Shortcomings of Mainstream Thought

Leave a comment

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

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

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

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

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

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


View the video version of this post.

Advertisements

States and Corporations

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.

View the video version of this post.

Against the Welfare State – and Bank Bailouts

Leave a comment

The welfare state is undoubtedly one of the elements of government opposed by libertarians, not only due to its inherent injustice and economic destructiveness, but also because of its ability to provide fuel and sustenance to the growth of the metastasising state

If we are launch a critique of the welfare state we must first attempt to define it and to distinguish it from other categories of government activity. Such a task is not an immediately clear cut one as, fundamentally, all government expenditure sustains the welfare of its beneficiaries. If the government launches an invasion of a foreign country, spending on military grade weaponry, aircraft and whatever else will very much contribute to the “welfare” of armaments manufacturers yet we wouldn’t ordinarily classify this as part of the welfare state. Similarly, if the government decides to build a new road or railway line we wouldn’t usually describe this as providing “welfare” to the construction workers who undertake the leg work (although certain “job creation” schemes that simply pay people to carry out pointless work could be classified as welfare).

Whether or not a particular government outlay is classified as part of the welfare state is therefore defined more by its purpose rather than by its effect. The purpose of a foreign war is usually to gain control of valuable resources (even if it is veneered with an alternative justification such as spreading freedom and democracy). The purpose of building a road or railway is to “improve” the country’s transportation and communication networks. None of these projects is designed to provide some kind of comfortable lifestyle to those who undertake them (and, ignoring the possibility of benefiting favoured lobbyists and donors, to the extent that a government has a particular purpose in mind and wishes to achieve it efficiently it will have a desire to remunerate its suppliers as little as possible rather than as highly).

Welfare spending, on the other hand, is markedly different. Its purpose is always couched in the language of providing some kind of “help”, “care”, or “assistance” to the citizenry, as if the government is a giant nanny who appears with an equally giant milk bottle whenever one’s own teat runs dry. Given this, then, we can attempt to define the welfare state as that portion of government activity which is devoted to the sustenance of either the existing lifestyle of a particular citizen or to a lifestyle that is thought to be the minimum that is equitable in terms of wealth and income. The welfare state therefore provides a cushion or relief from events that may intercede in that lifestyle so, for example, if you get sick, the government will provide you with either free or subsidised healthcare; if you lose your job you will be entitled to unemployment benefit; and if you have baby the government will give you some money so that you are able to take care of it and give it an “adequate” upbringing. Granted, this definition if the welfare state is not precise and it will overlap with many other types of expenditure – few government outlays have a single purpose, even if some of these purposes are not made public – but we can be satisfied that it is reasonably accurate.

In spite of the fact that the welfare state is a moral issue and that its proponents believe that its existence is justified by the fact that the able should take care of the less able (“from each according to his means to each according to his needs”) it is arguable that the strength of its cause derives more from a misunderstanding of economics and that an amelioration of these misunderstandings is likely to weaken the foundations of the welfare state most effectively. Rather, therefore, than elaborating on the fact that the welfare state is, in a genuine free market, a morally unjustifiable confiscation and redistribution of property from its owners to non-owners respectively, let us concentrate mainly on a proper realisation of the economic effects of the welfare state in order to find the source of its undoing.

The type of welfare spending that we will focus on specifically is the bailout of the banks. This selection may appear surprising as surely most supporters of the welfare state are flat out opposed to bailing out the banks? And yet if we look closely, the qualities of bankers’ bailouts fits our definition of welfare spending all but perfectly. The financial services industry was accustomed to its business of expanding credit during the boom years and ploughing them into ultimately unsustainable malinvestments; its practitioners were richly rewarded for doing so and could afford big houses, expensive cars, private schools for their children, exotic foreign holidays, and so on. Metaphorically, they became accustomed to a lifestyle of gambling and partying fuelled by the punch bowl of monetary expansion. Following the inevitable crash that revealed the extent of the malinvestments and the huge losses that would ensue, the bailout of the banks was designed precisely to prevent the liquidation of this crumbling economic structure so that the banks could keep on making loans, keep on making profits from those loans, and so their top employees would not lose the lifestyle to which they had become accustomed. It was meant to refill the punch bowl and to keep the music playing so that the party would never end. The difference, therefore, between bankers’ bailouts and what we typically regard as the welfare state is simply a matter of degree, not of kind. They each provide a taxpayer funded cushion for their respective beneficiaries that insulates their lifestyles from the effects of either their own choices or from events that are beyond their control. Indeed, the collapse of the financial services industry as we know it would also have seriously curtailed the ability of governments to retain their accustomed lifestyle of borrowing and spending. To that extent, therefore, the bank bailouts were an exercise in self-preservation. The only perceived difference between bank bailouts and the welfare state is that the beneficiaries of the former were “rich” and not “poor”, which, it must be understood, is itself a misrepresentation. Many of those affected by a collapse of the financial services sector would not necessarily have been multi-millionaires as any insolvencies and downsizing is likely to have hit those lower down the pecking order first such as local branch managers and tellers before it hit those in the penthouse offices.

