States and Corporations

February 20, 2016

Duncan Whitmore Essays, Morality and Ethics , , , , , , , , , , , , , , , , , , , , , , Leave a comment

To say that the existence of the state is, in the mainstream, uncontroversial would be something of an understatement. While the precise individuals who form the state and the specific acts that they choose to do with state power often attract controversy, the existence and sustenance of the state itself is deemed to be essential for not only a functioning and orderly society (such as that which could be provided by a so-called “night watchman” state) but also to contribute, or even to cause, the economic and cultural progression of that society. This belief has become even more potent since the state, sometime in the twentieth century, became endowed with so-called “democratic legitimacy”, i.e. it is supposed to be run by representatives chosen by the people for the people.

Let us run through some of the uncontroversial and supposedly necessary aspects of the state that are barely questioned by anyone today.

First, the state possesses a territorial monopoly of the legitimised use of the initiation of force and violence. The state alone is permitted to fund itself not through voluntary exchange but through compulsory levy (i.e. taxation); people are required to pay to the state that which the state says they should pay regardless of the “service” that they receive from the state in return. The state, further, is permitted to confiscate the legitimately earned wealth and property of individuals and to hand it to other individuals in order to achieve so-called “social justice” and a reduced inequality of wealth and income. Further, the state may use this legitimised force to ban certain uses of one’s own property that in no way interferes with the person or property of anyone else. It may also use this force to compel individuals to deal with their property in certain ways specified by the state, usually at one’s own expense – a power of the state that is euphemised by the term “regulation”.

Second, the state alone is tasked with maintaining law and order and the protection of the person and property of individuals from criminals. The possession and trade of goods and services to enable individuals to accomplish this themselves – such as personal firearms – is increasingly restricted by the state to the extent that such possession or trade itself becomes a crime, even if the intent is simply to prevent criminal acts against oneself. You are therefore utterly reliant upon the state for your own protection and, moreover, you are defenceless against the state when its employees aggress against you. Nevertheless this does not prevent the state from requiring private organisations to police the populace on its behalf – such as in the collection of taxes from payrolls and the requirements of banks and other financial institutions to report on the transactions of their customers.

Third, should the state fail to maintain law and order and to protect your property from criminals, it is then the state to whom you must turn if you want a redress. For the state also enjoys over its territory the privilege of being the sole provider of the dispensation of justice in conflicts between parties, including in conflicts which involve itself. This takes place not just in state run court houses refereed by state employed judges but also (when the state or some of its members have been seen to cause an incident that results in public outrage) in so-called “independent public enquiries”. These are undertaken by a different employee (or retired employee) of the state and the funding still flows from state coffers so there is no wonder why these are almost always written off by the general public as a whitewash.

Fourth, the state alone is tasked with providing so-called “national defence” and securing the state’s borders. Although the restriction of civil liberties in the face of either a real or imagined threat against the state’s sovereignty by a foreign invader is not uncontroversial, it is hardly new and is, in fact, a hallmark of every war into which the state drags its people. More commonly, however, the state may prevent foreign visitors from entering the territory of the state even if domestic private property owners have invited them. People who wish to come to the state’s territory to create jobs and wealth, or simply those who wish to work, are forcibly restricted by the state, even if a domestic employer is willing to hire them. The state also controls, by force, the flow of trade across its borders and imposes tariffs and other restrictions on the movement of goods, regardless of whether a domestic individual or entity wishes to conduct peaceful trade with a foreigner.

Fifth, the state alone is permitted to print and issue currency in the form of paper money or electronic credits to the extent that it may create this money and use it to buy goods and services for itself without having worked to create any wealth in the first place. Other people who do this are labelled as “counterfeiters” and are subject to the full brunt of the state’s forceful retaliation. Such a power to create money is bound only by the economic consequences of price inflation and credit expansion but it permits the state to fund and grow its activities without resorting to increased taxation, instead robbing the domestic population of the purchasing power of the existing notes that they hold.

Sixth, the state forcibly maintains a monopoly over transportation networks such as roads, highways, railways and airports. If they are not nationalised outright, the state frequently contracts out the provision of other supposedly “essential” industries such as healthcare and the supply of utilities such as gas, electricity and water under the rubric of “privatisation”, yet it maintains a tight control over these industries to the extent that they are little more than a state dominated oligarchy.

Seventh, the state tasks itself with the “education” of the children who are born and/or raised within the state’s territory, mandating, through the threat of punishment, attendance at certain ages dictated by the state, regardless of what children may prefer to be doing or better at doing. The state employs the teachers, sets the curriculum, determines the standards to be achieved through examination (i.e. sets the grades) and is responsible for inspecting its own schools and institutions. Private education is possible but, apart from being monitored closely by the state, is nearly always prohibitively expensive and thus is seen, with some resentment, as being the preserve of the wealthy and privileged. Thus the majority of people have little choice but to turn to the state to provide the education of their children. Furthermore, the state takes it upon itself to interfere in the general upbringing of children, with state run schools often tasked with policing parents and dispensing lessons such as “citizenship” and “personal, social and health” education in order to make up for supposed parental shortfalls.

Finally, the state is supposed to protect us and to provide for us in our hour of need – such as if we lose our job or when we retire. State provided retirement benefits are little more than a giant Ponzi scheme. Funds confiscated by taxation from the earliest “beneficiaries” to provide for their retirement were not saved and invested by the state; rather, they were consumed in current expenditure. Instead, it is the current tax confiscations of younger generations that pay for the pensions of today’s retirees. The state forcibly prevents private individuals and companies from engaging in such a scheme as it ultimately results in collapse and losses for the later investors, and those that do offer such a service are thrown by the state in jail. The state’s own scheme is, as we are beginning to see today, susceptible to such a fate yet the state exempts itself from having to follow its own rules.

