WEBVTT NOTE 2. Fundamentals of Intervention 1 00:00:00.000 --> 00:00:05.000 Chapter 2 Fundamentals of Intervention 2 00:00:05.000 --> 00:00:10.000 1 Types of Intervention 3 00:00:10.000 --> 00:00:17.060 We have so far contemplated a free society and a free market, where any needed defense 4 00:00:17.060 --> 00:00:24.480 against violent invasion of person and property is supplied not by the state, but by freely 5 00:00:24.480 --> 00:00:28.560 competitive marketable defense agencies. 6 00:00:28.560 --> 00:00:35.200 Our major task in this volume is to analyze the effects of various types of violent intervention 7 00:00:35.200 --> 00:00:39.200 in society, and especially in the market. 8 00:00:39.200 --> 00:00:45.720 Most of our examples will deal with the state, since the state is uniquely the agency engaged 9 00:00:45.720 --> 00:00:49.360 in regularized violence on a large scale. 10 00:00:49.360 --> 00:00:56.640 However, our analysis applies to the extent that any individual or group commits violent 11 00:00:56.640 --> 00:01:14.440 One of the most lucid analyses of the distinction between state and market was set forth by 12 00:01:14.440 --> 00:01:16.320 Franz Oppenheimer. 13 00:01:16.320 --> 00:01:22.340 He pointed out that there are fundamentally two ways of satisfying a person's wants, 14 00:01:22.340 --> 00:01:30.580 One by production and voluntary exchange with others on the market, and two by violent expropriation 15 00:01:30.580 --> 00:01:32.680 of the wealth of others. 16 00:01:32.680 --> 00:01:39.380 A person may receive gifts, but this is a unitary act of the giver, not involving an 17 00:01:39.380 --> 00:01:42.220 act of the receiver himself. 18 00:01:42.220 --> 00:01:48.580 The first method Oppenheimer termed the economic means for the satisfaction of wants. 19 00:01:48.580 --> 00:01:55.900 The Second Method, The Political Means, The State is trenchantly defined as the organization 20 00:01:55.900 --> 00:01:58.420 of the political means. 21 00:01:58.420 --> 00:02:05.700 A generic term is needed to designate an individual or group that commits invasive violence in 22 00:02:05.700 --> 00:02:06.940 society. 23 00:02:06.940 --> 00:02:14.800 We may call intervener or invader, one who intervenes violently in free social or market 24 00:02:14.800 --> 00:02:16.080 relations. 25 00:02:16.080 --> 00:02:22.240 The term applies to any individual or group that initiates violent intervention in the 26 00:02:22.240 --> 00:02:26.580 free actions of persons and property owners. 27 00:02:26.580 --> 00:02:30.520 What types of intervention can the invader commit? 28 00:02:30.520 --> 00:02:34.200 Broadly we may distinguish three categories. 29 00:02:34.200 --> 00:02:41.380 In the first place, the intervener may command an individual subject to do or not to do certain 30 00:02:41.380 --> 00:02:56.480 In short, he restricts the subject's use of his property when exchange is not involved. 31 00:02:56.480 --> 00:03:03.740 This may be called an autistic intervention, for any specific command directly involves 32 00:03:03.740 --> 00:03:06.200 only the subject himself. 33 00:03:06.200 --> 00:03:13.400 Secondly, the intervener may enforce a coerced exchange between the individual subject and 34 00:03:13.400 --> 00:03:19.360 himself, or a coerced gift to himself from the subject. 35 00:03:19.360 --> 00:03:27.640 Thirdly, the invader may either compel or prohibit an exchange between a pair of subjects. 36 00:03:27.640 --> 00:03:34.200 The former may be called a binary intervention, since a hegemonic relation is established 37 00:03:34.200 --> 00:04:00.280 The Market, complex though it may be, consists of a series of exchanges between pairs of individuals. 38 00:04:00.280 --> 00:04:07.320 However extensive the interventions then, they may be resolved into unit impacts on either 39 00:04:07.320 --> 00:04:15.000 individual subjects or pairs of individual subjects. All these types of intervention, 40 00:04:15.000 --> 00:04:22.440 of course, are subdivisions of the hegemonic relation, the relation of command and obedience, 41 00:04:22.440 --> 00:04:27.880 as contrasted with the contractual relation of voluntary mutual benefit. 42 00:04:27.880 --> 00:04:37.880 Autistic intervention occurs when the invader coerces a subject without receiving any good or service in return. 43 00:04:37.880 --> 00:04:51.880 Widely disparate types of autistic intervention are homicide, assault, and compulsory enforcement or prohibition of any salute, speech, or religious observance. 44 00:04:51.880 --> 00:05:11.880 Even if the intervener is the state, which issues the edict to all individuals in the society, the edict is still in itself an autistic intervention, since the lines of force, so to speak, radiate from the state to each individual alone. 45 00:05:11.880 --> 00:05:23.960 Binary intervention occurs when the invader forces the subject to make an exchange or a unilateral gift of some good or service to the invader. 46 00:05:23.960 --> 00:05:33.640 Highway robbery and taxes are examples of binary intervention, as are conscription and compulsory jury service. 47 00:05:33.640 --> 00:05:42.980 Whether the binary hegemonic relation is a coerced gift or a coerced exchange does not really matter a great deal. 48 00:05:42.980 --> 00:05:47.140 The only difference is in the type of coercion involved. 49 00:05:47.140 --> 00:05:57.480 Slavery, of course, is usually a coerced exchange, since the slave owner must supply his slaves with subsistence. 50 00:05:57.480 --> 00:06:05.880 Curiously enough, writers on political economy have recognized only the third category as intervention. 