Chapter 6. Anti-Market Ethics. A Praxeological Critique.
1. Introduction. Praxeological Criticism of Ethics.
Praxeology, economics, provides no ultimate ethical judgments.
It simply furnishes the indispensable data necessary to make such judgments.
It is a formal but universally valid science based on the existence of human action and on logical deductions from that existence.
And yet, praxeology may be extended beyond its current sphere to criticize ethical goals.
This does not mean that we abandon the value neutrality of praxeological science.
Hence, it means merely that even ethical goals must be framed meaningfully, and therefore
that praxeology can criticize 1.
Existential errors made in the formulation of ethical propositions, and 2.
The possible existential meaninglessness and inner inconsistency of the goals themselves.
If an ethical goal can be shown to be self-contradictory and conceptually impossible of fulfillment,
then the goal is clearly an absurd one, and should be abandoned by all.
It should be noted that we are not disparaging ethical goals that may be practically unrealizable
in a given historical situation.
We do not reject the goal of abstention from robbery simply because it is not likely to
be completely fulfilled in the near future.
What we do propose to discard are those ethical goals that are conceptually impossible of
fulfillment because of the inherent nature of man and of the universe.
We therefore propose to place a restriction on the unlimited validity of anyone's ultimate
ethical valuations.
In doing so, we still are not pushing beyond the bounds of praxeology to function as ethicists,
for we are not here attempting to establish a positive ethical system of our own, or even
to prove that such a system is attainable.
We believe only that praxeology should have the right of veto to discard any ethical propositions
that fail to meet the test of conceptual possibility or internal consistency.
Furthermore, we maintain that whenever an ethical goal has been shown to be conceptually
impossible and therefore absurd, it is equally absurd to take measures to approach that I
Ideal. It is illegitimate to concede that X is an absurd goal, and then to go on to say that we
should take all possible measures to approach it, at any rate. If the end is absurd, so is the
approach toward that end. This is a praxeological truth derived from the law that a means can obtain
in its value only by being imputed from the end.
In short, we are saying that the means must be justified by the end.
What else but an end can justify a means?
The common conception that the doctrine the end justifies the means is an immoral device
of communists is hopelessly confused.
When, for example, people object to murder as a means to achieve goals, they are objecting
to murder not because they do not believe that means are justified by ends, but because
they have conflicting ends, for example, the end that murder not be committed.
They may hold this view as an end in itself, or because it is a means to other ends, such
Such as upholding each man's right to life. A drive toward X only obtains its value from
the value of X itself. If the latter is absurd, then so is the former.
There are two types of ethical criticisms that can be made of the free market system.
One type is purely existential. That is, it rests on existential premises only. The other
Another type advances conflicting ethical goals and protests that the free market does not
attain these goals.
Any mixture of the two will here be placed in the second category.
The first type says 1.
The free market leads to consequence A. 2.
I don't like consequence A, or consequence A is objectively unlikable.
3. Therefore, the free market should not be established.
To refute this type of criticism, it is necessary only to refute the existential proposition
in the first part of the argument, and this is, admittedly, a purely praxeological task.
The following are brief summaries of very common criticisms of the free market that
that can be refuted praxeologically, and that, indeed, have been refuted, implicitly or explicitly
in other writings.
1.
The free market causes business cycles and unemployment.
Business cycles are caused by the governmental intervention of bank credit expansion.
Unemployment is caused by unions or government keeping wage rates above the free market
level, only coercive intervention, not private spending, can bring about inflation.
2.
The free market is likely to bring about monopoly and monopoly pricing.
If we define monopoly as the single seller of a product, we founder on insoluble problems.
We cannot identify homogeneous products except in the concrete day-to-day valuations of consumers.
Furthermore, if we consider such monopoly as wicked, we must regard both Crusoe and
Friday as vicious monopolists if they exchange fish and lumber on their desert island.
But if Crusoe and Friday are not wicked, how can a more complex society, one necessarily
less monopolistic in this sense, be at all wicked?
At what point in the reduced scope of such monopoly can it be considered evil?
And how can the market be held responsible for the number of people inhabiting the society?
Moreover, every individual striving to be better than his fellows is thereby trying to be a monopolist.
Is this bad? Do not both he and the rest of society benefit from his better mousetrap?
Finally, there is no conceptually identifiable monopoly or monopolistic price on the free market.
Hence, a monopoly price, and a monopoly by any usable definition, arise only through
the coercive grant of exclusive privilege by the government, and this includes all attempts
to enforce competition.
3.
The government must do what the people themselves cannot do.
We have shown that no such cases can exist.
There are other criticisms, however, which infuse various degrees of ethical protest
into the argument.
This chapter will be devoted to a praxeological critique of some of the most popular of these
anti-market ethical contentions.
2. Knowledge of Self-interest, an alleged critical assumption
This criticism of the market is more existential than ethical.
It is the popular argument that laissez-faire, or the free market economy,
rests its case on the crucial assumption that every individual knows his own self-interest best.
Yet, it is charged, this is not true of many individuals. Therefore, the State must intervene, and the case for the free market is vitiated.
The free market doctrine, however, does not rest on any such assumption.
Like the mythical economic man, the perfectly wise individual is a straw man, created by the critics of the theory, not implied by it.
First, it should be evident from our analysis of the free market and government intervention throughout this work,
that any argument for the free market rests on a far deeper and more complex doctrine.
We cannot enter here into the many ethical and philosophical arguments for freedom.
Secondly, the laissez-faire or free market doctrine does not assume that everyone always knows his own interest best.
It asserts rather that everyone should have the right to be free to pursue his own interest as he deems best.
Critics may argue that the government should force men to lose some ex ante or present utility in order to gain ex post utility later by being compelled to pursue their own best interests.
But libertarians may well reply and rebuttal, 1. that a person's resentment at coercive interference will lower his ex-post utility in any event,
and 2. that the condition of freedom is a vital, necessary prerequisite for a person's best interests to be attained.
Indeed, the only lasting way to correct a person's errors is by persuasive reasoning.
Force cannot do the job.
As soon as the individual can evade this force, he will return to his own preferred ways.
No one certainly has perfect foresight into the uncertain future, but free entrepreneurs
Consumers on the market are better equipped than anyone else by incentive and by economic
calculation to foresee and satisfy the needs of the consumers.
But what if the consumers are mistaken with regard to their own interests?
Obviously, they sometimes are.
But several more points must be made.
In the first place, every individual knows the data of his own inner self best by the
very fact that each has a separate mind and ego.
Secondly, the individual, if in doubt about what his own true interests are, is free to
hire and consult experts to give him advice based on their superior knowledge.
The individual hires these experts and, on the market, can continuously test their helpfulness.
Individuals on the market, in short, tend to patronize those experts whose advice proves
most successful.
Good doctors or lawyers reap rewards on the free market, while poor ones fail.
But when government intervenes, the government expert acquires his revenue by compulsory
levy.
There is no market test of his success in teaching people their true interests.
The only test is his success in acquiring the political support of the state's machinery
of coercion.
Thus the privately hired expert flourishes in proportion to his ability, whereas the
government expert flourishes in proportion to his success incurring political favor.
Moreover, what incentive does the government expert have to care about the interests of
his subjects?
Surely he is not especially endowed with superior qualities by virtue of his government post.
He is no more virtuous than the private expert.
Indeed, he is inherently less capable and is more inclined to wield coercive force.
But while the private expert has every pecuniary incentive to care about his clients or patients,
the government expert has no incentive whatever.
He obtains his revenue in any event.
He is devoid of any incentive to worry about his subjects' true interests.
It is curious that people tend to regard government as a quasi-divine, selfless, Santa Claus organization.
Government was constructed neither for ability nor the exercise of loving care.
was built for the use of force and for necessarily demagogic appeals for votes.
If individuals do not know their own interests in many cases, they are free to turn to private
experts for guidance.
It is absurd to say that they will be served better by a coercive, demagogic apparatus.
Finally, the proponents of government intervention are trapped in a fatal contradiction.
They assume that individuals are not competent to run their own affairs or to hire experts
to advise them.
And yet, they also assume that these same individuals are equipped to vote for these
same experts at the ballot box.
We have seen that, on the contrary, while most people have a direct idea and a direct
test of their own personal interests on the market, they cannot understand the complex
chains of praxeological and philosophical reasoning necessary for a choice of rulers
or political policies.
Yet this political sphere of open demagogy is precisely the only one where the mass of
individuals are deemed to be competent. Interventionists assume the political, but no other, competence
of the people even when they favor dictatorship rather than democracy. For if the people do
3. The Problem of Immoral Choices
Some writers are astute enough to realize that the market economy is simply a resultant
of Individual Valuations, and thus they see that if they do not like the results, the
fault lies with the valuations, not the economic system.
Yet they proceed to advocate government intervention to correct the immorality of individual choices.
If people are immoral enough to choose whiskey rather than milk, cosmetics rather than educational
matter, then the state, they say, should step in and correct these choices.
Much of the rebuttal parallels the refutation of the knowledge of interests argument.
That is, it is self-contradictory to contend that people cannot be trusted to make moral
decisions in their daily lives, but can be trusted to vote for or accept leaders who
who are morally wiser than they.
Mises states, quite rightly, that anyone who advocates governmental dictation over one
area of individual consumption must logically come to advocate complete totalitarian dictation
over all choices.
This follows if the dictators have any set of valuational principles whatever, thus if
If the members of the ruling group like Bach and hate Mozart, and they believe strongly
that Mozartian music is immoral, they are just as right in prohibiting the playing of
Mozart as they are in prohibiting drug use or liquor consumption.
