traditions of the winter period in the past few generations, as retailers attempt to fill the long void between the end of summer and December 25th. Advent was previously a time of preparation and observance, during which the last of the harvest foods were brought in and preserved ready for the long winter ahead. Christmas, on the other hand, was the beginning of period of feasting and celebration that brought cheer and merriment to the cold, dark winter days which lasted until the arrival of Lent in mid to late February. With the evenings then growing lighter and the temperature warmer the inducement to “giving up” after the previous period of luxuriant consumption was altogether easier. Now, however, the period of celebration – parties, get-togethers and splashing out – has shifted to December and culminates, rather than commences, on Christmas Day. After that there is little more to look forward to other than new year’s celebrations, after which – at the darkest, deadest and least conducive period of the year – we are suddenly expected to start afresh by going to the gym and slimming down. It is for this reason that Christmas seems to come earlier every year. As so much is now packed into just three or four weeks of what is often still late Autumn weather all of the planning and preparation spills into the earlier months – sometimes, to the discontent of many traditionalists, as early as September when mince pies and Christmas crackers can be spotted in the supermarkets.

If we assume that this type of so-called consumerism is a bad thing and has, indeed, served to distort and ruin treasured seasonal traditions, advocates of the free market are faced with the charge that consumerism is a product of capitalism; that our greater ability to produce and raise the standard of living rather than live in a society characterised by mud huts and starvation has made us all slaves to materialism with no regard for anything deeper or more meaningful. (Never mind that capitalism, perversely, is also blamed for increasing the plight of the poor and benefiting only the rich. Critics of capitalism are seldom consistent in their indictments). The proper retort to such a charge is that capitalism is, in fact, the very opposite of consumerism, or rather that consumerism is the effect of a social order that is anti-capitalist. First, capitalism and the free market orders are distinguished by the fact that they involve the accumulation of capital – in other words a relatively high percentage of current income is saved and invested in capital goods that will only later yield a higher production of consumer goods. Consumerism, however, is distinguished by people not saving or investing, and instead deciding to spend a relatively greater proportion of their current incomes on consumer goods. In the lexicon of economics, a capitalist society is one of low time preference and wealth accumulation whereas a consumerist society is one of high time preference and wealth destruction. The worst case of consumerism, and one in which we partly live, is where people consume more than their current incomes on consumer goods by borrowing money. It is true, of course, that capitalism creates the wherewithal to produce a relatively greater number of consumer goods than any other social order and that those living in a capitalist society will, in fact, consume more than those living in a non-capitalist society. However, the charge of anti-consumerism is nothing to do with the absolute volume of consumer goods that are purchased. Rather, the problem is the obsession with and focus on consumption of whatever there is to consume at the expense of anything else. Consumerism, we might say, is a phenomenon of a previously capitalist-oriented society that has turned its efforts away from saving and capital accumulation and towards the consumption of everything that has thus far been produced – possibly even the consumption of accumulated capital.

From where does the inducement to this consumerism come? It is true, of course, that nothing about capitalism prevents people from turning towards desires for excessive consumption; but neither, too, does it encourage it. To the extent, therefore, that the phenomenon is widespread there must be some kind of systemic influence towards consumerism other than anything to do with capitalism itself. This systemic influence is the very opposite of capitalism, or rather, we might say, perversions of capitalist orders – the false economic theories and destructive economic practices of the state. These false economic theories, such as varieties of Keynesianism, promote consumption as the foundation of economic growth, whereas abstinence from consumption and saving are painted as cumulatively destructive practices. National accounting figures, which do little more than present the economy as one, giant number which, if rising, represents a good state of affairs and, if falling, represents a perilous state of affairs, have inbuilt consumption biases which give the illusion that consumption leads to prosperity. A large portion of so-called Gross Domestic Product (GDP) consists of consumption spending and government spending (the latter of which, by its nature, is also always consumption spending). Boost these figures and up goes the standard of living, so we are told. Moreover, the obsession with avoiding any kind of “double counting” means that a significant proportion of what is truly the gross annual product, such as investment in early stage capital goods, are simply discounted, further inflating the importance of consumption spending. Because of all this it is possible to have prosperous GDP figures, “moderate” interest rates and what appears to be relatively low price inflation that masks underlying economic distortions during a boom phase – such as was experienced in the period leading up to the 2008 financial crisis. And such financial crises are themselves, of course, the result of destructive economic practices induced by the state, such as the forced lowering of interest rates and the expansion of the volume of credit. Such acts do, of course, cause the ill-fated boom phase of the business cycle but they also encourage our main bugbear here which is consumerism. When people see their nominal wages and asset prices rising rapidly – something that would not happen in a genuine free market, which is distinguished by increasing real wages – they believe that they are wealthier than they actually are and thus they are duped into thinking that they have a greater proportion of their incomes available for consumption spending. If boosting their spending on consumer goods was not bad enough, however, they even begin to secure loans and borrowings against the rising value of their assets in order to further fuel increased consumption. In November of 2015, average debt per person in the UK stood at £28,877 – 113% of average earnings. Indeed, credit expansion anyway encourages a debt fuelled society – apart from actually creating the money to be loaned out, the accompanying price inflation makes debt-based finance more attractive than funding expenditure out of equity. The illusion that money is cheap, that everything can be bought now and that we do not need to be prudent and patient simply exacerbates the high time preference, consumerist society.

As we mentioned earlier, nothing about a free society will ever prevent people from becoming consumerist in the same was that it doesn’t stop people from becoming drug users or prostitutes or from engaging in other non-aggressive but otherwise illicit activities. However, we can make a case for saying that such acts are always likely to be more prevalent in the kind of high time preference society that the state encourages. A high incidence of drug use and prostitution, for example, indicates that people prefer a “quick fix” now and are not willing to wait for good feelings and pleasurable experiences to culminate as a result of longer or more difficult (but ultimately more rewarding) endeavours such as exercise and building strong relationships. And, as we have argued elsewhere, given that wealth in a free society accumulates to those who best serve the needs of consumers, more conservative virtues such as patience, prudence, trustworthiness, reliability, good taste and judgment, are likely to be the hallmarks of a capitalist society rather than substance abuse and casual sex.

If, therefore, consumerism is to be deplored we should focus our ire not at the capitalist system that simply permits us to enjoy the Christmas period however we want (and, moreover, creates the wherewithal for us to do so – plump roast turkeys on the table of almost every family on Christmas Day is a relatively new phenomenon). Instead, we should direct it at the state whose false prophets and destructive practices turn us from a society of wealth creators to one of wealth destroyers.

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Voluntary Slavery

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The topic of voluntary slavery – that is, the question of whether an individual who is presently a self-owner may voluntarily subject himself to slavery irrevocably – is understandably controversial yet, properly understood, not an overwhelmingly difficult one to comprehend. This essay will attempt to clarify some of the problems and issues surrounding voluntary slavery, together with a discussion of elements that have not been thus far examined in much detail. Although we will not reach anything other than a modest conclusion here, we will attempt to put ourselves in a better position of understanding the main problems.

The first question that must be resolved is precisely what is meant by slavery. Here we must recall the fundamentals of wider political theory and how libertarianism answers the questions that it raises. The ultimate reason why ethics exist is to resolve conflicts over physical matter. Different people desire to devote physical objects to different ends. Hence, property rights are vested in individuals over physical objects in order to determine precisely who, on the one hand, may use that object to fulfil his ends and who, on the other hand, must yield and seek other physical objects for the fulfilment of his ends. The issue of slavery therefore concerns the property rights over the body of an individual person and whether someone may, from a purely legal point of view, voluntarily transfer ownership of the physical matter that constitutes their bodies to another person. In other words, our question here is whether, in accordance with libertarian theory, one’s own body can permissibly constitute physical matter the ownership of which can be transferred to another individual. Or, to put it a further way, whether someone else’s body could, through voluntary arrangement, come to constitute your outright property and be treated however you like. Importantly, though, ownership rights are not the only type of rights that we might consider. A right may simply constitute the legal ability to perform a specific physical act in relation to a specific piece of property, not to dispose of that property in any way the rights holder may deem fit. Easements and leases, for example, confer upon their holder the right to enforce merely a single action, such as the right to walk across a field between the hours of 9am and 5pm. Any other physical actions towards the property in question are not permitted. Therefore these more diluted rights, short of full ownership, must also be considered in relation to the matter that constitutes a living human’s body. This is important because in certain situations people do contract to grant other people the right to come into physical contact with them in ways that are far less than full ownership and this is not believed to be controversial – most notably professional contact sportsmen who have contracted to play on a certain number of occasions. The question of whether preventing the transfer of the full ownership of one’s body i.e. voluntary slavery – would, in turn, prevent the granting of these “lesser” rights over the same is not something that has received sufficient analysis.

It is important also to distinguish the granting of rights from the granting of mere consent. People come into voluntary physical contact with each other’s bodies in a variety of scenarios – sexual intercourse probably being the most frequent. However, such contact is not permitted on the basis of a granting of a right to the other individual. Your partner, for instance, does not have the “right” to have sex with you. Rather the fact of consent in these situations demonstrates that there is an absence of conflict regarding the physical matter in question (i.e. your body); that both parties are in agreement as to how that matter should be directed at that particular point in time. Thus, if a person is accused of raping a woman, his defence will not attempt to argue that he had a “right” to have sex with the woman but, rather, that the fact of consent established a situation of no conflict. If that consent is withdrawn, however, a conflict exists and the physical contact becomes invasive and unlawful.

Before beginning our examination of voluntary slavery we must expunge from our thought all of the connotations and consequences associated with involuntary slavery with which we are acquainted from our historical experience of the practice. Forced subservience, second class citizenry, racism, slave labour camps and extermination in World War II, appalling living conditions and brutal, inhumane punishments are all issues that fall into this camp, some of which are believed to have consequences today. For example, the lower socio-economic position held by black Americans compared to whites is believed, rightly or wrongly, to be a legacy of black slavery. Libertarianism is emphatically and uncompromisingly opposed to any arrangement of involuntary slavery where an individual effectively imprisons another person aggressively and any dealing of other human beings as property in this regard is absolutely and unrelentingly opposed by libertarianism. A discussion of purely voluntary slavery – which would be a peaceful and mutually agreeable arrangement clearly devoid of all of the effects we just listed – cannot commence with the die loaded against its possibility as a result of us confusing it with the wholly different and abominable practice of involuntary slavery. Indeed, it may be ideal for this purpose to denote some term other than “slavery” for voluntary arrangements, reserving “slavery” purely for forced and aggressive relations. However, as a neologism is not yet forthcoming we will continue to talk of “voluntary slavery”. Moreover, and for the avoidance of all possible doubt, nothing concerning whether or not a person may voluntarily subject himself to slavery has any bearing on his prior right to self-ownership, which is firmly and uncompromisingly established in libertarian theory.