51 00:06:05.880 --> 00:06:13.400 This is to be inferred from, rather than discovered in explicit form in, their writings. 52 00:06:13.400 --> 00:06:21.080 As far as we know, no one has systematically categorized or analyzed types of intervention. 53 00:06:21.080 --> 00:06:27.800 It is understandable that preoccupation with catallactic problems has led economists to 54 00:06:27.800 --> 00:06:35.640 overlook the broader praxeological category of actions that lie outside the monetary exchange 55 00:06:35.640 --> 00:06:43.640 nexus. Nevertheless, they are part of the subject of praxeology and should be subjected to analysis. 56 00:06:43.640 --> 00:06:50.520 There is far less excuse for economists to neglect the binary category of intervention. 57 00:06:50.520 --> 00:07:02.820 Yet many economists who profess to be champions of the free market and opponents of interference with it have a peculiarly narrow view of freedom and intervention. 58 00:07:02.820 --> 00:07:15.320 Acts of binary intervention, such as conscription and the imposition of income taxes, are not considered intervention at all, nor as interferences with the free market. 59 00:07:15.320 --> 00:07:24.120 Only instances of triangular intervention, such as price control, are conceded to be intervention. 60 00:07:24.120 --> 00:07:36.020 Curious schemata are developed in which the market is considered absolutely free and unhampered despite a regular system of imposed taxation. 61 00:07:36.020 --> 00:07:46.020 Yet taxes and conscripts are paid in money, and thus enter the catallactic as well as the wider praxeological nexus. 62 00:07:46.020 --> 00:07:51.020 A narrow view of freedom is characteristic in the present day. 63 00:07:51.020 --> 00:08:01.020 In the political lexicon of modern America, left-wingers often advocate freedom in the sense of opposition to autistic intervention, 64 00:08:01.020 --> 00:08:05.020 but look benignly on triangular intervention. 65 00:08:05.020 --> 00:08:16.020 Right-wingers, on the other hand, severely oppose triangular intervention, but tend to favor, or remain indifferent to, autistic intervention. 66 00:08:16.020 --> 00:08:21.020 Both groups are ambivalent toward binary intervention. 67 00:08:21.020 --> 00:08:30.020 In tracing the effects of intervention, one must take care to analyze all its consequences, direct and indirect. 68 00:08:30.020 --> 00:08:31.020 Indirect 69 00:08:31.020 --> 00:08:37.820 It is impossible in the space of this volume to trace all the effects of every one of the 70 00:08:37.820 --> 00:08:44.660 almost infinite number of possible varieties of intervention, but sufficient analysis can 71 00:08:44.660 --> 00:08:50.700 be made of the important categories of intervention and the consequences of each. 72 00:08:50.700 --> 00:08:58.800 Thus, it must be remembered that acts of binary intervention have definite triangular repercussions. 73 00:08:58.800 --> 00:09:05.520 An income tax will shift the pattern of exchanges between subjects from what it otherwise would 74 00:09:05.520 --> 00:09:06.800 have been. 75 00:09:06.800 --> 00:09:11.920 Furthermore, all the consequences of an act must be considered. 76 00:09:11.920 --> 00:09:19.280 It is not sufficient to engage in a partial equilibrium analysis of taxation, for example, 77 00:09:19.280 --> 00:09:26.200 and to consider a tax completely apart from the fact that the state subsequently spends 78 00:09:26.200 --> 00:09:28.000 the tax money. 79 00:09:28.000 --> 00:09:34.000 2. Direct Effects of Intervention on Utility 80 00:09:34.000 --> 00:09:38.000 a. Intervention and Conflict 81 00:09:38.000 --> 00:09:44.000 The first step in analyzing intervention is to contrast the direct effect 82 00:09:44.000 --> 00:09:50.000 on the utilities of the participants with the effect of a free society. 83 00:09:50.000 --> 00:09:55.000 When people are free to act, they will always act in a way that they believe 84 00:09:55.000 --> 00:10:04.000 The Federal Reserve will maximize their utility, that is, will raise them to the highest possible position on their value scale. 85 00:10:04.000 --> 00:10:15.000 Their utility ex ante will be maximized, provided we take care to interpret utility in an ordinal rather than a cardinal manner. 86 00:10:15.000 --> 00:10:23.000 Any action, any exchange that takes place on the free market, or more broadly in the free society, 87 00:10:23.000 --> 00:10:28.040 occurs because of the expected benefit to each party concerned. 88 00:10:28.040 --> 00:10:36.160 If we allow ourselves to use the term society to depict the pattern of all individual exchanges, 89 00:10:36.160 --> 00:10:45.060 then we may say that the free market maximizes social utility, since everyone gains in utility. 90 00:10:45.060 --> 00:10:52.920 We must be careful, however, not to hypostatize society into a real entity that means something 91 00:10:52.920 --> 00:11:04.760 Coercive intervention, on the other hand, signifies per se that the individual or individuals 92 00:11:04.760 --> 00:11:11.800 coerced would not have done what they are now doing were it not for the intervention. 93 00:11:11.800 --> 00:11:18.320 The individual who is coerced into saying or not saying something, or into making or 94 00:11:18.320 --> 00:11:25.420 For not making an exchange with the intervener, or with someone else, is having his actions 95 00:11:25.420 --> 00:11:28.640 changed by a threat of violence. 96 00:11:28.640 --> 00:11:35.200 The coerced individual loses in utility as a result of the intervention, for his action 97 00:11:35.200 --> 00:11:38.760 has been changed by its impact. 98 00:11:38.760 --> 00:11:45.540 Any intervention, whether it be autistic, binary or triangular, causes the subjects 99 00:11:45.540 --> 00:11:48.100 to lose in utility. 