Many statists, however, would not balk at this conclusion and would be willing to take
over this congenial task.
The same total dictatorship over consumer choice is also implied by the knowledge of interest
argument discussed earlier.
As Thomas Barber astutely says, it is illegal for pleasure boaters to fail to carry a life
preserver for every person on board.
A great number of young men are publicly employed to go about and look for violators of this
law.
Pleasant for the young men, of course, but is it really any more the government's business
that a man goes canoeing without a life preserver than that he goes out in the rain without
his rubbers?
The law is irritating to the individual concerned, costly to the taxpayers, and turns a lot of
potential producers into economic parasites.
and perhaps the manufacturers of life preservers engineered its passage.
The utilitarian position that government dictation is bad because no rational ethics exists and
therefore no person has a right to impose his arbitrary values on someone else is, we
believe, an inadequate one.
In the first place, it will not convince those who believe in irrational ethics, who believe
that there is a scientific basis for moral judgments and that they are not pure whim.
And furthermore, the position involves a hidden moral assumption of its own, that A has no
right to impose any arbitrary values on B.
And if ends are arbitrary, is not the end that arbitrary whims not be imposed by coercion,
just as arbitrary?
And suppose further that ranking high on A's value scale is the arbitrary whim of imposing
his other values on B. Then the utilitarians cannot object, and must abandon their attempt
to defend individual liberty in a value-free manner.
In fact, the utilitarians are helpless against the man who wants to impose his values by
coercion and who persists in doing so even after the various economic consequences are
pointed out to him.
It is true that we do not advocate ends in this volume, and in that sense, praxeology
Praxeology is utilitarian, but the difference is that utilitarianism would extend the Wertfrei
injunction from its proper place in economics and praxeology to embrace all of rational
discourse.
The would-be dictator can be logically refuted in a completely different way, even while
remaining within Wertfrei praxeological bounds.
For what is the complaint of the would-be dictator against free individuals, that they
act immorally in various ways?
The dictator's aim, therefore, is to advance morality and combat immorality.
Let us grant for the sake of argument that an objective morality can be arrived at.
The question that must be faced then is, can force advance morality?
Suppose we arrive at the demonstrable conclusion that actions A, B and C are immoral and actions
X, Y and Z are moral.
And suppose we find that Mr. Jones shows a distressing propensity to value A, B and
C highly and adopts these courses of action time and again.
We are interested in transforming Mr. Jones from being an immoral person to being a moral
person.
How can we go about it?
The statists answer, by force.
We must prohibit at gunpoint Mr. Jones from doing A, B, and C. Then, at last, he will
be moral.
But will he?
Is Jones moral because he chooses X when he is forcibly deprived of the opportunity to
choose A?
When Smith is confined to a prison, is he being moral because he doesn't spend his
time in saloons getting drunk?
There is no sense to any concept of morality, regardless of the particular moral action
One favors if a man is not free to do the immoral as well as the moral thing.
If a man is not free to choose if he is compelled by force to do the moral thing, then on the
contrary he is being deprived of the opportunity of being moral.
He has not been permitted to weigh the alternatives, to arrive at his own conclusions, and to take
If he is deprived of free choice, he is acting under the dictator's will, rather than his own.
Of course, he could choose to be shot, but this is hardly an intelligible conception of free choice of alternatives.
In fact, he then has only one free choice, the hegemonic one, to be shot or to obey the dictator in all things.
Dictatorship over consumers' choices, then, can only atrophy morality rather than promote it.
There is but one way that morality can spread from the enlightened to the unenlightened, and that is by rational persuasion.
If A convinces B through the use of reason that his moral values are correct and B's are wrong,
We have not even mentioned other facts that strengthen our argument, such as the great
The man who prefers the immoral course, and is prevented by the bayonet from acting on his preference, will do his best to find ways to circumvent the prohibition, perhaps by bribing the bayonetier.
And because this is not a treatise on ethics, we have not mentioned the libertarian ethical theory, which holds that the use of coercion is itself the highest form of immorality.
Thus we have shown that would-be dictators must necessarily fail to achieve their professed goal of advancing morality, because the consequences will be precisely the opposite.
It is possible, of course, that the dictators are not really sincere in stating their goal.
Perhaps their true purpose is to wield power over others and to prevent others from being happy.
In that case, of course, praxeology can say no more about the matter, although ethics may find a good deal to say.
Mises often states that interventionary measures in the market, for example, price controls,
will have consequences that even the government officials administering the plans would consider
bad.
But the problem is that we do not know what the government officials' ends are, except
that they demonstrably do like the power they have acquired and the wealth they have extracted
from the Public, surely these considerations may often prove paramount in their minds,
and we therefore cannot say that government officials would invariably concede, after
learning all the consequences, that their actions were mistaken.
4.
The Morality of Human Nature
It is very common to assert that the advocates of the purely free market make one fundamental
and shaky assumption that all human beings are angels.
In a society of angels it is commonly agreed such a program could work, but not in our
fallible world.
The chief difficulty with this criticism is that no libertarian, except possibly those
has ever made such an assumption.
The advocates of the free market have not assumed a reformation of human nature, although
they would certainly have no objection to such a reformation if it took place.
We have seen that libertarians envision defense services against predators as provided by
by private bodies rather than by the state, but they do not assume that crime would magically
disappear in the free society.
Statists concede to libertarians that no state would be required if all men were good.
State control is allegedly required only to the extent that men are evil.
But what if all men were evil?
As F. A. Harper has pointed out, still using the same principle that political rulership
should be employed to the extent of the evil in man, we would then have a society in which
complete political rulership of all the affairs of everybody would be called for.
One man would rule all, but who would serve as the dictator?
Remember he were to be selected and affixed to the political throne, he would surely be
a totally evil person, since all men are evil, and this society would then be ruled by a
totally evil dictator possessed of total political power.
And how, in the name of logic, could anything short of total evil be its consequence?
How could it be better than having no political rulership at all in that society?
Is this argument unrealistic because, as everyone agrees, human beings are a compound, capable
of both good and evil?
But then, at what point in this mixture does state dictation become necessary?
In fact, the libertarian would reason that the fact that human nature is a mixture of
both good and evil provides its own particular argument in his favor.
For if man is such a mixture, then the best societal framework is surely one in which
evil is discouraged and the good encouraged.
The libertarian maintains that the existence of the state apparatus provides a ready, swift
channel for the exercise of evil, since the rulers of the state are thereby legitimated
and can wield compulsion in ways that no one else is permitted to do.
What is considered crime, socially, is called exercise of democratic power when performed
5.
The Impossibility of Equality Probably the most common ethical criticism
of the market economy is that it fails to achieve the goal of equality.
has been championed on various economic grounds, such as minimum social sacrifice, or the diminishing
marginal utility of money, but in recent years economists have recognized that they cannot
justify egalitarianism by economics, that they ultimately need an ethical basis for
equality.
Catallactics or praxeology cannot establish the validity of ethical ideals, but even ethical
goals must be framed meaningfully.
They must therefore pass muster before praxeology as being internally consistent and conceptually
possible.
The credentials of equality have so far not been adequately tested.
It is true that many objections have been raised that give egalitarians pause.
Sometimes realization of the necessary consequences of their policies causes an abandonment, though
more often a slowing down of the egalitarian program.
Thus, compulsory equality will demonstrably stifle incentive, eliminate the adjustment
Processes of the Market Economy, destroy all efficiency in satisfying consumer wants, greatly
lower capital formation, and cause capital consumption, all effects signifying a drastic
fall in general standards of living.
Furthermore, only a free society is castless, and therefore only freedom will permit mobility
of Income According to Productivity, Statism, on the other hand, is likely to freeze the
economy into a mold of non-productive inequality.
Yet these arguments, though powerful, are by no means conclusive.
Some people will pursue equality anyway.
Many will take these considerations into account by settling for some cuts in living standards
in order to gain more equality.
In all discussions of equality it is considered self-evident that equality is a very worthy
goal, but this is by no means self-evident, for the very goal of equality itself is open
to serious challenge.
The doctrines of praxeology are deduced from three universally acceptable axioms.
The major axiom of the existence of purposive human action and the minor postulates, or
axioms of the diversity of human skills and natural resources, and the disutility of labor.
Although it is possible to construct an economic theory of a society without these two minor
are included in order to limit our theorizing to laws that can apply directly to reality.
Anyone who wants to set forth a theory applicable to interchangeable human beings is welcome
to do so.
Thus, the diversity of mankind is a basic postulate of our knowledge of human beings.
But if mankind is diverse and individuated, then how can anyone propose equality as an
ideal?
Every year, scholars hold conferences on equality and call for greater equality, and no one
challenges the basic tenet.
But what justification can equality find in the nature of man?
If each individual is unique, how else can he be made equal to others than by destroying
most of what is human in him and reducing human society to the mindless uniformity of
the ant-heap?
It is the task of the egalitarian who confidently enters the scene to inform the economist of
his ultimate ethical goal to prove his case.
We must show how equality can be compatible with the nature of mankind, and must defend
the feasibility of a possible egalitarian world.
But the egalitarian is in even direer straits, for it can be shown that equality of income
is an impossible goal for mankind.
Income can never be equal.
must be considered, of course, in real and not in money terms, otherwise there would be no true equality.
