WEBVTT NOTE 12.03. Direct Effects of Intervention on Utility 1 00:00:00.000 --> 00:00:06.000 3. Direct Effects of Intervention on Utility 2 00:00:06.000 --> 00:00:14.000 In tracing the effects of intervention, we must explore both the direct and the indirect consequences. 3 00:00:14.000 --> 00:00:23.000 In the first place, intervention will have direct immediate consequences on the utilities of those participating. 4 00:00:23.000 --> 00:00:28.000 On the one hand, when the society is free and there is no intervention, 5 00:00:28.000 --> 00:00:48.560 In short, everyone's utility ex ante will be maximized, provided we take care not to 6 00:00:48.560 --> 00:00:52.480 interpret utility in a cardinal manner. 7 00:00:52.480 --> 00:00:59.880 Any exchange on the free market, indeed, any action in the free society, occurs because 8 00:00:59.880 --> 00:01:04.280 it is expected to benefit each party concerned. 9 00:01:04.280 --> 00:01:12.240 If we may use the term society to depict the pattern, the array, of all individual exchanges, 10 00:01:12.240 --> 00:01:19.920 then we may say that the free market maximizes social utility, since everyone gains in utility 11 00:01:19.920 --> 00:01:38.920 Coercive Intervention, on the other hand, signifies per se that the individual or individuals coerced would not have voluntarily done what they are now being forced to do by the intervener. 12 00:01:38.920 --> 00:01:45.880 The person who is forced into saying or not saying something, or into making or not making 13 00:01:45.880 --> 00:01:53.120 an exchange with the intervener or with a third party, is having his actions changed 14 00:01:53.120 --> 00:01:55.540 by a threat of violence. 15 00:01:55.540 --> 00:02:03.320 The man being coerced, therefore, always loses in utility as a result of the intervention, 16 00:02:03.320 --> 00:02:08.140 for his action has been forcibly changed by its impact. 17 00:02:08.140 --> 00:02:15.420 In autistic and binary interventions, the individual subjects each lose in utility. 18 00:02:15.420 --> 00:02:21.760 In triangular interventions, at least one and sometimes both of the pair of would-be 19 00:02:21.760 --> 00:02:26.140 exchangers lose in utility. 20 00:02:26.140 --> 00:02:29.420 Who gains in utility ex ante? 21 00:02:29.420 --> 00:02:34.720 Clearly, the intervener, otherwise he would not have made the intervention. 22 00:02:34.720 --> 00:02:42.640 In the case of binary intervention, he himself gains directly in exchangeable goods or services 23 00:02:42.640 --> 00:02:45.640 at the expense of his subject. 24 00:02:45.640 --> 00:02:51.860 Perhaps we may note here the German sociologist Franz Oppenheimer's distinction between the 25 00:02:51.860 --> 00:02:59.600 free market and binary intervention as the economic as against the political means to 26 00:02:59.600 --> 00:03:02.840 the satisfaction of one's wants. 27 00:03:02.840 --> 00:03:10.000 There are two fundamentally opposed means whereby man, requiring sustenance, is impelled 28 00:03:10.000 --> 00:03:15.080 to obtain the necessary means for satisfying his desires. 29 00:03:15.080 --> 00:03:21.300 These are work and robbery, one's own labor and the forcible appropriation of the labor 30 00:03:21.300 --> 00:03:22.300 of others. 31 00:03:22.300 --> 00:03:29.280 I propose to call one's own labor, and the equivalent exchange of one's own labor for 32 00:03:29.280 --> 00:03:36.620 for the Labor of Others, the Economic Means for the Satisfaction of Needs, while the unrequited 33 00:03:36.620 --> 00:03:42.460 appropriation of the Labor of Others will be called the Political Means. 34 00:03:42.460 --> 00:03:47.680 The State is an Organization of the Political Means. 35 00:03:47.680 --> 00:03:54.480 In the case of autistic and triangular interventions, the intervener gains in a sense of psychic 36 00:03:54.480 --> 00:04:13.180 In contrast to the free market, therefore, all cases of intervention supply one set of 37 00:04:13.180 --> 00:04:18.100 men with gains at the expense of another set. 38 00:04:18.100 --> 00:04:24.980 In binary interventions, the direct gains and losses are tangible in the form of exchangeable 39 00:04:24.980 --> 00:04:27.180 goods or services. 