100 00:11:48.100 --> 00:11:54.460 In autistic and binary intervention, each individual loses in utility. 101 00:11:54.460 --> 00:12:00.980 In triangular intervention, at least one, and sometimes both, of the pair of would-be 102 00:12:00.980 --> 00:12:04.780 exchangers, lose in utility. 103 00:12:04.780 --> 00:12:09.940 Who in contrast gains in utility ex ante? 104 00:12:09.940 --> 00:12:14.500 Clearly the intervener, otherwise he would not have intervened. 105 00:12:14.500 --> 00:12:21.700 Whether he gains in exchangeable goods at the expense of his subject, as in binary intervention, 106 00:12:21.700 --> 00:12:29.000 or as in autistic and triangular intervention, he gains in a sense of well-being from enforcing 107 00:12:29.000 --> 00:12:32.340 regulations upon others. 108 00:12:32.340 --> 00:12:38.820 All instances of intervention, then, in contrast to the free market, are cases in which one 109 00:12:38.820 --> 00:12:43.920 set of men gains at the expense of other men. 110 00:12:43.920 --> 00:12:50.800 In binary intervention, the gains and losses are tangible in the form of exchangeable goods 111 00:12:50.800 --> 00:12:52.400 and services. 112 00:12:52.400 --> 00:12:58.200 In other types of intervention, the gains are non-exchangeable satisfactions, and the 113 00:12:58.200 --> 00:13:07.200 loss consists in being coerced into less satisfying types of activity, if not positively painful 114 00:13:07.200 --> 00:13:08.880 ones. 115 00:13:08.880 --> 00:13:13.780 Before the development of economic science, people thought of exchange and the market 116 00:13:13.780 --> 00:13:19.100 as always benefiting one party at the expense of the other. 117 00:13:19.100 --> 00:13:23.300 This was the root of the mercantilist view of the market. 118 00:13:23.300 --> 00:13:29.700 Economics has shown that this is a fallacy, for on the market, both parties to any exchange 119 00:13:29.700 --> 00:13:31.260 benefit. 120 00:13:31.260 --> 00:13:37.300 On the market, therefore, there can be no such thing as exploitation. 121 00:13:37.300 --> 00:13:44.620 But the thesis of a conflict of interest is true whenever the state or any other agency 122 00:13:44.620 --> 00:13:47.240 intervenes on the market. 123 00:13:47.240 --> 00:13:55.020 For then, the intervener gains only at the expense of subjects who lose in utility. 124 00:13:55.020 --> 00:13:57.580 On the market, all is harmony. 125 00:13:57.580 --> 00:14:04.180 But as soon as intervention appears and is established, conflict is created for each 126 00:14:04.180 --> 00:14:10.500 which may participate in a scramble to be a net gainer rather than a net loser, to be 127 00:14:10.500 --> 00:14:16.100 part of the invading team, instead of one of the victims. 128 00:14:16.100 --> 00:14:24.140 It has become fashionable to assert that conservatives like John C. Calhoun anticipated the Marxian 129 00:14:24.140 --> 00:14:27.500 doctrine of class exploitation. 130 00:14:27.500 --> 00:14:34.000 But the Marxian doctrine holds erroneously that there are classes on the free market whose 131 00:14:34.000 --> 00:14:37.060 These Interests Clash and Conflict 132 00:14:37.060 --> 00:14:40.400 Calhoun's insight was almost the reverse. 133 00:14:40.400 --> 00:14:47.540 Calhoun saw that it was the intervention of the state that in itself created the classes 134 00:14:47.540 --> 00:14:49.300 and the conflict. 135 00:14:49.300 --> 00:14:53.980 Castes would be a better term than classes here. 136 00:14:53.980 --> 00:14:58.500 Classes are any collection of units with a certain property in common. 137 00:14:58.500 --> 00:15:01.700 There is no reason for them to conflict. 138 00:15:01.700 --> 00:15:08.980 Does the class of men named Jones necessarily conflict with the class of men named Smith? 139 00:15:08.980 --> 00:15:16.180 On the other hand, castes are state-made groups, each with its own set of violence-established 140 00:15:16.180 --> 00:15:19.380 privileges and tasks. 141 00:15:19.380 --> 00:15:26.100 Castes necessarily conflict because some are instituted to rule over the others. 142 00:15:26.100 --> 00:15:32.900 Calhoun particularly perceived this in the case of the binary intervention of taxes, 143 00:15:32.900 --> 00:15:38.780 for he saw that the proceeds of taxes are used and spent, and that some people in the 144 00:15:38.780 --> 00:15:46.380 community must be net payers of tax funds while the others are net recipients. 145 00:15:46.380 --> 00:15:54.640 Calhoun defined the latter as the ruling class of the exploiters, and the former as the ruled 146 00:15:54.640 --> 00:15:59.200 or exploited, and the distinction is quite a cogent one. 147 00:15:59.200 --> 00:16:03.080 Calhoun set forth his analysis brilliantly. 148 00:16:03.080 --> 00:16:09.600 Few comparatively as they are, the agents and employees of the government constitute 149 00:16:09.600 --> 00:16:16.240 that portion of the community who are the exclusive recipients of the proceeds of the 150 00:16:16.240 --> 00:16:17.320 taxes. 151 00:16:17.320 --> 00:16:23.800 Whatever amount is taken from the community in the form of taxes, if not lost, goes to 152 00:16:23.800 --> 00:16:28.520 to them in the shape of expenditures or disbursements. 153 00:16:28.520 --> 00:16:35.360 The two, disbursement and taxation, constitute the fiscal action of the government. 154 00:16:35.360 --> 00:16:37.440 They are correlatives. 155 00:16:37.440 --> 00:16:43.440 What the one takes from the community under the name of taxes is transferred to the portion 156 00:16:43.440 --> 00:16:48.880 of the community who are the recipients under that of disbursements. 