Yet real income can never be equalized. For how can a New Yorker's enjoyment of the Manhattan skyline
be equalized with an Indian's? How can the New Yorker swim in the Ganges as well as an Indian?
Since every individual is necessarily situated in a different space, every individual's real income must differ from good to good and from person to person.
There is no way to combine goods of different types to measure some income level, so it is meaningless to try to arrive at some sort of equal level.
Level.
The fact must be faced that equality cannot be achieved because it is a conceptually impossible
goal for man by virtue of his necessary dispersion in location and diversity among individuals.
But if equality is an absurd and therefore irrational goal, then any effort to approach
Equality is correspondingly absurd.
If a goal is pointless, then any attempt to attain it is similarly pointless.
Many people believe that though equality of income is an absurd ideal, it can be replaced
by the ideal of equality of opportunity, yet this too is as meaningless as the former concept.
How can the New Yorker's opportunity and the Indian's opportunity to sail around Manhattan
or to swim in the Ganges be equalized?
Man's inevitable diversity of location effectively eliminates any possibility of equalizing opportunity.
Bloom and Calvin lapse into a common error when they state that justice connotes equality
of Opportunity, and that this equality requires that the contestants start from the same mark,
so that the game be fair.
Human life is not some sort of race or game in which each person should start from an
identical mark.
It is an attempt by each man to be as happy as possible.
And each person could not begin from the same point, for the world has not just come into
being.
It is diverse and infinitely varied in its parts.
The mere fact that one individual is necessarily born in a different place from someone else
immediately ensures that his inherited opportunity cannot be the same as his neighbors'.
The drive for equality of opportunity would also require the abolition of the family,
since different parents have unequal abilities.
It would require the communal rearing of children.
The state would have to nationalize all babies and raise them in state nurseries under equal
conditions.
But even here, conditions cannot be the same, because different state officials will themselves
have different abilities and personalities, and equality can never be achieved because
of necessary differences of location.
Thus, the egalitarian must not be permitted any longer to end discussion by simply proclaiming
equality as an absolute ethical goal.
He must first face all the social and economic consequences of egalitarianism, and try to
show that it does not clash with the basic nature of man.
He must counter the argument that man is not made for a compulsory ant-heap existence.
And finally, he must recognize that the goals of equality of income and equality of opportunity
are conceptually unrealizable and are therefore absurd.
Any drive to achieve them is ipso facto absurd as well.
Egalitarianism is therefore a literally senseless social philosophy.
Its only meaningful formulation is the goal of equality of liberty, formulated by Herbert
Spencer in his famous Law of Equal Freedom.
Every man has freedom to do all he wills, provided he infringes not the equal freedom
of any other man.
This goal does not attempt to make every individual's total condition equal, an absolutely impossible
task.
Instead, it advocates liberty, a condition of absence of coercion over person and property
for every man.
This goal has sometimes been phrased as equality before the law, or equality of rights.
Yet both formulations are ambiguous and misleading.
The former could be taken to mean equality of slavery as well as liberty, and has in
fact been so narrowed down in recent years as to be of minor significance.
The latter could be interpreted to mean any sort of right, including the right to an equal income.
Yet even this formulation of equality has many flaws and could profitably be discarded.
In the first place, it opens the door for ambiguity and for egalitarianism.
In the second place, the term equality connotes measurable identity with a fixed extensive
Quantitative Unit Equal length means identity of measurement
with an objectively determinable unit.
In the study of human action, whether in praxeology or social philosophy, there is no such quantitative
unit, and hence there can be no such equality.
Far better to say that each man should have X than to say that all men should be equal
in X.
If someone wants to urge every man to buy a car, he formulates his goal in that way.
Every man should buy a car, rather than in such terms as, all men should have equality
in car buying.
The use of the term equality is awkward, as well as misleading.
And finally, as Clara Dixon Davidson pointed out so cogently many years ago, Spencer's
Spencer's Law of Equal Freedom is redundant.
For if every man has freedom to do all that he wills, it follows from this very premise
that no man's freedom has been infringed or invaded.
The whole second clause of the law after wills is redundant and unnecessary.
Since the formulation of Spencer's Law, opponents of Spencer have used the qualifying clause
to drive holes into the libertarian philosophy. Yet all this time they were hitting at an
encumbrance, not at the essence of the law. The concept of equality has no rightful place
in the law of equal freedom, being replaceable by the logical quantifier, every. The law
of equal freedom could well be renamed the law of total freedom.
6. The Problem of Security
One of the most common ethical charges levelled at the free market is that it fails to provide
security. It is said that the blessings of freedom must be weighed against the competing
blessings of security, to be provided, of course, by the state.
The first comment to make is that this world is a world of uncertainty. We shall never
Never be able to forecast the future course of the world with precision.
Every action, therefore, involves risk.
This risk cannot be eliminated.
The man who keeps cash balances suffers the risk that its purchasing power may dwindle.
The man who invests suffers the risk of loss, and so forth.
But the free market finds ways of voluntarily relieving risk as much as can possibly be
done.
In a free society, there are three prime ways that men can alleviate uncertainty about the
future.
1.
By Savings These savings, whether invested in production
or kept in cash balances, ensure money for future needs.
Banking and production increases one's future assets.
Cash balances ensure that funds will be immediately available.
2.
By Entrepreneurship
The entrepreneurs, that is, the capitalist entrepreneurs, assume the bulk of the risks
of the market, and concomitantly relieve laborers of a great deal of risk.
Imagine the universal risk if laborers could not be paid until the final product reached
the consumers.
The pain of waiting for future income, the risk in attempting to forecast consumer demands
in the future would be almost intolerable, especially for those laborers toiling in the
most remote processes of production.
It is difficult to see how anyone would embark on longer processes of production if he were
forced to wait the entire length of the production period to earn any income.
But the capitalist entrepreneur pays him, instead, immediately, and himself adopts the
burden of waiting and forecasting future wants.
The entrepreneur then risks loss of his capital.
Another method of entrepreneurial assumption of risk takes place in futures markets, where
hedging allows buyers and sellers of commodities to shift the risk of future price changes
onto a body of specialized traders.
3.
Buy Insurance Insurance is a basic method of pooling and
and Baiting Risks on the Market.
While entrepreneurs assume the burdens of uncertainty, insurance takes care of actuarial
risks, where stable collective frequencies can be arrived at and premiums can be charged
accordingly.
The state cannot provide absolute security.
The slaves may have believed that their security was guaranteed by their master, but the master
assumed the risk.
If his income fell, then he could not provide security for his charges.
A fourth way to provide security in a free society is by voluntary charity.
This charity of necessity comes out of production.
It has been maintained that the state can provide security for the people better than the market
because it can guarantee a minimum income for everyone.
Yet the government can do no such thing.
The state produces nothing.
It can only confiscate the production of others.
The state, therefore, can guarantee nothing.
If the requisite minimum is not produced, the state will have to default on its pledges.
Of course, the state can print all the money it wants, but it cannot produce the needed
goods.
Furthermore, the state cannot in this way provide security for every man alike.
It can make some secure only at the expense of others.
If A can be made more secure only by robbing B, B is made more insecure in the process.
Hence the state, even if production is not drastically reduced, cannot provide security
for all, but only for some at the expense of others.
Is there no way, then, that government, organized coercion, can provide security?
Yes, but not in the absolute sense.
Rather, it can provide a certain aspect of security, and only this aspect can be guaranteed
to every man in the society.
This is security against aggression.
In fact, however, only a voluntary free market defense can provide this, since only such
a non-status type of defense agency does not itself engage in aggression.
With each man acquiring security of person and property against attack, productivity
and leisure are both immeasurably increased.
Any state attempt to provide such security is an anachronism, since the state itself
constantly invades individual liberty and security.
That type of security, then, which is open to every man in society, is not only compatible
with but is a corollary to perfect freedom.
Freedom and security against aggression are two sides of the same coin.
It might still be objected that many people, even knowing that slavery or submission to
dictation cannot bring absolute security, will still wish to rely on masters.
But if they do so voluntarily, the libertarian asks, why must they force others, who do not
7. Alleged Joys of the Society of Status
One common related criticism of the free market and free society, particularly among intellectuals
who are conspicuously not craftsmen or peasants, is that, in contrast to the happy craftsmen
Human and Happy Peasants of the Middle Ages, it has alienated man from his work and from
his fellows, and has robbed him of his sense of belonging.
The status society of the Middle Ages is looked back upon as a golden age, when everyone was
sure of his station in life, when craftsmen made the whole shoe instead of just contributing
In the first place, the society of the Middle Ages was not a secure one, not a fixed, unchanging
hierarchy of status.
There was little progress, but there was much change, dwelling as they did in clusters of
of Local Self-Sufficiency,
marked by a low standard of living,
the people were ever threatened by famine.
And because of the relative absence of trade,
a famine in one area could not be countered
by purchasing food from another area.
The absence of famine in capitalist society
is not a providential coincidence.
Secondly, because of the low living standards,
Very few members of the population were lucky enough to be born into the status of the happy
craftsman who could be really happy and secure in his work only if he were a craftsman to
the king or the nobility, who of course earned their high status by the decidedly unhappy
practice of permanent violence in domination over the mass of the exploited population.
As for the common serf, one wonders whether, in his poverty-stricken, enslaved and barren
existence, he had even sufficient time and leisure to contemplate the supposed joys of
his fixed post and his sense of belonging, and if there were a serf or two who did not
wish to belong to his lord or master, that belonging, of course, was enforced by violence.