Furthermore, we must also suspend from our thought anything to do with the cultural acceptability and the tastefulness of (or the motivations that people may have towards entering) an arrangement of voluntary slavery. In spite of the protestations of the handful of dyed-in-the-wool Marxists that the majority of labourers languish in a state of so-called “wage slavery”, it is clear that no one today properly views other human beings as in any way, shape, or form as “belonging” to anyone else as either a matter of culture or as a matter of strict legality. We do not regard employees as belonging to their employers, nor do we think of a wife as being owned by her husband; rather, in spite of conversational colloquialisms such as “my employees” or “my wife”, these are viewed as mutually agreeable partnerships between humans with equal individuality and dignity. The only exception is children who, on account of their immaturity, are said to “belong” to their parents but this relationship is viewed as one of care and nurturing founded upon love and trust and is a far cry from any sense of ownership in the manner one would own an inanimate object. Any relationship between owner and owned founded on voluntary principles would therefore appear to be initiated by some kind of unusual, fringe motivation, perhaps sexual or sadomasochistic, or simply unconscionably “exploitative” such as in the case where a person demands the slavery of another in return for something the latter desperately needs. These issues are not relevant to our main concern here which is the strict legality of an arrangement of voluntary slavery – that is, regardless of the motivations towards such an arrangement, if a person agrees voluntarily can he become a slave? Libertarians uphold the legality of hundreds of other voluntary practices, taking effect through either mutual consent or contract, which may not happen to have the blessing of mainstream, cultural approval. Drug taking, adultery, prostitution, parsimony, selfishness, or even gambling are all, at least in certain settings, socially unacceptable. Libertarians would uphold the legality of an individual choosing to do these things but he may also, privately, believe that such choices would be unwise or even bad choices and would equally uphold the legal right of other people to disassociate from these practices. Similarly, therefore, with regards to voluntary slavery, the question of whether two people should be legally permitted to enter such a relationship is separate from the question of whether it would be a good idea, founded upon good motivations, for them to do so and we must hold firm this distinction in our mind.

At this juncture of our analysis, we will proceed to dispose of two arguments that are frequently asserted in the debate concerning voluntary slavery – one in favour of arrangements of voluntary slavery and one opposed to them. Indeed, these two arguments practically dominate the issue yet they are, in the view of the present author, not really the issues that cause the topic to be problematic. The argument in favour is the straightforward one that if you own your body then you should be able to do what you like with it. Therefore, if you cannot sell that ownership to another person in order to become a voluntary slave then you do not really own your body at all. Thus, so this argument goes, outlawing voluntary slavery is an attack on the concept of ownership. Stated in this naïve, literal sense, the argument misunderstands this crucial concept. Ownership of an object simply means that you have the right to exclude other people from their physical presence over that object in order for you to be able to fulfil certain ends you may desire from that object to the detriment of ends that other people may desire from it. If I own a cup it means that other people may not invade the physical integrity of that cup without my permission whereas I, on the other hand, may do so without anyone’s permission. Thus, ownership is a sociological concept and concerns the sphere of permissible activity towards physical objects vis-à-vis other people. Once exclusion of all other persons has been achieved it does not mean that I can “do whatever I want” with the cup. I cannot turn it into a car or make it vanish to the other side of the world (although, of course, no one has the right to physically restrain me from attempting to accomplish these things with my own property and we can surmise that, one day, the technology may exist to do so). Nor, to a greater degree of impossibility, can I make it a cup and a plate at the same time, or paint it red all over and blue all over simultaneously. The argument that dismissing the possibility of voluntary slavery dilutes the concept of ownership is clearly rendered false by these examples. The fact that I cannot do any of these things with the cup does not in any way afflict my right to exclude all other people from the physical integrity of that cup. If subjecting oneself to voluntary slavery also founders upon a similar impossibility in nature (which, as we shall see, is the chief argument of those who oppose voluntary slavery) then this impossibility in no way diminishes the concept of ownership. On the other hand, if there is no impossibility in transferring ownership over your body to another person, this fact is not predicated upon the concept of ownership necessitating one’s ability to do whatever one likes with one’s property. Rather, it simply means that the there is no barrier to making the right to physically exclude all others from the physical borders of your body transferrable to another individual. The correct way of approaching the issue is to ask whether any attempt to forcibly prevent any arrangement of voluntary slavery would itself be an unjustified interference with your right to exclude all others from your physical property. Only in this sense can the argument that one should be able to do whatever one wants with that which one owns carry any merit.

The next argument that we will consider, which opposes voluntary slavery, is the doctrine of inalienability. In order for a physical object to be the subject matter of a contract, so this argument goes, it must be alienable, i.e. separate and divisible from that person, and not constitute an integral part of that person himself. The primary fixation in the mind of these authors is the nexus between the body and the mind, or, more accurately, one’s will – that to bind the body by transferring ownership over it is to also bind one’s will, something which supposedly cannot be done. It might be useful, in understanding this argument, to quote its main proponent, Murray N Rothbard:

The only valid transfer of title of ownership in the free society is the case where the property is, in fact and in the nature of man, alienable by man. All physical property owned by a person is alienable, i.e., in natural fact it can be given or transferred to the ownership and control of another party. I can give away or sell to another person my shoes, my house, my car, my money, etc. But there are certain vital things which, in natural fact and in the nature of man, are inalienable, i.e., they cannot in fact be alienated, even voluntarily. Specifically, a person cannot alienate his will, more particularly his control over his own mind and body. Each man has control over his own mind and body. Each man has control over his own will and person, and he is, if you wish, “stuck” with that inherent and inalienable ownership. Since his will and control over his own person are inalienable, then so also are his rights to control that person and will. That is the ground for the famous position of the Declaration of Independence that man’s natural rights are inalienable; that is, they cannot be surrendered, even if the person wishes to do so. Or, as Williamson Evers points out,

“the philosophical defenses of human rights are founded upon the natural fact that each human is the proprietor of his own will. To take rights like those of property and contractual freedom that are based on a foundation of the absolute self-ownership of the will and then to use those derived rights to destroy their own foundation is philosophically invalid.”

Hence, the unenforceability, in libertarian theory, of voluntary slave contracts. Suppose that Smith makes the following agreement with the Jones Corporation: Smith, for the rest of his life, will obey all orders, under whatever conditions, that the Jones Corporation wishes to lay down. Now, in libertarian theory there is nothing to prevent Smith from making this agreement, and from serving the Jones Corporation and from obeying the latter’s orders indefinitely. The problem comes when, at some later date, Smith changes his mind and decides to leave. Shall he be held to his former voluntary promise? Our contention – and one that is fortunately upheld under present law – is that Smith’s promise was not a valid (ie., not an enforceable) contract. There is no transfer of title in Smith’s agreement, because Smith’s control over his own body and will are inalienable. Since that control cannot be alienated, the agreement was not a valid contract, and therefore should not be enforceable. Smith’s agreement was a mere promise, which it might be held he is morally obligated to keep, but which should not be legally obligatory.1

Walter Block has provided an extensive rebuttal against the doctrine of inalienability as understood by Rothbard and several other scholars which we need not repeat verbatim here2. Rather we will shall choose a few salient points and add some observations of our own.

In the first place, we must dispose of the argument that property rights have anything to do, as both Rothbard and Evers argue, with the self-ownership of the will. The question of ownership arises as a result of conflicts over physical matter, not intangible concepts such as the will. Indeed, when we begin to talk of the idea that to transfer ownership of a person’s body is synonymous with repudiating any ability to change one’s mind and thus unconscionably binding one’s “will” we see that we run into all sorts of problems, namely that it proves far too much. For all contracts, which transfer title of property from one person to another, do, in fact, bind a person’s will and restrict the choices he can make in the future. If I transfer a car to another person my will is then irrevocably bound from enjoying the services of that car ever again. I have voluntarily excluded from myself the choice to use that car to serve my ends as opposed to someone else’s. I cannot later change my mind and take the car back again. To apply Rothbard’s argument consistently would require one to invalidate all transfers of title to property. Indeed, the fact of scarcity itself results in a world where one’s will is repeatedly and irrevocably bound by choices that have to be made every minute of every day. We make these choices because we believe that the resulting situation is an improvement for us compared to that which we have discarded. Once I have eaten the proverbial cake my will is bound by that fact and my subsequent desire to have the cake instead is fruitless. This is no less true when those choices involve interpersonal exchange rather than autistic exchange. If I make a decision to trade away some of my possessions my will is eternally bound by a restriction from ever using those possessions again. But the reason why I choose to do so is because I gain something from the exchange that is more valuable – that my will has been restricted in one way yet released in another, more satisfying way.

