Is The Free Market A Utopia?
Jon Stewart asks:
"If we didn’t have government, we’d all be in hovercrafts, and nobody would have cancer, and broccoli would be ice-cream?"
Libertarians are not against government, they are for economic cooperation. We would like to expand the division of labor in as many areas as possible, and as such we identify government as the main roadblock.
If most people today would become anarcho-libertarians and government would cease to exist, there would be many societal functions that would desire filling, that before had not been allowed to develop into functioning market sectors. Reputation systems, arbitration, contracting, through all the different market sectors, communities, areas and terrains. Private security. Private regulation and inspection. Private education. Private transportation. Private communication. And so forth..
Human action ultimately tries to deal with the challenges presented by nature. Over time, through economic cooperation, savings, risk-taking, competition and continual trial-and-error, we make human life more pleasurable. There is no magic in the free market, but billions of people cooperating and coordinating under private property can produce things for regular consumers that would appear magical to people only a few generations ago.
A Critique of Stefan Molyneux’s “Consequentialist arguments don’t work”
Benjamin Powell (see some of his videos here) says: ‘I think consequentialist arguments are important to address, because most people don’t have the same burning passion that you all do and some of us in the room do, about abolishing the state; which just doesn’t resonate with them, and they’re scared of a world that they don’t know, and [..]’. [direct link]
Stefan Molyneux responds: ‘I can’t agree with that just because.. there are a couple of things that all economists agree on: minimum wage destroys jobs, tariffs suppress trade.. There are a couple of things that 90% of economists agree on. ..and these arguments have been made for the last 400 years, and we have very high minimum wages, and we have incredibly high tariffs, and we have unbelievable interferences in trade. And everyone knows, when you have free trade you get division of labor, you get .. price mechanism working well, for efficiency, you get all of these great things. Consequentialist arguments don’t work. Economics.. 400 years they’ve been trying to get the free market to work, and we’ve had a less free market now than when they first started. This would be one example of many. Consequentialist arguments don’t work.’ [direct link]
I first want to establish what Molyneux is arguing against. What is a consequentialist argument? It is an argument comprised of the consequence of the action in question. I can look at the consequence of an action in solitary: “If I eat all my marshmallows now, how will I feel?”. I can also look at the consequences of an action done by another person to yet another person: “If Paul stops Roger from using a pattern that Paul used first, how will that affect me?”. This is the category of social rules. In deciding which social rules to support, I take in consideration my goals and all of the effects of those rules, in reality. [more information here, here and here]
Molyneux here wants to make it appear as though there is currently a near unanimous belief about the effects of the different kinds of social rules, but that for some reason, people aren’t putting their support behind it.
On Wikipedia, I did find the following statement: “According to a 1978 article in the American Economic Review, 90 percent of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.” But then it also lists a 2000 survey where “27.9% agreed with provisos, and 26.5% disagreed”. There are actually many different schools of economic thought, with different methods and widely differing conclusions about the effects of different social rules.
The only school who consistently applies the insights from the division of labor and trade, competition and the price mechanism is the Austrian school. This school is considered to be founded in 1871 by Carl Menger with his book (in German) Principles of Economics, where he gives his marginal theory of subjective value as well as its relation to both price formation and the formation of money goods. Before Menger, the French liberal school was quite close to that understanding and the conclusions it leads to. Even though all these people had their influence, they were pioneers and were not suddenly accepted by everyone in their field, let alone by the masses; who as Etienne de la Boetie, Mises and Hoppe have pointed out, are who really determine the course of things.
To contrast, Adam Smith (born in 1723) had a far different belief about economics. He favored the state production of roads, bridges, canals, harbors, coinage, a postal service, hallmarking of gold and silver, quality regulation of wool- and linen cloth, regulation of paper money notes, regulation of bank trades, public and compulsory education, protection of intellectual property, and more.
And if we actually travel back 400 years [1612 on Wikipedia], we find:
- April 11 – Edward Wightman, a radical Anabaptist, is the last person to be executed for heresy in England, by burning at the stake in Lichfield.
- May 23–May 25 – A Sicilian–Neapolitan galley fleet defeats the Tunisians at La Goulette
- July 22 – Four women and one man are hanged following the Northamptonshire Witch Trials in Northampton, England
- August 20 – Ten ‘Pendle witches’ are hanged having been found guilty of practising witchcraft in Lancashire, England
- August 26 – A Scottish mercenary force is destroyed in Norway at the Battle of Kringen
- November 30 – Battle of Swally: Forces of the British East India Company and Portugal engage off the coast of India, resulting in a British victory
I wouldn’t call that much of a free market, certainly not for many around the world.
So what’s actually going on is more nuanced. The world of ideas is in a constant state of flux. Ideas spread and evolve and spread further and evolve further. Since WWII, the West has been relatively peaceful, permitting ideas to flow, and since the dawn of personal computers and the internet (with hyper two-way communication), the evolution of ideas is happening faster than ever before. For example: because religion relies on localism, the internet has been deemed the place “Where religion comes to die” [video].
To show that consequentialism (the kind that I have described here, which is the same kind that Ludwig von Mises and Henry Hazlitt espoused) doesn’t work, there must first have been a more real agreement about economic ideas.