Aside from these considerations, there is another problem which the society of status
cannot surmount, and which indeed contributed a great deal to breaking up the feudal and
mercantilist structures of the pre-capitalistic era.
This was population growth.
If everyone is assigned his appointed and inherited role in life, how can an increased
population be fitted into the scheme?
Where are they to be assigned, and who is to do the assigning?
And wherever they are allocated, how can these new people be prevented from disrupting the
whole assigned network of custom and status?
In short, it is precisely in the fixed, non-capitalistic society of status that the Malthusian problem
is ever present, at its ugliest, and where Malthusian checks to population must come
into play.
Sometimes the check is the natural one of famine and plague.
In other societies, systematic infanticide is practiced.
Perhaps if there were a modern return to the society of status, compulsory birth control
would be the rule, a not impossible prognosis for the future.
But in pre-capitalist Europe, the population problem became a problem of an ever-increasing
number of people with no work to do and no place to go, who therefore had to turn to
begging or highway robbery.
The proponents of the theory of modern alienation do not offer any reasoning to back up their
assertions, which are therefore simply dogmatic myths.
Certainly it is not self-evident that the craftsman, or better still, the primitive
man who made everything that he consumed, was in some sense happier or more whole as
a result of this experience.
Although this is not a treatise on psychology, it might be noted that perhaps what gives
the worker his sense of importance is his participation in what Isabel Patterson has
In free market capitalism, he can, of course, participate in that circuit in many more and varied ways than he could in the more primitive status society.
Furthermore, the status society is a tragic waste of potential skill for the individual
worker.
There is, after all, no reason why the son of a carpenter should be particularly interested
or skilled in carpentry.
In the status society, he faces only a dreary life of carpentry, regardless of his desires.
In the free market, capitalist society, though he is of course not guaranteed that he will
be able to make a livelihood in any line of work that he wants to pursue, his opportunities
to do work that he really likes are immeasurably, almost infinitely expanded.
As the division of labor expands, there are more and more varieties of skilled occupations
is that he can engage in, instead of having to be content with only the most primitive
skills.
And in the free society, he is free to try these tasks, free to move into whatever area
he likes best.
He has no freedom and no opportunity in the allegedly joyful society of status.
Just as free capitalism enormously expanded the amount and variety of consumers' goods
and services available to mankind, so it vastly expanded the number and variety of jobs to
be done, and the skills that people can develop.
The hullabaloo about alienation is in fact more than a glorification of the medieval
craftsman.
He, after all, bought his food from the nearby land.
It is actually an attack on the whole concept of the division of labor and an enshrining
of primitive self-sufficiency.
A return to such conditions could mean only the eradication of the bulk of today's population
and complete impoverishment for those remaining.
Why happiness would nonetheless increase, we leave to the mythologists of status.
But there is one final consideration which indicates that the vast majority of the people
do not believe that they need primitive conditions and the slave's sense of belonging to make
them happy, for there is nothing in a free society to prevent those who wish from going
Starting off in separate communities and living primitively and belongingly.
No one is forced to join the specialized division of labor.
Not only has almost no one abandoned modern society to return to a happy, integrated life
of fixed poverty, but those few intellectuals who did form communal utopias of one sort
or another during the 19th century, abandoned these attempts very quickly, and perhaps the
most conspicuous non-withdrawers from society are those very critics who use our modern
alienated mass communications to denounce modern society.
As we indicated at the end of the last section, a free society permits any who wish to enslave
8.
Charity and Poverty A common complaint is that the free market
would not ensure the elimination of poverty, that it would leave people free to starve,
and that it is far better to be kind-hearted and give charity free rein by taxing the rest
of the populace in order to subsidize the poor and the substandard.
In the first place, the freedom to starve argument confuses the war against nature which
which we all conduct, with the problem of freedom from interference by other persons.
We are always free to starve, unless we pursue our conquest of nature, for that is our natural
condition.
But freedom refers to absence of molestation by other persons.
It is purely an interpersonal problem.
Secondly, it should also be clear that it is precisely voluntary exchange and free capitalism
that have led to an enormous improvement in living standards.
Capitalist production is the only method by which poverty can be wiped out.
As we stressed, production must come first, and only freedom allows people to produce
in the best and most efficient way possible. Force and violence may distribute, but it
cannot produce. Intervention hampers production, and socialism cannot calculate. Since production
of consumer satisfactions is maximized on the free market, the free market is the only
The Appeal to Charity is a truly ironic one.
First, it is hardly charity to take wealth by force and hand it over to someone else.
Indeed, this is the direct opposite of charity, which can only be an unbought, voluntary act
of Grace Compulsory confiscation can only deaden charitable
desires completely, as the wealthier grumble that there is no point in giving to charity
when the state has already taken on the task.
This is another illustration of the truth that men can become more moral only through
through rational persuasion, not through violence, which will, in fact, have the opposite effect.
Furthermore, since the state is always inefficient, the amount and direction of the giving will
be much different from what it would be if people were left free to act on their own.
If the state decides from whom to take and to whom to give, the power residing in the
The State's hands is enormous. It is obvious that political unfortunates will be the ones whose property is confiscated, and political favorites the ones subsidized, and in the meantime, the State erects a bureaucracy whose living is acquired by feeding off the confiscation of one group and the encouraged mendicancy of another.
Other consequences follow from a regime of compulsory charity.
For one thing, the poor, or the deserving poor, have been exalted as a privileged caste,
with an enforceable claim to the production of the more able.
This is a far cry from a request for charity.
Instead, the able are penalized and enslaved by the state,
and the Unable are placed on a moral pedestal.
Certainly, this is a peculiar sort of moral program.
The further consequence will be to discourage the able,
to reduce production and saving in all of society,
and beyond this, to subsidize the creation of a caste of poor.
Not only will the poor be subsidized by right,
But their ranks will be encouraged to multiply, both through reproduction and through their moral exaltation and subsidization.
The able will be correspondingly hampered and repressed.
Whereas the opportunity for voluntary charity acts as a spur to production by the able, coerced charity acts as a drain and a burden upon production.
Action.
In fact, in the long run, the greatest charity is precisely not what we know by that name,
but rather simple, selfish capital investment and the search for technological innovations.
Poverty has been tamed by the enterprise and the capital investment of our ancestors, most
of which was undoubtedly done for selfish motives.
This is a fundamental illustration of the truth enunciated by Adam Smith, that we generally
help others most in those very activities in which we help ourselves.
Statists in fact are really opposed to charity.
They often argue that charity is demeaning and degrading to the recipient, and that he
He should therefore be taught that the money is rightly his, to be given to him by the
government as his due.
But this oft-felt degradation stems, as Isabel Patterson pointed out, from the fact that
the recipient of charity is not self-supporting on the market, and that he is out of the production
circuit, and no longer providing a service in exchange for one received.
However, granting him the moral and legal right to mulkt his fellows increases his moral degradation instead of ending it, for the beneficiary is now further removed from the production line than ever.
An act of charity, when given voluntarily, is generally considered temporary and offered with the object of helping a man to help himself.
But when the dole is ladled out by the state, it becomes permanent and perpetually degrading,
keeping the recipients in a state of subservience. We are not attempting to argue at this point that
to be subservient in this way is degrading. We simply say that anyone who considers private
charity degrading must logically conclude that state charity is far more so.
The devotion of government to charity may be gauged by its universal repression of mendicancy.
A direct gift to a beggar helps the recipient directly and leaves no opportunity for large
bureaucratic organizations to live full-time off the transaction.
Harassment of direct aid, then, functions as a grant of monopolistic privilege to the
The Official Charity Organizations
Isabel Patterson points out that the American government imposed a requirement of minimum
cash assets for immigrants as an alleged way of helping the poorer immigrants.
The actual effect, of course, was to keep the poorest immigrants who could not meet
the requirement from American shores and economic opportunity.
Mises furthermore points out that free market exchange, always condemned by statists for
being impersonal and unfeeling, is precisely the relation that avoids all degradation and
subservience.
9.
The Charge of Selfish Materialism One of the most common charges levelled against
The free market, even by many of its friends, is that it reflects and encourages unbridled
selfish materialism.
Even if the free market, unhampered capitalism, best furthers man's material ends, critics
argue, it distracts man from higher ideals.
It leads man away from spiritual or intellectual values and atrophies any spirit of altruism.
In the first place, there is no such thing as an economic end.
Economy is simply a process of applying means to whatever ends a person may adopt.
An individual can aim at any ends he pleases, selfish or altruistic.
After psychic factors being equal, it is to everyone's self-interest to maximize his
monetary income on the market.
But this maximum income can then be used for selfish or for altruistic ends.
Which ends people pursue is of no concern to the praxeologist.
A successful businessman can use his money to buy a yacht or to build a home for destitute
orphans.
The choice rests with him, but the point is that whichever goal he pursues, he must first
earn the money before he can attain the goal.
Secondly, whichever moral philosophy we adopt, whether altruism or egoism, we cannot criticize
the pursuit of monetary income on the market.
If we hold an egoistic social ethic, then obviously we can only applaud the maximization
of monetary income, or of a mixture of monetary and other psychic income on the market.
There is no problem here.
However, even if we adopt an altruistic ethic, we must applaud maximization of monetary income
The Great Income is a social index of one's services to others, at least in the sense
that any services are exchangeable.
The greater a man's income, the greater has been his service to others.
Indeed, it should be far easier for the altruist to applaud the maximization of a man's monetary
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Society.
If then a coal miner shifts to a more pleasant but lower paying job as a grocery clerk, the
consistent altruist must castigate him for depriving his fellow man of needed benefits.