40 00:04:27.180 --> 00:04:34.260 In other cases, the direct gains are non-exchangeable satisfactions to the intervenors, and the 41 00:04:34.260 --> 00:04:44.540 direct loss is being coerced into less satisfying, if not positively painful, forms of activity. 42 00:04:44.540 --> 00:04:50.460 For the development of economic science, people tended to think of exchange and the market 43 00:04:50.460 --> 00:04:55.660 as always benefiting one party at the expense of the other. 44 00:04:55.660 --> 00:05:01.540 This was the root of the mercantilist view of the market, of what Ludwig von Mises calls 45 00:05:01.540 --> 00:05:04.620 the montane fallacy. 46 00:05:04.620 --> 00:05:10.940 Economics has shown this to be a fallacy, for on the market, both parties to an exchange 47 00:05:10.940 --> 00:05:12.940 will benefit. 48 00:05:12.940 --> 00:05:19.380 One of the roots of this fallacy is the idea that in an exchange, the two things exchanged 49 00:05:19.380 --> 00:05:28.480 are or should be equal in value, and that inequality of value demonstrates exploitation. 50 00:05:28.480 --> 00:05:35.360 We have seen on the contrary that any exchange involves inequality of the values of each 51 00:05:35.360 --> 00:05:52.960 On the market, therefore, there can be no such thing as exploitation. 52 00:05:52.960 --> 00:06:00.120 But the thesis of an inherent conflict of interest is true whenever the state or anyone 53 00:06:00.120 --> 00:06:04.620 else wielding force intervenes on the market. 54 00:06:04.620 --> 00:06:11.780 For then, the intervener gains at the expense of the subjects who lose in utility. 55 00:06:11.780 --> 00:06:18.360 On the market, all is harmony, but as soon as intervention appears on the scene, conflict 56 00:06:18.360 --> 00:06:26.180 is created, for each person or group may participate in a scramble to be a net gainer rather than 57 00:06:26.180 --> 00:06:33.560 a net loser, to be part of the intervening team, as it were, rather than one of the victims, 58 00:06:33.560 --> 00:06:41.160 and the very institution of taxation ensures that some will be in the net gaining and others 59 00:06:41.160 --> 00:06:43.880 in the net losing class. 60 00:06:43.880 --> 00:06:50.360 It has become fashionable to assert that John C. Calhoun anticipated the Marxian doctrine 61 00:06:50.360 --> 00:06:59.040 of class exploitation, but actually Calhoun's classes were castes, creatures of state intervention 62 00:06:59.040 --> 00:07:00.640 itself. 63 00:07:00.640 --> 00:07:08.200 In particular, Calhoun saw that the binary intervention of taxation must always be spent 64 00:07:08.200 --> 00:07:15.280 so that some people in the community become net payers of tax funds and the others net 65 00:07:15.280 --> 00:07:16.840 recipients. 66 00:07:16.840 --> 00:07:23.640 Calhoun defined the latter as the ruling class and the former as the ruled. 67 00:07:23.640 --> 00:07:31.440 Thus, few comparatively as they are, the agents and employees of the government constitute 68 00:07:31.440 --> 00:07:37.680 that portion of the community who are the exclusive recipients of the proceeds of the 69 00:07:37.680 --> 00:07:38.680 taxes. 70 00:07:38.680 --> 00:07:45.160 But as the recipients constitute only a portion of the community, it follows that the action 71 00:07:45.160 --> 00:07:52.360 of the fiscal process must be unequal between the payers of the taxes and the recipients 72 00:08:22.360 --> 00:08:32.000 It is then manifest that taxes must be, in effect, bounties to that portion of the community 73 00:08:32.000 --> 00:08:38.080 which receives more in disbursements than it pays in taxes, while to the other, which 74 00:08:38.080 --> 00:08:46.500 pays in taxes more than it receives in disbursements, they are taxes in reality, burdens instead 75 00:08:46.500 --> 00:08:48.040 of bounties. 