Molyneux (continuing): ‘Consequentialists’ arguments are people’s way of saying “I want to avoid the ethical dimension to your question, so I’m going to pretend it’s about moving stuff and people around”.’
As I have explained above, I understand ethics to be the social rules that I support, which depend on my goals and my understanding of the consequences of social rules. So if we are not talking about my goals or the science of economics, then what dimension is being avoided?
I realize that there are many people who have adopted a sacrificial mentality, where they’ve learned to give up on their own goals for the sake of something external. I wish to help people give up any sort of thinking like that.
Molyneux (continuing): ‘I don’t care about the state; I could care less about the state. I want human beings to recognize that violence is immoral, in all of its forms; not just in the state, but in the family, in parenting, everywhere. Violence is immoral, and it leads to short term gains for a select number of people and long term catastrophes for everyone. I think the consequentialist argument is saying: “I don’t want to face that simple bare bold moral truth: that there’s a gun in the room which we should damn well put down if we want to call ourselves a civilized society.” So I’m not mad at you, I’m just mad at the idea. And, so, people want to avoid that. The argument is so simple: taxation is force. Done.’
‘Gains’ and ‘catastrophes’ are economic consequences.
Also, Libertarianism Is Not ‘No Gun In The Room’. The only political philosophy without a conception of property is pacifism. All other political philosophies, from state communism to anarcho-capitalism, want to use majority social pressure backed by force (guns) to enact their favored conception of property. So the argument does not end there, and it’s misleading to pretend to.
Molyneux (continuing): ‘But people want to create all these complications about, well okay.. but if somebody has a contract with some DRO agency, and that DRO agency has another cross-contract with some other DRO agency and nobody wants to pay for the roads, and maybe there’s defense agen.. ; forget all of that stuff, the violence is immoral. I don’t care who picks the cotton after we end slavery. We just have to keep thundering that slavery is immoral. That’s how these things are won. Nobody said “well, who’s gonna cook, when will women have the right to have jobs?”. That’s not how they won, no, they said “no, we want to be free and equal”. That’s moral and that’s right, and you gotta keep thundering that. I think that’s the route of what we have to go through.’
If a person does not have the insight of the division of labor, nor had the ability to think through many aspects of it, to call them ‘evil’ is nonsensical, and more than likely will cause a person to respond negatively. Why would they support something which they don’t understand has beneficial consequences for themselves and others? To demand to accept such a thing makes the person pushing for that an ideologue. Why not be nice (as opposed to thundering) and try to answer their questions or point them to good resources?
As I said in another article:
Reaching your own ideology has involved a lot of learning and evaluating. People who haven’t arrived at your ideology will likely not have come across the same ideas as you have, nor had the time to evaluate it. It is also possible that they have had different life experiences that made it harder for them to accept your ideology. For both cases, it is important to keep the discrepancies in experiences in mind.
So when you are questioned on your ideas, that means you have an opportunity to tell them something they may have never heard before. If your ideas are good, then they must be able to be transferred in a manner that does not involve pressure or other forms of manipulation.
How to not come off as a cultist
– Show that your project is part of a larger and much older tradition. There is almost no possibility that your ideology is completely new.
Ideas exhibit evolutionary patterns. We discovered ideas from others, that we combined and tweaked. And they also developed their ideas through discovery, combining, and tweaking.
When you point to that tradition, you are communicating: “I learned from these people, and maybe you will find value in them as well”. When you do not make clear reference to your tradition, then others may think you are pretending to have come up with it all yourself, or they may actually believe it.
– Point people to other current authors and resources. Just as we are only the recombiners and tweakers of ideas, each of us are also not the penultimate specialist in all areas of our ideology. Other people today make valuable contributions to our ideology, and so it makes sense to lead others there as well.
– Reaching your own ideology has involved a lot of learning and evaluating. People who haven’t arrived at your ideology will likely not have come across the same ideas as you have, nor had the time to evaluate it. It is also possible that they have had different life experiences that made it harder for them to accept your ideology. For both cases, it is important to keep the discrepancies in experiences in mind.
So when you are questioned on your ideas, that means you have an opportunity to tell them something they may have never heard before. If your ideas are good, then they must be able to be transferred in a manner that does not involve pressure or other forms of manipulation.
– Different people understand the same words to mean different things; and that is the only place where meaning lives. This means another person cannot carry a wrong meaning of a word, considering there is no right meaning of a word, only interpretations. If you notice in a discussion that different interpretations of words exist, it can be helpful to explain what you mean by not using that word. This means you try to explain your idea in a way that you think they will be easier able to understand, without demanding that they start using different meanings of words.
– If you claim in one way or the other that you are the bearer of truth, then you are claiming to be infallible. This means that you entirely stop being open to corrections in thinking and that any criticisms can be disregarded automatically. This is the height of cultism.
– In order to demonstrate that you understand that the world of ideas is evolutionary and a collaborative effort, it is important to free-license your content (allowing others to copy and remix without restrictions). This means others can build on what they think you have done well as well as take what they think you have not done well and criticize it, without fear of being impeded by you in case you do not care for their remixes or critiques.