For the consistent altruist must face the fact that monetary income on the market reflects
Services to Others, whereas Psychic Income is a purely personal or selfish gain.
This analysis applies directly to the pursuit of leisure.
Leisure, as we have seen, is a basic consumer's good for mankind, yet the consistent altruist
would have to deny each worker any leisure at all, or at least deny every hour of leisure
Leisure beyond what is strictly necessary to maintain his output, for every hour spent
in leisure reduces the time a man can spend serving his fellows.
The consistent advocates of consumer sovereignty would have to favor enslaving the idler or
the man who prefers following his own pursuits to serving the consumer, rather than scorn
In pursuit of monetary gain, the consistent altruist should praise the pursuit of money
on the market and condemn any conflicting non-monetary goals a producer may have, whether
it be dislike for certain work, enthusiasm for work that pays less, or a desire for leisure.
It is also peculiar that critics generally concentrate their fire on profits, the profit
motive, and not on other market incomes, such as wages.
It is difficult to see any sense whatever in moral distinctions between these incomes.
Altruists who criticize monetary aims on the market therefore are wrong on their own terms.
The charge of materialism is also fallacious.
The market deals not necessarily in material goods, but in exchangeable goods.
It is true that all material goods are exchangeable, except for human beings themselves, but there
are also many non-material goods exchanged on the market.
A man may spend his money on attending a concert, or hiring a lawyer, for example, as well as
on food or automobiles.
There is absolutely no ground for saying that the market economy fosters either material
or immaterial goods.
It simply leaves every man free to choose his own pattern of spending.
Finally, an advancing market economy satisfies more and more of people's desires for
exchangeable goods.
As a result, the marginal utility of exchangeable goods tends to decline over time, while the
marginal utility of non-exchangeable goods increases.
In short, the greater satisfaction of exchangeable values confers a much greater marginal significance
on the non-exchangeable values.
Rather than foster material values, then, advancing capitalism does just the opposite.
10.
Back to the Jungle?
Many critics complain that the free market, in casting aside inefficient entrepreneurs
or in other decisions, proves itself an impersonal monster.
The free market economy they charge is the rule of the jungle, where survival of the
fittest is the law.
Libertarians who advocate a free market are therefore called social Darwinists who wish
In the first place, these critics overlook the fact that the operation of the free market is vastly different from governmental action.
When a government acts, individual critics are powerless to change the result.
They can do so only if they can finally convince the rulers that their decision should be changed.
In short, whoever feels that the market has been too cruel to certain entrepreneurs or
is perfectly free to set up an aid fund for suitable gifts and grants.
Those who criticize existing private charity as being insufficient are perfectly free to
fill the gap themselves.
We must beware of hypostatizing the market as a real entity, a maker of inexorable decisions.
The market is the resultant of the decisions of all individuals in the society.
People can spend their money in any way they please and can make any decisions whatever
concerning their persons and their property.
They do not have to battle against or convince some entity known as the market before they
can put their decisions into effect.
The free market, in fact, is precisely the diametric opposite of the jungle society.
The jungle is characterized by the war of all against all.
One man gains only at the expense of another, by seizure of the latter's property.
With all on a subsistence level, there is a true struggle for survival, with the stronger
force crushing the weaker.
In the free market, on the other hand, one man gains only through serving another, though
he may also retire into self-sufficient production at a primitive level if he so desires.
It is precisely through the peaceful cooperation of the market that all men gain through the
development of the division of labor and capital investment.
To apply the principle of the survival of the fittest to both the jungle and the market
is to ignore the basic question, fitness for what?
The fit in the jungle are those most adept at the exercise of brute force.
The fit on the market are those most adept in the service of society.
The jungle is a brutish place, where some seize from others and all live at the starvation
level.
The market is a peaceful and productive place, where all serve themselves and others at the
same time, and live at infinitely higher levels of consumption.
On the market, the charitable can provide aid, a luxury that cannot exist in the jungle.
The free market, therefore, transmutes the jungle's destructive competition for meager
subsistence into a peaceful, cooperative competition in the service of oneself and others.
In the jungle, some gain only at the expense of others.
On the market, everyone gains.
It is the market, the contractual society, that rests order out of chaos, that subdues
nature and eradicates the jungle, that permits the weak to live productively, or out of gifts
from production in a regal style compared to the life of the strong in the jungle.
Furthermore, the market, by raising living standards, permits man the leisure to cultivate
the very qualities of civilization that distinguish him from the brutes.
It is precisely statism that is bringing back the rule of the jungle, bringing back conflict,
disharmony, caste struggle, conquest and the war of all against all, and general poverty.
In place of the peaceful struggle of competition in mutual service, statism substitutes calculational
chaos and the death struggle of social Darwinist competition for political privilege and for
limited subsistence.
11.
Power and Coercion
a.
Other Forms of Coercion
Economic Power
A very common criticism of the libertarian position runs as follows.
Of course, we do not like violence, and libertarians perform a useful service in stressing its
dangers.
But you are very simplistic because you ignore the other significant forms of coercion exercised
in society, private coercive power, apart from the violence wielded by the state or the
In the first place, this seeming difficulty for libertarian doctrine may quickly be removed by limiting the concept of coercion to the use of violence.
This narrowing would have the further merit of strictly confining the legalized violence of the police and the judiciary to the sphere of its competence, combating violence.
But we can go even further, for we can show the inherent contradictions in the broader concept of coercion.
A well-known type of private coercion is the vague but ominous sounding economic power.
A favorite illustration of the wielding of such power is the case of a worker fired from his job,
especially by a large corporation. Is this not as bad as violent coercion against the property of the
of the Worker? Is this not another subtler form of robbery of the worker, since he is
being deprived of money that he would have received if the employer had not wielded his
economic power? Let us look at this situation closely. What exactly has the employer done?
He has refused to continue to make a certain exchange, which the worker preferred to continue
Banking.
Specifically, A, the employer refuses to sell a certain sum of money in exchange for the
purchase of B's labor services.
B would like to make a certain exchange.
A would not.
The same principle may apply to all the exchanges throughout the length and breadth of the economy.
A worker exchanges labor for money with an employer.
A retailer exchanges eggs for money with a customer.
A patient exchanges money with a doctor for his services, and so forth.
Under a regime of freedom, where no violence is permitted, every man has the power either
to make or not to make exchanges as and with whom he sees fit.
Then, when exchanges are made, both parties benefit.
We have seen that if an exchange is coerced, at least one party loses.
It is doubtful whether even a robber gains in the long run for a society in which violence
and tyranny are practiced on a large scale will so lower productivity and become so much
infected with fear and hate that even the robbers may be unhappy when they compare their
Economic power, then, is simply the right under freedom to refuse to make an exchange.
Every man has this power.
Every man has the same right to refuse to make a proffered exchange.
Now it should become evident that the middle-of-the-road statist who concedes the evil of violence
but adds that the violence of government is sometimes necessary to counteract the private
coercion of economic power is caught in an impossible contradiction.
A refuses to make an exchange with B. What are we to say or what is the government to
to do if B brandishes a gun and orders A to make the exchange.
This is the crucial question.
There are only two positions we may take on the matter, either that B is committing violence
and should be stopped at once, or that B is perfectly justified in taking this step because
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Of both doctrines, this violence is either invasive and therefore unjust, or defensive
and therefore just.
If we adopt the economic power argument, we must choose the latter position.
If we reject it, we must adopt the former.
If we choose the economic power concept, we must employ violence to combat any refusal
of exchange.
If we reject it, we employ violence to prevent any violent imposition of exchange.
There is no way to escape this either-or choice.
The middle-of-the-road statist cannot logically say that there are many forms of unjustified
coercion.
He must choose one or the other and take his stand accordingly.
Either he must say that there is only one form of illegal coercion, overt physical violence,
or he must say that there is only one form of illegal coercion, refusal to exchange.
We have already fully described the sort of society built on libertarian foundations,
a society marked by peace, harmony, liberty, maximum utility for all, and progressive improvement
in living standards.
What would be the consequence of adopting the economic power premise?
It would be a society of slavery.
For what else is prohibiting the refusal to work?
It would also be a society where the overt initiators of violence would be treated with
of Kindness, while their victims would be upbraided as being really responsible for
their own plight.
Such a society would be truly a war of all against all, a world in which conquest and
exploitation would rage unchecked.
Let us analyze further the contrast between the power of violence and economic power,
Between, in short, the victim of a bandit and the man who loses his job with the Ford
Motor Company.
Let us symbolize in each case the alleged power-wielder as P and the supposed victim
as X.
In the case of the bandit or robber, P plunders X.
P lives, in short, by battening off X and all the other Xs.
This is the meaning of power in its original political sense.
But what of economic power?
Here, by contrast, X, the would-be employee, is asserting a strident claim to P's property.
In this case, X is plundering P instead of the other way around.
Those who lament the plight of the automobile worker who cannot obtain a job with Ford do
not seem to realize that before Ford and without Ford there would be no such job to be obtained
at all.
No one, therefore, can have any sort of natural right to a Ford job, whereas it is meaningful
to assert a natural right to liberty, a right which each person may have without depending
on the existence of others, such as Ford.
In short, the libertarian doctrine, which proclaims a natural right of defense against
political power, is coherent and meaningful, but any proclaimed right of defense against
economic power makes no sense at all.
Here indeed are enormous differences between the two concepts of power.