76 00:08:48.040 --> 00:08:50.380 This consequence is unavoidable. 77 00:08:50.380 --> 00:08:57.100 results from the nature of the process, be the taxes ever so equally laid. 78 00:08:57.100 --> 00:09:03.460 The necessary result then of the unequal fiscal action of the government is to divide the 79 00:09:03.460 --> 00:09:11.960 community into two great classes, one consisting of those who in reality pay the taxes and 80 00:09:11.960 --> 00:09:18.500 of course bear exclusively the burden of supporting the government, and the other of those who 81 00:09:18.500 --> 00:09:25.120 who are the recipients of their proceeds through disbursements and who are, in fact, supported 82 00:09:25.120 --> 00:09:31.940 by the government, or the effect of this is to place them in antagonistic relations in 83 00:09:31.940 --> 00:09:38.520 reference to the fiscal action of the government, for the greater the taxes and disbursements, 84 00:09:38.520 --> 00:09:45.140 the greater the gain of the one and the loss of the other, and vice versa. 85 00:09:45.140 --> 00:09:51.940 Since all state actions rest on the fundamental binary intervention of taxation, it follows 86 00:09:51.940 --> 00:10:00.900 that no state action can increase social utility, that is, can increase the utility of all affected 87 00:10:00.900 --> 00:10:03.300 individuals. 88 00:10:03.300 --> 00:10:10.700 A common objection to the conclusion that the free market, in unique contrast to intervention, 89 00:10:10.700 --> 00:10:20.700 Which faces the utility of every individual in society points to the fate of the entrepreneur whose product suddenly becomes obsolete. 90 00:10:20.700 --> 00:10:28.700 Take for example the buggy manufacturer who faces a shift in public demand from buggies to automobiles. 91 00:10:28.700 --> 00:10:33.700 Does he not lose utility from the operation of the free market? 92 00:10:33.700 --> 00:10:42.700 We must realize, however, that we are concerned only with the utilities that are demonstrated by the manufacturer's action. 93 00:10:42.700 --> 00:10:55.700 In both period one, when consumers demanded buggies, and in period two, when they shifted to autos, he acts so as to maximize his utility on the free market. 94 00:10:55.700 --> 00:11:07.700 The fact that, in retrospect, he prefers the results of period one may be interesting data for the historian, but is irrelevant for the economic theorist. 95 00:11:07.700 --> 00:11:21.700 For the manufacturer is not living in period one anymore. He lives always under present conditions and in relation to the present value scales of his fellow men. 96 00:11:21.700 --> 00:11:29.900 for Men, Voluntary Exchanges in any given period will increase the utility of everyone, 97 00:11:29.900 --> 00:11:33.800 and will therefore maximize social utility. 98 00:11:33.800 --> 00:11:40.660 The buggy manufacturer could not restore the conditions or results of period one unless 99 00:11:40.660 --> 00:11:47.680 he used force against others to coerce their exchanges, but in that case social utility 100 00:11:47.680 --> 00:11:54.440 could no longer be maximized because of his invasive act. 101 00:11:54.440 --> 00:12:00.680 Just as some writers have tried to deny the voluntary nature and the mutual benefits of 102 00:12:00.680 --> 00:12:08.560 free exchange, so others have tried to attribute a voluntary quality to actions of the state. 103 00:12:08.560 --> 00:12:16.080 Generally, this attempt has been based either on the view that there exists an entity, society, 104 00:12:16.080 --> 00:12:22.160 which cheerfully endorses and supports the actions of the state, or that the majority 105 00:12:22.160 --> 00:12:29.880 endorses these acts and that this somehow means universal support, or, finally, that 106 00:12:29.880 --> 00:12:36.540 somehow, down deep, even the opposing minority endorses the acts of the state. 