157 00:16:48.880 --> 00:16:55.420 But as the recipients constitute only a portion of the community, it follows, taking the two 158 00:16:55.420 --> 00:17:02.360 parts of the fiscal process together, that its action must be unequal between the payers 159 00:17:02.360 --> 00:17:06.700 of the taxes and the recipients of their proceeds. 160 00:17:06.700 --> 00:17:13.380 Nor can it be otherwise, unless what is collected from each individual in the shape of taxes 161 00:17:13.380 --> 00:17:19.700 shall be returned to him in that of disbursements, which would make the process nugatory and 162 00:17:19.700 --> 00:17:21.220 absurd. 163 00:17:21.220 --> 00:17:28.380 Such being the case, it must necessarily follow that some one portion of the community must 164 00:17:28.380 --> 00:17:36.640 pay in taxes more than it receives back in disbursements, while another receives in disbursements 165 00:17:36.640 --> 00:17:39.480 more than it pays in taxes. 166 00:17:39.480 --> 00:17:47.600 It is then manifest, taking the whole process together, that taxes must be, in effect, bounties 167 00:17:47.600 --> 00:17:55.160 to that portion of the community which receives more in disbursements than it pays in taxes, 168 00:17:55.160 --> 00:18:01.280 while to the other, which pays in taxes more than it receives in disbursements, they are 169 00:18:01.280 --> 00:18:06.400 taxes in reality, burdens instead of bounties. 170 00:18:06.400 --> 00:18:09.160 This consequence is unavoidable. 171 00:18:09.160 --> 00:18:16.320 results from the nature of the process, be the taxes ever so equally laid. 172 00:18:16.320 --> 00:18:22.780 The necessary result then of the unequal fiscal action of the government is to divide the 173 00:18:22.780 --> 00:18:31.480 community into two great classes, one consisting of those who in reality pay the taxes and 174 00:18:31.480 --> 00:18:38.320 of course bear exclusively the burden of supporting the government, and the other of those who 175 00:18:38.320 --> 00:18:45.040 who are the recipients of their proceeds through disbursements and who are, in fact, supported 176 00:18:45.040 --> 00:18:54.380 by the government, or, in fewer words, to divide it into taxpayers and tax consumers. 177 00:18:54.380 --> 00:19:00.160 But the effect of this is to place them in antagonistic relations in reference to the 178 00:19:00.160 --> 00:19:07.120 fiscal action of the government and the entire course of policy therewith connected. 179 00:19:07.120 --> 00:19:13.220 For the greater the taxes and disbursements, the greater the gain of the one, and the loss 180 00:19:13.220 --> 00:19:17.080 of the other, and vice versa. 181 00:19:17.080 --> 00:19:23.680 Ruling and ruled apply also to the forms of government intervention, but Calhoun was quite 182 00:19:23.680 --> 00:19:30.840 right in focusing on taxes and fiscal policy as the keystone, for it is taxes that supply 183 00:19:30.840 --> 00:19:46.140 All state intervention rests on the binary intervention of taxes at its base, even if 184 00:19:46.140 --> 00:19:51.800 the state intervened nowhere else, its taxation would remain. 185 00:19:51.800 --> 00:19:58.640 Since the term social can be applied only to every single individual concerned, it is 186 00:19:58.640 --> 00:20:09.640 It is clear that while the free market maximizes social utility, no act of the state can ever increase social utility. 187 00:20:09.640 --> 00:20:16.640 Indeed, the picture of the free market is necessarily one of harmony and mutual benefit. 188 00:20:16.640 --> 00:20:24.640 The picture of state intervention is one of caste conflict, coercion and exploitation. 189 00:20:24.640 --> 00:20:29.640 B. Democracy and the Voluntary 190 00:20:29.640 --> 00:20:36.640 It might be objected that all these forms of intervention are really not coercive, but voluntary, 191 00:20:36.640 --> 00:20:41.640 for in a democracy they are supported by the majority of the people. 192 00:20:41.640 --> 00:20:48.640 But this support is usually passive, resigned, and apathetic, rather than eager, 193 00:20:48.640 --> 00:20:51.640 whether the state is a democracy or not. 194 00:20:51.640 --> 00:20:57.320 As Professor Lindsay Rogers has trenchantly written on the subject of public opinion, 195 00:20:57.320 --> 00:21:05.560 before Great Britain adopted conscription in 1939, only 39% of the voters were for it. 196 00:21:05.560 --> 00:21:12.760 A week after the conscription bill became law, a poll showed that 58% approved. 197 00:21:12.760 --> 00:21:19.000 Many polls in the United States have shown a similar inflation of support for a policy 198 00:21:19.000 --> 00:21:25.640 as soon as it is translated to the statute books or into a presidential order. 199 00:21:25.640 --> 00:21:31.800 In a democracy, the non-voters can hardly be said to support the rulers, and neither 200 00:21:31.800 --> 00:21:34.640 can the voters for the losing side. 201 00:21:34.640 --> 00:21:41.160 But even those who voted for the winners may well have voted merely for the lesser of two 202 00:21:41.160 --> 00:21:42.160 evils. 203 00:21:42.160 --> 00:21:48.600 The interesting question is, why do they have to vote for any evil at all? 204 00:21:48.600 --> 00:21:54.600 Such terms are never used by people when they act freely for themselves or when they purchase 205 00:21:54.600 --> 00:21:56.740 goods on the free market. 206 00:21:56.740 --> 00:22:03.580 No one thinks of his new suit or refrigerator as an evil, lesser or greater. 