We have outlined this description of bank bailouts because every single argument that welfare statists use to oppose them are, in fact, the very same arguments that apply to their conception of the welfare state. We will therefore take each of these arguments in turn and show just how both bank bailouts and the welfare state, which are both a form of welfare spending, are economically destructive.

The first argument against the bank bailouts used by its opponents is that it creates moral hazard. In other words, if the banks can privatise their gains yet socialise their losses it provides an incentive to carry on and, indeed, augment the very destructive activity that was the source of the problem in the first place. All of this is true and we can have no quarrel with it. Yet it applies equally to the welfare state as well. Proponents of the welfare state imagine that if the government throws money at all of the events that manifest themselves as pitfalls in one’s own lifestyle then these pitfalls will simply go away. However if the government simply pays for a problem when it occurs then it creates as much of a moral hazard as the bank bailouts because all you have done is simply lowered the cost to individuals of bearing these pitfalls – and lowered cost leads to a swelled demand. If you pay people when they get sick, there will be more sickness; if you pay people when they are unemployed there will be more unemployment; if you pay people when they have children people will produce more children that need a roof and need feeding. The welfare state is not the solution to the problems it seeks to resolve; it is, rather, a fertiliser for their growth and proliferation, just as bank bailouts are a fertiliser for the growth of credit expansion, malinvestment and repeated boom and bust cycles.

The second argument against bank bailouts, related to the one we just outlined, is that it shoves the cost of the bad decisions of the bankers onto the shoulders of everybody else. Yet isn’t this precisely what the welfare state does? Welfare statists imagine that nearly every unfortunate circumstance in which people find themselves is not the product of their own making and that they are therefore blameless and should be (patronisingly) pitied – in short, that people do not bear any responsibility for their own circumstances. However, this is not the case with many of the issues that the welfare state attempts to address. As was argued in a previous essay on universal healthcare, the majority of medical ailments from which people suffer are not the unfortunate result of a random, illness lottery but are, rather, directly related to their environment and lifestyle – particularly diet, exercise and consumption of alcohol, tobacco and narcotics. If, therefore, people choose to pursue a lifestyle of eating gluttonously, exercising little and smoking and drinking heavily with this resulting in sickness, then if the government picks up the tab this simply forces the cost of these bad decisions onto everyone else. People, in most cases, choose to have children, or at least to engage in the intercourse that results in children – it isn’t a random, spontaneous event that appears out of nowhere to inflict itself upon people’s lifestyles. To the extent, therefore, that people cannot afford to raise these children properly and the government intervenes then the cost of other people’s bad decisions is again shovelled onto the shoulders of everybody else. But even those aspects of the welfare state that are not necessarily the fault of the individuals concerned – such as unemployment – is usually the result of government anyway. Low employability is caused not only by inadequate state education, but also government interference in the labour market such as minimum wages and excessive regulations that cause the cost of employment to exceed that of the productivity of the lowest skilled workers. Why, therefore, do welfare statists propose a government solution to what is a government created problem? Why not just get rid of the government created problem?