B. Power over nature and power over man.
It is quite common and even fashionable to discuss market phenomena in terms of power,
that is, in terms appropriate only to the battlefield.
We have seen the fallacy of the back-to-the-jungle criticism of the market, and we have seen
how the fallacious economic power concept has been applied to the exchange economy.
Political power terminology, in fact, often dominates discussions of the market.
Peaceful businessmen are economic royalists, economic feudalists, or robber barons.
Business is called a system of power, and firms are private governments, and if they
are very large, even empires.
Less luridly, men have bargaining power, and business firms engage in strategies and rivalry
as in military battles.
Recently, theories of games and strategy have been erroneously applied to market activity,
Even to the absurd extent of comparing market exchange with a zero-sum game, an interrelation
in which A's loss is precisely equal to B's gain.
This of course is the action of coercive power, of conquest and robbery.
There, one man's gain is another man's loss, one man's victory another's defeat.
Only conflict can describe these social relations.
But the opposite is true on the free market, where everyone is a victor, and everyone gains
from social relations.
The language and concepts of political power are singularly inappropriate in the free market
society.
The fundamental confusion here is the failure to distinguish between two very different
Concepts, Power over Nature and Power over Man.
It is easy to see that an individual's power is his ability to control his environment
in order to satisfy his wants.
A man with an axe has the power to chop down a tree.
A man with a factory has the power, along with other complementary factors, to produce
capital goods.
A man with a gun has the power to force an unarmed man to do his bidding, provided that
the unarmed man chooses not to resist or not to accept death at gunpoint.
It should be clear that there is a basic distinction between the two types of power.
Power over nature is the sort of power on which civilization must be built.
The record of man's history is the record of the advance or attempted advance of that
power.
Power over men, on the other hand, does not raise the general standard of living or promote
the satisfactions of all, as does power over nature.
By its very essence, only some men in society can wield power over men.
Where power over man exists, some must be the powerful, and others must be objects of
power.
But every man can and does achieve power over nature.
In fact, if we look at the basic condition of man as he enters the world, it is obvious
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bring about a society in which plunder has replaced production, hegemony has supplanted contract,
violence and conflict have taken the place of the peaceful order and harmony of the market.
Power of one man over another is parasitic rather than creative, for it means that the
nature conquerors are subjected to the dictation of those who conquer their fellow man instead.
Any society of force, whether ruled by criminal bans or by an organized state, fundamentally
means the rule of the jungle, or economic chaos.
Furthermore, it would be a jungle, a struggle in the sense of the social Darwinists, in
which the survivors would not really be the fittest, for the fitness of the victors would
The libertarian doctrine, then, advocates the maximization of man's power over nature,
and the eradication of the power of man over man. Statists, in elevating the latter power,
often fail to realize that in their system man's power over nature would wither and become
negligible. Albert J. Nock was aiming at this dichotomy when, in Our Enemy the State, he
He distinguished between social power and state power.
Those who properly balk at any terms that seem to anthropomorphize society were wary
of accepting this terminology.
But actually this distinction is a very important one.
Nock's social power is society's, mankind's, conquest of nature, the power that has helped
to produce the abundance that man has been able to wrest from the earth.
His state power is political power, the use of the political means as against the economic
means to wealth.
State power is the power of man over man, the wielding of coercive violence by one group
over another.
Rock used these categories to analyze historical events in brilliant fashion.
He saw the history of mankind as a race between social power and state power.
Always man, led by the producers, has tried to advance the conquest of his natural environment.
And always men, other men, have tried to extend political power in order to seize the fruits
History can then be interpreted as a race between social power and state power.
In the more abundant periods, for example, after the Industrial Revolution, social power
takes a large spurt ahead of political power, which has not yet had a chance to catch up.
The stagnant periods are those in which state power has at last come to extend its control
over the newer areas of social power.
State power and social power are antithetical, and the former subsists by draining the latter.
Clearly, the concepts advanced here, power over nature and power over man, are generalizations
One problem may appear puzzling.
What is the nature of purchasing power on the market?
Is this not power over man and yet social and on the free market?
However, this contradiction is only apparent.
Money has purchasing power only because other men are willing to accept it in exchange for
The Power to Exchange rests on both sides of the exchange on production, and this is precisely the conquest of nature that we have been discussing.
In fact, it is the exchange process, the division of labor, that permits man's power over nature to extend beyond the primitive level.
level.
It was power over nature that the Ford Motor Company had developed in such abundance, and
it was this power that the angry job seeker was threatening to seize by political power,
while complaining about Ford's economic power.
In sum, political power terminology should be applied only to those employing violence.
The only private governments are those people and organizations aggressing against persons
and property that are not part of the official state, dominating certain territory.
These private states, or private governments, may either cooperate with the official state,
as did the governments of the guilds in the Middle Ages, and as labor unions and cartelists
A common criticism of free market decisions is that luck plays too great a role in determining
incomes.
and those who concede that income to a factor tends to equal its discounted marginal value product to consumers,
and that entrepreneurs on the free market will reduce mistakes to an absolute minimum,
and that luck still plays a role in income determination.
After charging that the market confers undue laurels on the lucky,
The critic goes on to call for expropriation of the rich, or lucky, and subsidization of the poor, or unlucky.
Yet how can luck be isolated and identified?
It should be evident that it is impossible to do so.
In every market action, luck is interwoven inextricably and is impossible to isolate.
Consequently, there is no justification for saying that the rich are luckier than the poor.
It might very well be that many or most of the rich have been unlucky and are getting less than their true DMVP,
while most of the poor have been lucky and are getting more.
No one can say what the distribution of luck is.
Hence, there is no justification here for a redistribution policy.
In only one place on the market does luck purely and identifiably determine the result
– gambling gains and losses.
Here we refer to pure gambling, or games of chance, such as roulette, with no intermingled
and compensated, for they freely and voluntarily accepted the rules of chance before beginning to gamble.
The governmental policy of neutralizing luck destroys the satisfaction that all the participants derive from the game.
It is curious that so many economists, including Alfred Marshall, have proved the irrationality of gambling,
For example, from the diminishing marginal utility of money, by first assuming, clearly, erroneously, that the participants do not like to gamble.
13. The Traffic Manager Analogy
Because of its popularity, we may briefly consider the Traffic Manager Analogy,
The Doctrine that the government must obviously regulate the economy just as traffic must be regulated.
It is high time that this flagrant non sequitur be consigned to oblivion.
Every owner necessarily regulates his own property.
In the same way, every owner of a road will lay down the rules for the use of his road.
Far from being an argument for statism, management is simply the attribute of all ownership.
Those who own the roads will regulate their use.
In the present day, the government owns most roads and so regulates them.
In a purely free market society, private owners would operate and control their own roads.
14. Over and Under Development Critics often level conflicting charges against
the free market. The historicist-minded may concede that the free market is ideal for
for a Certain Stage of Economic Development, but insists that it is unsuited to other stages.
Thus, advanced nations have been exhorted to embrace government planning because the
modern economy is too complex to remain planless, the frontier is gone, and the economy is now
mature.
But, on the other hand, the backward countries have been told that they must adopt statist planning methods because of their relatively primitive state.
So, any given economy is either too advanced or too backward for laissez-faire, and we may rest assured that the appointed moment for laissez-faire somehow never arrives.
The currently fashionable economics of growth is an historicist regression.
The laws of economics apply whatever the particular level of the economy.
At any level, progressive change consists in a growing volume of capital per head of population,
and is furthered by the free market, low time preferences, far-seeing entrepreneurs,
and Sufficient Labor and Natural Resources.
Regressive change is brought about by the opposite conditions.
The terms progressive and regressive change are far better than growth, a term expressing
a misleading biological analogy that implies some actual law dictating that an economy
The term underdeveloped is also unfortunate, as it implies that there is some level or
norm that the economy should have reached, but failed to reach, because some external
force did not develop it.
The old-fashioned term, backward, though still normative, at least pins the blame for the
relative poverty of an economy on the nation's own policies.
The poor country can best progress by permitting private enterprise and investment to function,
and by allowing natives and foreigners to invest there unhampered and unmolested.
As for the rich country and its complexities, the delicate processes of the free market
are precisely equipped to handle complex adjustments and interrelations far more efficiently than
any form of statist planning.
15.
The State and the Nature of Man
Since the problem of the nature of man has been raised, we may now turn briefly to an
argument that has pervaded Roman Catholic social philosophy, namely that the state is
part of the essential nature of man.
This Thomistic view stems from Aristotle and Plato, who in their quest for a rational ethic
leaped to the assumption that the state was the embodiment of the moral agency for mankind.
That man should do such-and-such quickly became translated into the prescription, the state
should do such-and-such.
But nowhere is the nature of the state itself fundamentally examined.
Aristotle is a work very influential in Catholic circles, Heinrich Roman's The State in Catholic
Thought.
Following Aristotle, Roman attempts to ground the state in the nature of man by pointing
out that man is a social being.
In proving that man's nature is best fitted for a society, he believes that he has gone
Roman far to provide a rationale for the state, but he has not done so in the slightest degree,
once we fully realize that the state and society are by no means coextensive.
The contention of libertarians that the state is an anti-social instrument must first be
refuted before such a non sequitur can be allowed.
The State and Society are distinct, but he still justifies the state by arguments that apply only to society.
He also asserts the importance of law, although the particular legal norms considered necessary are unfortunately not specified.
Yet law and the state are not coextensive either, although this is a fallacy that very few writers avoid.