Menger versus Mises and Rothbard on how money works
Through Hans Sennholz, I was pointed to the appendix of Menger’s Principles of Economics. I didn’t know about the statement he makes there before, so I’m happy to have found it. Note that the following is in complete contradiction to Rothbard (who followed Mises on money):
Adam Muller discusses the desire of men for the state and thinks that the precious metals bring about this union, giving this as his theory of the origin of money (Versuche einer neuen Theorie des Geldes, Reprint Edition, Wien, 1922, pp. 78ff.). Johann G. Hoffmann (Die Lehre vom Gelde, Berlin, 1838, p. 10) attributes the origin of money again to a contract between men. Michel Chevalier (La monnaie, in Cours d’économie politique, Paris, 1866, III, 5) does the same thing. Samuel Oppenheim’s monograph, Die Natur des Geldes, (Mainz, 1855), is of greater interest, although its importance does not consist so much in a special view of the first origin of money (pp. 4ff.), as in an exposition of the process by which a commodity that has become a means of exchange loses its original commodity character and eventually becomes a mere token of value. Although I must emphatically contradict this opinion, I nevertheless find a clearly expressed thought (or rather an observation) in Oppenheim’s argument which sufficiently explains why we encounter this mistake in the writings of many eminent economists. I refer to the observation that the character of money as an industrial metal often completely disappears from the consciousness of economizing men because of the smoothness of operation of our trading mechanism, and that men therefore only notice its character as a means of exchange. The force of custom is so strong that the ability of a metal used as money to continue in this role is assured even when men are not directly aware of its character as an industrial metal. This observation is entirely correct. But it is also quite evident that the ability of a material to serve as money, as well as the custom on which this ability is founded, would disappear immediately, if the character of money as a material applicable to industrial purposes were destroyed by some accident. I am ready to admit that, under highly developed conditions of trade, money is regarded by many economizing men only as a token. But it is quite certain that this illusion would immediately be dispelled if the character of coins as quantities of industrial raw materials were lost.
Menger recognizes that indirect trade is forward looking, and is a speculation on the future direct uses by individuals. Apples go bad rather quickly, whereas metals do so at a far lesser rate, therefore it makes sense to trade apples for some metal. I will be easier able to exchange the metal for something later, because the metal will still be in a good state, doesn’t lose it’s value if cut in parts, and so on. I am also able to easier exchange it than apples, because people recognize these properties and will therefore also accept it for non-direct use themselves. But the whole scheme relies on the fact that someone in the future actually wants to use the metal directly.
Most Austrians today believe that demand for a good as money raises its demand and thus raises its price. But demand for indirect exchange is not the same as demand for direct use. When you accept something as payment to trade it away later, you are not just a buyer, you are also a seller of the good.
So what happened with Mises and Rothbard to come to such a different conclusion? Related to this, Sennholz points out that Menger was worried about his observation that the purchasing power of the legal tender in his country was higher than the purchasing power of the metal it contained:
He was greatly alarmed by the fact that the guilder’s purchasing power exceeded the metal value of the silver guilder, which to him was an “economic anomality” harboring “the greatest dangers to the Austrian economy.”
That was in 1889. In his Principles of Economics (1871) in his chapter on the origins of money, he was quick to point out the influence of government over money:
Within the boundaries of a state, the legal order usually has an influence on the money-character of commodities which, though small, cannot be denied. The origin of money (as distinct from coin, which is only one variety of money) is, as we have seen, entirely natural and thus displays legislative influence only in the rarest instances. Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.
But if, in response to the needs of trade, a good receives the sanction of the state as money, the result will be that not only every payment to the state itself but all other payments not explicitly contracted for in other goods can be required or offered, with legally binding effect, only in units of that good. There will be the further, and especially important, result that when payment has originally been contracted for in other goods but cannot, for some reason, be made, the payment substituted can similarly be required or offered, with legally binding effect, only in units of the one particular good. Thus the sanction of the state gives a particular good the attribute of being a universal substitute in exchange, and although the state is not responsible for the existence of the money-character of the good, it is responsible for a significant improvement of its money-character.
When something is legislated into being a legal tender, it gives that item value in direct use. At certain specified moments and times, people must be in the possession of it. This explains why those items rise in exchange value over and above what the materials they contain provide in exchange value.
Menger was born in 1840, Mises in 1881 and Rothbard in 1926. Paper currency became much more free-floating in the lives of Mises and Rothbard. They sought to explain the value of pieces of paper by referring to the past, but forgot to think about legal tender laws, which operated in Austria then and to this day.
- Austrian value derivation theory: Production, Sustainable and Unsustainable | by Daniel James Sanchez
- The Economics of Legal Tender Laws (by Jörg Guido Hülsmann)
A Critique Of Molyneuvian Ethics (‘universally preferable behavior’)
Universally Preferable Behaviour — A Rational Proof of Secular Ethics, 2007:
“As Hume famously pointed out, it is impossible to derive an ‘ought’ from an ‘is.’ [..] It is true that if a man does not eat, he will die – we cannot logically derive from that fact a binding principle that he ought to eat. If he wants to live, then he must eat.”
Agreed. Value is subjective.
“‘Behaviour’ exists in objective reality, outside our minds – the concepts ‘ought,’ ‘should,’ and ‘preference,’ do not exist outside our minds.
However, the fact that ‘ought’ does not exist within objective reality does not mean that ‘ought’ is completely subjective.”
Either Molyneux is aiming to discuss the science of economics (starting with subjective values and then discovering how to arrive at them) or he just contradicted himself.