The transfer of ownership of one’s body may, of course, engender a restriction over one’s will greater than that of transferring ownership of an external object such as a cup. Indeed, the core of Rothbard’s problem seems to be that transferring one’s body absolutely, irrevocably and in all cases subordinates one’s will to someone else’s. However, such a restriction must, in the mind of the individual, be worth the resulting gain. Rothbard the economist was emphatic that valuations are subjective so it is not for him to determine whether a person should value ownership of his body higher than some other end. Moreover, it is not always clear that contracts which transfer rights over one’s body would necessarily bind one’s will in a manner that is more restrictive than contracts that transfer external objects. As we noted earlier, not all rights are outright ownership rights. We can imagine types of transfers of rights over one’s body short of full ownership similar to easements and leases – such as the right to keep a person in a specific location. The only right conferred on the other party is to prevent this person from leaving this location, whereas the latter person still retains the ability to do whatever his “will” desires within that location. A could agree with B to remain on a twenty acre estate with a ten bedroom mansion, a personal chef, a swimming pool, a tennis courts, fields, woods and so on. This contract would be invalid in Rothbard’s view and the individual should be able to change his mind and leave. Yet a contract to transfer one’s entire annual salary to another person for the rest of one’s life would, according to Rothbard, be valid and enforceable. Yet it is clear that the latter binds one’s will in far more ways than the former. Moreover, what are we to make of transfers of full ownership of parts of the body as opposed to the whole? Surely I could sell my leg or my arm or, more realistically, a kidney for organ transplant without binding my “will”? Precisely how much of my body do I have to transfer ownership of to another person before my “will” becomes bound? Once detached, of course, it is possible to consider a particular body part “alienated” and thus saleable; but it is difficult to understand how, under the inalienability doctrine, precisely how one could conclude contracts regarding a particular body part prior to such detachment. So if Rothbard’s argument can be extended to the conclusion that a person cannot transfer any part of his body whatsoever to another person it would mean that surgeons, in spite of the full contractual consent of the patient, would be prevented, by law, from removing a malignant tumour in order to save that patient’s life.

In a rare moment of confusion for this author, Rothbard mixes the factual with the normative in order to lend his argument plausibility (Randy Barnett makes a similar argument3). In the quotation above Rothbard says “Each man has control over his own mind and body. Each man has control over his own will and person, and he is, if you wish, ‘stuck’ with that inherent and inalienable ownership. Since his will and control over his own person are inalienable, then so also are his rights to control that person and will.” In other words because, in nature, the de facto control of a person’s body rests with his mind then so too should the normative power of disposal over that body, i.e. ownership. Now it is absolutely true that in nature a man’s mind and will is always wedded to his own body and this connection would survive any attempted sale of one’s own body to another individual. No legal document can ever confer on me the power, with my will alone, to make another person blink, cough, or move his arm. That individual would still retain the same de facto control over his mind and body just as he was before he sold himself into slavery, and he would still retain his thoughts, feelings, and desires. But these facts have no bearing on the question of ownership, which is who may legitimately determine the ultimate disposal of the matter that constitutes a person’s body. The issue we are interested in is, regardless of whatever the slave’s will desires and the de facto control over his body, can somebody else, through a voluntary arrangement, legitimately intervene with the physical integrity of that body? This de facto control of the voluntary slave to control his own body may have a bearing on how much use and enjoyment an owner could get out of his voluntary slave and, indeed, whether the prospect of ownership is attractive in the first place. A voluntary slave may choose to misbehave, disobey his owner or just be generally lazy and workshy. Other voluntary slaves, though, may be perfectly obedient and accomplish everything their new owner wants. However, this is true of animals too which also retain a de facto control over their muscle movements. Some animals are obedient and need little encouragement to make them do what an owner wants them to do; others are stubborn and need cajoling or physically disciplining. Yet this fact has no bearing on the fact that humans own animals.

In any case, however, it is not immediately clear how any person is “stuck” with his de facto control over his own body. He could, as Block points out, commit suicide and thus permanently and irrevocably sever his will from the physical matter that constitutes his body. Clearly a person does have an option in nature to discontinue his control over his body.

Having disposed of these two powerful arguments – one for and one against voluntary slavery – which have, as was suggested earlier, dominated the topic of voluntary slavery, let us proceed now to discuss what may be a more problematic issue when it comes to voluntary slavery. This issue it that of enforcement of voluntary slavery arrangements – that is, if a voluntary slave runs away, what could or should be done about it? Before we address this, however, let us first discuss, as a brief tangent, how proliferate voluntary slave contracts are likely to be in a libertarian society – are arrangements of voluntary slavery likely to be fringe and marginal or would their legal permission open a Pandora’s Box that would suddenly lead to all manner of “exploitation” of the weak by the strong? The most likely scenario where this would be possible is, clearly, with labour contracts, i.e. contracts of employment. If we allowed voluntary slavery, so a retort would go, wouldn’t that lead to employers demanding arrangements of slavery from their employees? “Hungry? Be my slave!” “Need a home? Be my slave!” “Need money for your children? Be my slave!” And so on. However, such an argument could only be premised upon the Marxist view that the fate of the worker is to sink ever lower and lower and is utterly dependent upon what the capitalists offer him – a view that we know to be false from nearly 200 years of economic progress that the standard of living of even the lowest earning worker has risen significantly. Employers are compelled, through competitive bidding, to offer a real wage rate that is markedly higher than one that provides subsistence. We can surmise that people do not enter contracts of voluntary slavery (or the closely related arrangement of indentured servitude) today not because of legality but because, for the employee, even the lowest free wage is able to offer a position that is far more attractive than an arrangement of voluntary slavery. Indeed, one of the overwhelming reasons why compulsory slavery was gradually abolished was because for the employer or would-be slave owner it was less expensive and more productive to hire free labour than to trade in slaves – and that it is better to risk having an employee quit and to hire another rather than try to “own” the original employee. It is therefore likely that slavery, voluntary or otherwise, would only return in any significant measure if society itself was to revert to primitive economic conditions of low capital accumulation and low productivity per person.

Before leaving this topic we might as well consider the relationship between the trading of one’s body, i.e. voluntary slavery, and contracts of employment. Rothbard offers the following explanation:

A person’s labor service is alienable, but his will is not. It is most fortunate, moreover, for mankind that this is so; for this alienability means (1) that a teacher or physician or whatever can sell his labor services for money; and (2) that workers can sell their labor services in transforming goods to capitalists for money. If this could not be done, the structure of capital required for civilization could not be developed, and no one’s vital labor services could be purchased by his fellow men. The distinction between a man’s alienable labor service and his inalienable will may be further explained: a man can alienate his labor service, but he cannot sell the capitalized future value of that service. In short, he cannot, in nature, sell himself into slavery and have this sale enforced – for this would mean that his future will over his own person was being surrendered in advance. In short, a man can naturally expend his labor currently for someone else’s benefit, but he cannot transfer himself, even if he wished, into another man’s permanent capital good. For he cannot rid himself of his own will, which may change in future years and repudiate the current arrangement.4

This explanation is erroneous. The reason why contracts of employment are valid is nothing to do with the “alienability” of the labour service. A service is an intangible thing and cannot be disconnected or alienated from anything as it is not already in the form of any kind of connection or embodiment. Rather, the validity of the contract of employment rests on the fact that the individual employed has agreed to a conditional receipt of money, the condition being that he carry out certain tasks as stipulated by his employer. If those tasks are not completed then title to the money does not pass from the employer to the employee. If they are completed, on the other hand, then title to the money does pass and the employee can enforce this title as a result of having fulfilled the condition. This explanation is in accordance with (and, indeed, is identical to) the title-transfer theory of contract that Rothbard espouses also in The Ethics of Liberty. Contracts of voluntary slavery, however concern the transfer of the title to the person’s physical body. This too may also be made for money. A may agree with B to transfer a sum of money to B’s family if B transfers title of his (B’s) body to A. Moreover, such a transfer may result in the value of B’s ability as a labourer being capitalised, so that B could, if he wished, sell A for that capital value to another person. But a contract of employment and a contract of voluntary slavery, while they have obvious similarities, concern the transfer of different physical entities and are not distinguished by any “alienable” labour service on the one hand nor an “inalienable” will on the other.

Let us therefore proceed now to discuss the issue of the enforcement of voluntary slave contracts or agreements and why it is this topic which is actually the difficult one when comprehending voluntary slavery arrangements. Dealing first of all with the enactment of transfers of ownership over the physical matter that constitutes one’s body, it is not necessary for the voluntary slave to be in receipt of a sum of money from the potential owner – i.e. he does not literally need to sell himself. He could quite easily make a gift of himself to someone else and this is, as we have examined elsewhere, perfectly in accordance with libertarian contract law. However, we can surmise that in many, if not most, cases a sum of money will be transferred in order for the owner to purchase the voluntary slave from himself. One objection concerning this is scenario is the fact that if the sum of money is transferred to the voluntary slave and the contract is therefore concluded, because that sum of money belongs to the voluntary slave and the voluntary slave belongs to the owner then surely the money too belongs to the owner again. Can’t the latter simply take back what he gave? This is certainly possible but it would, as Block points out, simply point to the stupidity of the voluntary slave and not necessarily to any impossibility of concluding the contract in the first place. However, the more likely scenario is that the contract will require the funds to be paid to a third party – most likely the family of the voluntary slave. In this instance the funds would be irretrievable by the owner once the contract is concluded. But even if it the funds were paid to the voluntary slave himself the contract could easily stipulate that the voluntary slave retains title over the funds and that the owner must grant him time to enjoy spending them. Contracts for voluntary slavery-type arrangements need not be an all or nothing thing and the voluntary slave is quite entitled to reserve specific rights to himself that would preclude the transfer of full, outright ownership over his body to another person. Whatever the specific content of a voluntary slavery contract, however, we can surmise with little doubt that courts will require a standard of proof of transfer greater than that required for transfers of ownership of dead objects – such as written documents and witnesses etc. – rather than simple oral declarations and exchanges. Courts are likely to want to be as sure as possible of the intentions of the parties before enforcing such an arrangement.

Second, assuming that a voluntary slavery contract is valid, the problem surrounding any “enforcement” of this contract rests on the fact that the whole concept of contractual rights requires there to be two continually recognised legal parties to the contract. However, when the voluntary slave transfers outright and irrevocable title over his body (and with it all rights and possessions that he owns) to another person, he ceases to be a legal person in any sense of the concept at all. The voluntary slave is now akin to being simply a piece of property akin to an object like a plank of wood. Rights, however, are not enforced against pieces of property but against other legal persons. What the owner of the voluntary slave now possesses is the right to exclude all other legal persons from the body of the slave that now constitutes his property and to seek legal sanction where third parties interfere with this property. In other words, his right is enforceable against other people and not against the voluntary slave who is now not a legal person. Thus, the right of ownership which the owner receives is not, in fact, any kind of right enforceable against the voluntary slave at all.