The third argument against bank bailouts is that they perpetuate what we might call a crony “corp-tocracy” where taxpayers’ money is siphoned off into the hands of the government’s favoured millionaire chums. Yet this is precisely the result of the welfare state also. Although the nominal beneficiaries of the welfare state are individual people, someone has to be paid in order to carry out the work of the welfare state. Not only does a welfare state require the creation and sustenance of a vast, leeching bureaucracy to administer it all but particular parts of the welfare state have to be contracted out to individual specialists. For example, public housing schemes need to find construction companies, hospitals need to find doctors and they need to purchase medicines from drug companies. The interests of these suppliers to the welfare state is to ensure that their compensation for carrying out their tasks is as high as possible; indeed, one of the reasons why the welfare state is such a burgeoning expense is because the disconnect between the consumer that pays and the supplier that is paid results in spiralling costs for the services of the latter, with the result that the majority of welfare spending goes not to the individual people but straight into the bank accounts of large corporations and contractors. Moreover, the welfare state is not usually a fixed pool of services that are provided by the government, but includes also private organisations and charities that lobby the government for money in order to solve the particular societal “problems” and grievances that they happen to have identified. Much of this money is simply wasted, as suggested by the recent collapse of Kids Company, a UK children’s charity, around a week after it received a £3 million grant from the government. Indeed, in the UK – when the chief executives of high profile charities are paid six figure salaries and they have been chastised for “aggressive” funding raising strategies that were recently attributed, at least in part, to the death of a pensioner – the substantive difference between a charity on the one hand and a corporation on the other is becoming increasingly questioned.

The fourth argument against bank bailouts is that they distort the economy, shovelling excess funding into the financial services sector and expanding their profits at the expense of other industries. Again, nothing about this is untrue and, indeed, as “Austrian” economists we would make an even more detailed case about how the resulting credit expansion distorts the consumption/investment ratio in order to result in unsustainable malinvestments across the entire economy. Yet the welfare state distorts the economy also, only in a more incremental and pacing manner. In the first place, the increased incentive caused by the welfare state to exacerbate the very problems it is supposed to solve, such as sickness and unemployment, reduces the capacity of the labour market and thus shrinks the extent of the division of labour that would otherwise have been possible. Second, the burgeoning cost of the welfare state caused by an artificially inflated demand for welfare requires more and more resources to be confiscated by the government in order to fund it. Thus, the areas of the economy that are devoted to providing welfare are swollen at the expense of other areas of the economy which must correspondingly shrink. Third, this is compounded by the fact that a large, government pot of gold encourages rent seeking behaviour, which in the case of welfare means (as we stated above) large numbers of special interest groups lobby the government each with a claim that they have identified some societal affliction that is ripe for resolution by government spending. Governments are eager to attract this kind of attention for more government spending means not only more power and prestige but also provides another outlet with which to bribe citizens with their own money when making election “promises”. The result of this, again, is that the total portion of the economy that is devoted to welfare spending is artificially inflated compared to what consumers would otherwise prefer.

The final argument against bank bailouts that we will consider is that they create a feeling of bitterness and resentment in the general population, a fissure of hate, contempt and distrust between the bankers and the people whom they supposedly serve. Again, all of this is true. However, it applies just as readily to the welfare state. Its proponents usually justify the imposition of the welfare state by stating that it is morally good for us to care and look after one another as if we are all one big family. This may be true enough, but the welfare state does not create that situation. In order to become a morally better person I have to choose to care and to look after my fellow man – I have to decide to do it voluntarily. I am looked upon with admiration because in spite of all of the personal luxuries I could have spent my money on, I willingly deprived myself of them and was happy to give the money to a person in need. The welfare state, however, does not give me any choice in this regard – it just forces me to do it regardless of what I want. The action, therefore, is not as the result of any personal sympathy or empathy for the plight of the less fortunate, nor of any aspiration to moral heights. Instead, the void left by an absence of sympathy and empathy is likely to be filled by bitterness and resentment as my hard earned money has just been confiscated from me to go to people who I believe may not deserve it, particularly if it goes to some cause that I may disagree qualifies for welfare spending (such as breast enhancement surgery on the NHS or unemployment benefits to those who are just workshy). The welfare state therefore creates the opposite of any charitable feeling whatsoever and destroys any notion of brotherhood or family. When this is coupled with the welfare state’s encouragement of the afflictions it seeks to solve then the result is a society with a lower, rather than higher, moral standing. This is exacerbated by the interdependent relationship between bank bailouts on the one hand and the welfare state on the other. Bank bailouts mean that the banks take the money of the taxpaying public and plough it into assets so that the income of anyone who owns these assets – i.e. the bankers themselves – is swollen while the incomes of those who do not stagnates. The resulting price inflation lifts the affordability of assets such as houses and basic necessities, such as food, out of the grasp of those on low incomes. The consequence is another artificially swollen demand for welfare to give ordinary people somewhere to live and something to eat. Thus, the poorest in society demand increased taxes on the rich – i.e. the very bankers who were bailed out – in order to fund increased welfare spending. The result, therefore, is a toing and froing of mutual theft, a circle of robbery where bankers demand taxpayers’ money to continue their casino operations, after which everyone else demands some of it back to ameliorate the resulting effects. Far from being a moral and harmonious society all we end up with is hating each other and trying to grab whatever we can out of each other’s pockets.