“[..] Thus in ethics, just as in science, mathematics, engineering and all other disciplines that compare theories to reality, valid theories must be both logically consistent and empirically verifiable.”
“[..] There are only two possibilities when it comes to moral rules, just as there are in any logical science. Either universal moral rules are valid, or they are not.”
What is a ‘moral theory’? Values are not subjective? Is Molyneux not an Austrian?
This is sounding familiar. Hans Hoppe has argued the same, namely that he wanted to turn ethics into a science, contra Mises. See my critique here: .
Universally Preferable Behaviour — A Rational Proof of Secular Ethics, 2007 (continuing):
“‘Universally preferable behaviour’ must be a valid concept, for five main reasons.
The first is logical: if I argue against the proposition that universally preferable behaviour is valid, I have already shown my preference for truth over falsehood …”
Truth is not a behavior.
“… – as well as a preference for correcting those who speak falsely.”
That’s a categorical statement. Preferring to speak up against one case of a perceived falsehood doesn’t mean one universally (always and everywhere) prefers to do so.
“Saying that there is no such thing as universally preferable behaviour is like shouting in someone’s ear that sound does not exist – it is innately self-contradictory. In other words, if there is no such thing as universally preferable behaviour, then one should oppose anyone who claims that there is such a thing as universally preferable behaviour. However, if one “should” do something, then one has just created universally preferable behaviour. Thus universally preferable behaviour – or moral rules – must be valid.”
This is a variation of Hoppe’s argumentation ethics, and makes the same mistake of substitution. 
“How else can we know that the concept of ‘moral rules’ is valid?
We can examine the question biologically as well as syllogistically.
For instance, all matter is subject to physical rules – and everything that lives is in addition subject to certain requirements, and thus, if it is alive, must have followed universally preferred behaviours. Life, for instance, requires fuel and oxygen. Any living mind, of course, is an organic part of the physical world, and so is subject to physical laws and must have followed universally preferred behaviours – to argue otherwise would require proof that consciousness is not composed of matter, and is not organic – an impossibility, since it has mass, energy, and life. Arguing that consciousness is subject to neither physical rules nor universally preferred behaviours would be like arguing that human beings are immune to gravity, and can flourish without eating.
Thus it is impossible that anyone can logically argue against universally preferable behaviour, since if he is alive to argue, he must have followed universally preferred behaviours such as breathing, eating and drinking.”
People who are alive value breathing as a means to their ends, except during underwater contests. What does that have to do with moral rules?
I’ll stop here with the proofs.
Students For Liberty Q&A with Stefan Molyneux - Porcfest 2011 ( http://www.youtube.com/watch?v=hZTuqdqWyao#t=30m17s ):
“The argument from personal well-being leads to statism. Because.. how well did Bill Clinton do from being president? How well is Barack Obama’s income and stature, and retirement…? [..] So in terms of personal well-being, people on the dark side of state power do fantastically. [..] ..the idea of individual benefit leads to the state and leads to people using the state and leads to long-term destruction. Now they would say: ‘But we don’t want that long term destruction’. But human beings don’t think three generations down the road. [..] There is no argument to be made for individual benefit; that’s just pure pragmatism, and utilitarianism… [..] You can’t ask people to sacrifice immediate gain for the sake of long-term costs to strangers they will never meet.”
Hoppe has made the same argument. 
The first thing to point out is: If you have nothing to offer a person from which they can perceive to gain in personal well-being (meaning in terms of their personal subjective values, which includes their time-preference), then you are asking them to live a sacrificial life.
Furthermore: if the society I live in would turn free market, that would give me a tremendous opportunity to fulfill my personal values. That is what Austrian economics informs us. Compared with the many dangers to the integrity of society that exist today, and we see that the stakes are huge.
As I said in my critique of Hoppe’s ethics: it’s possible for a person to understand economics and still have such a high time preference to not support free markets, from his own point of view. But there are many people out there for whom the promises of a free market vastly outweigh the benefits of any subsidy. Molyneux mentions effects three generations later, and people they will never meet. But economics operates much faster than that, and effects everybody. And even if most people supported libertarianism for others and subsidies for themselves, that would still lead to a free market.
A Critique Of Hoppean Ethics (‘argumentation ethics’)
On the Ultimate Justification of the Ethics of Private Property, -Hans Hoppe. (From: The Economics and Ethics of Private Property, 1993 & 2006. Article reprinted from 1988):
“According to Mises there exists no ultimate justification for ethical propositions in the same sense as there exists one for economic propositions. Economics can inform us whether or not certain means are appropriate for bringing about certain ends, yet whether or not the ends can be regarded as just can neither be decided by economics nor by any other science. There is no justification for choosing one rather than another end. In the last resort, which end is chosen is arbitrary from a scientific point of view and is a matter of subjective whim, incapable of any justification beyond the mere fact of simply being liked.”
Is Hoppe not an Austrian? The subjectivity of values is a central theme of Austrian Economics. Furthermore, this begs the question of a justification towards what or whom?
At the level of an individual, ends are not arbitrary. All individuals are different, and what drives them is based on their unique genes combined with their unique life history.