If, therefore, the voluntary slave runs away from the owner what would be the response of the law? The answer is simply nothing at all. The owner has no legal right of enforcement against the slave at all for the slave is not a legal person and legal enforcement exists only between legal persons. As the voluntary slave is not a legal person and is simply a piece of property he can commit no crime nor any breach of contract by running away. His running away is, rather, simply an extra-legal event akin to losing one’s car keys or having a pet run away. Such a situation may be very unfortunate for you but you would not, in these circumstances, go to court to enforce judgment against the runaway keys or the absconding pet in order for them to be returned to you. Rather you simply have to try and find them yourself. The situation is no business of any court unless and until there is any interference in your property by a third party who is a legal person and it is against this person against whom your title to the property concerned is enforceable.

Does this fact present any obstacle for voluntary slave contracts? Unless one accepts the doctrine of inalienability then clearly it does not. The situation is no different from that where a person is deceased. If you are, say, a family member who comes to own the body of a deceased relative your right over that body is not enforceable against the deceased individual; the right you possess is to exclude anyone else from that body. The only difference is that, with voluntary slavery, a person has extinguished his legal personage while remaining alive after.

It is submitted, however, that the far more likely scenario with voluntary slavery contracts is that the voluntary slave will continue to be recognised as a legal person with a specific legal identity and, most likely, will reserve specific rights should the contract be broken. This is because, in the event of an absconding by the voluntary slave the owner would retain the advantage of being able to resort to legal sanction and, moreover, in the event that transfer of ownership of his body is conditional the voluntary slave can break the contract when the owner fails to fulfil that condition. Let us therefore proceed to examine the enforcement of voluntary slavery contracts as any other contract would be enforced between continuingly recognised legal persons.

Practically all discussions of voluntary slavery make at least the tacit assumption that should a voluntary slave decide to escape from his now owner then the appropriate remedy should be that the voluntary slave is forcibly returned to the owner – so in the lexicon of contract law, the appropriate remedy is specific performance. This is undoubtedly a hangover from considerations of what used to occur with involuntary slavery. The slaves did not wish to be there in the first place; if they ran away their forced return did not alter the situation – they were still unwilling workers and we can surmise that whatever the owner was getting out of them after their return would have been the equivalent of what he was getting out of them before they escaped. However, our topic here is voluntary slave contracts and we can surmise that the voluntary nature of the contract itself does have a bearing upon the benefits of the contract to the voluntary slave owner. We see that in contract law generally, which concerns only voluntary relations, specific performance is often considered to be the least viable remedy, particularly in contracts that involve a personal working relationship such as those between employer and employee or a contract to provide services. This is precisely because the benefits to be gained from services performed under a contract depend, in a large measure, upon the relationship between the contracting parties and their continued willingness to serve each other. To compel specific performance in instances where this relationship has soured or where this willingness has otherwise been lost usually makes a bad situation worse. But even where this is not the case and the contract concerns delivery of physical property rather than a service specific performance is not always available. If the defendant is unable to deliver a specific piece of property it may be because it has been lost or destroyed. But it also may simply be that an alternative form of recovery is easier (i.e. cheaper) than trying to extract the particular piece of property that was the subject matter of the contract. At all times the plaintiff will normally seek, and the court will be prepared to enforce, the option that most ably restores to the plaintiff that which he owns for the lowest possible cost. Very often this will amount to the payment to the plaintiff of a sum of money equivalent in value to the property that cannot be rendered (and in the case of services to permit the plaintiff to seek those services elsewhere from a more willing party). In other words, just because you have contracted to receive something does not mean that the court will grant you receipt of that specific good or service and, moreover, nor are you actually likely to be interested in receiving it if the attempt to do is onerous. We can surmise in the vast majority of cases that the benefit to be gained by a voluntary slave owner from specific performance of a voluntary slave contract where the slave is no longer willing is likely to be greatly diminished compared to the situation where the slave remains willing.

So what is likely to happen, then, in cases where a voluntary slave runs away from his owner and wishes to break the contract? Let us recall that what the slave has done is to abscond with the owner’s property, which in this case is the physical matter that constitutes his own body. He has, in effect, stolen from the owner although we may like to note that outright theft may not appear in all circumstances and, like contracting parties, negotiations to dissolve the contract peacefully may be more frequent. The precise remedy available to the plaintiff may depend upon the precise nature of the contract. The contract itself may, of course, specify remedial title transfers in the event of a breach. Assuming it does not, however, if the contract concerned required the owner to transfer a sum of money in exchange for receiving title to the voluntary slave’s body, the most likely remedy is to compel the runaway slave to pay that sum back to the owner, restoring the latter to his original, pre-contractual position. Where, however, there was no initial payment of money then payment of some other equivalent to the capitalised value of the service that the voluntary slave would have rendered to the owner may be ordered by the court. This may, of course, result in de facto continuing slavery if the voluntary slave is required to turn over the best part of his annual salary while working as a free individual in another occupation. But we must recall here the equivalent situation where gifts of ordinary property are made by one person to another. If A makes a gift to B, A cannot then change his mind and demand the gift back. If he takes it he is required to either return it or pay B a sum of money equivalent to its value. The decision to make the gift, contra Rothbard, binds for all of time A’s will vis-à-vis the title of that property. A does not have a right to change his mind and repudiate his decision without facing consequences. Likewise, therefore, where the property concerned is A’s own body so too will there be consequences if, having gifted that property to B, A attempts to take it back for himself. This may indicate that making a gift of one’s own body is, perhaps, gravely foolish or, at best, necessitates a thorough degree of consideration. But in terms of strict legality there is no reason to suspend the consequences that flow from A repudiating his own, freely made decision – a repudiation that would involve simply shifting a loss from himself to B.

A further element of enforcement of voluntary slave contracts is, of course, whether the voluntary slave could enforce the contract in the event that it is the owner who is the breaching party. Let us say, for example, that A agrees with B that B will pay A’s family a sum of money each month in return for A transferring ownership over his body to B. If B ceases to make these payments then A can either enforce the contract or seek to have it rescinded.

Conclusion

What we can see from all of this, therefore, is that while in terms of strict legality there appears to be no bar in libertarianism towards entering arrangements of voluntary slavery, any institution of voluntary slavery is likely to be markedly different from the institution of involuntary slavery and is fraught with many more issues and complications. Hopefully this essay has outlined and explored some of the main topics for further consideration in voluntary slavery, while revealing something of its nature and the sorts of arrangements that may be entered into (if at all) in a free society.

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1Murray N Rothbard, The Ethics of Liberty, 134-6 (footnotes omitted).

2Walter Block, Toward a Libertarian Theory of Inalienability: A Critique of Rothbard, Barnett, Smith, Kinsella, Gordon and Epstein, JLS Volume 17, no.2, 29-85.

3Randy E Barnett, Contract Remedies and Inalienable Rights, Social Philosophy & Policy 4, no. 1, pp. 188-90.

4Rothbard, pp. 40-41.

Small States – the Key to Liberty?

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Although libertarians share a passion for personal liberty, free enterprise and the primacy of the individual over the collective, they can differ markedly over the precise role and scope of the state. The main division is between so-called minarchists on the one hand, who believe that there is a limited, justifiable role for the state in defining and preserving property rights, providing security and dispensing justice, and between so-called anarchists on the other who believe that the state, however minimal the services it provides, is always an unjustified invasion of individual liberty and that all defence, security and adjudicative services should be provided by the free market just like any other end.

This division is far from being a futile theoretical exercise and is, indeed, important in determining and clarifying the nature of libertarianism. The present author, for example, self-identifies as a Rothbardian anarchist who sees no justification for the state whatsoever and that anything else is antithetical to individual freedom. However, what we shall argue here is that there is another distinction that is likely to be much more important when it comes to the actual achievement of individual liberty in our world today. This distinction is not between how big or how powerful a state is within a given territory, but, rather, the size of that territory in the first place. That actually, a world of liberty will be achieved much more effectively if we concentrate on breaking up existing states into smaller states rather than trying to limit the scope of government within an existing, large state. Moreover, as we shall see, the realisation that smaller states are more conducive to individual liberty goes at least some way to abolishing any practical difference between minarchism and anarchism.

The vast, monolithic state is, in fact, a relatively new phenomenon. Germany and Italy, for example, consisted of much smaller territories and independent cities until the late nineteenth century; the United States was intended to be a union of smaller, independent, sovereign states, and the transformation of the US into a single, large state occurred informally as a result of the civil war and the gradual consolidation of sovereign power in Washington DC. Other large states were born out of independence from conquest with many simply being artificial lines drawn on a map by politicians. The latest experiment is, of course, the European Union which has, since the post war era, attempted to draw an increasing number of powers away from the capital cities of the individual member states and concentrate them in Brussels. This tendency of increasing the size of states has gone hand in hand with the gradual replacement of laissez faire with socialisation, statism, social democracy and increasing belligerence on the part of the resulting behemoth states. All of the vast conflicts of the twentieth century – the two world wars and the cold war – occurred after major consolidations and empires were in place. Today, we are left with the belligerence of the United States and its Western allies as they seek to control the Middle East and to quell the growing ambitions of Russia and China which are, of course, two more states that cover a vast territory.