What we can see from this brief comparison of the welfare state to bank bailouts, therefore, is that there is very little qualitative difference between the two and that the arguments that are used to oppose bank bailouts apply just as easily to the welfare state. The amelioration of welfare demand is achieved not through the redistribution of a fixed pool wealth but through the raising of real incomes by increasing the productive output per person. In order to achieve this we need to eliminate both the bank bailouts and the welfare state so that we can return to a genuine economy where everyone serves each other rather than engages in mutual plunder. The rich would have to earn their wealth by directing and increasing the productive capacity of the economy to best meet the needs of the consumer; the poor earn their money by providing the labour to bring about this direction, with their wages being able to buy more and more goods as a result of the increased output. Not only would this create a more prosperous society where poverty has truly been consigned to the history books, but the vanquishing of hatred, resentment and antagonism would create a morally superior one too.

View the video version of this post.

Economic Myths #14 – Share the Wealth

Leave a comment

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

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

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

And summing up the welfare state:

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

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

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

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

View the video version of this post.

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

2Ibid. p. 76.

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

Leave a comment

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

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

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

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

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

Money – the Root of all (Government) Evil?

Leave a comment

In addressing the evil and parasitic nature of the state, libertarians focus on many of the state’s specific characteristics in order to demonstrate its destructive effects upon civilisation – whether it is nationalised industries, market interference, the minimum wage, anti-discrimination and egalitarian pursuits, the business cycle, or whatever, there is a treasure trove of libertarian literature available that explains and elaborates the deleterious effects of these particular state endeavours. However, a less addressed question is which of these areas, if any, are the most important? Which of them amount to mere nuisances that can be circumvented or otherwise put up with and which, if any, of them amount to a significant transfer of wealth and power to the state with seemingly permanent effects? Furthermore, is there any one issue that libertarians should stress above all others if we are to deliver a real and significant puncture to the state’s ever-inflating balloon?

One prime candidate for this title is war and international conflict. With war comes every glittering prize that the state could ever dream of – mass mobilisation of labour and industry towards a common purpose dictated by the state; control of all markets; mass propaganda; control of communications; suspension of free speech and possibly of habeas corpus; and not to mention the bogeyman of the supposed enemy to which to channel the attention and hatred of the average citizen. Indeed Murray Rothbard, relatively in his career, recognised that while libertarians had some very profound things to say about the state’s mismanagement of, for example, the post office, focussing on war was the real key to unravelling the state’s power and oppression of the population.

Nevertheless, while a permanent and lasting degree of state power and control is enabled by war there is another contender for the top spot. That is the government’s control of money and, specifically, the ability to create an endless supply of paper money distributed to itself and its favoured outlets, as opposed to the rigour and discipline imposed by a “hard money” standard such as gold. Ultimately it is the state’s ability to fund itself that is at the root of all of its other absorption of power and control – even war.