207 00:22:03.580 --> 00:22:10.700 In such cases, people think of themselves as buying positive goods, not as resignedly 208 00:22:10.700 --> 00:22:13.340 supporting a lesser bad. 209 00:22:13.340 --> 00:22:19.180 The point is that the public never has the opportunity of voting on the state system 210 00:22:19.180 --> 00:22:20.560 itself. 211 00:22:20.560 --> 00:22:26.740 They are caught up in a system in which coercion over them is inevitable. 212 00:22:26.740 --> 00:22:31.780 This coercion would exist even in the most direct democracies. 213 00:22:31.780 --> 00:22:37.620 It is doubly compounded in representative republics, where the people never have a chance 214 00:22:37.620 --> 00:22:42.400 of voting on issues, but only on the men who rule them. 215 00:22:42.400 --> 00:22:48.960 They can only reject men, and this at very long intervals, and if the candidates have 216 00:22:48.960 --> 00:22:56.320 the same views on issues, the public cannot effect any sort of fundamental change. 217 00:22:56.320 --> 00:23:03.460 Be that as it may, as we have said, all states are supported by a majority, whether a voting 218 00:23:03.460 --> 00:23:10.640 democracy or not, otherwise they could not long continue to wield force against the determined 219 00:23:10.640 --> 00:23:13.280 and Resistance of the Majority. 220 00:23:13.280 --> 00:23:20.480 However, the support may simply reflect apathy, perhaps from the resigned belief that the 221 00:23:20.480 --> 00:23:24.760 state is a permanent, if unwelcome, fixture of nature. 222 00:23:24.760 --> 00:23:31.040 Witness the motto, nothing is as permanent as death and taxes. 223 00:23:31.040 --> 00:23:37.840 Setting all these matters aside, however, and even granting that a state might be enthusiastically 224 00:23:37.840 --> 00:24:07.840 The Theory of Money and Credit 225 00:24:07.840 --> 00:24:15.760 States, for no minority can for long rule an actively hostile majority. In a certain sense, 226 00:24:15.760 --> 00:24:23.040 therefore, all tyranny is majority tyranny, regardless of the formalities of the government 227 00:24:23.040 --> 00:24:30.560 structure. It is often stated that under modern conditions of destructive weapons, etc., a 228 00:24:30.560 --> 00:24:37.400 A minority can tyrannize permanently over a majority, but this ignores the fact that 229 00:24:37.400 --> 00:24:44.800 these weapons can be held by the majority or that agents of the minority can mutiny. 230 00:24:44.800 --> 00:24:51.360 The sheer absurdity, for example, of the current belief that a few million could really tyrannize 231 00:24:51.360 --> 00:24:57.760 over a few hundred million active resistance is not often realized. 232 00:24:57.760 --> 00:25:00.460 As David Hume profoundly stated, 233 00:25:00.460 --> 00:25:07.240 Nothing appears more surprising than the easiness with which the many are governed by the few, 234 00:25:07.240 --> 00:25:13.560 and the implicit submission with which men resign their own sentiments and passions to 235 00:25:13.560 --> 00:25:15.480 those of their rulers. 236 00:25:15.480 --> 00:25:21.760 When we inquire by what means this wonder is effected, we shall find that because force 237 00:25:21.760 --> 00:25:27.500 is always on the side of the governed, the governors have nothing to support them but 238 00:25:27.500 --> 00:25:34.460 and Opinion. It is therefore on opinion that government is founded, and this maxim extends 239 00:25:34.460 --> 00:25:42.500 to the most despotic and most military governments. This analysis of majority support applies 240 00:25:42.500 --> 00:25:50.180 to any intervention of rather long-standing, carried on frankly and openly whether or not 241 00:25:50.180 --> 00:25:53.180 The groups are labeled states. 242 00:25:53.180 --> 00:25:57.060 But this does not change our analytic conclusion 243 00:25:57.060 --> 00:26:02.060 of conflict and coercion as a corollary of the state. 244 00:26:02.300 --> 00:26:05.380 The conflict and coercion exist 245 00:26:05.380 --> 00:26:09.740 no matter how many people coerce how many others. 246 00:26:10.900 --> 00:26:15.360 C, utility and resistance to invasion. 247 00:26:15.360 --> 00:26:37.360 To our comparative welfare economic analysis of the free market and the state, it might be objected that when defense agencies restrain an invader from attacking someone's property, they are benefiting the property owner at the expense of a loss of utility by the would-be invader. 248 00:26:37.360 --> 00:26:52.360 Since defense agencies enforce rights on the free market, does not the free market also involve a gain by some at the expense of the utility of others, even if these others are invaders? 249 00:26:52.360 --> 00:27:00.360 In answer, we may state first that the free market is a society in which all exchange voluntarily. 250 00:27:00.360 --> 00:27:08.360 It may most easily be conceived as a situation in which no one aggresses against person or property. 251 00:27:08.360 --> 00:27:15.360 In that case, it is obvious that the utility of all is maximized on the free market. 252 00:27:15.360 --> 00:27:22.360 Defense agencies become necessary only as a defense against invasions of that market. 253 00:27:22.360 --> 00:27:27.360 It is the invader, not the existence of the defense agency, 254 00:27:27.360 --> 00:27:40.360 A defense agency existing without an invader would simply be a voluntarily established insurance against attack. 255 00:27:40.360 --> 00:27:51.360 The existence of a defense agency does not violate the principle of maximum utility, and it still reflects mutual benefit to all concerned. 256 00:27:51.360 --> 00:27:55.360 Conflict enters only with the invader. 