107 00:12:36.540 --> 00:12:43.200 From these fallacious assumptions, they conclude that the state can increase social utility 108 00:12:43.200 --> 00:12:46.720 at least as well as the market can. 109 00:12:46.720 --> 00:12:53.000 Schumpeter's insights on the fallacy of attributing a voluntary nature to the state deserve to 110 00:12:53.000 --> 00:12:54.900 be heeded. 111 00:12:54.900 --> 00:13:01.320 Ever since the prince's feudal incomes ceased to be of major importance, the state has been 112 00:13:01.320 --> 00:13:08.560 living on a revenue which was being produced in the private sphere for private purposes, 113 00:13:08.560 --> 00:13:13.760 had to be deflected from these purposes by political force. 114 00:13:13.760 --> 00:13:20.800 The theory which construes taxes on the analogy of club dues or of the purchase of the services 115 00:13:20.800 --> 00:13:29.120 of, say, a doctor, only proves how far removed this part of the social sciences is from scientific 116 00:13:29.120 --> 00:13:32.000 habits of mind. 117 00:13:32.000 --> 00:13:38.000 Having described the unanimity and harmony of the free market, as well as the conflict 118 00:13:38.000 --> 00:13:45.320 and Losses of Utility Generated by Intervention, let us ask what happens if government is used 119 00:13:45.320 --> 00:13:53.080 to check interventions in the market by private criminals, that is, private imposers of coerced 120 00:13:53.080 --> 00:13:54.080 exchanges. 121 00:13:54.080 --> 00:13:59.480 It has been asked, is not this police function an act of intervention? 122 00:13:59.480 --> 00:14:07.040 And does not the free market itself then necessarily rest on a framework of such intervention? 123 00:14:07.040 --> 00:14:13.160 And does not the existence of the free market therefore require a loss of utility on the 124 00:14:13.160 --> 00:14:17.480 part of the criminals who are being punished by the government? 125 00:14:17.480 --> 00:14:23.460 In the first place, we must remember that the purely free market is an array of voluntary 126 00:14:23.460 --> 00:14:27.380 exchanges between sets of two persons. 127 00:14:27.380 --> 00:14:33.600 If there are no threats of criminal intervention in that market, say, because everyone feels 128 00:14:33.600 --> 00:14:50.600 The Police Function is therefore solely a secondary derivative problem, not a precondition of the free market. 129 00:14:50.600 --> 00:15:01.600 Secondly, if governments or private agencies, for that matter, are employed to check and combat intervention in society by criminals, 130 00:15:01.600 --> 00:15:08.880 It is certainly obvious that this combat imposes losses of utility upon the criminals. 131 00:15:08.880 --> 00:15:14.800 But these acts of defense are hardly intervention in our sense of the term. 132 00:15:14.800 --> 00:15:22.020 For the losses of utility are being imposed only upon people who, in turn, have been trying 133 00:15:22.020 --> 00:15:26.800 to impose losses of utility on peaceful citizens. 134 00:15:26.800 --> 00:15:33.760 In short, the force used by police agencies in defending individual freedom, that is, 135 00:15:33.760 --> 00:15:40.580 in defending the persons and property of the citizens, is purely an inhibitory force. 136 00:15:40.580 --> 00:15:47.140 It is counter-intervention against true initiatory intervention. 137 00:15:47.140 --> 00:15:53.960 While such counter-action cannot maximize social utility, the utility of everyone in 138 00:15:53.960 --> 00:15:58.080 and Society Involved in Interpersonal Actions. 139 00:15:58.080 --> 00:16:06.360 It does maximize the utility of non-criminals, that is, those who have been peacefully maximizing 140 00:16:06.360 --> 00:16:11.760 their own utility without inflicting losses upon others. 141 00:16:11.760 --> 00:16:18.160 Should these defense agencies do their job perfectly and eliminate all interventions, 142 00:16:18.160 --> 00:16:24.160 and their existence will be perfectly compatible with the maximization of social utility.