“Many libertarians have followed Mises on this point. Like Mises, they have abandoned the idea of a rational foundation of ethics. As he does, they make as much as possible out of the economic proposition that the libertarian private property ethic produces a higher general standard of living than any other one; that most people actually prefer higher over lower standards of living; and hence, that libertarianism should prove highly popular. But ultimately, as Mises certainly knew, such considerations can only convince somebody of libertarianism who has already accepted the “utilitarian” goal of general wealth maximization. For those who do not share this goal, they have no compelling force at all. Thus, in the final analysis, libertarianism is based on nothing but an arbitrary act of faith.”
Hoppe de-individualizes his analysis again. If person A desires a higher over a lower standard of living for himself, over the medium to long run, then we can argue from his own point of view that it will benefit him if the people besides A act according to libertarian norms, so that it would benefit him to support it.
Take Mises himself, while he was still in Europe. Social cooperation was disintegrating at an astonishing pace. Any degree that he could keep other people away from socialism and towards liberalism would benefit him personally.
From the Economics of Laissez Faire to the Ethics of Libertarianism, -Hans Hoppe. (From: The Economics and Ethics of Private Property, 1993 & 2006. Article reprinted from 1988):
“As Rothbard points out, economic analysis only establishes that laissez faire will lead to higher standards of living in the long run. In the long run, however, one will be dead. Why then would it not be quite reasonable for a person to argue that while one perfectly agreed with everything economics had to say, one was still more concerned about one’s welfare in the short run and there, clearly for no economist to deny, a privilege or a subsidy would be the nicest thing?”
It is possible for a person to be that short-term oriented. It is also possible for a person to have a longer term orientation. The fruits off a pure private capitalistic society materialize quickly. To illustrate: If I were the richest man in the world today, I would give it all up if that would give me a guarantee that the world would embrace pure capitalism.
A parameter of my gain (of which there would be dozens and dozens): I would expect to live longer because of it. I think 20 years of pure worldwide capitalism would far exceed the quality of health care provided to a lower to middle income person compared with the quality provided after 20 years of development under the current conditions to the richest man alive.
Isn’t this what Hoppe himself has encountered? While working for a publicly funded university, he was advocating for pure capitalism; with the knowledge that this wish could end the existence of that very university.
Another thing to point out is the breadth of psychic benefit. The ability to travel, the ability to enjoy communication with new people, increasing one’s understanding of reality through scientific discovery, having the knowledge that the world is cooperating instead of fighting. These are the sorts of things that a free market brings, and to many people (such as myself) they have tremendous value.
Given that I am not the richest man alive, what libertarianism has to offer me is all the much greater.
To reiterate: I argue for libertarianism not because for me it is an end in itself that is disconnected from all my other desires. Libertarianism for me is the means.
On the Ultimate Justification of the Ethics of Private Property (continuing):“First, it must be noted that the question of what is just or unjust—or for that matter the even more general question of what is a valid proposition and what is not—only arises insofar as I am, and others are, capable of propositional exchanges, i.e., of argumentation. [..]
Second, it must be noted that argumentation does not consist of free-floating propositions but is a form of action requiring the employment of scarce means; and that the means which a person demonstrates as preferring by engaging in propositional exchanges are those of private property.
For one thing, no one could possibly propose anything, and no one could become convinced of any proposition by argumentative means, if a person’s right to make exclusive use of his physical body were not already presupposed. It is this recognition of each other’s mutually exclusive control over one’s own body which explains the distinctive character of propositional exchanges that, while one may disagree about what has been said, it is still possible to agree at least on the fact that there is disagreement.
It is also obvious that such a property right to one’s own body must be said to be justified a priori, for anyone who tried to justify any norm whatsoever would already have to presuppose the exclusive right of control over his body as a valid norm simply in order to say, ‘I propose such and such.’ ”
When person A is communicating with person B, the only things that he momentarily demonstrates as preferring is that A momentarily has enough control over his body to have the conversation, and that B momentarily has enough control over his body to have the conversation. There are many non-libertarian ethical systems compatible with that preference.
Hoppe here substitutes the smallest of freedoms (temporal conditional control) with (what he perceives as) the biggest of freedoms.
I see no inconsistency in the fact itself of a person trying to argue against libertarianism. I would suggest to take on the content of the argument itself. And most of all: I would suggest to study economics and psychology as to present the best case for it, from the point of view of other people’s own thoughts and feelings.
Ludwig von Mises     
Henry Hazlitt  
Harry Browne 
David Friedman 
Robert Murphy 
Daniel James Sanchez     
Fringe Elements 
Libertarianism Is Not Based On Christianity
Libertarianism is not based on Christianity. That is to say: there are people who base their libertarianism on their Christianity.. but there are also many people who do not base their libertarianism in religion.
“For a group that doesn’t believe in evolution, it’s awfully Darwinian.”
- Jon Stewart, October 27 2011, addressing Andrew Napolitano as a libertarian (“Why is it that libertarians..”)
“I have accepted Jesus Christ as my personal Savior, and I endeavor every day to follow Him in all I do and in every position I advocate.”
- Ron Paul, a well known libertarian who is widely supported by other libertarians.
Christianity has been used to justify a lot of different things. What you will find, though, is that libertarians, including Christian libertarians, tend to have different economic views.