257 00:27:55.360 --> 00:28:02.480 The invader, let us say, is in the process of committing an aggressive act against Smith, 258 00:28:02.480 --> 00:28:05.800 thereby injuring Smith for his gain. 259 00:28:05.800 --> 00:28:13.080 The defense agency, rushing to the aid of Smith, of course, injures the invader's utility, 260 00:28:13.080 --> 00:28:18.120 but it does so only to counteract the injury to Smith. 261 00:28:18.120 --> 00:28:23.240 It does help to maximize the utility of the non-criminals. 262 00:28:23.240 --> 00:28:30.460 The principle of conflict and loss of utility was introduced not by the existence of the 263 00:28:30.460 --> 00:28:35.220 defense agency, but by the existence of the invader. 264 00:28:35.220 --> 00:28:42.100 It is still true, therefore, that utility is maximized for all on the free market, whereas 265 00:28:42.100 --> 00:28:49.700 to the extent that there is invasive interference in society, it is infected with conflict and 266 00:28:49.700 --> 00:28:58.140 and Exploitation of Man by Man D. The Argument from Envy 267 00:28:58.140 --> 00:29:04.300 Another objection holds that the free market does not really increase the utility of all 268 00:29:04.300 --> 00:29:10.600 individuals, because some may be so smitten with envy at the success of others that they 269 00:29:10.600 --> 00:29:14.120 really lose in utility as a result. 270 00:29:14.120 --> 00:29:20.880 We cannot, however, deal with hypothetical utilities divorced from concrete action. 271 00:29:20.880 --> 00:29:29.040 We may, as praxeologists, deal only with utilities that we can deduce from the concrete behavior 272 00:29:29.040 --> 00:29:30.920 of human beings. 273 00:29:30.920 --> 00:29:37.960 A person's envy, unembodied in action, becomes pure moonshine from the praxeological point 274 00:29:37.960 --> 00:29:39.040 of view. 275 00:29:39.040 --> 00:29:45.760 All that we know is that he has participated in the free market and to that extent benefits 276 00:29:45.760 --> 00:29:46.760 by it. 277 00:29:46.760 --> 00:29:53.760 How he feels about the exchanges made by others cannot be demonstrated to us unless he commits 278 00:29:53.760 --> 00:29:55.960 an invasive act. 279 00:29:55.960 --> 00:30:02.440 Even if he publishes a pamphlet denouncing these exchanges, we have no ironclad proof 280 00:30:02.440 --> 00:30:06.680 that this is not a joke or a deliberate lie. 281 00:30:06.680 --> 00:30:10.900 E. Utility Ex Post. 282 00:30:10.900 --> 00:30:17.780 We have thus seen that individuals maximize their utility ex ante on the free market, 283 00:30:17.780 --> 00:30:24.040 and that the direct result of an invasion is that the invader's utility gains at the 284 00:30:24.040 --> 00:30:28.280 expense of a loss in utility by his victim. 285 00:30:28.280 --> 00:30:31.720 But what about utilities ex post? 286 00:30:31.720 --> 00:30:38.080 People may expect to benefit when they make a decision, but do they actually benefit from 287 00:30:38.080 --> 00:30:39.580 its results? 288 00:30:39.580 --> 00:30:45.580 The remainder of this volume will largely consist of analysis of what we may call the 289 00:30:45.580 --> 00:30:52.520 indirect consequences of the market or of intervention, supplementing the above direct 290 00:30:52.520 --> 00:30:54.100 analysis. 291 00:30:54.100 --> 00:31:01.380 It will deal with chains of consequences that can be grasped only by study and are not immediately 292 00:31:01.380 --> 00:31:11.500 Error can always occur in the path from anti to post, but the free market is so constructed 293 00:31:11.500 --> 00:31:14.860 that this error is reduced to a minimum. 294 00:31:14.860 --> 00:31:20.620 In the first place, there is a fast-working, easily understandable test that tells the 295 00:31:20.620 --> 00:31:27.340 entrepreneur as well as the income receiver whether he is succeeding or failing at the 296 00:31:27.340 --> 00:31:31.340 The Task of Satisfying the Desires of the Consumer 297 00:31:31.340 --> 00:31:38.340 For the entrepreneur who carries the main burden of adjustment to uncertain consumer desires, 298 00:31:38.340 --> 00:31:41.340 the test is swift and sure. 299 00:31:41.340 --> 00:31:43.340 Profits or Losses 300 00:31:43.340 --> 00:31:47.340 Large profits are a signal that he has been on the right track. 301 00:31:47.340 --> 00:31:50.340 Losses that he has been on a wrong one. 302 00:31:50.340 --> 00:31:56.340 Profits and losses thus spur rapid adjustments to consumer demands. 303 00:31:56.340 --> 00:32:05.740 At the same time, they perform the function of getting money out of the hands of the bad entrepreneurs and into the hands of the good ones. 304 00:32:05.740 --> 00:32:18.440 The fact that good entrepreneurs prosper and add to their capital, and poor ones are driven out, ensures an ever smoother market adjustment to changes in conditions. 305 00:32:18.440 --> 00:32:33.440 Similarly, to a lesser extent, land and labor factors move in accordance with the desire of their owners for higher incomes, and more value-productive factors are rewarded accordingly. 306 00:32:33.440 --> 00:32:38.440 Consumers also take entrepreneurial risks on the market. 307 00:32:38.440 --> 00:32:45.320 Many critics of the market, while willing to concede the expertise of the capitalist entrepreneurs, 308 00:32:45.320 --> 00:32:52.840 bewail the prevailing ignorance of consumers, which prevents them from gaining the utility ex post 309 00:32:52.840 --> 00:33:01.080 that they expected to have ex ante. Typically, Wesley C. Mitchell entitled one of his famous essays, 310 00:33:01.080 --> 00:33:06.840 The Backward Art of Spending Money. Professor Ludwig von Mises has keenly 311 00:33:06.840 --> 00:33:14.040 pointed out the paradoxical position of so many progressives who insist that consumers are too 312 00:33:14.040 --> 00:33:21.720 ignorant or incompetent to buy products intelligently while at the same time touting the virtues of 313 00:33:21.720 --> 00:33:29.400 democracy where the same people vote for politicians whom they do not know and for policies that they 314 00:33:29.400 --> 00:33:30.400 They Hardly Understand 315 00:33:30.400 --> 00:33:38.120 In fact, the truth is precisely the reverse of the popular ideology. 