In order to demonstrate this let us look at what the situation would be if government was constrained by a denationalised, “hard” money such as gold. In the first place, government would be wholly reliant upon the tax receipts of its individual citizens for funding and would be unable to resort to extensive deficit spending or inflation. The plainness and visibility of that confiscation places a much lower limit upon the state’s coffers. Put simply, when too much money is taken out of your hands physically you are likely to revolt much sooner. Indeed, in the past, war itself was an expensive operation and battling kings often struggled to raise funds to maintain campaigns. Strategic brilliance was often not accomplished by an all-out destruction of the enemy but, rather, by out-manoeuvring your opponent and preserving for as long as possible expensively-trained soldiers and equipment. In many cases funding had to come from external sources. The genesis of the aristocracy was in those who were rewarded with titles to the conquered land in return for funding the war – in other words the ruler had to parcel out parts of the new territory to those who had helped him grab it. Indeed even the English parliament itself and the Magna Carta­ – famed as the genesis for two cardinal principles of liberty, no taxation without consent and no trial without due process – resulted in part from the reliance of the king upon his relationship with the barons for support and funding. Hard money therefore not only physically restricts the amount the state can spend but has been the indirect cause of the enshrinement of restrictions upon the state’s despotic power.

In more recent times, however, the ability to provide funding from a non-stop printing press has permitted the state to expand its activities without having to account for them through tax receipts. People do not see the money disappearing from their pay packets or from their bank accounts; all they see is the prices they have to pay for goods and services rising and squeezing their purchasing power, a fact that can be easily blamed on greedy businessmen and shareholders. It is possible for a libertarian to be sympathetic with the view that as long as you know how much the government is taking from you then it has a reasonable degree of tolerability. But when government resorts to the smoke and mirrors trick of robbing not the money in your hand but, rather, its purchasing power then it must be opposed emphatically. In comparison to earlier conflicts, the wars of the twentieth century were so prolonged and destructive precisely because government could resort to the printing press. Had they relied solely upon tax receipts “war-weariness” would have set in much sooner among the population and they would have demanded a swift end to hostilities. Hence all of the overreaching effects of the state’s engagement in war flows directly from its ability to control the supply of money. If we wish to end the consequences of war upon the state’s metastasised growth then we need to attack the root of its ability to fund it.

It is true, of course, that there may be something of a chicken and egg story when it comes to war and paper money. Does paper money cause government to engage in war or does war cause government to print paper money? Either way, however, even if government was previously respectful of a hard money standard which it does not abandon until the outbreak of a war, it is this power of printing paper money in and of itself that fuels the extent of its belligerence. And in any case, the ease with which government can suddenly suspend a hard money standard only comes about because they have arrogated to themselves monopolistic control of the operation of money issuance. It would be much harder for government to print un-backed notes and force their acceptance when others are issuing notes fully redeemable in gold. Whatever comes first, however, either the paper money or the war and the growth of the state power, if you wish to prevent the flood then you must turn off the taps.

In more peaceful times hard money also disciplines the citizenry into realising that government is not the fountain of all wealth. The state has grown so much under democracy because, apart from the veneer of legitimacy that popular elections lend to the state, politicians are able to bribe the electorate with endless goodies that they do not believe that they have to pay for. The resulting borrowing and inflation – now reaching an eye-watering level in the West – which does not touch the citizen directly gives the impression of government as an endless stock of resources, the only difficult task being to elect someone who will give them to you rather than worrying about the more trifling matters of production and enterprise. Indeed, public discourse rarely seems to acknowledge the fact of scarcity, usually focussing on single issues and concluding with an explosion of outrage about how government isn’t “doing more” to combat the alleged societal ill. The more difficult question of the expense that we would endure, what should be given up as a result and which goods cannot be brought into being because of the new expenditure diverted to cure the problem complained of is overlooked. To the citizen there is always more money, more resources and more of everything that government can acquire from somewhere other than himself. However, in exactly the same way as a hard money standard would induce “war-weariness” in belligerent times so too would it induce “state-weariness” in peaceful times. People would soon tire of having their pay packets robbed to fund goods for other people; and people would soon realise that many of the things they would otherwise want from government for free simply cannot be afforded and must be worked for by themselves.