There are several reasons why larger states erode liberty while smaller states tend to be more conducive towards it. The first and most obvious is that a larger state has access to a vastly greater sum of resources – more natural resources such as oil, gas, farmland etc. and, of course, a larger population to subject to tax slavery. Thus the large state is able to command relatively more wealth than a smaller state. The greatest impact of this is with regards to foreign policy. It is not likely, for example, that a territory the size of Monaco or Liechenstein would have the wherewithal to produce the military hardware of the United States. Even if its tax base could, in some way, pay for all of the necessary resources it would, in the first place, be heavily reliant upon foreigners who would have to supply, manufacture and then store all of the aircraft, tanks and missiles and so on. This conveys to foreign governments the power to restrict the military growth of the small state and with it all of the derivatives that accompany an increasing appetite for warfare such as suspension of civil liberties, freedom of the press, and so on. Indeed, in small states which are reliant upon foreign powers for their military equipment, such as Singapore, it is usually to the benefit of the foreign state to see the smaller state armed. Second, a large state possesses a larger population and thus can benefit from a wider division of labour in its bureaucracy. Hence larger states have no end of specialist agencies, departments and units that are each devoted to a particular area of government which serves to more effectively augment and consolidate the potency of government power. The US federal government, for example, employs approximately £4.1m people across an alphabet soup of abbreviated names and acronyms for hundreds of government departments and agencies. Smaller states will not have this luxury. Liechtenstein, for example, has an entire population of just over 37,000, a bare fraction of the federal government of the US, so many of its government employees must presumably carry out several core functions rather than individual, specialist occupations. Third, consolidation of smaller states into larger states reduces the competition between states. If a small state becomes too burdensome and oppressive in its rate of taxation and regulation then people can simply jump ship. Thus there will be a drain of productivity from the onerous state to the benefit of less domineering states. Indeed, rather than any so-called, internal “separation of powers” between the different organs of an individual state, it is in fact the competition with other states that provides the real check and balance to state power. We can therefore see that the real motivation for the consolidation of smaller states into larger states, the increasing number of trade agreements and treaties between states and, furthermore, the recent hullaballoo about corporate tax avoidance is to restrict choice amongst the taxed population. If such restriction is achieved, people will stay put in their home state and government can subject them to ever increasing restrictions, safe in the knowledge that nowhere else can offer anything better. The logical end – a vast, monolithic world state – would have absolutely no check whatsoever on its expanding powers, short of people’s abilities to escape into outer space. Moreover, sealing the border of a small state is markedly more difficult than sealing the border of a larger state. Smaller states are more reliant upon foreign trade for resources and the migration of intellectuals, entrepreneurs, businessmen and cultural or sporting icons, and so they have to permit a relatively porous border. A larger state, however, has much of these things home grown already and thus is able to invoke more impenetrable border restrictions, safe in the knowledge that it is not providing an overwhelming degree of disruption to its economy. And, of course, in a smaller state people are physically closer to the border so that even relatively impoverished people who wished to escape to a neighbouring state could brave the journey by foot in a few days. It would be much harder, however, for the same type of individual to escape the US to Mexico from, say, Kansas. Fourth, a larger state possesses a greater number of domestic industries compared to a smaller state. This creates both the incentive and the wherewithal to impose a greater number of protective trade restrictions and tariffs. If a smaller state, however, specialises in, say, two or three industries but does not have a steel industry it is clear that any protective tariff imposed on imported steel would be protecting absolutely nothing and everybody within the state is simply having to pay higher prices for steel. Moreover, as we noted, smaller states are more reliant upon foreign trade in the first place and any the effects of any restriction in that regard are likely to be greatly magnified compared to the same in a larger state. Fifth, all else being equal, a larger state comprises a greater proportion of the worldwide economy than a smaller state. Correspondingly, there will be a wider acceptance of its government-issued, paper currency. Larger states therefore have a much greater ability to inflate their currencies to support government spending and, moreover, export this inflation abroad. It is no secret that the status of the US dollar as the world’s reserve currency, where everyone has a willingness to buy and hold dollars, has permitted a perpetual inflation of the dollar for decades, the eventual disastrous effects of which are only just beginning to be felt. A smaller state, however, whose currency has a smaller circle of acceptance and is barely used in international trade, is more likely to simply inflate itself into oblivion and has to enact price controls and capital controls much sooner than the larger state. Thus the chickens come home to roost much quicker in a smaller state, much like we are seeing in present day Argentina. And finally, in smaller states where the population is more homogenous in culture and outlook, it is much more difficult to set up a welfare state and to invoke the attitude that state welfare is permissible. In the first place, the lack of contrasting demographics provides little excuse for racial or cultural differences and, moreover, differences in the level of education to be used as a justification for alleged inequalities that can be somehow ameliorated by state welfare. In a larger state, however, it is possible to drill into the minds of welfare recipients a sense of entitlement resulting from their alleged misfortune while at the same time encouraging a sense of guilt and obligation in the minds of those who happen to be better off. Second, in a large state the disparate groups and populations, some of whom are wholly net tax payers and others wholly net tax receivers, are distant and unfamiliar to each other. The social security cheque of a poor, blue collar, unemployed man in urban Detroit, for example, may well be written by a middle class lawyer residing in Westchester. In other words, if you are a tax payer your money simply vanishes into a pot and you never get to see first-hand the nature and quality of the people who benefit from it, nor do the latter – probably residing on the other side of the continent with different coloured skin, a different language and different social and cultural practices which are entirely alien from yours – ever get to see you. Thus, with such an impersonal and faceless affair, there is little incentive for anyone to care about sponging off anyone else, nor is there much cause for tax payers to become outraged at who is sponging off of them. In a smaller state, however, the person writing your welfare cheque may quite easily be your neighbour, from whom there is nothing much to distinguish you in terms of background and education that should cause you to be any more “disadvantaged” than he is. Therefore, in a smaller state, it becomes much easier to determine which individuals are productive and generating wealth on the one hand, and which individuals are unproductive and acting as a leech upon everyone else on the other. Both the willingness to accept and to fund state welfare is therefore kept firmly in check in a smaller state.

To reiterate, none of this means to say that the theoretical debate between minarchism and anarchism does not matter. However, we can also see how the conduciveness of smaller states towards liberty and larger states towards tyranny goes some way towards eliminating the schism between minarchists and anarchists. The government of a smaller state is closer to the population not only geographically but also in terms of its values and cultural outlook. The result of this is that the crucial issue of the consent of the governed is at least partially, if never perfectly, resolved by a small state. Any government action is likely to be tailored to the specific needs and values of the smaller, local population as opposed to the one-size-fits-all solutions imposed by larger states. A degree of empathy and understanding between the governors and the governed is far more likely in a smaller state as opposed to when the government draws to its so-called “representatives” from distant and unfamiliar lands in a capital city that is hundreds, if not thousands of miles away. There is at least, therefore, a greater chance that the government is working for you and with you, even if you may disagree with some of its policies and have to obey certain edicts which you would prefer to disobey. Moreover, in a smaller state with a smaller population a single vote out of, say, a few hundred thousand people carries more weight than a single, drop-in-the-ocean vote in a population of tens of millions. And if the world as a whole consisted of thousands of small states and free cities with relatively small populations what would be created is a “patchwork quilt” of independent territories, each with their own social, political, cultural, economic, and religious idiosyncrasies, to the extent that everyone would be able to find somewhere that is broadly conducive to his own needs and values. Some states or cities, for example, could be relatively liberal with, for example, legalised drug use, and/or permissibility of homosexuality, whereas others could be conservative and/or religious and permitting the expression of only traditional cultural values. Moreover, although the industry of each state would necessarily have to specialise in what was possible in terms of the geography, climate and access to raw materials, each independent state would seek to pursue excellence in academia, art, culture, and sport on a much more local scale than is possible today in larger states. Therefore, states, and cities in particular, would once again become seats of great learning and culture as opposed to the havens of poverty and crime that many of them are today.

At the heart of all of this is the right to secession – the freedom of territories, cities, districts and the individual property owner, to break away from one state, join another, or even to go it alone entirely (indeed, the possibility of individual property owners seceding is one that Mises entertains in Liberalism, dismissing it only out of impracticality). In the first place it is, of course, the recognition of the right to secede that will shatter the behemoth state into smaller states. The prospects of a move towards this are not at all bad. Secessionist movements are beginning to show signs of success in various parts of the world, notably in Scotland where, in spite of a failed independence referendum last year, voters awarded 56 out of a possible 59 UK parliamentary seats to the Scottish Nationalist Party in May of this year. The US state of Texas passed a bill in June of this year that will see the opening of its own bullion depository in order to provide some kind of independence from the inflationary zest of the Federal Reserve. Indeed, given that the imperialism of the West is founded upon the hegemony of the dollar, seceding from this empire of paper money may be both the most symbolic and practically effective rejection of the large state. Second, however, with the right of secession comes the strongest chance of reconciliation between the theoretical schools of anarchism and minarchism. For if there is a right to secession, states are little more than a collection of property owners coming together voluntarily to provide for a common purpose in a way that suits those particular property owners. If these property owners could leave and take their property with them if they so desired the issue of consent – the preoccupation of anarchists – is overcome. However, in order to prevent secessionist fervour, the state – the group of property owners as a whole – cannot become overly burdensome or invasive towards particular property owners lest they leave. It would also be likely that too much socialisation and the implication of a welfare state would lead to weakening competitiveness with neighbouring states in which fewer areas were socialised. Thus, the scope of the state within a particular territory – the preoccupation of minarchists – is likewise resolved. Moreover, the threat of secession and the competition with other states would cause the government of a particular state to behave more like a business, seeking to attract “customers” to join its territory, so that even if certain services were socialised they would have to be run in a competitive manner because endless tax funding would simply never be a possibility as it is in a large state. There comes a point, therefore, where the distinction between the state as a compulsory, aggressive institution on the one hand, and a purely voluntary and privately endorsed entity on the other begins to dissolve. In short, whichever way you look at it the only way to achieve either the absence of a state desired by anarchists or a small state desired by minarchists is to oppose, resolutely and emphatically, the large, overarching state.

It is clear that this understanding can have important ramifications for the libertarian movement as a whole. While the theoretical debate between minarchism and anarchism will (and, in the opinion of this author) should remain, when it comes to decisive action towards achieving a free world we can see that pressing for the eradication of large states and their dissolution into smaller states may be a unifying way forward. Moreover, although libertarians should, at heart, remain fully radical and uncompromising in their detestation of the state, we can see that the less revolutionary stance proposed here is likely to be more acceptable to a public which still views at least some kind of state as a necessity. Libertarians would be able demonstrate to the public that the large, monolithic state is inimical to their prosperity while at the same time avoiding all of the “who will build the roads” and “who will catch the bad guys?” questions, discussion of which tends to alienate people from the libertarian cause. However, unlike the advocacy of other “half-way” measures to reduce state power (such as so-called  tax reform and school vouchers), which simply rearrange the deck chairs on the sinking ship of the state, pressing for the breakup of large states is a positive move towards eliminating the state entirely. There is, therefore, nothing half-hearted about this approach. Once we begin to put the world on the path to breaking up large states, not only will the worst excesses of state oppression be vanquished, but the achievement of restricting the geographical size of states may, in and of itself, also achieve the final libertarian end – either minimal “night watchman states or, a complete, de facto eradication of the state as an aggressive institution.