No doubt readers can think of many other “uncontroversial” aspects of the state that are held dear among mainstream views. Each of these aspects could be demolished in separate, longer treatments and many libertarian writers have, of course, done just that. What we wish to do here, however, is to ask our fellow citizens who do not counter these “functions” of the state a very simple question: if you accept with gladness or even celebrate these aspects of the state that we have just listed, can you imagine also permitting a private corporation to do the same things that the state does? Can you imagine a private corporation being able to initiate the use of force and violence against other people? Would a private company be allowed to force you to do what it wants with your own property? If you get into a contractual dispute with AT&T should AT&T be allowed to judge the outcome of the conflict? If American Airlines assaults or kills your family should American Airlines sit both in the dock and on the judge’s throne? Should Microsoft be tasked with national defence and arm itself with nuclear weapons? Should McDonalds be able to tell you which foreigners and which goods and services can cross the border even if you want them to come and visit you? Could we imagine a world in which Google or Walmart can print paper money and force people to accept it in return for goods and services? Or a world in which Facebook builds all of the roads and runs all of our utilities? Would it be possible for, say, Apple to be able to force our children to attend its schools? And finally, should we allow Bank of America or J P Morgan Chase to force investors to participate in Ponzi schemes? Most lay persons are likely to recoil in horror at the thought of any private corporation being able to do all of these things. Yet, bizarrely, they either accept or defend the fact that the state should participate in these activities.

One likely retort to this is that the state is supposed to govern for “the people” whereas companies are interested in making profits for their shareholders. Indeed, the state uses its self-proclaimed subservient and altruistic nature to exempt itself from all of the proper behaviour that is required of private citizens, who are supposed to be interested in only their own gain. While it is true that companies are primarily interested in making a return for their shareholders (why else would the shareholders have invested in the business?), it is also true that companies can only achieve these profits by serving the needs of their customers. It is the customers who decide, through their choices to spend or not to spend money with the corporation, whether those profits are made. In any case, however, we might point out that an odious act does not transform into a good one simply on account of for whom it is done. If I steal your money this act is rightly viewed as wrong, regardless of whether I intend to keep the money for myself or whether I intend to give it to someone else who may, in my opinion, “need” it more than you do. Similarly, therefore, if the state confiscates your money through taxation and distributes it via the welfare state the fact that it goes to “the people” makes this act no more moral than if the bureaucrats kept it all themselves (which, of course, they often do – not only are the administrative costs of the welfare state frequently underestimated but most of the money disappears into the hands of the state’s favoured contractors and suppliers rather than directly into the bank accounts of the poor). Moreover, we don’t even have to go so far as to cite strictly moral or immoral acts to illustrate this point. Monopolies, for example, are viewed as being bad because they tend to reduce quality and raise costs over time; this fact does not change simply because it is the state that runs a monopoly over say, healthcare, rather than a private corporation.

Another likely response to our question is that the state is under the supposed “democratic control” of the people and that if the state uses these powers “illegitimately” or irresponsibly then they will be booted out at the ballot box. Apart from the fact that, again, an illicit act does not become moral simply on account of who controls those who are doing it, a citizen has the right of voting between a bare handful of carefully selected and screened candidates only once every four or five years. Moreover, a person cannot choose with any specificity which policies and manifestos to support. Rather, he has to throw what little weight he has behind a single candidate (or party) and all of that candidate’s stances on a wide spectrum of issues, from whether we should continue funding wars in the Middle East down to whether a person may light up a joint in his own home. And once elected the successful candidate can simply abandon whatever promises he made in return for your vote straight after. As if that wasn’t bad enough, what if your preferred candidate does not get elected? You still have to suffer the implementation of the odious policies of an alternative candidate whom you may utterly despise. With a private corporation, however, you can choose to vote or to not vote for them with your wallet every single minute of every single day. You don’t have to wait for a few years if you want to switch from Tesco to Sainsbury. Moreover these choices are very specific. If you change your grocery supplier you are not also changing your telephone provider. If you ditch Ryanair and start flying EasyJet you can still get your clothes from Debenhams. If a corporation takes your vote, i.e. your money, then breaks its promises it made before you handed it over it is called “breach of contract” and for this the company can be sued. And finally, your choice to shop at Sainsbury’s or Tesco is not dependent upon a majority of other people wishing to do so – both are able to trade regardless of whether they are supported by a majority of consumers.

What we can take from all of this is that if a private corporation possessed every single right and function of the state except the power to tax and demand your patronage, then you would have more control over it than you do over the state. The situation we have produced, therefore, is, on the one hand, a society of corporations over whom each individual has a high degree of control yet which are required to abide by all of the laws and at least a basic code of morality, and on the other hand a state which no one can control yet can, for the most part, do whatever it likes. It seems to me that if we are to suffer the illicit and illegitimate powers of the state at all they would be far safer in the hands of a private corporation rather than the state.

Of course our goal is that nobody should have the right to carry on these acts that we outlined in the first part of this essay – that they should be illegal regardless of who does them and in whose name. No one should have the power to tax, to confiscate the income and wealth of other people; no one should be able to print money; nobody should be able to arm themselves with all manner of horrific weaponry while forcibly disarming everyone else; and no one should be able to run a Ponzi scheme. When you take all of these characteristics of the state and ask yourself what life would be like if anyone else was allowed to do them, you rightly begin to shudder with fear. So why should we ennoble the state with the dubious privilege of being able to do them?

Hopefully what we have outlined here is a useful point with which a libertarian can turn a debate with a statist or state-biased lay person, and to cause that person to reconsider either his active or his tacit support for the state and its actions.

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Libertarians Beware?