316 00:33:38.120 --> 00:33:44.000 Consumers are not omniscient, but they do have direct tests by which to acquire their 317 00:33:44.000 --> 00:33:45.000 knowledge. 318 00:33:45.000 --> 00:33:49.760 They buy a certain brand of breakfast food and they don't like it, so they don't buy 319 00:33:49.760 --> 00:33:51.040 it again. 320 00:33:51.040 --> 00:33:56.080 They buy a certain type of automobile and they do like its performance, so they buy 321 00:33:56.080 --> 00:33:57.460 another one. 322 00:33:57.460 --> 00:34:02.340 In both cases, they tell their friends of this newly won knowledge. 323 00:34:02.340 --> 00:34:08.700 Other consumers patronize consumers' research organizations, which can warn or advise them 324 00:34:08.700 --> 00:34:10.220 in advance. 325 00:34:10.220 --> 00:34:16.980 But in all cases, the consumers have the direct test of results to guide them, and the firm 326 00:34:16.980 --> 00:34:24.300 that satisfies the consumers expands and prospers, while the firm that fails to satisfy them 327 00:34:24.300 --> 00:34:26.600 goes out of business. 328 00:34:26.600 --> 00:34:32.320 On the other hand, voting for politicians and public policies is a completely different 329 00:34:32.320 --> 00:34:33.320 matter. 330 00:34:33.320 --> 00:34:41.200 Here there are no direct tests of success or failure whatever, neither profits and losses 331 00:34:41.200 --> 00:34:45.480 nor enjoyable or unsatisfying consumption. 332 00:34:45.480 --> 00:34:51.400 In order to grasp consequences, especially the indirect consequences of governmental 333 00:34:51.400 --> 00:34:58.680 Decisions, it is necessary to comprehend a complex chain of praxeological reasoning, 334 00:34:58.680 --> 00:35:01.800 such as will be developed in this volume. 335 00:35:01.800 --> 00:35:08.220 Very few voters have the ability or the interest to follow such reasoning, particularly, as 336 00:35:08.220 --> 00:35:12.300 Schumpeter points out, in political situations. 337 00:35:12.300 --> 00:35:19.640 For in political situations, the minute influence that any one person has on the results, as 338 00:35:19.640 --> 00:35:28.640 as well as the seeming remoteness of the actions induces people to lose interest in political problems or argumentation. 339 00:35:28.640 --> 00:35:39.640 Lacking the direct test of success or failure, the voter tends to turn not to those politicians whose measures have the best chance of success, 340 00:35:39.640 --> 00:35:44.640 but to those with the ability to sell their propaganda. 341 00:35:44.640 --> 00:35:53.640 Without grasping logical chains of deduction, the average voter will never be able to discover the error that the ruler makes. 342 00:35:53.640 --> 00:36:01.640 Thus, suppose that the government inflates the money supply, thereby causing an inevitable rise in prices. 343 00:36:01.640 --> 00:36:08.640 The government can blame the price rise on wicked speculators or alien black marketeers. 344 00:36:08.640 --> 00:36:16.640 and, unless the public knows economics, it will not be able to see the fallacies in the ruler's arguments. 345 00:36:16.640 --> 00:36:22.640 It is ironic that those writers who complain of the wiles and lures of advertising 346 00:36:22.640 --> 00:36:30.640 do not direct their criticism at the advertising of political campaigns, where their charges would be relevant. 347 00:36:30.640 --> 00:36:34.360 As Schumpeter states, the picture of the prettiest girl 348 00:36:34.360 --> 00:36:38.380 that ever lived will in the long run prove powerless 349 00:36:38.380 --> 00:36:41.480 to maintain the sales of a bad cigarette. 350 00:36:41.480 --> 00:36:44.780 There is no equally effective safeguard 351 00:36:44.780 --> 00:36:47.620 in the case of political decisions. 352 00:36:47.620 --> 00:36:52.580 Even if that is possible, however, judgment is as a rule 353 00:36:52.580 --> 00:36:56.100 not so easy to arrive at as it is in the case 354 00:36:56.100 --> 00:37:00.840 of the Cigarette, because effects are less easy to interpret. 355 00:37:00.840 --> 00:37:06.980 It might be objected that while the average voter may not be competent to decide on policies 356 00:37:06.980 --> 00:37:16.040 that require for his decision chains of praxeological reasoning, he is competent to pick the experts, 357 00:37:16.040 --> 00:37:22.620 the politicians and bureaucrats who will decide on the issues, just as the individual may 358 00:37:22.620 --> 00:37:28.520 They Select His Own Private Expert Advisor in Any One of Numerous Fields. 359 00:37:28.520 --> 00:37:35.780 But the point is precisely that in government, the individual does not have the direct personal 360 00:37:35.780 --> 00:37:42.580 test of success or failure for his hired expert that he does on the market. 361 00:37:42.580 --> 00:37:50.420 On the market, individuals tend to patronize those experts whose advice proves most successful. 362 00:37:50.420 --> 00:37:57.100 Good doctors or lawyers reap rewards on the free market, while the poor ones fail. 363 00:37:57.100 --> 00:38:04.100 The privately hired expert tends to flourish in proportion to his demonstrated ability. 364 00:38:04.100 --> 00:38:10.340 In government, on the other hand, there is no concrete test of the expert's success. 