Much Anglo-Saxon law grew out of the voluntarily adopted norms of the people themselves,
common law, law merchant, etc., not as state legislation.
Roman also stresses the importance for society of the predictability of action,
which can be assured only by the state.
Yet the essence of human nature is that it cannot be considered as truly predictable.
Otherwise, we should be dealing not with free men, but with an ant-heap.
And if we could force men to march in unison according to a complete set of predictable norms,
it is certainly not a foregone conclusion that we should all hail such an ideal.
Some people would combat it bitterly.
Finally, if the enforceable norm were limited to abstinence from aggression against others,
1. A state is not necessary for such enforcement, as we have noted,
and 2. The state's own inherent aggression itself violates that norm.
16. Human Rights and Property Rights
It is often asserted by critics of the free market economy that they are interested in preserving
human rights rather than property rights. This artificial dichotomy between human and property
rights has often been refuted by libertarians who have pointed out a that property rights of course
In short, they have shown that property rights are indissolubly also human rights.
They have, besides, pointed out that the human right of a free press would be only a mockery
in a Socialist Country, where the state owns and decides upon the allocation of newsprint
and other newspaper capital.
There are other points that should be made, however.
For not only are property rights also human rights, but, in the most profound sense, there
are no rights but property rights.
The only human rights, in short, are property rights.
There are several senses in which this is true.
In the first place, each individual as a natural fact is the owner of himself, the ruler of
his own person.
The human rights of the person that are defended in the purely free market society are, in
effect, each man's property right in his own being, and from this property right stems
In the second place, alleged human rights can be boiled down to property rights, although
in many cases this fact is obscured.
Take for example the human right of free speech.
Freedom of speech is supposed to mean the right of everyone to say whatever he likes.
But the neglected question is, where?
Where does a man have this right?
He certainly does not have it on property on which he is trespassing.
In short, he has this right only either on his own property or on the property of someone
who has agreed as a gift or in a rental contract to allow him on the premises.
In fact, then, there is no such thing as a separate right to free speech.
There is only a man's property right, the right to do as he wills with his own, or to
make voluntary agreements with other property owners.
The concentration on vague and wholly human rights has not only obscured this fact, but
has led to the belief that there are of necessity all sorts of conflicts between individual rights
and Alleged Public Policy or The Public Good.
These conflicts have, in turn, led people to contend that no rights can be absolute,
that they must all be relative and tentative.
Take for example the human right of freedom of assembly.
Suppose that a citizen's group wishes to demonstrate for a certain measure.
It uses a street for this purpose.
The police, on the other hand, break up the meeting on the ground that it obstructs traffic.
Now, the point is that there is no way of resolving this conflict except arbitrarily,
because the government owns the streets.
Government ownership, as we have seen, inevitably breeds insoluble conflicts, for on the one
On the one hand, the citizens group can argue that they are taxpayers and are therefore
entitled to use the streets for assembly, while on the other hand, the police are right
that traffic is obstructed.
There is no rational way to resolve the conflict because there is, as yet, no true ownership
of the valuable street resource.
In a purely free society, where the streets are privately owned, the question would be
simple.
It would be for the street owner to decide.
And it would be the concern of the citizens' group to try to rent the street space voluntarily
from the owner.
If all ownership were private, it would be quite clear that the citizens did not have
any nebulous right of assembly.
Their right would be the property right of using their money in an effort to buy or rent
space on which to make their demonstration, and they could do so only if the owner of
the street agreed to the deal.
Let us consider finally the classic case that is supposed to demonstrate that individual
All rights can never be absolute, but must be limited by public policy.
Justice Holmes' famous dictum that no man can have the right to cry fire in a crowded
theater.
This is supposed to show that freedom of speech cannot be absolute.
But if we cease dealing with this alleged human right, and seek for the property rights
involved, the solution becomes clear, and we see that there is no need at all to weaken
the absolute nature of rights.
For the person who falsely cries fire must be either the owner or the owner's agent
or a guest or paying patron.
If he is the owner, then he has committed fraud upon his customers.
He has taken their money in exchange for a promise to put on a motion picture, and now,
instead, he disrupts the performance by falsely shouting, fire, and creating a disturbance
among the patrons.
He has thus willfully defaulted on his contractual obligation, and has therefore violated the
property rights of his patrons.
It is on the other hand that the shouter is not the owner, but a patron.
In that case, he is obviously violating the property right of the theater owner as well
as the other patrons.
As a guest, he is on the property on certain terms, and he has the obligation of not violating
the owner's property rights by disrupting the performance that the owner is putting
on for the patrons.
The person who maliciously cries fire in a crowded theater, therefore, is a criminal
not because his so-called right of free speech must be pragmatically restricted on behalf
of the so-called public good, but because he has clearly and obviously violated the
property rights of another human being.
There is no need, therefore, of placing limits upon these rights.
Since this is a praxeological and not an ethical treatise, the aim of this discussion has not
been to convince the reader that property rights should be upheld.
Rather, we have attempted to show that the person who does wish to construct his political
Appendix, Professor Oliver on Socio-Economic Goals Some years ago, Professor Henry M. Oliver
Professor Kenneth J. Arrow published an important study, a logical analysis of ethical goals
in economic affairs.
Professor Kenneth J. Arrow has hailed the work as a pioneer achievement on the road
to the axiomatization of a social ethics.
Unfortunately, this attempted axiomatization is a tissue of logical fallacies.
Arrow is correct, however, when he says,
It is only when the socio-economic goals have been made clear
that we can speak intelligently about the best policies for their achievement.
Such clarification has been attempted in the present chapter.
It is remarkable what difficulty economists and political philosophers have had
in trying to bury laissez-faire.
For well over a half century, laissez-faire thought, both in its natural rights and its
utilitarian versions, has been extremely rare in the Western world.
And yet, despite the continued proclamation that laissez-faire has been completely discredited,
uneasiness has marked the one-sided debate.
And so, from time to time, writers have felt obliged to lay the ghost of laissez-faire.
The absence of opposition has created a series of faintly worried monologues, rather than
a lively two-sided argument.
Nevertheless, the attacks continue, and now Professor Oliver has gone to the extent of
of Writing a Book, Almost Wholly Devoted to an Attempted Refutation of Laissez-faire Thought
a.
The Attack on Natural Liberty Oliver begins by turning his guns on the natural
rights defense of laissez-faire, on the system of natural liberty.
He is worried because Americans still seem to cling to this doctrine in underlying theory,
If not in actual practice, first he sets forth various versions of the libertarian position,
including the extreme version.
A man has a right to do what he will with his own, as well as Spencer's law of equal
freedom and the semi-utilitarian position that a man is free to do as he pleases so
long as he does not harm someone.
The semi-utilitarian position is easiest to attack, and Oliver has no difficulty in showing
its vagueness.
Harm can be interpreted to cover practically all actions.
For example, a hater of the color red can argue that someone else inflicts aesthetic
harm upon him by wearing a red coat.
Characteristically, Oliver has least patience with the extreme version, which, he contends,
is not meant to be interpreted literally, not a seriously reasoned statement, etc.
This enables him to shift quickly to attacks on the modified and weaker versions of libertarianism.
Yet it is a serious statement and must be coped with seriously, especially if A is replaced
by every in the sentence.
Too often political debate has been short-circuited by someone's blithe comment that you can't
really be serious.
We have seen that Spencer's law of equal freedom is really a redundant version of the
The Extreme Statement, and that the first part implies the Proviso Clause.
The Extreme Statement permits a more clear-cut presentation, avoiding many of the interpretative
pitfalls of the watered-down version.
Let us now turn to Oliver's general criticisms of the libertarian position.
Conceding that it has great superficial attractiveness, Oliver levels a series of criticisms that
are supposed to demonstrate its illogic.
1.
Any demarcation of property restricts liberty, that is, the liberty of others to use these
resources.
This criticism misuses the term liberty.
Obviously any property right infringes on others' freedom to steal, but we do not
even need property rights to establish this limitation.
The existence of another person under a regime of liberty restricts the liberty of others
to assault him.
Yet by definition, liberty cannot be restricted thereby, because liberty is defined as freedom
Freedom to control what one owns without molestation by others.
Freedom to steal or assault would permit someone, the victim of stealth or assault, to be forcibly
or fraudulently deprived of his person or property, and would therefore violate the
clause of total liberty, that every man be free to do what he wills with his own.
Understanding what one wills with someone else's own impairs the other person's liberty.
2.
A more important criticism in Oliver's eyes is that natural rights connote a concept of
property as consisting in things, and that such a concept eliminates property in intangible
rights.
Overholds that if property is defined as a bundle of things, then all property in rights,
such as stocks and bonds, would have to be eliminated, whereas if property is defined
as rights, insoluble problems arise of defining rights apart from current legal custom.
Furthermore, property in rights divorced from things allows non laissez-faire rights to
crop up, such as rights in jobs, etc.
This is Oliver's primary criticism.
This point is a completely fallacious one.
Although property is certainly a bundle of physical things, there is no dichotomy between
things and rights.
In fact, rights are simply rights to things.
A share in an oil company is not an intangible floating right.
It is a certificate of aliquot ownership in the physical property of the oil company.
Similarly, a bond is directly a claim to ownership of a certain amount of money, and, in the
The final analysis is an aliquot ownership in the company's physical property.
Rights, except for grants of monopolistic privilege, which would be eliminated in the
free society, are simply divisible reflections of physical property.
3.
Oliver tries to demonstrate that the libertarian position, however phrased, does not necessarily
The Harm Clause of the Semi-Utilitarians is justly criticized.