March 7, 2015

Duncan Whitmore Commentary/Review, Essays, Method and Strategy , , , , , , , , , , , , , , , , Leave a comment

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

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

[…]

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

[…]

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

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

[…]

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

[…]

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

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

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

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

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

[…]

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

[…]

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

Returning to his own commentary, Wenzel continues:

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

[…]

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

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

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

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

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

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

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

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

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

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

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The Good Libertarian

November 16, 2013

Duncan Whitmore Essays, Method and Strategy , , , , , , , , , , , , , , 1 Comment

Libertarians face a number of difficulties in how to live their own lives while they are pursuing a world that that they believe is just. This essay will explore a number of them.

Two of the aims that a libertarian should try strive for is, first of all, a deeper and better understanding of the foundations of libertarianism and political philosophy in general. In particular, the reasons why ethics arise, a passion for truth and justice and how libertarianism is to be distinguished from other political philosophies are key points of focus (indeed, it is surprising how very few people of all persuasions consider the first of those questions). Only through this can a libertarian have a rigorous an immovable understanding of the truth of his position. The second is aim is to attempt to convince others of this inherent truth and why libertarianism would lead to a “better” world than either what we have already or what could be offered by an alternative philosophy. For while it is all very well sitting alone at home and being satisfied with one’s personal understanding, the world a libertarian seeks is unlikely to be achieved unless it is embraced by a majority of the population1.

These two aims are mentioned together because the elements that are applicable to each are often conflated whereas, in fact, they possess a degree of exclusivity. Indeed, different people will display different capabilities towards intellectual rigour on the one hand and towards spreading the fruits of that rigour on the other and it has often been the case in political movements that the visionaries, developers and consolidators of thought have had to wait for their work to be embraced by the practically minded revolutionary. The first aim is one that can be achieved through meticulous and almost puritanical or hair-splitting debate between libertarians themselves, i.e. within the school of those who self-identify as libertarians and have already embraced, in principle, a passion for liberty. In order to gain the best understanding of the foundations of our position we cannot rely on batting away the worn, tired, and relatively “light-weight” arguments of statists and busybodies then, having become satisfied with this relatively straightforward intellectual accomplishment, retire comfortably. We must, rather, take on the heavy-weights within our own movement with whom we disagree. A world-ranking sportsman is not likely to ever improve his ability by taking on the weakest opponents – rather he must constantly test himself with the best that is out there and so too must libertarians embrace clefts within the movement in order to move closer to the truth. Some examples might be whether minimal government is justified or whether government is totally unjustified; whether the non-aggression principle always applies; or whether the concept of “universally preferable behaviour” is a logically valid test of moral propositions.

At the same time, however, it is very important to realise that simply because a libertarian belief or conclusion from some internal debate is true does not necessarily mean that it is useful in persuading others of libertarianism. It would also be wrong for ideological debate within the movement to form publically acknowledged sects, with libertarians appearing as a divided camp that does not know what it wants. We must remember that the opinions that must be swayed towards liberty are not those of the hardcore, intellectual statist or socialist who form only a relatively insignificant minority in number. Rather, the people that will matter are the passive and uncommitted people who, although perhaps disillusioned with current government and think it needs to be “better” and run by “better” people, otherwise hold no firm or passionate commitment to any particular political ideology. Blasting these people with the concepts of self-ownership, non-aggression, natural law, argumentation ethics or whatever is not likely to appeal to them and will simply come across as abstract, irrelevant, ivory-tower conjectured gobbledygook. As libertarians, our educative concerns are very little to do with whether a person can be forced to save a baby drowning in a puddle. Rather, we must emphasise that our primary pre-occupation is with the evil monstrosity that is the state and the jealously reserved monopoly of legitimised violence that it possesses. It is sufficient, in order to at least begin a person on a path towards a better understanding of this edifice, to appeal not towards our cherished libertarian doctrines that we are happy to discuss and argue about amongst ourselves, but, rather, to people’s grasp of basic morality. Murder is wrong; the state murders. Theft is wrong; the state steals. Kidnap is wrong; the state kidnaps. Humans are bound by a common code of morality; the state consists of humans. Why then can the state get away with these horrendous crimes? What is it that makes these humans so special? Why can they circumvent the rules that everybody else has to follow? Why the hypocrisy? Much of what we are doing is simply revealing to people what they already know to be true and to benefit from that by applying it consistently. This will, of course, not be the complete answer towards turning someone against the state. But a definite first step is to try and render the state as a separate and distinct caste from the ordinary citizenry. One of the greatest “triumphs” of democracy from the statist point of view has to been to immunise the division between rulers and ruled, that, because we are able to exercise a vote between a tiny selection of screened and approved candidates once every four years, that we are all somehow a part of government, are able to control it and can demand what we want from it. Rendering inert this well-engrained impression is a libertarian’s primary educative task. The less a person feels himself a part of the state, the less able he feels to exert a degree of control over it, and the more it appears that it is reserving for itself special powers to do whatever on Earth it likes, the greater will be the seeds of doubt in a person’s mind as to its legitimacy.

None of this means to say that one should not engage in deeper discussion if that is where a particular conversation is heading; but one must at least wait for signs of a kindling of interest in those directions and should always try to look for the path that is most suitable with each particular audience.