Let us turn next to the whole problem of the business cycle. Although panics existed before the advent of modern central banking many of these occurred precisely because hard money rules were casually abandoned, with issuing institutions expanding the volume of credit beyond the stock of monetary gold and government happily stepping in and relieving them of the obligation to redeem their notes in specie. But whatever the characteristics of pre-central banking business cycles it is undeniable that they reached a depth, severity and prolongation in the twentieth century that was not seen before. There are two reasons for this. First, government’s enhanced control over the supply of money induces a more serious degree of malinvestment than would otherwise be the case where the supply of money is checked by the stock of redeemable gold. In both of the biggest collapses of the last one hundred years – 1929 and 2008 – credit expansion ran for the best part of a decade or more. The longer the false signals towards entrepreneurs are continued the more they will borrow and invest in unsustainable capital projects and the further those projects go the more difficult they will be to unwind. When the bust finally comes, therefore, the situation is far more serious than it otherwise would have been. This brings about the second factor – that it lends credibility to the argument that the government should step in and “do something” to combat the malaise. The reason why the Great Depression endured for years (and why we are still enduring the current one) is not because of the initial collapse – it is because government did everything it could to maintain the existing structure of production, wages and prices. Fittingly enough President Hoover often invoked the language of war in describing the threat of the downturn and the culmination of this in the New Deal – the complete cartelisation of industry and agriculture into a fascistic economy – was achieved by the resurrection of World War One era departments and programmes. It is supremely ironic that government-caused depressions give rise to ever more invasive government intrusions, an irony that turns truly into tragedy when we consider that what followed the Great Depression was the carnage and destruction of World War II. With the current belligerence of the US in provoking tension with Russia and China another war is something that cannot be ruled out as a result of the present crisis; and we all know how destructive war is to freedom.

What we can see therefore is that government control of money is a prime contender for the top spot of issues that libertarians should consider as the most serious when combatting threats to liberty. If this should be doubted then one has to question why the mystery of central banking and its ability to pull the monetary strings from a shady, secretive outlet has been a political non-issue for decades. Politicians only bring into debate the relatively “easy” problems that do not upset the apple cart. While they are keen to oust their immediate, political opponents they never provide the public with any serious choice that would restrict the power and growth of government as a whole. At least democracy – another cause of government growth and legitimacy – gets praised and lauded from time to time, if only ever to justify the government’s military crusades against foreign tyrants. But before the last few years central banking and monopoly issuance of money was hardly even mentioned – not even to give it a blessing. It seems as though government is fine with brainwashing its citizens into embracing the justice of elections by voting but it is far too scared to even make them aware of its power over money. Although this is now beginning to change and there is a greater enquiry into and scrutiny of the US Federal Reserve (not least because of ex-Congressman Ron Paul’s emphasis of the issue) the acceptance of and absence of discussion of these evil institutions has pervaded for too long. This is where government would be truly and irredeemably hurt. It could enact as many reams of invasive and destructive legislation as it liked, yet they would be of zero threat if government was starved of funding to enforce them.

It is appropriate to end with the words of Ludwig von Mises who recognised everything we have been saying here in his first major treatise on the subject of money:

Defense of the individual’s liberty against the encroachment of tyrannical governments is the essential theme of the history of Western civilization. The characteristic feature of the Occident is its peoples’ pursuit of liberty, a concern unknown to Orientals. All the marvellous achievements of Western civilization are fruits grown on the tree of liberty.

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the non-observance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which—through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period—had learned what a government can do to a nation’s currency system.

[…]

Thus the sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.

The sound-money principle was derived not so much from the Classical economists’ analysis of the market phenomena as from their interpretation of historical experience. It was an experience that could be perceived by a much larger public than the narrow circles of those conversant with economic theory. Hence the sound-money idea became one of the most popular points of the liberal program. Friends and foes of liberalism considered it one of the essential postulates of a liberal policy1.

View the video version of this post.

1 Ludwig von Mises, The Theory of Money and Credit, p 414.

 

The Ethics of Interventionism

1 Comment

With the US government’s current attempt to carry out some kind of military intervention in Syria as a result of the alleged use of chemical weaponry by the Assad regime, libertarians once again face the question of what their correct stance towards such a proposal should be.

To be libertarian is to believe that the initiation of violence, in any circumstance, is inherently immoral. This belief, termed the non-aggression principle, we have discussed and justified elsewhere. Libertarians recognise, of course, that this does not proscribe the right to self-defence, or the right to provide defence services towards someone else who is the victim of aggression. There are two key elaborations to make to this principle. First, libertarianism itself does not state that someone has the violently enforceable obligation to defend himself or to rush to the defence of other people. There may, however, by some other standard be a moral obligation to do so but this obligation cannot be violently enforceable as this would itself breach the non-aggression principle. It is quite consistent, therefore, to state that someone should help a person who is the victim of aggressive violence but that he should not be forced to do so. Secondly if you do decide to respond to an act of aggression then you do not have the right to inflict aggressive violence on any other person, whether it be forcing them to assist you or by making them the victims of so-called “collateral damage”. One would not launch a nuclear warhead and slaughter the population of entire landmass in order to neutralise a single murderer, for example.