1. In what way is counterfeit money damaging to society? If a counterfeiter makes a perfect copy that remains unnoticed, then other people are not harmed directly, such as in theft. Instead, others are harmed indirectly because as the extra money is spent and circulates, it drives up prices compared to without the extra money. The people who get that extra money later (or not at all) suffer in their purchasing power while the people who get that extra money earlier gain in their purchasing power. This is known as the Cantillon Effect.
Libertarians observe that these effects happen not only in private counterfeiting but also in public government banking.
2. Using drugs is —by itself— a peaceful act. For example, It is full well possible for a person to use the psychoactive and recreational drug alcohol without causing harm to others. Libertarians observe that attempting to forcibly prevent others in all cases from drug usage, drug trading and drug creation, causes more harm than good.
But what about drug users who go on the road? Operating a vehicle while using drugs is an added element, which does threaten the safety of others. This is called reckless endangerment. In the case of roads, the solution is for the road owner to set rules for access.
Such economic insights may lead one to favor private property rights and freedom of exchange (libertarianism) over central planning and collectivism.
What about libertarians who oppose abortion? There are non-religious libertarians who are politically against abortion, but there are also many who favor that freedom, such as myself. As for Christian libertarians: if they are against abortion because of their religion, then they are religious first and libertarian second.
Some examples of non-religious libertarians:
- Ayn Rand, writer of The Fountainhead and Atlas Shrugged.
- Penn Jillette, host and producer of Penn & Teller: Bullshit!.
- Michael Shermer, founder of The Skeptics Society, and Editor in Chief of its magazine Skeptic.
Rules require a ruler?
Suppose there is an island with 8 people on it, who live together peacefully. Now A arrives on the island who hasn’t yet learned the advantages of voluntary cooperation.
A makes a trade with B: A’s bag of sugar for a pair of primitive shoes from B. After A has left, B finds out that the bag contains mostly sand. B has been defrauded.
A number of consequences ensue:
- B writes up an account of what happened and gives it to the others on the island. The others on the island now know to be aware of A. They have a high certainty of this claim, because B stakes his reputation on it, and B has always been a trustful member of the society.
- The others on the island now no longer give A any leeway. This means that they will not give him a loan or do him any favors. If A wants to trade with anyone he will have to pay upfront in full.
- A will have to pay much higher prices because it is riskier for people to deal with a criminal.
- A will not be hired because it is too risky to let him have any responsibilities. He may end up costing people more than he can deliver. Or he is only given work for very low pay, as the demand for his labor is extremely low.
- He will be encouraged by everyone to pay B back.
A can restore his reputation if he pays back B and demonstrates that he can be trusted again. This can take a while, but all signs of goodwill will allow him more benefits from the society. For example, if he pays back B whatever he can and agrees on a payment plan for the remainder, B can announce this resolution publicly and that way A can get back on the road to recovery.
You can see that in this society, through the use of reputation and sharing of experiences, prevention of crime and resolution are the main goals.
Alternatively, B could consider getting his property back by force. There are risks involved in using force, but he may think it is worth it. B has to consider the consequences for his own reputation. If he acts unreasonable he may end up being treated differently himself by the rest of society.
In either of these cases, this society has no ruler. But it does have rules:
- Don’t harm other people or their property.
- Respect agreements.
- Act proportional.
- No person rules another person and..
- ..there are no taxes.
Price Theory (by LifeIsHowItIs)
There are certain properties that make a good an economic good, or a thing that is able to obtain a price, are
- It must exist in scarcity
- There must be a human need that the good satisfies
- We must have knowledge that it will satisfy that need (oil was for most of human society not an economic good because we lacked the the knowledge/technology to apply it towards use in consumer goods or the production thereof)
- We must be able to have command of that good (If there was oil on Jupiter, since we are incapable of harnessing it, it is not a “good”)
People prefer more goods to less goods. The division of labor creates specialization, which means one man doesn’t have to produce everything that he want for himself by himself. This is why we trade.
How prices are determined for economic goods:
Start with two people: a monopolistic producer of a good and a consumer of a good.
Mr. A has one bushel of apples to sell and is the only man in the area that has it. Mr. 1 wants to purchase this bushel of apples.
For this trade to occur and therefore for a price to be established is, Mr. A and Mr. 1 to must a inverse evaluations of goods; that is, Mr. A prefers whatever good Mr. 1 is offering more highly than what he currently possesses and for Mr. 1 has the opposite evaluation, valuing the goods Mr. A is offering more highly than what he currently possesses.
Parenthesis show what an actor would like to own over what they currently do.
- Mr. A is willing to give up his bushel of apples for $4 or more.
- Mr. 1 is willing to pay $5 or less for a bushel of apples.
Between Mr. A and Mr. 1, there is a $1 price span at which the trade can occur; and if their bargaining power is equal, it will probably settle somewhere in the middle.
The price for one bushel of apples then becomes $4.50 in this trade. In this way, prices are set by both actors in a trade.
We are all familiar with this process as producers. When we sell our houses on the market, or try to sell or mp3 players or any other good on craigslist or ebay, what we have is an asking price. We see the term “or best offer” after houses and products sold in advertisements constantly. Producers set a floor which they will not go below; consumers set a ceiling which they will not go above.
We also know this as employees. Wages are the price set for the good of labor. Although we would be very happy to take a large sum of money for our labor, we are willing to work for $15 because (1) it is the highest price at which we can find a buyer and (2) we value $15 an hour higher than we do other options available to us for the time and energy we will spend working.