Conversely we must also guard ourselves against the opposite danger. Just because a true proposition, or a piece of libertarian doctrine is not, in the main, useful in persuading others to turn towards libertarianism does not mean that such a proposition has no fundamental truth, aids nothing at all for understanding and must, consequently, be abandoned. Truth exists regardless of whether people are prepared to embrace it. While some detailed application of libertarian ethics and the strict adherence to self-ownership and private property in so-called “lifeboat” situations may produce outcomes that seem bitter and distasteful, not only do we have to bear in mind that such judgments are being made in a world that is inherently un-libertarian and where private property and self-ownership do not command a great deal of respect, we must also consider the supra-libertarian values and ethics that happen to prevail. To take an example: is the starving person wandering in the forest who comes across somebody else’s log cabin morally permitted to break in and steal the food in the cabin in order to prevent his death? In a society where charity and helping one’s fellow neighbour is a virtue and where we have long been accustomed to government invading our private property in order to try and achieve a redistributive result, it is understandable that any emphatic “no, he may not” in response to this question by a libertarian invoking the canons of the non-aggression principle and self-ownership will be met with outright derision and hostility from those he is trying to persuade. But one could also posit a world where taking care of yourself and relieving others of the burden of your needs is the prevailing virtue, and that the situation of being helpless and isolated is a grave and shameful relinquishment of personal responsibility. Such a world may also command a great deal of respect for private property and keeping off other people’s turf. In that situation a typical person might happily conclude that the starving wanderer has no moral right to break into the cabin and that it is meet and proper for him to seek fulfilment of his own needs self-sufficiently. Both sets of supra-libertarian virtues – charity on the one hand and taking care of oneself on the other – are, in principle, compatible with libertarianism and non-aggression. It does not necessarily follow that simply because one set of circumstances prevails and the other does not that anything about libertarian ethics should be rejected. If there is shock and disbelief at the revelation of the world being round it does not follow that it should be regarded as flat.

Another difficulty that libertarians face is how to live a life in accordance with libertarian principles. In other words, to what extent should we each go to in order to act non-violently and preserve the self-ownership of others? Should we, for example, use government roads to travel, visit government hospitals when we are sick, or send our children to government schools? Are we not benefitting from the taxes levied by force from others in order to achieve ends that we may seek through government-provided facilities? Should we even vote? When government spreads it tentacles so far and wide into every nook and cranny of existence it is practically impossible to say whether any good or service that a single person enjoys has been brought about entirely through voluntary arrangement – not to mention the fact that numerous industries have been nationalised directly. In fact it is almost certain that a government edict, a regulation, a tariff imposition, a directly-government managed industry, a government-privileged business, or a union-backed worker must at some point, if not all, have taken effect in or otherwise “contributed” to the chain of production. Indeed, practically anything that is transported must use government-controlled roads, railways, seaports or airports. Furthermore, as we noted earlier, democracy itself has effectively nationalised the citizenry, so that every person is now a potential beneficiary of government operations but also can be, at least on the face of it, responsible for its actions.

How are libertarians to cope in such a world without opening themselves up to the charge of hypocrisy? Although we could say that libertarians themselves as tax payers are contributing to anything the government runs and are just, therefore, taking what they have been forced to pay for when they use these services, the more pressing moral concern is that it is difficult to suggest how a person should behave in a perfectly non-violent way in such a world. It is a basic requirement of morality that a person must be able to do what is moral; the extent of government has been to render practically every action a potentially morally questionable act. Yet a person always has to act and cannot refrain from doing so. Even just sitting at home he is taking advantage of government building code edicts, planning permission, utilities that supply the house, heating, gas, and light etc. Where every choice is a potentially morally bad choice then there is, effectively, no moral choice and one cannot be held morally responsible for acts that may benefit from minute and, to the actor at least, imperceptible and remote grains of violence when the only alternative action was one that was equally culpable. To take an extreme example, let’s say that the government tells a person that he must choose between whether A should die, B should die, or (should he refuse to choose) either of them will die. In this situation one cannot condemn this person for making an immoral choice when every option was equally bad. This person would not be labelled a cold blooded killer who could be regarded as hypocritical if he was to suggest that people should not commit murder. Rather, libertarians should focus on ensuring that the conduct of their lives is as free as possible from directly and obviously contradicting libertarian principles. In order to accomplish this there is an important distinction that must be borne in mind and that is whether a hypothetical action is, on the one hand, merely a consequence of the state or whether, on the other hand, it would be an emulation of the state. In other words can an act be regarded as the result of what flows from the state’s interference, or is it a new and extensive act of violence that is independent from that perpetrated by the state? Making this judgment in practice may be very difficult and there will, of course, be many grey areas and room for disagreement that a libertarian should be open to acknowledging as informants of this judgment. Whereas shooting a person in order to steal his possessions would clearly be a new and unique violent act, other actions may be more nuanced. But it is important to at least understand the conceptual distinction as a first step. In any case, however, libertarians are already somewhat used to judging actions in this manner. We can clearly distinguish between the wealthy politician living off the largesse of tax receipts and the poor old lady who uses a government road to purchase a loaf of bread from the grocery store. None of us, in trying to promote a libertarian world, would hope to be taken seriously by ignoring the government sponger and focussing on the “evil” pensioner2.

Additionally, however, even if it is possible to condemn a person as behaving in an anti-libertarian way, is it not far better for him to acknowledge this and call for its cessation rather than merely staying quiet and carrying on, even if he risks ridicule and charges of hypocrisy?

One curiosity concerning this topic before we leave it is that it tends to be a preoccupation among libertarians and is not one that is too often mentioned in retort by statists. Perhaps the latter see more clearly that they are gladly forcing you to do things their way and that you cannot help it? In that case let the libertarian who is without sin cast the first stone – if he suggests that everyone should not engage with government at all in all of his actions then allow him to demonstrate how he has managed to even survive without doing so.