It is these aspects that must be remembered by the libertarian in any debate concerning the ethics of interventionism. The mainstream debate is an all or nothing question – should we all intervene or should we all not intervene. Libertarians for too long have been seduced into accepting the terms of this debate and the resulting lack of unity from the libertarian (or the generally freedom-oriented) camp owes itself to the fact that, on the face of it, the question can be answered on either side from a libertarian-veneered point of view. Let us discuss briefly the problems with each of these responses.

Those who answer in the affirmative, that we should intervene, have rightly recognised that defence may be used in such a situation because the non-aggression principle has been violated by another party. But what they are overlooking is the fact that the funds to be directed towards military intervention are extracted forcibly by the government through tax revenue – in other words, that people are being forced to fund intervention. They are mistaking the right to intervene with a violently enforceable obligation to do so. But this violently enforceable obligation itself is a breach of the non-aggression principle and is, therefore, anti-libertarian and immoral. Such people are most welcome to criticise other people from the point of view of moral standards that are separate from, but compatible with, libertarianism. When, for example, William Hague, the UK Foreign Secretary, stated that any non-response by “the world” to the use of chemical weapons would be “alarming” he is quite welcome to hold that view (in spite of the fact that there has already been wide scale bloodshed in Syria for two years and that Western governments seem to be remarkably selective on what they choose to be outraged by). Indeed he is most welcome to contribute his own legitimately earned wealth (if he has any) and that of everyone he can persuade to join him voluntarily in the venture towards intervening in Syria. But what he does not have the right to do is to force other people, to extract funding by taxes (or to enforce conscription, if it ever came to that), for the same.

Those, however, who answer in the negative – that we should not intervene – rightly recognise that we cannot force people to participate in intervention. But now they seem to be making the opposite mistake of preventing people who do want to intervene from doing so. If someone is genuinely outraged by the infliction of violence by one person against another and believes that assistance against such heinous acts is a worthwhile devotion of his own funds then he is quite within his rights to contribute those funds accordingly, or even to voluntarily join a defence group and personally provide defence support for the victims. To stop someone from doing this if that is what they want is as much an affront to the non-aggression principle as forcing them to do so if they do not want. Once again we must emphasise that it may not be a good thing, by some standard exogenous to libertarianism, for a person to engage in intervention but that does not mean that he may be violently prevented from doing so.

The correct libertarian position, then, can be summarised as follows:

  • No person has the right to initiate violence (aggression) against any other person in any circumstance;
  • Where a person is the victim of aggression he has the right to defend himself;
  • Where a person attempts to defend himself he has no right to initiate violence against innocents during the act of doing so, including their enforced participation and causing “collateral damage”;
  • Where a person attempts to defend himself other people have no right to initiate violence against him in order to stop him from doing so;
  • A person has the right to solicit, contract with or otherwise co-operate with third parties in ensuring his defence;
  • Third parties, likewise, have the right to provide their funds and resources towards defence, either through a negotiated contract (security services) or voluntarily;
  • Third parties providing defence services have no right to initiate force against innocents during the act of doing so; this includes forcing others to contribute towards the same and causing “collateral damage”;
  • Where a third party provides defence services it not may be forcibly stopped from doing so by others;
  • Whether the injured party or a third party should or should not act to defend the former against an act of aggression, or whether such an act of defence is a “good” or “bad” thing by some other moral standard may be debated; however, the conclusion may not be enforced violently on any party that is not committing an act of aggression.

All of this is, of course, the most fundamental libertarian theory towards intervention and we have provided no detailed analysis of how “war is the health of the state” and so on. But these critical aspects must be remembered by a libertarian if he is to take the fundamentally, i.e. most basically correct moral position and serves to only form the bedrock of more elaborate analyses. Whatever he, in accordance with the last principle laid out above, believes of the merits of a specific act of intervention should be informed by and exist in harmony with these principles.

View the video version of this post.

Older Entries