365 00:38:10.340 --> 00:38:16.580 In the absence of such a test, there is no way by which the voter can gauge the true 366 00:38:16.580 --> 00:38:20.080 expertise of the man he must vote for. 367 00:38:20.080 --> 00:38:25.740 This difficulty is aggravated in modern-style elections where the candidates agree on all 368 00:38:25.740 --> 00:38:27.760 the fundamental issues. 369 00:38:27.760 --> 00:38:32.520 For issues, after all, are susceptible to reasoning. 370 00:38:32.520 --> 00:38:39.640 The voter can, if he so wishes and he has the ability, learn about and decide on the 371 00:38:39.640 --> 00:38:40.640 issues. 372 00:38:40.640 --> 00:38:48.120 But what can any voter, even the most intelligent, know about the true expertise or competence 373 00:38:48.120 --> 00:38:54.640 of Individual Candidates, especially when elections are shorn of virtually all important 374 00:38:54.640 --> 00:38:55.940 issues. 375 00:38:55.940 --> 00:39:03.540 The voter can then fall back only on the purely external, packaged personalities or images 376 00:39:03.540 --> 00:39:05.140 of the candidates. 377 00:39:05.140 --> 00:39:11.880 The result is that voting purely on candidates makes the result even less rational than mass 378 00:39:11.880 --> 00:39:14.720 voting on the issues themselves. 379 00:39:14.720 --> 00:39:21.900 Furthermore, the government itself contains inherent mechanisms that lead to poor choices 380 00:39:21.900 --> 00:39:24.380 of experts and officials. 381 00:39:24.380 --> 00:39:30.840 For one thing, the politician and the government expert receive their revenues not from service 382 00:39:30.840 --> 00:39:37.680 voluntarily purchased on the market, but from a compulsory levy on the populace. 383 00:39:37.680 --> 00:39:43.860 These officials, therefore, wholly lack the pecuniary incentive to care about serving 384 00:39:43.860 --> 00:39:47.140 Voting the Public Properly and Competently 385 00:39:47.140 --> 00:39:53.580 And what is more, the vital criterion of fitness is very different in the government and on 386 00:39:53.580 --> 00:39:54.860 the market. 387 00:39:54.860 --> 00:40:00.040 In the market, the fittest are those most able to serve the consumers. 388 00:40:00.040 --> 00:40:06.700 In government, the fittest are those most adept at wielding coercion and or those most 389 00:40:06.700 --> 00:40:12.540 adroit at making demagogic appeals to the voting public. 390 00:40:12.540 --> 00:40:18.900 Another critical divergence between market action and democratic voting is this. 391 00:40:18.900 --> 00:40:25.660 The voter has, for example, only a one-fifty millionth power to choose among his would-be 392 00:40:25.660 --> 00:40:33.140 rulers, who in turn will make vital decisions affecting him, unchecked and unhampered until 393 00:40:33.140 --> 00:40:35.020 the next election. 394 00:40:35.020 --> 00:40:41.820 In the market, on the other hand, the individual has the absolute sovereign power to make the 395 00:40:41.820 --> 00:40:45.520 The Decisions Concerning His Person and Property 396 00:40:45.520 --> 00:40:50.020 Not merely a distant one-fifty millionth power. 397 00:40:50.020 --> 00:40:56.320 On the market, the individual is continually demonstrating his choice of buying or not 398 00:40:56.320 --> 00:41:03.820 buying, selling or not selling, in the course of making absolute decisions regarding his 399 00:41:03.820 --> 00:41:04.820 property. 400 00:41:04.820 --> 00:41:11.500 The voter, by voting for some particular candidate, is demonstrating only a relative preference 401 00:41:11.500 --> 00:41:28.500 He must do this within the framework of the coercive rule that, whether or not he votes at all, one of these men will rule over him for the next several years. 402 00:41:28.500 --> 00:41:34.580 Thus we see that the free market contains a smooth, efficient mechanism for bringing 403 00:41:34.580 --> 00:41:41.700 anticipated ex-ante utility into the realization of ex-post. 404 00:41:41.700 --> 00:41:48.100 The free market always maximizes ex-ante social utility as well. 405 00:41:48.100 --> 00:41:53.020 In political action, on the contrary, there is no such mechanism. 406 00:41:53.020 --> 00:42:02.320 Indeed, the political process inherently tends to delay and thwart the realization of any expected gains. 407 00:42:02.320 --> 00:42:10.820 Furthermore, the divergence between ex-post gains through government and through the market is even greater than this. 408 00:42:10.820 --> 00:42:15.520 For we shall find that in every instance of government intervention, 409 00:42:15.520 --> 00:42:22.240 The indirect consequences will be such as to make the intervention appear worse in the 410 00:42:22.240 --> 00:42:26.600 eyes of many of its original supporters. 411 00:42:26.600 --> 00:42:34.160 In sum, the free market always benefits every participant, and it maximizes social utility 412 00:42:34.160 --> 00:42:35.880 ex ante. 413 00:42:35.880 --> 00:42:43.300 It also tends to do so ex post, since it works for the rapid conversion of anticipations 414 00:42:43.300 --> 00:42:45.580 into Realizations. 415 00:42:45.580 --> 00:42:52.300 With intervention, one group gains directly at the expense of another, and therefore social 416 00:42:52.300 --> 00:42:55.400 utility cannot be increased. 417 00:42:55.400 --> 00:43:01.900 The attainment of goals is blocked, rather than facilitated, and as we shall see, the 418 00:43:01.900 --> 00:43:10.260 indirect consequences are such that many interveners themselves will lose utility ex post. 419 00:43:10.260 --> 00:43:17.220 The remainder of this work is largely devoted to tracing the indirect consequences of various 420 00:43:17.220 --> 00:43:19.700 forms of governmental intervention.