Finally, however, and perhaps more importantly than the foregoing from a strategic point of view, is that libertarians should attempt to cultivate a personal code of morality that is in accordance with but above and beyond their libertarian beliefs. A popular charge against libertarians is that we are the “anything goes” crowd, that simply because an action does not hurt anyone then it is A-OK and must happen. While it is true that any non-violent action must be tolerated and not subjected to violent imposition or restraint, it does not follow that it is free from criticism, nor must it be liked, loved, embraced or welcomed as a good thing. It might be non-violent to allow gambling adverts to appear during children’s television programmes, but that does mean that we are inclined to agree that they should. People may be harming no one else by taking drugs but that does not mean that it should be welcomed as a good thing, nor should one necessarily want to frequent with drug users. People cannot be forced to give to the poor but that does not mean that, if they choose not to, they should be regarded as fine and upstanding people. We very much need, as libertarians, to make plain the fact that we as a group neither condemn nor promote non-violent actions but as individuals we too have our own tastes, morals, pleasures and displeasures, just like anyone else and we use these to judge the conduct of other people and whether we wish to associate with them. “Live and let live” applies only to the imposition of violence and our difference as libertarians qua libertarians is that we do not believe in using violence to enforce our preferences on other people. But we do, as human beings, have these preferences and we should not be afraid to express them simply because they concern the non-violent acts of others. Non-violence is not the highest moral achievement, merely the most basic on which a free and prosperous society can be built; it is the first step towards a good society and not the last (although, at present, it may seem like an enormous leap across a chasm rather than a step). How that society is shaped within the sphere of non-violence is a question to which we must contribute along with every other thinking, desiring, choosing and acting human being.

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1Elsewhere the present author has argued that education, in the goal of eliminating or at least reducing the state, may well take a back seat to innovating government away, i.e. that people’s natural affinity for individualism will simply circumvent government through superior technological development. This does not, however, render education redundant and it would still be far better if government was both out-innovated and knowingly rejected.

2In many cases it is also arguable that this judgment could be sharper. There is a tendency for libertarians to condemn acts that are proximately violent, yet they all too readily leap to the defence of actions that, while proximately non-violent, reap huge advantages from less obvious government intrusion. For example, if it is complained that western corporations are paying employees in poor countries too low a wage then one must support the principle that wages must be freely negotiated between employer and employee. But one must also balance this against the possibility of these corporations benefitting from monopoly and regulatory privilege, brand protection, intellectual property and any other enforced reduction of competition that would have served to increase the wage rate.

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Making Government Irrelevant

May 5, 2013

Duncan Whitmore Method and Strategy, Short Posts , , , , , , , , , , , , , , , , , , , , , 3 Comments

Much of the pro-Liberty movement, including the present author, seems to focus on the role of education in being the prime driver towards a world free of state violence and coercion. We believe that informing people of the true nature of the state (i.e. no better than a band of thieving thugs) will incite people to embrace freedom and reject government intervention.

However, a great deal more thought needs to be turned to whether, rather than people wilfully and decisively rejecting government, the “revolution” will come about through a seemingly more mundane and passive method – that of simply making anything that government does irrelevant.

We are already bearing witness to several instances of this. The internet, and the increased accessibility to the world wide web through portable devices, renders almost inert any government attempt to control information, the whole Wikileaks saga perhaps being the most profound testament to this. Indeed it is possible to suggest that the average person today has quicker and better access to information than Presidents Reagan, Bush and Clinton did a mere twenty to thirty years ago. Added to this is the infancy of virtual currencies such as Bitcoin and Litecoin demonstrating how it is possible to curb government currency and capital controls and render physical borders irrelevant. In spite of the fact that virtual currency appears to be far from perfect in these early days, one cannot overlook the promise that their idea if not their present execution holds for the future. And in the United States 3D printing seems to be taking the bite out of gun control.

The marvellous thing also is that these mini-revolutions occur without violence and bloodshed – there is no fighting, no overthrow and no killing. Indeed this is not unusual as previous civil strife and conflict has not been about government per se but, rather, over who controls the government. The struggle of the twenty-first century, however, is over getting government out of the way entirely, regardless of who is in charge of it. We should not be surprised, therefore, that there will not be one big and violent revolution to overthrow government for ever but, rather, hundreds of small, decentralised and peaceful revolts that will simply cause government to wither away in helplessness.

This is not to suggest, of course, that government will not fight back in these areas; indeed governments, as they start collapsing from over-borrowing, overspending and eventual bankruptcy, will try ever more desperately to enforce increased controls and pluck all of the remaining feathers from the golden geese of their citizenry. But the more those geese are plucked the more they flap towards an escape and independent individuals have, historically, been better at what we might call the “invention of circumvention” than the government has been at stopping it.

But let us focus on the one area of government that is both its method of function and, according to the beliefs of the average Joe, it’s raison d’être – violence. Government commits its horrendous abuses and enriches its participants through the use of force against others. But is also supposed to protect the common citizen from the use of force by others and this is why government is still regarded as necessary. What if, then, an invention would enable any person, at extremely low cost, to protect his or her person and property from all forms of force? I have very little idea as to what this could be – an invisible force field around each object you own, perhaps? This is a matter for the genius of inventors. But imagine the result – in one swoop you would eliminate both the ability of government to tax, steal, imprison, kill, maim and live off the fat of everyone else and you would completely eradicate its reason for existence. For if people can now protect themselves from invasion of their person and property at very low cost, why bother with government? Why would anyone pay taxes for an army or police force when this new, cheap, method prevents the very reason for their existence? Of course, people may continue to pay “taxes” voluntarily for some service that the current administrative set up may be perceived to be providing. But there is nothing wrong with this if that is what people want to do with their own money. The bite of force, however, will be lost and government will be relegated (one might say promoted) to the same level of every other market player – having to offer people a valuable service in return for its voluntarily paid revenue.

We should, therefore, urge all inventors to dust off their drawing books and get working on such a marvellous invention. It may, quite literally, save the world before it drowns in a sea of statist despotism.