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“Ending Useless Lives” – A Critique of Matthew Parris

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The UK Government’s Assisted Dying Bill, which was defeated in the House of Commons in September of this year, was, rightly, a controversial one. The question of assisted suicide, in order to prevent the onset of pain or the so-called “loss of dignity” from a degenerative disease or old age, is disputed amongst libertarians too, with some asserting that if you own your body and your life you should be able to do whatever you want with it, whereas others claim that anything that seeks the destruction or termination of one’s life is antithetical to freedom.

We are not, of course, hoping to resolve this kind of debate here. Rather, the focus of this essay is an interesting article that appeared recently in The Spectator authored by Matthew Parris entitled “Some day soon we’ll all accept that useless lives should be ended” and subtitled “If the law does not lead, it will follow — at root the reason is Darwinian”. Parris states forthrightly what he believes will be a result of any assisted dying law, a result that most people do not wish to countenance – that, one day, we will encourage and/or require people to end their lives. Unwittingly, however, Parris unveils not the dangers of any assisting dying bill at all. Rather, it is the dangers of the culture of statism in which such a law would be enacted, a culture of government permissibility, prohibition and encouragement which has seeped into our psyche that rejects any difference between law and positive morality.

The argument (deployed by opponents of assisted dying) is that licensing assisted dying is to smile upon the practice. The legal change would act as a cultural signal that society now approves. This would in time lead to pressure on those who might not otherwise have contemplated ending their lives, to hasten their own demise — so as ‘not to be a burden’ on others. One day (say the faith squad) it could even become the norm.

I am sure they’re right. We who may argue for ‘permissive’ legislation must have the intellectual honesty to admit that the ending of a legal prohibition does act as a social signal. In vain do we protest that ‘nobody is forcing’ upon anybody else (say) same-sex marriage, or the cashing in of pension pots, or a quickie divorce, or the possession of marijuana. Indeed not. Nobody is forcing these delights upon others, but humans are social animals and one of the ways a society signals its attitudes is by criminalising behaviour it thinks very harmful, and decriminalising behaviour towards which its attitude has softened. [Emphasis added]

It is clear from this that Parris views government laws and the will of “society” as harmonious – that government restricts what “society” does not want and permits what “society” does want. There is, therefore, in Parris’s view a union between government and people, that we are all one. It is clear also that Parris views “government” and “society” as primacies – any rights and freedoms we enjoy exist because society and government have been kind enough to pass “permissive” legislation so that we can enjoy them. “Society”, however, is not some mysterious entity with its own cognitive ability and even if it was there is no reason for the government to be in step with anything “society” decides. The prevailing attitudes, opinions and points of view on certain moral subjects originate in the minds of individuals in disagreement with the points of view of other individuals. After all, if everyone was in agreement the alleged immoral act would never occur and hence laws against it would be pointless. Never does Parris consider that the law is simply being used by one set of persons to curtail the freedom of others. Never does it occur to him that the law’s proper scope is to simply prevent invasive violence between individuals and not to confer any moral propriety on anything. Rights and freedoms originate with individual people and do not require the government to permit them. They require a total absence of government, not any piece of government paper with a Royal assent or presidential signature in order to bring them about.

The stoning to death of women taken in adultery under sharia law is undoubtedly the signal of a cultural attitude towards adultery. Were you to advocate the abolition of this punishment, Islamic moral conservatives would be right to warn that the move would both indicate and encourage a softening of public moral disapproval of female adultery. Likewise, the progressive removal of legal restraints on homosexuality has been both consequence and cause of an increasingly sympathetic attitude towards gays. It is futile to deny this

Assisted dying is not a novel desire, not a strange new way of thinking. As a moral impulse, the idea that one might hasten one’s end because one gained no pleasure from living and one had become a burden on friends, family and the state has been with us since the dawn of man. You will find it in literature right down the ages. In your own lifetime you will have heard it expressed by others of your acquaintance. The impulse, though, has usually been discouraged — resisted as an unworthy attitude to life — and this cultural disapproval is reflected in law.

To alter the law in a permissive way would therefore be pushing (as it were) at an open door: legitimising a moral argument that has always been present (or latent) among humans. I would have every expectation that, given the extra push, the habit would grow.

All of this would be true only if one accepts the view that law either is or should be, by its presence or absence, a promoter of positive morality. As libertarians we reject this view. Perhaps stoning adulterous women and criminalising homosexual behaviour was rejected not to signal any cultural approval but merely because what people do to each other in their own bedrooms is no business of the state nor of anyone else? Legalising them simply means that legitimised violence cannot be used to prevent them by people who have no business interfering in the lives of others. There is no reason to suppose that legalisation, as well as having been a consequence of relaxed social attitudes towards certain acts, should be regarded as a continuing cause of this tolerance. Everyone is still free to disapprove of such acts and to disassociate themselves from them if they so wish. Nor is there any reason why legalisation should transform simple permissiveness into encouragement or promotion. Adultery may be legal today but it is not culturally acceptable to cheat on one’s partner, and such acts are met with indignation, disapproval and rebuke. Where there has, on the other hand, been a continuing social relaxation to acts such as homosexual behaviour it is because a greater exposure to these acts that legalisation permits has caused people to realise that such acts are probably not as horrific as they might have once thought from when all they knew about them was disseminated from the propaganda of the government and moral zealots. If, on the other hand, murder was to be legalised it is likely that such exposure would cause people to still regard this as horrific and abominable. Legalisation is not, therefore, necessarily a direct cause of any social attitude towards anything.

And so it must — indeed, in the end, will: and if it does not lead, the law will follow. At root the reason is Darwinian. Tribes that handicap themselves will not prosper. As medical science advances, the cost of prolonging human life way past human usefulness will impose an ever heavier burden on the community for an ever longer proportion of its members’ lives. Already we are keeping people alive in a near-vegetative state. The human and financial resources necessary will mean that an ever greater weight will fall upon the shoulders of the diminishing proportion of the population still productive. Like socialist economics, this will place a handicap on our tribe. Already the cost of medical provision in Britain eats into our economic competitiveness against less socially generous nations.

This does not mean an end to social generosity. It does not mean an end to economically unproductive state spending. These are social goods that we value for non-economic reasons, and should. But the value we place on them is not potentially infinite. They have their price. Life itself has its price. As costs rise, there will be a point at which our culture (and any culture) will begin to call for a restraining hand. I believe that when it comes to the cost of keeping very enfeebled people alive when life has become wretched for them, we’re close to that point.

Parris seems to have forgotten that “tribes” are only handicapped because they existed in a pre-capitalist era where they had to compete with either each other or with other tribes for a finite number of resources. Capitalist economies, however, allow every person to take their place in the division of labour and all are better off from the resulting manifold increase in productivity. More alarmingly, however, Parris seems to think that all values and ends are collectively held and desired. What is “useful” as well as the “costs” and “prices” of attaining these ends are all decided by the “culture” or by “society”. It is absolutely true that all ends have their price but the only reason these ends are priced by “society” is because the government has taken upon itself to socialise welfare and medical care. People only become a burden to everyone else because they are forced to pay for the sustenance of other people’s lives through the conduit of the state which cannot and will not ever do so in the most cost effective and sustainable way. Indeed, it is government that creates the problem of hordes of sick and dying individuals by encouraging demand through the provision healthcare and welfare that is either free or vastly reduced in cost at the point of need.

Parris refers to “socialist economics” as harming “the tribe” yet he doesn’t seem to realise that the tribal mentality that he adopts is precisely a symptom of socialisation and collectivism. Socialist economics doesn’t harm “the tribe”, which in Parris’s case seems to mean his country the UK, a country that must, for some reason Parris does not explain, remain “economically competitive” with other countries. Rather, socialist economics creates tribes in the first place, with the tribal leaders – the government, the heads of planning, etc. – deciding what is important ahead of everyone else. The value of “economic competitiveness” ahead of other ends would be valued by them, the leaders, and forced upon everyone else, with the “useless lives” sacrificed for that end. Parris makes a mistake typical of collectivist thinking which is to regard society, or man’s propensity to be a “social animal”, as requiring each human to value the same ends or to work towards the same goals. This is not true. Society exists because humans realise that they can pursue their own ends (that differ from everyone else’s ends) peacefully and more productively through the division of labour and voluntary trade. The beauty of this system lies in the fact that everyone can coexist peacefully and harmoniously while pursuing their own material, self-interest (and indeed can accomplish their individual goals to a much greater extent). It is utterly false to view society as a vast machine in which individual people comprise nothing more than metaphorical cogs and pistons, all fitting together and moving along to produce the same output. If, therefore, socialisation was ended, how much should be spent on medical care and on other so-called “economically unproductive” ends would be a matter for each individual person with their own individual means, or with the voluntary assistance of other people. They would willingly sacrifice their individual “economic competitiveness” and direct resources to providing for their care in old age at a point that was desirable to them without forcibly burdening everyone else.

I don’t even say we should look more benignly upon the termination of life when life is fruitless. I say we will. We may not be aware that our moral attitudes are being driven by the Darwinian struggle for survival, but in part they will be. And just as we feel ourselves looking more sympathetically at those who wish to end it all, so we shall be (unconsciously) looking at ourselves in the same way. The stigma will fade, and in its place will come a new description of selfishness, according to which it may be thought selfish of some individuals (including potentially ourselves) to want to carry on.

We admire Captain Oates for walking out of his tent and into his death when he judged his enfeeblement was threatening his colleagues’ chances of survival. That is an extreme case, but it illustrates a moral impulse that I expect to grow — and for the same reasons as it occurred to Oates: the good of our fellow men.

I do not therefore need to campaign for assisted dying. I do not need (and wouldn’t want) to persuade anybody that the time has come for them to end their lives. I don’t need to shout from the rooftops that suicide can be a fine and noble thing, or rail against the ever growing cost of medical care in the final, prolonged phase of people’s lives. My opinions and my voice are incidental. This is a social impulse which will grow, nourished by forces larger than all of us. I don’t exhort. I predict.