This is a very important fact of prices: Producers of any good, even monopolistic producers, cannot unilaterally set prices, although they would like to. If Mr. A would only be willing to give up his apples for $6, then an exchange would not have occurred and therefore a price not established.
We can now move to a more complex economy. Lets say Mr. A still will not sell below $4, but there are many buyers of the good. Mr. 1 is still willing to pay up to $5, Mr. 2 willing to pay $6, Mr. 3 willing to pay $8 and Mr. 4 willing only to pay $3.
Again, because Mr. A wants to get the most out of his good he will sell to the highest bidder which is Mr. 3, who is willing to pay $8. He can get a higher price because there are buyers that are willing to pay more; and because there is higher demand. Although all of the other people will not be able to buy the bushel of apples, we see that it goes to the person who is willing to pay the most We experience this directly at auction houses, on ebay, and as buyers of homes. This is the competition of consumers who bid prices up to obtain the goods they consider most valuable.
We can also see with a monopoly producer how marginal utility can play a part in how prices are set and how goods spread further into the economy. Marginal utility refers to the phenomenon that each additional unit of a good has less value than the previous one. This is because the first unit of a good goes to the satisfaction of our mostly highly value end; the second unit to the goes to the satisfaction of next most highly valued end; and the third to the satisfaction of our third most highly valued end, etc. Lets say now, instead of having only 1 bushel of apples that he is willing to sell, Mr. A has numerous bushels of apples to sell. And for simplicity sake, all buyers personal preferences of the marginal utility of a good drops at $1 intervals. This means that basket one will sell at $8 to Mr 3, basket two’s highest price it can command is then $7, which Mr. 3 also buys; then the highest price a basket can command is $6, which means both Mr. 3 and Mr. 2 can buy; then it drops to $5, which means Mr. 3, Mr. 2 and Mr. 1 can all obtain baskets of apples. Mr. 4 is only willing to pay $3, at which price the exchange would be uneconomical for Mr. A. Therefore, Mr. 4 will not obtain a bushel of apples. Even a monopolist may allow this to happen depending on what he deems the most profitable use of the good.
That being said, one way a monopolists producer such as Mr. A can keep high prices is to restrict supply. Although this may end up being economically beneficial as a monopolist, once other producers are on the market, reducing the supply of the good will help those who are selling it gain more customers and possibly get a better price, while the person who does the withholding loses out on possible profits, making it no longer a viable option.
There is competition between producers, which brings prices down. Once other entrepreneurs see the profits that Mr. A is making, they will come into the market and try and get some of this profit. Now, we have Mr. B who is willing to sell what for $9, Mr. C is willing to sell for $4 and Mr. D willing to sell for $2.
As we saw from the fact that producers do not set prices, Mr. B will be unable to sell his product on the market since there is no willing buyer of a bushel of apples at $9. Because Mr. D is willing to sell his apples for only $2, probably because he has found a more efficient way to produce it, most buyers will go to him so they can get the most bang for their buck. This also means that Mr. 4 who was previously unable to economically buy apples can now do so. Once apples hits $2 because of Mr. D producing his crop more efficiently and selling it more cheaply, other producers of this good will have to learn to compete with this price. They can take his same innovations—whether it be better use of land, better use of fertilizer or pesticides, or a more efficient way to gather the crop at harvest time—and bring their prices down in this way or they can come up with new innovations. If they fail to do so, they will be pushed out of the market as producers of apples.
Large profits signify that there was an unmet need of consumers, and entrepreneurs stepped into fulfill this need. The profits those entrepreneurs obtain attract other producers, creating a competitive environment with each producer striving to have the lowest price and the best quality in order to attract more willing buyers. Profits sustaining in an area of production are due to constant innovation between competitors trying to lower their costs and therefore their prices so that they can gain a larger market share. In this way, prices are being drive down, and profits are pushed towards zero.
For a more in-depth analysis, see:
- Carl Menger - The Principles of Economics, Chapter 5: The Theory of Prices ( http://mises.org/etexts/menger/five.asp )
- Robert LeFevre - The Fear of High Prices ( http://mises.org/media/1157/The-Fear-of-High-Prices )
- Guido Hulsmann - Value, Utility and Price ( http://www.youtube.com/watch?v=NBf60Iue5nQ )
- Joseph Salerno - The Determination of Prices ( http://mises.org/media/1726/The-Determination-of-Prices )
Economic Coordination and the Business Cycle (by Graham Wright)
The Free Market
A free market is a pattern of voluntary interpersonal exchanges. Free market firms in pursuit of profits produce goods and services that satisfy consumer desires as efficiently as possible given the supply conditions.
The market process is how the structure of production – the way land, labor and capital is used – is rearranged in response to changing supply and demand conditions. The market process is coordinated by prices, and profit and loss signals.
Prices, Profit and Loss Signals
Prices are formed by supply and demand. If supply of a good low or if it is highly demanded, the price will be high. If a good is in high supply or there is low demand, the price will be low. Changes in the price reflect changes to the supply and demand conditions.
Production is coordinated by entrepreneurs and businesses seeking profits, and responding to profit and loss signals. There is no need for a ‘central planner’ to coordinate production.
The profit-loss mechanism of the market ensures that businesses best satisfying consumer desires (those using resources efficiently) are rewarded and survive, and businesses failing to satisfy consumer desires (those wasting resources) suffer losses and bankruptcy.