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Social Democracy

November 6, 2012

Duncan Whitmore Commentary/Review, Economics, Essays , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Leave a comment

The author responded to a lengthy article, posted online, that advocated strongly social democracy. Unfortunately the original link has broken but the text below quotes the article in its entirety, interjected by responses.

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“Democracy is a form of government in which all citizens take part. It is government of the people, by the people, and for the people. Socialism is where we all put our resources together and work for the common good of us all and not just for our own benefit. In this sense, we are sharing the wealth within society.”

Socialism is the abolition of private property in the means of production, i.e. no individual owns the physical entity of or is entitled to the capital value of any capital or producer good. Once this has been accomplished there remains the problem of how to direct these resources to the most highly valued ends. Contrary to the tacit assumption of many socialist thinkers there is no separate, conscious entity who feels and knows what the “common good” is; there are only individual humans who each value different ends independently; they may agree, in some cases, on what are valuable ends but they still hold these values as individuals and they are liable to change. Further, there will be disagreement on how these ends are to be achieved and precisely which of the scarce means are to be allocated to them. So how is a) the most valuable ends and b) the most suitable means for those ends to be determined under Socialism? How is disagreement on these matters to be reconciled?

All valuable ends are confronted by the same problem – scarcity of the means of production. Hence the economic problem is how to direct scarce means to the most highly valued ends. You can advocate that this can be done either through socialised property or private property but you cannot argue in favour of both together – they are entirely different solutions to the same problem. If you start from the premise that “certain industries” may be socialised you are already advocating that at least some of the factors of production should be allocated to these industries, but this can only be arbitrary. How do you know? And if you know how do you know which factors should be allocated and in which proportion? How do you compare one set of allocations with another set?

A system of private property in the means of production answers this through pricing, profit and loss. For private property gives way to exchange which creates supply and demand which produces prices which produces profit and loss. Hence costs and revenue can be reduced to a single common denominator, the unit of exchange (money), that allows resource allocation to be compared across the entire economy.

In the absence of private property, however, there can be no exchange. There are therefore no prices in the factor of production and no profit and loss. How are the factors of production to be compared? How is the electorate or its democratically elected caretakers of the means of production to compare the cost of 5 tonnes of steel, 3 tonnes of wood, 40 labour hours, 500 sheets of paper, 6 billboards of advertising, 30 hours of telephone calls if it cannot reduce these inputs to a common denominator?

“Of course when people hear that term, “Share the wealth” they start screaming, “OMG you want to rob from the rich and give it all to the poor!”  But that is NOT what Democratic Socialism means. To a Democratic Socialist, sharing the wealth means pooling tax money together to design social programs that benefit ALL citizens of that country, city, state, etc.”

If a person is wealthy in a pure private property society (where trade is entirely voluntary) it is because he has produced a comparatively high quantity of goods that other individuals are willing to purchase. A poorer person has produced comparatively less. The wealth of the rich can only grow if they abstain from consumption of their income and invest it in order to increase the number of goods they can produce. Most of the wealth of the rich consists of, or is derived from, real valuable assets – factories, commodities, plant, shops and inventories. They continue to be rich because these assets are productive – other people are willing to exchange them for another valued good, i.e. money. If they cease to be productive their capital value will decline and so will the wealth of the owner.

If the amount of pooled wealth available for government programs is to increase these real resources have to be liquidated from their current uses and the workers have to be laid off and transferred to Government employment. For every resource that is consumed in a government program that is one resource less that can be used for something else. By which method do you calculate whether the resources are being put to their most valuable ends in the hands of private entrepreneurs or in government programs?

“The fire and police departments are both excellent examples of Democratic Socialism in America.  Rather than leaving each individual responsible for protecting their own home from fire, everyone pools their money together, through taxes, to maintain a fire and police department. It’s operated under a non-profit status, and yes, your tax dollars pay for putting out other people’s fires. It would almost seem absurd to think of some corporation profiting from putting out fires. But it’s more efficient and far less expensive to have government run fire departments funded by tax dollars.”

This is no different from insurance. Individuals pool their premiums together with a private provider in order to provide the resources for extinguishing fires in an emergency and/or compensating the unfortunate victims of fire damage. The only difference is that each individual can choose whether to pool his premiums with one particular provider or not (or at all). The insurer therefore has to act in a way that will retain its customer base, one of which is to keep premiums lower than those of its competitors. The primary method of accomplishing this is to minimise the amount that has to be paid out in compensation and the only way to do this is to prevent and control fires as much as possible. The insurer may, therefore, specify that your home be fitted with some basic fire-fighting equipment such as fire extinguishers or fire blankets and that all of your equipment is electrically tested, for example. If the cost of this is less than the saving you make on a lower premium then you are likely to do this. They may charge higher premiums in cases where flammable substances are stored on a property, or refuse to insure you altogether because the risk would be too great, thus discouraging the accumulation of dangerous materials. The result of this is that each person pays according to the amount of risk he is willing to bear and everyone, consumer and insurer, is equally interested in taking steps to minimise the number of fires as much as possible.

If a fire does start, however, the longer they burn the more the insurer has to pay in compensation to a covered individual. They are therefore likely to respond with the utmost urgency with their own, privately owned, fire fighting equipment or privately contracted fire fighting supplier in order to minimise the amount of damage.

All of these incentives are lost when fire-fighting is managed by the Government. The Government does not need to be concerned about losing your premium to a competitor – you have to pay it in taxes or it will incarcerate you regardless. Hence it is less bothered about minimising the amount of damage. Fewer homes will therefore be installed with preventive equipment and less electrical testing will take place. There will therefore be more fires. Further the tax paid towards fire-fighting services is not adjusted to your individual level of risk; rather it is determined by your income. There is therefore less incentive to avoid the accumulation of risks that contribute towards fire. Every preventative measure you take is an extra cost but there is now no added benefit – you still have to pay the tax and you are still entitled to the same service as everyone else. The result will be less prevention and more fires, more destruction of property and consequently less overall societal wealth.