In these closing paragraphs Parris makes clear that he is not advocating the ending of life at some point that it is deemed socially useless. Rather, he makes it clear that it is an inevitable result of a Darwinian struggle for survival. This case may be probable, or even certain, under current conditions. The problem, however, is that Parris’s analysis once again misses the elephant in the room. Captain Oates only walked out of his tent because the resources available to him and his “fellow men” were finite – his “enfeeblement” threatened the survival of his colleagues because they lacked the ability to produce more resources. Government socialisation of welfare and medical resources replicates the predicament of Captain Oates across society as a whole, stifling production, and increasing demand of what becomes a dwindling supply of resources at ever spiralling costs. Moreover, statism and socialisation entrenches in our psyche the “common good”, the willingness to sacrifice the individual to upon the altar of the collective, a willingness which has only become necessary precisely as a result of the ineptitude of collectivism. So although we may have some, limited agreement with Parris’s “prediction” we can, as libertarians, respond emphatically that none of it is necessary if one simply puts an end to the mantle of the state. Had Parris abandoned his collectivist mind set he might have realised this.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Prices and Cost of Production

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A major field of study in the science of economics is the pricing of consumer goods and their antecedent factors of production. The history of this area of thought provides an almost textbook example of the falsehood of the “Whig theory” of historiography – the idea that the knowledge of humanity progresses in an ever upward direction and that what we know now is better and more enlightened than what we knew before. For this area of study in particular is marked by progression, retrogression and progression once more, often with disastrous consequences.

The most serious case of retrogression in this regard was of, course the Marxian labour theory of value that stipulated that the exchange ratio of goods depended upon the quantity of labour time inherent in their production. This theory, together with its corollaries and associates such as the iron law of wages and the exploitation theory, was derived, so it was believed, directly from the largely pre-capitalist classical economics of Smith and Ricardo.

A basic “Austrian” response to this is to reject Marxism and its supposed classical parent by pointing out, of course, that costs are also prices. To explain prices in reference to prices, therefore, would appear to be a case of circular reasoning. Rather, the prices of the factors of production were derived from the value of the final good. Capitalists would bid up the factors of production according to the valuation of the final product. Thus the value of every factor was explained not according to the effort expended but, rather, according to its value in producing consumer goods.

Unfortunately, however, this basic understanding of the “Austrian” approach towards prices ignores the much richer theoretical tapestry inherent in the “Austrian” approach (especially that of Böhm-Bawerk) which, in fact, does not contradict many of the tenets of price theory in classical economics but, rather, armed with the law of marginal utility, provides a more powerful explanatory basis for them. Thus, one need not throw out the classical economics baby with the Marxist bath water and risk losing many of the important and true conclusions that were abused and distorted by Marx.

An immediate problem with the basic “Austrian” view is that the sequence of valuations from consumer good through the stages of production to the ultimate land and labour factors is the reverse of the temporal sequence of events. A product has to have been produced through all of its stages of production before a consumer can bid a price for it. Thus, the prices of the factors of production pre-date those of the consumer goods upon which the former are supposedly based. It is difficult to understand, therefore, how something can be derived from something else that does not yet exist. The more accurate view is, of course, that the prices of the factors of production are based upon the estimated selling prices of the future consumer goods. In a static equilibrium such as the evenly rotating economy the prices of the final goods are known in advance and hence the pricing of the factors of production will accurately reflect the value of the final consumer goods. But as helpful as this model may be in conceptualising the structure of production, it is woefully easy to draw from it the conclusion, so beloved of mainstream economists, that a boost in the value of consumption must necessarily result in a subsequent boost of the value of the factors of production. In other words that consumption feeds production. This, of course, is patently untrue. As John Stuart Mill said, “demand for commodities is not demand for labour”. Rather, to produce a commodity for purchase, labour (and all of the factors of production) must already have been demanded by capitalist-entrepreneurs. In other words, it is production that feeds consumption not vice-versa.

Second, if the prices of the factors of production of a good are based upon the valuations of consumers this does not explain the individual pricing of the factors. If, for example, a consumer will buy a loaf of bread for £1.00, why does the flour that went into it cost, say, 40p, the labour 50p and the hire of the oven to bake it 10p? Why doesn’t flour cost 50p, labour 30p and the oven 20p? Or any other possible combination of prices? One possible answer to this problem is that each factor earns its marginal revenue product – that is, the portion of the value of the increased product that it is attributable to an incremental increase of that particular factor. So for example, if I have a patch of land and a given number of seeds and apply increasing units of fertiliser then each additional unit of fertiliser will be priced according to the additional revenue earned by the additional physical product that results. The problem with this view is that it ignores the fact that no additional product is the result of a single factor alone and that the value of the additional product need not be imputed solely to the additional fertiliser. What if, for example, the purchase price of the land and the seeds already accounted for the fact that additional fertiliser could be applied to it to produce a larger physical product? Moreover, even if, say, the land and seeds were purchased at a price that reflected the fact that only a limited quantity of fertiliser was available and thus only a reduced physical product could be yielded from them, any unexpected increase in the available quantity of fertiliser and thus increased physical product and increased revenue would also cause an increase in the capitalised value of the land and the price of seeds. In other words, there is no reason to assume that the marginal revenue product should be imputed to only a single factor. We are therefore no closer to solving our problem – what is it that causes the particular array of prices between the factors? As we shall see, each factor does, in fact, earn its marginal revenue product, but not in a partial equilibrium where we examine only a particular end or use for a factor. Rather we have to consider the entire assortment of uses to which a good can be directed.

A further problem with the basic “Austrian” approach is revealed when we consider large consumer goods such as cars and computers. It is patently obvious that the value of a car is zero unless it has a steering wheel. Indeed, the demand for steering wheels is likely to be extremely inelastic, stretching all the way up to the height of the value of the entire car. However, in reality, the full value of the car does not result in the imputation of that full value to the steering wheel but rather to all of the other factors as well. Similarly, a computer is useless without the monitor; a television without a plug; glasses without lenses. In fact, it is clear that the utility of thousands of goods is dependent upon the unity of all of their individual components and if any one of them is missing the utility of a particular good drops to zero. Yet in many cases we never have to pay more than a few pounds for the “essential ingredient” to be produced.

How then do we arrive at the prices of all of the individual factors? The answer to this question lies in a deeper understanding of the law of marginal utility. As we know, this law states that the value of a unit of a good is equal to the value attached to the least valuable use to which that unit can be directed. So if, for example, I have five bottles of water, I might use the first for my most important end which is drinking, the second for the next most important end which is washing, the third for cleaning laundry, the fourth for watering plants, and the fifth to make into ice cubes. As each bottle is interchangeable, if one bottle was to be lost it would be the least valuable use – making ice cubes – that would be foregone. Thus, the value of any one unit will equate to the value of the least valuable end of making ice cubes, in spite of the fact that some of those units will be directed to ends with far greater value.

What we can see, however, is that if the value of any one unit of a good equates to the value of the least valuable use to which that unit can be directed then this value must also be imputed to the factors of production. If a portion of those factors was to be lost, the resulting reduced supply of goods would result in the loss of the least valuable ends. Thus, each unit of the factors of production that created the five bottles of water must themselves be valued at the lowest valuable use of a good that those factors will produce.

However, this law will also apply when the factors of production are not specific and can be used to produce any range of goods that satisfy a number of different ends. Let’s say, for example, that a given quantity of factors of production can be used to produce the following consumer goods in descending order of value:

  1. A bottle of water;
  2. A loaf of bread;
  3. A bar of soap;
  4. A pair of socks;
  5. A box of tissues.

If the same factors of production can be used to produce my most valuable good, a bottle of water, as my least valuable good, a box of tissues, then it follows that the factors of production will be valued according to the value attached to the box of tissues. The loss of any portion of those factors of production will result in the cessation of the production of tissues while all of my other goods are still produced. Here, then, is the key to understanding the different prices of the factors of production. The value of a factor is based not upon the utility attached to the specific good to which that factor is directed but, rather, upon the least valuable good to which a portion of its supply is directed. Only highly specific factors of production which can be devoted only to a single end will derive their value fully from that specific end.

In real life, of course, it is never the case that whole combinations of factors of production can be exchanged between different ends. Rather factors have to take their place in different combinations of specific and non-specific factors. It is these various arrays that produce, at any one time, the individual prices of the factors of production. Thus the breakdown of prices of factors used to produce a particular good is derived from the lowest valued uses to which portions of the supply of those individual factors are directed.

We are now, therefore, in a position to see what we mean when we say that a factor of production earns its marginal revenue product. If we gain an additional unit of a particular factor, that unit will be directed towards the next most valuable end that is currently unfulfilled in the economy as a whole. All of the most valuable uses for the factor will already be fulfilled. Yet all units of this particular factor will now be priced according to the value of the marginal unit which will be derived from the least valuable end.

However, the pricing of the factors of production according to their marginal uses is not the only effect of the application of the law of marginal utility. It also affects the value of the supra-marginal products whose direct marginal utility is above that of the marginal product. These products too will be priced according to the combination of prices involved in their factors of production as the loss of any given portion of a factor will not result in the loss of this product but in the loss of the marginal product. Thus, the prices of most goods in the economy are priced according to the least valuable goods that are produced out by the marginal units of their shared factors of production. As George Reisman explains:

Allow me to illustrate Böhm-Bawerk’s point here by means of a modification of his famous example of the pioneer farmer with five sacks of grain. As will be recalled, the five sacks serve wants in descending order of importance. One sack is necessary for the farmer to get through the winter without dying of starvation. The second enables him to survive in good health. The third enables him to eat to the point of feeling contented. The fourth enables him to make a supply of brandy. The fifth enables him to feed pet parrots.