Let’s look at how changes to the supply and conditions lead to an appropriate change to the structure of production…
Suppose demand for a good increases or supply decreases. Then we would say that more production of that good is needed. This change to supply and demand conditions means that firms are able to charge a higher price. This will bring them higher profits. Guided by the profit signal, existing firms will shift more resources into the production of that good. And new firms will enter the market.
The overall effect is that the structure of production is rearranged to increase production of the good, exactly as desired.
Conversely, suppose demand for a good falls or supply increases. Then we would say that less production is needed so that resources can be freed up for use elsewhere. In this situation, firms must lower prices to remain competitive. This will cut down their profits or may result in losses. Guided by this signal, existing firms decrease production of that good, and some may go bankrupt.
The overall effect is that the structure of production is rearranged to decrease production of the good, exactly as desired.
This market process is what allows economic coordination; the structure of production is arranged to optimize the production of goods that consumers desire. When governments intervene in markets, production becomes uncoordinated and resources are wasted from the consumers’ point of view.
Any artificial stimulus or restriction of demand will distort prices so they no longer reflect real consumer desires. Any artificial stimulus or restriction of supply will distort prices so they no longer reflect real supplies of resources. Price controls and product controls disrupt the profit and loss signals that guide businessmen. Bailouts keep resources in the control of firms who are using them inefficiently. Complete government control – socialism – renders economic coordination impossible.
The Business Cycle
So why are economies plagued by recurrent business cycles?
Most economists tell us that the business cycle is a fundamental feature of the market economy. They argue for government intervention in the form of fiscal and / or monetary policy to lessen the effect of the business cycle.
Economists of the Austrian School, like Ludwig von Mises, argue that the business cycle is a failure of economic coordination, which has occurred because of a government intervention. That intervention is the distortion of interest rates that occurs when new money is created by the central bank. With a free market interest rate, the business cycle would not occur.
Austrians further point out that after a boom and bust, there is nothing government can do to help the economy to recover. They can only worsen recessions by intervening further.
The Interest Rate
To understand the Austrian Theory of the Business Cycle, we must first understand what the interest rate represents, and the role that it plays in economic coordination.
The interest rate is the price of borrowing money. Like all prices, interest rates are determined by supply and demand. In this case the demand for loans, and the supply of money available to be loaned (savings).
As we have seen, low supply or high demand will lead to a higher price. So if a society is comprised mainly of individuals who live for the present, with little concern for the future, then the supply of money to be loaned (savings) will be low, and demand for loans will be high. So the price of loans, the interest rate, will be high.
Conversely, if a society is comprised mainly of individuals who save their money for use in the future rather than spending it on present consumption, the supply of money to be loaned will be high, and demand for loans will be low. So the interest rate will be low.
In this way, interest rates coordinate the time-structure of production. That is, whether resources are used more in short-term production projects, to satisfy consumers’ desires for goods now, or they are used more in long-term production projects, to satisfy consumers’ desires for more goods in the future.
The Boom: The Distortion of the Interest Rate
Government manipulation of the interest rate necessarily results in a malinvestment boom.
When a central bank inflates the money supply the interest rate price signal is distorted. This causes the time-structure of production to become distorted. With an interest rate lower than the free market rate due to government manipulation, the amount of savings available for loans appears to be higher than it really is. It appears as though people are saving for the future, when in fact they want to consume now.
Businessmen are misled into starting more and different, especially long-term production projects, believing they will be profitable. There is an “artificial” boom, especially in capital goods industries. This boom is artificial because it is a result of malinvestments of resources in unsustainable projects.
The Bust: The Malinvestments Become Apparent
Busts and recessions inevitably follow artificial booms. During an artificial boom, the malinvestments caused by the distorted interest rate are unseen; they appear to be profitable businesses. The bigger and longer the boom, the more malinvestments occur.
A malinvestment boom is unsustainable, because resources are scarce. There is only so much land, labor and capital available for use in production projects and business ventures. So inevitably there will be a bust, at which time the malinvestments become apparent through bursting price bubbles, job cuts, foreclosures and bankruptcies.
The Recession: Correcting the Malinvestments
A recession is the recovery period following artificial booms and busts. It is the market process reallocating the malinvested resources to where they can be used to satisfy consumers’ real preferences.
The recession-recovery can only be slowed down and made more severe by government interference, since the market process requires free market prices.
More government interventions, such as bailouts, stimulus packages, nationalizations and regulations hamper the recovery, by maintaining or introducing new price distortions.
If the government wants to help the economy recover it should reduce the amount of interventions it currently makes. It could eliminate or reduce taxes and regulations. It could eliminate price controls like the minimum wage. Most importantly, it must stop inflating the money supply and allow interest rates to rise to their market level. Keeping interest rates low will only delay the recovery and by creating even more malinvestments, it will lead to an even bigger bust at some point in the future.
Hyperinflation: The End of the Line
Hyperinflation is when the money supply is increased so much that the value of the money rapidly decreases, until it is almost worthless.
There are many examples of hyperinflation in recent history. At this point economic coordination has broken down completely and the division of labor collapses.
Central planners lack the knowledge necessary to coordinate an economy.
That knowledge can only be discovered through the market process.