And finally, once a fire starts, the Government is not going to lose any money if your house burns. Even if it has to pay you compensation the Government will not go out of business if it has to pay too much, unlike a private firm. The Government-employed fire-fighters know that, regardless of what happens to your house, they will, in principle, still be employed and paid tomorrow regardless of the cost to the Government of compensating you for your house. This is not to suggest that Government fire-fighting will always be slow, shoddy and negligent. But given these facts what is the likelihood that a Government fire service will respond more efficiently to a case of fire than a private fire service?

This is a typical case of Government having carried out a particular function for so long that everyone forgets what it looks like when it is carried out privately. Yet the above should demonstrate how it would most likely be done and to a higher degree of efficiency than by the Government.

“Similarly, public education is another social program in the USA. It benefits all of us to have a taxpayer supported, publicly run education system. Unfortunately, in America, the public education system ends with high school.  Most of Europe now provides low cost or free college education for their citizens. This is because their citizens understand that an educated society is a safer, more productive and more prosperous society. Living in such a society, everyone benefits from public education.”

No one denies that education is a beneficial and indeed a good and beautiful thing. But for every resource spent on education there is one less resource to be spent on something else. How do you know that education is the most productive use for these resources?

We could devote the entire productivity of the world to a huge and glorious education system where everyone pops out as smart as Einstein. But there would be no cars, no shops, no food, no computers, no houses, no offices, no factories etc. because all resources are devoted to the education system.

The problem faced by an economic system is not to determine what is valuable in the abstract – it is how to direct the scarce means to their most highly valued ends before all others.

“When an American graduates from college, they usually hold burdensome debt in the form of student loans that may take 10 to even 30 years to pay off. Instead of being able to start a business or invest in their career, the college graduate has to send off monthly payments for years on end. On the other hand, a new college graduate from a European country begins without the burdensome debt that an American is forced to take on. The young man or woman is freer to start up businesses, take an economic risk on a new venture, or invest more money in the economy, instead of spending their money paying off student loans to for-profit financial institutions.  Of course this does not benefit wealthy corporations, but it does greatly benefit everyone in that society.”

But the cost has to be paid by someone. If the graduate has to pay for his own education then yes he has less money to “start up businesses, take an economic risk on a new venture, or invest more money in the economy”. But if everyone else has to pay for his education through taxes then everyone else has that little bit less to do all of those wonderful things. The graduate has only gained what everyone else has lost.

“EXAMPLE  American style capitalistic program for college: If you pay (average) $20,000 annually for four years of college, that will total $80,000 + interest for student loans. The interest you would owe could easily total or exceed the $80,000 you originally borrowed, which means your degree could cost in excess of $100,000.”

If the cost of $80 000 tuition is paid back by the graduate without the interest of, say, $20 000 then that is $20 000 less that can be loaned to another student. There will therefore be fewer funds available to loan to more students for their education. Fewer students will therefore be educated. That is presumably not the intended outcome of this author. Governments, of course, could simply raise taxes to make up the shortfall. But again, all this will mean is that what the graduate has gained the taxpayer has lost.

“EXAMPLE  European style social program for college: Your college classes are paid for through government taxes.  When you graduate from that college and begin your career, you also start paying an extra tax for fellow citizens to attend college. Question – You might be thinking how is that fair? If you’re no longer attending college, why would you want to help everyone else pay for their college degree? Answer – Every working citizen pays a tax that is equivalent to say, $20 monthly.  If you work for 40 years and then retire, you will have paid $9,600 into the Social college program.  So you could say that your degree ends up costing only $9,600. When everyone pools their money together and the program is non-profit, the price goes down tremendously. This allows you to keep more of your hard earned cash!”

The cost of $20 monthly is arbitrary and no proof of this being the real cost under such a system is offered. The conclusion that “the price goes down tremendously” is, therefore, a non-sequitur. If anything, the cost of education is likely to go up as relieving every individual of the cost of his tuition will cause an increase in demand which causes prices to rise.

This is the reason, in the UK, for the recent “outrages” over higher education tuition fees. Government sanctioned loans systems artificially stimulate demand while the Government also caps the number of students, hence leading to a reduction in supply. Increasing demand and suppressed supply equals spiralling costs.

It is therefore Government interference with the higher education system and not private finance that makes bearing the costs of higher education so intolerable to graduates.

“Health care is another example: If your employer does not provide health insurance, you must purchase a policy independently.  The cost will be thousands of dollars annually, in addition to deductible and co-pays. In Holland, an individual will pay around $35 monthly, period.  Everyone pays into the system and this helps reduce the price for everyone, so they get to keep more of their hard earned cash.”

Healthcare premiums are so expensive in the US precisely because of Government interference in the insurance industry (and the only reason that insurance is the preferred method of funding healthcare is an anomaly that originates in The Great Depression). If Governments legislate so as to compel a provider to insure risks which are perceived by the latter as higher and more costly then the latter is forced to take on the burden of paying more than it would like when these risky events transpire (an almost guaranteed certainty if the insured event is something over which the policyholder has control. This is simply compensating individuals for their deliberate actions). Costs, therefore, rise.

Socialised healthcare under Medicare and Medicaid under which the healthcare consumption of an individual is divorced from its cost to the individual, the ease of malpractice suits, and lengthy and bureaucratic drug approval processes mandated by the FDA all contribute to the rise in healthcare costs in the US. None of these are phenomena of the free market.

Holland also operates on an insurance-led basis. One should investigate whether the lower cost allegedly associated with this is because of less and not more Government involvement.