[…]

Now let us slightly modify the example. Let us imagine that the first sack of grain has been used to make a supply of flour, which in turn has been used to make a supply of biscuits, and that it is this resulting supply of biscuits by means of which the first sack of grain performs its service of preserving the farmer’s life […] We can imagine a little tag attached, this time saying, “Biscuits Required for Survival.” As before, our farmer still has four remaining sacks of grain, any of which can be used to make a fresh supply of flour and then a fresh supply of biscuits. And now, just as before, we may imagine rats or other vermin destroying the supply of biscuits. Will the answer to the question concerning the magnitude of the farmer’s loss be materially different? Certainly, his life does not depend on the supply of biscuits any more than it did on the sack of grain. For he can replace that supply of biscuits at the expense of the marginal employment of the remaining sacks of grain, which, of course, is the feeding of the pet parrots. To be sure, additional labor will have to be applied as well, but the magnitude of value lost here is that of the marginal product of that labor, which might be  something such as the construction of a sun shade or an additional sun shade or even the feeding of the parrots. The point is that the value of the biscuits will not be determined by the importance of the wants directly served by the biscuits but by the importance of the marginal wants served by the means of production used to produce biscuits and from which a replacement supply of biscuits can be produced at will.1

Thus, we can conclude, that for the majority of products that are available for sale today, their selling prices are based not upon their direct marginal utilities but, rather, upon their costs of production which is derived from the marginal utilities of the least valuable products to which factors of production are directed. There are several noteworthy effects of this analysis.

The first is that this does not nullify the operation of supply and demand in determining the price of any supra-marginal good. Rather, it results in a shifting of the supply curve to the right so that it intersects the demand curve at a level where price equals the cost of production, plus the going rate of profit. Changes in the availability of the factors of production which either increase or decrease their marginal utility will cause similar shifts of the supply curve to the left or right which will have the corresponding effect of raising or lowering the price of the specific consumer good. This is possible without any change in the quantity that is bought and sold if, for example, the shift of the supply curve takes place on a highly inelastic stretch of the demand curve. The same quantity will be bought and sold simply at a higher or lower price.

The second observation, derived from the first, is that this obliterates the standard economic analysis behind monopoly pricing. The basis of this analysis is that suppliers can exploit inelastic demand curves to reduce supply, raise their prices and thus rein in an artificially expanded profit at the expense of the consumer. However, our theory here reveals that the opportunities for doing this are minimal. For the raising of prices and consequent swollen profit margins will cause competitors to shift factors of production away from the production of marginal goods towards an increase in production of the goods whose prices have been raised, thus restoring an increase in supply and the reduction of prices back to near their costs of production. Thus, for any businessman, the primary tool for estimating his selling price is not elasticity of demand of the particular good that he is selling; rather, it is the cost of production of any potential competitor. It is for this reason why very basic goods such as bread, milk, eggs, salt etc. which have an inelastic demand curve are priced very low; and it is for this reason why sole suppliers in particular industries will earn only the going rate of profit; any attempt to raise prices will simply attract competition.

The third important observation is the impact of this analysis on wages. For labour too is, of course, a factor of production and thus will only draw income in line with the marginal use to which it can be devoted. What results, therefore, is that labour is paid a rate of wages that is far below the direct marginal utilities of the goods that the very vast majority of labourers will be producing. Yet it is also clear that, because the value of marginal products is imputed, via their factors of production, to the supra-marginal products, it is clear that the resulting lower prices means that labour can buy all of this produce. Thus increases in the supply of labour, resulting in the direction of the latter to further marginal uses and thus a lowering of the nominal wage rate, will have no bearing upon the ability of labourers, in their capacity as consumers, to buy its produce and, indeed, will serve to increase the real wage rate. Thus the argument that increases in the supply of labour through, say, immigration are largely unfounded.

What we can see therefore is that the “Austrian” understanding of the prices of goods and their costs of production, although complex, provides a strong bulwark against false theories in many important areas such as stimulus spending, wages, and competition law. Every individual who wishes to offer powerful affronts to the falsehoods that abound in these areas should study it avidly.

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1George Reisman, Eugen von Böhm-Bawerk’s “Value, Cost and Marginal Utility”: Notes on the Translation, QJAE, Vol. 5, No.3: 25-35.

Capitalism – the Real “Third Way”

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Conventional understanding views economic history as some kind of big battle between unfettered capitalism on the one hand (as supposedly demonstrated by the late nineteenth to early twentieth century United States) and full blown socialism on the other (as the Soviet Union was supposed to have been). Allegedly, both extremes have their positive aspects but are, individually, weighed down by their supposed negative ones. So capitalism, for example, is able to raise the standard of living by several-fold in a person’s lifetime and showers us with more goods than we could possibly imagine. On the other hand, so this conventional belief goes, it promotes a consumerist, materialist and greedy “sink or swim” society that has no regard for the unfortunate and the least well off. Hence the vision of the US as the kind of place where you can buy whatever you want but if you happen to be poor or become afflicted with an illness then you are on your own. Socialism, however, stagnates and reverses the standard of living to the extent that nothing ever works and the population is mired in permanent poverty. On the other hand, so this conventional wisdom dictates, everyone is apparently more equal and the goods that they do manage to produce are distributed “fairly” across society. (Curiously this understanding of economic history seldom tends to acknowledge the tyrannous nature of socialism which, in the Soviet Union, resulted in the deaths of tens of millions of people – one might ask whether this negative feature is so off the scale that it would completely obliterate the chance of socialism being taken seriously as an ethical proposition at all?). Thus, in order to create the best society, we allegedly have to try and combine the economic growth of capitalism with the supposed equality and fairness of socialism, discarding the negative aspects of those two systems in order to arrive at we have today – a social democracy, the “third way”, an economic order that is “somewhere in the middle” between greed and need.

The first problem with this conventional thinking is that neither of the two polar opposites have ever really existed, or at least not in the manner that their proponents imagine them. Capitalism has never existed because government interference in the economy has always been present, simply in lesser or greater quantities at different points in history. Often the interferences at lesser points have provided the catalyst for more intense government activity in later periods, such as the booms and busts and the stop-start flirtation with centralised banking in the last half of the nineteenth century paving the way for the Federal Reserve System that dawned in 1913 just in time to print enough money to pay for World War One. Socialism has never existed because, as Ludwig von Mises so convincingly told us nearly one hundred years ago, it is, quite literally, impossible to build a socialist commonwealth without economic calculation. The Soviet Union survived to a large extent because it could refer to international markets for prices for the factors of production which enabled it to provide at least some kind of functioning economy, albeit at a vastly reduced rate of output compared to the rest of the world.

The real polar opposites that we have endured in the post-Renaissance era are not unfettered capitalism and unfettered socialism at all, but, rather, state corporatism and state socialism. State corporatism, the alignment between government and business, has its epitome in fascist economies such as Nazi Germany and Fascist Italy, but it describes also the imperialism of nineteenth century Britain and the evolution of the United States, which received corporatist boosts during the War between the States, World War I and the New Deal, the latter of which, modelled on Fascist Italy, has successfully sealed the fate of the US as a permanent “corp-tocracy”. State socialism, on the other hand, is not the ownership and use of the productive assets by all for the benefit of all. Rather, it is their ownership by the government and the bureaucracy with productive capacity devoted to their ends, such as missile parades in Red Square, rather than the ends desired by the people, with the people themselves treated as expendable public slaves whose disobedience warrants a one way trip to the gulag.

Second, the blend that has actually been achieved in modern government is not between capitalism on the one hand and socialism on the other. Rather, it is between state corporatism and a democratised form of state socialism. On the state corporatist side, we have central banks printing massive quantities of money, dishing it out to Wall Street which expands credit, creating artificial booms and busts and lining the pockets of the financiers. At the same time large swathes of industry are subject to government patronage and privilege to the extent that in sectors such as energy, transportation, finance, healthcare, and so on there is no genuine free competition. To top it all off, armaments manufacturers profit from the continued proliferation of invented and unjustified foreign wars. On the state socialist side, however, we have politicians bribing voters with other people’s money, and demands for social justice, fairness and equality, anti-discrimination are met through the forced redistribution of wealth and income.

The fissure between these two extremes has not produced any kind of successful mixed economy that selects the best aspects of each system at all. Rather, it has resulted in some kind of bifurcated system that is based on antagonism and resentment. Those clamouring for state corporatism, fake privatisations and government support for business simply want to line their pockets while leaving everyone else to foot the bill. Those wanting state socialism, noting that state corporatism seems to do nothing except make the rich richer and the poor poorer, want to end the anti-democratic structure of state corporatism and return key industries to “public ownership”.

Third, if the two dominant social systems have been state corporatism and state socialism and the postulated “third way” of blending the two has failed, then what, we might ask, is the real third way? There are only three possibilities. First, unfettered socialism; second, unfettered capitalism; and third, a mixed economy of genuine socialism and genuine capitalism (what we might call “interventionism”).

The first option, socialism, is clearly a non-starter as its inability to perform economic calculations means that it is suitable only for bringing chaos out of order. A socialist economic order is no order at all; it is a disaster that would quickly relegate the human race to the Stone Age. The third option, interventionism, is also a non-starter as it produces distortions that must either lead to further interventions or to a complete abandonment of the intervention altogether. For example, if the government intervenes to set a price ceiling on a certain good that is below the market price the result, all else being equal, will clearly be a shortage of that good. The government therefore has one of two options in order to restore supply – to intervene further and take over the supply chain; or to abandon the price control. If it takes the first option, this requires further interventions in other industries which will create similar distortions and disarrays which will breed further interventions all the way until there is full government control over everything – i.e. socialism. Socialism, however, is impossible as so will collapse almost immediately. If it takes the second option, then capitalism is simply restored. In the opinion of the present author we are now reaching the apex of the so-called mixed economy where this decision will have to be made. Decades of excessive money printing and perpetuated malinvestment through the resulting credit expansion has driven financial markets to a zombie-like existence bathing in a sea of insolvency. We are now close to the point where governments will either have to completely socialise financial markets or abandon their policy of cheap credit and restore sound money and credit.

This leaves, then, only capitalism, the genuine free market, as the only prospective and sustainable economic order. Only capitalism, based upon voluntary trade resulting from each individual peacefully pursuing his purposes, is able to avoid the pitfalls of socialism, of the pseudo-capitalism in state corporatism, and of the pseudo equality and fairness of state socialism, all of which are based on force, fraud and antagonism. As we discussed before, all of the alleged pitfalls of capitalism – inequality, greed, selfishness, and so on – are not part of the capitalist system at all and are more appropriately assigned to one of the other systems where everyone attempts to live at the expense of everyone else. Only the restoration of a genuine free market capitalism can therefore lead to a peaceful and prosperous society.

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