“In the United States we are told and frequently reminded that anything run by the government is bad and that everything should be operated by for-profit companies.”

This is a list of Federal Government departments and agencies. Just a brief glance will reveal Government involvement in commerce, transport, housing, education, broadcasting, agriculture, labour, security, energy, healthcare, environment and engineering. Even if America is “frequently reminded” by somebody “that anything run by the Government is bad” no person can look sensibly at this list and conclude that Government does not already control or regulate vast areas of the US economy.

“Of course, with for-profit entities the cost to the consumer is much higher because they have corporate executives who expect compensation packages of tens of millions of dollars and shareholders who expect to be paid dividends, and so on.”

Executive compensation cannot determine market prices of consumer goods. Every good purchased by you is evaluated on its merits alone, not on the costs that went into producing it. If you deem the merchant’s asking price to be less valuable to you than the utility you will gain from the good then you will make the purchase. Otherwise, you will not make the purchase. It is therefore because an entity’s goods are so highly valued and consequently sell so well that companies are willing to pay more to hire the best employees. Not so if their sales are less successful.

Profit (and loss) is revenue minus costs. In order to make a profit you must increase your revenue as much as possible but what is forgotten is that you must reduce your costs also. Employee compensation is a cost and the higher it is in relation to revenue the lower the profit of the entity will be; the lower the profit, the less it will be able to invest in growth and the sooner it is more likely to stumble in meeting the needs of consumers which is the first step to insolvency.

In 2011, total executive compensation at Tesco plc was £21.7m against a turnover £60.9bn, approximately 0.0356%. Even if executive compensation did drive up consumer prices one has to wonder how such a small percentage could make much of a difference.

Finally, regarding very large corporations one might wish to investigate the effects of monopoly and regulatory privilege granted by Government and the effects of Government–granted limited liability in generating a preference for the large, publically-traded entity before implying that these beasts are creations of the pure pricing, profit and loss system.

“This (and more) pushes up the price of everything, with much more money going to the already rich and powerful, which in turn, leaves the middle class with less spending money and creates greater class separation. This economic framework makes it much more difficult for average Joes to ‘lift themselves up by their bootstraps’ and raise themselves to a higher economic standing.”

You cannot leave the general population with less spending money and push up the price of everything simultaneously. If the population was left with less money then it would have less with which to bid for goods and services. The latter would therefore remain unsold until prices were dropped. If prices were dropped, profits for vendors would drop. If profits drop then costs have to be cut. One of those costs is executive compensation.

If a firm, however, is able to continue to raise its prices without affecting sales and this increases profit margins beyond that experienced in other industries, resources are diverted away from the less profitable industries and into the profitable both by the existing entity and by new competition. Supply is therefore increased and prices consequently decrease.

It is therefore very difficult for an entity to raise its prices to increase profits without a) choking off sales or b) attracting competing investment.

The most effective way for the latter to be avoided is for the entity to induce the Government to regulate the industry. Compulsory licensing, planning permission, Government imposed trading standards, health and safety standards, employment regulation, etc. all serve to deter competition. For every extra regulation that must be complied with is an extra cost that a new competitor must meet and, by virtue of its status as a start-up, must consist of a larger portion of its costs that those of an incumbent provider. There is therefore a tendency for larger firms to become entrenched and for the “Average Joes” to be unable to “lift themselves by their bootstraps” – all because of Government intervention.

“So next time you hear the word “socialism” and “spreading the wealth” in the same breath, understand that this is a serious misconception.”

That is precisely what the effect of socialism is. In a capitalist society wealth accumulates to each person according to his productivity. If another system is adopted then the wealth must be distributed in a different way with a different result; otherwise implementing socialism would be pointless. Hence socialist writers devoted part of their theory to the problem of distribution of goods in a socialist society, i.e. to “spreading the wealth”.

“Social programs require tax money and your taxes may be higher.”

Correct.

“But as you can see everyone benefits because other costs go down and, in the long run, you get to keep more of your hard earned cash!”

What has been demonstrated, in fact, is that costs rise under socialism. If an individual does not have to pay for his consumption, all else being equal he consumes more. Hence demand rises and so do costs.

“Democratic Socialism does NOT mean taking from the rich and giving to the poor.”

It means taking from the productive to fund the unproductive. This can be the only logical outcome of a system other than private property, where the fruit of production accrues to the producer.

“It works to benefit everyone so the rich can no longer take advantage of the poor and middle class.”

It benefits the unproductive ahead of the productive. The unproductive are able to take advantage of the productive. Productivity therefore becomes less valuable and decreases whereas un-productivity becomes more attractive. Societal wealth therefore declines.

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POSTSCRIPT: The main error of the author of the original article (apart from providing blatant examples of Bastiat’s famous “broken window” fallacy) is the belief that a market economy provides benefits only for some whereas “democratic socialism” provides benefits for all. Precisely the opposite is true. Under the free market all exchanges are voluntary. If A exchanges a good with B then it must be because they each value what they receive more highly than what they give up. Both therefore benefit from the transaction and we can say that social utility is increased. A system of “democratic socialism” however would necessarily involve violently enforced transactions (taxes). If an individual has to be coerced into a transaction then it necessarily means that he values abstaining from the transaction more than entering it (otherwise he would have entered it voluntarily). The recipients of Government spending may gain (as does the Government itself) but here, in contrast to a market economy, some have gained at the expense of others. As we cannot make interpersonal utility comparisons (i.e. we cannot “measure” utility) it is impossible to say that the gain to one is greater than the loss to another. But even if this wasn’t true the fact remains that the coerced individuals would have gained greater utility from not being taxed and to them the transaction is very much a loss; hence a system of “democratic socialism” does not provide “benefits for all”.

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