Spencer's Law of Equal Freedom is attacked for its Proviso Clause and for the alleged
vagueness of the phrase infringes on the equal freedom of others.
Actually, as we have seen, this proviso is unnecessary and could well be eliminated.
Even so, Oliver does considerably less than justice to the Spencerian position.
He sets up alternative straw-man definitions of infringement and shows that none of these
alternatives leads to strict laissez-faire.
A more thorough search would easily have yielded Oliver the proper definition.
Of the five alternative definitions he offers, the first simply defines infringement as violation
of the customary legal code, a question-begging definition that no rational libertarian would
employ.
Basing his argument necessarily on principle, the libertarian must fashion his standard
Oliver's fourth and fifth definitions, exercise of control in any form over another person's
satisfaction or deeds, are so vague and so question-begging in the use of the word control
that no libertarian would ever use them.
This leaves the second and third definitions of infringement, in which Oliver manages to
skirt any reasonable solution to the problem.
The former defines infringement as direct physical interference with another man's
control of his person and owned things, and the latter as direct physical interference
plus interference in the form of threat of injury.
But the former apparently excludes fraud, while the latter not only excludes fraud,
but also includes threats to compete with someone else, etc.
Since neither definition implies a laissez-faire system, Oliver quickly gives up the task,
and concludes that the term infringement is hopelessly vague, and cannot be used to deduce
use the laissez-faire concept of freedom and therefore that laissez-faire needs a special
additional ethical assumption aside from the basic libertarian postulate.
Yet a proper definition of infringement can be found in order to arrive at a laissez-faire
conclusion.
The vague question begging term injury must not be used.
Instead, infringement can be defined as direct physical interference with another man's
person or property, or the threat of such physical interference.
Contrary to Oliver's assumption, fraud is included in the category of direct physical
interference, for such interference means not only the direct use of armed violence,
But also such acts as trespass and burglary without use of a weapon.
In both cases, violence has been done to someone else's property by physically molesting it.
Fraud is implicit theft, because fraud entails the physical appropriation of someone else's
property under false pretenses, that is, in exchange for something that is never delivered.
In both cases, someone's property is taken from him without his consent.
Where there's a will, there's a way, and thus we see that it is quite easy to define
the Spencerian formula clearly enough so that laissez-faire and only laissez-faire follows
from it.
The important point to remember is never to use such vague expressions as injury, harm,
or control, but specific terms, such as physical interference or threats of physical violence.
b.
The Attack on Freedom of Contract After disposing to his own satisfaction of
of the Basic Natural Rights Postulates, Oliver goes on to attack a specific class of these rights, Freedom of Contract.
Oliver delineates three possible Freedom of Contract clauses.
1. A man has a right to freedom of contract.
2. A man has a right to freedom of contract unless the terms of the contract harm someone.
3. A man has a right to freedom of contract unless the terms of the contract infringe upon someone's rights.
The second clause can be disposed of immediately.
Once again, the vague notion of harm can provide an excuse for unlimited state intervention, as Oliver quickly notes.
No libertarian would adopt such a phrasing.
The first formulation is of course the most uncompromising and leaves no room whatever for state intervention.
Here Oliver again scoffs and says that very few persons would push the freedom of contract doctrine so far.
Perhaps, but since when is truth established by majority vote?
In fact, the third clause with its Spencerian proviso is again unnecessary.
Suppose, for example, that A and B freely contract to shoot C. The third version may say that this is an illegal contract, but actually it should not be.
For the contract itself does not and cannot violate C's rights. It is only a possible subsequent action against C that will violate his rights.
But in that case, it is that action which must be declared illegal and punished, not the preceding contract.
The first clause, which provides for absolute freedom of contract, is the clearest and evidently the preferable formulation.
In objection to this clause, Oliver states that Anglo-American law traditionally has voided certain types of contract
The Theory of Money and Credit The Theory of Money and Credit
For how, asks Oliver, can we distinguish between a free and voluntary contract on the one hand, and fraud and coercion, which void contracts on the other?
First, how can fraud be clearly defined?
Oliver's critique here is in two parts.
One, he says that common law holds that certain types of omissions, as well as certain types
of false statements and misleading sections, void contracts.
Where is this rule of omission to stop?
Oliver sees quite correctly that if no omission at all were allowed, the degree of statism
would be enormous.
Yet this problem is solved very simply.
Change the common law so as to eliminate all rules of omission whatever.
It is curious that Oliver is so reluctant even to consider changes in ancient legal customs
where these changes seem called for by principle or to realize that libertarians would advocate
such changes.
Since libertarians advocate sweeping changes elsewhere in the political structure, there
is no reason why they should balk at changing a few clauses of the common law.
2.
He states that even rules against false statements seem statist to some people and could be
be pushed beyond their present limits, and he cites SEC regulations as an example.
Yet the whole problem is that a libertarian system could countenance no administrative
boards or regulations whatever.
No advance regulations could be handed down.
On the purely free market, anyone damaged by false statements would take his opponent
to Court and Win Redress There, but any false statements, any fraud, would then be punished
by the court severely in the same manner as theft.
Secondly, Oliver wants to know how coercion can be defined.
Oliver is confused in contradictorily jumbling the definitions of coercion as physical violence
and as refusal to exchange.
As we have seen, coercion can rationally be defined only as one or the other, not as both,
for then the definition is self-contradictory.
Further, he confuses physical interpersonal violence with the scarcity imposed by the
facts of nature, lumping them both together as coercion.
He concludes in the hopelessly muddled assertion that the freedom of contract theory assumes
a meaningless equality of coercion among contracting parties.
In fact, libertarians assert that there is no coercion at all in the free market.
The equality of coercion absurdity permits Oliver to state that true freedom of contract
at least requires state-enforced pure competition.
The freedom of contract argument, therefore, implies laissez-faire and is also strictly
derivable from the postulate of freedom.
Contrary to Oliver, no other ethical postulates are necessary to imply laissez-faire from
this argument.
The coercion problem is completely solved when violence is substituted for the rather misleading
term coercion.
Then, any contract is free and therefore valid when there has been an absence of violence
or threat of violence by either party.
Oliver makes a few other attacks on legal liberty.
For example, he raises the old slogan that legal liberty does not correspond to actual
liberty or effective opportunity, once again falling into the age-old confusion of freedom
with power or abundance.
In one of his most provocative statements, he asserts that all men could enjoy complete
legal liberty only under a system of anarchy.
It is rare for someone to identify a system under law as being anarchy.
If this be anarchism, then many libertarians will embrace the term.
C. The attack on income according to earnings.
On the free market, every man obtains money income insofar as he can sell his goods or
services for money.
Everyone's income will vary in accordance with freely chosen market valuations of his
productivity in fulfilling consumer desires.
In his comprehensive attack on laissez-faire, Professor Oliver, in addition to criticizing
the doctrines of natural liberty and freedom of contract, also condemns this principle,
or what he calls the earned income doctrine.
Labor contends that since workers must use capital and land, the right to property cannot
rest on what human labor creates.
But both capital goods and land are ultimately reducible to labor and time.
Capital goods were all built by the original factors, land and labor, and land had to be
be found by human labor and brought into production by labor.
Therefore, not only current labor, but also stored-up labor, or rather stored-up labor
and time, earn money in current production, and so there is as much reason why the owners
of these resources should obtain money now as there is that current laborers earn money
now.
The right of past labor to earn is established by the right of bequest, which stems immediately
from the right of property.
The right of inheritance rests not so much on the right of later generations to receive
as on the right of earlier generations to bestow.
With these general considerations in mind, we may turn to some of Oliver's detailed
Criticisms. First, he states the basic earned income principle incorrectly, and this is a standing
source of confusion. He phrases it thus, a man acquires a right to income which he himself creates.
Incorrect. He acquires the right not to income, but to the property that he himself creates.
The importance of this distinction will become clear presently.
A man has the right to his own product, to the product of his energy, which immediately
becomes his property.
He derives his money income by exchanging this property, this product of his or his
ancestor's energy, for money.
His goods or services are freely exchanged on the market for money.
His income is therefore completely determined by the monetary valuation that the market
places on his goods or services.
Much of Oliver's subsequent criticism stems from ignoring the fact that all complementary
resources are founded on the labor of individuals.
He also decries the idea that if a man makes something, it is his as very simple.
Simple it may be, but that should not be a pejorative term in science.
On the contrary, the principle of Occam's razor tells us that the simpler a truth is,
the better.
The criterion of a statement, therefore, is its truth, and simplicity is, Ceteris Paribus,
A Virtue
The point is that when a man makes something, it belongs either to him or to someone else.
To whom, then, shall it belong?
To the producer, or to someone who has stolen it from the producer?
Perhaps this is a simple choice, but a necessary one nevertheless.
Yet how can we tell when a person has made something or not?
Oliver worries considerably about this question and criticizes the marginal productivity theory
at length.
Aside from the fallacies of his objections, the marginal productivity theory is not at
all necessary, although it is helpful to this ethical discussion.
For the criterion to be used in determining who has made the product on the market and
and Who Should Therefore Earn the Money is really very simple.
The criterion is who owns the product.
A spends his labor energy working in a factory.
This contribution of labor energy to further production is bought and paid for by factory
owner B. A owns labor energy, which is hired by B.
In this case, the product made by A is his energy, and its use is paid for or hired by B.
B hires various factors to work on his capital, and the capital is finally transformed into
another product and sold to C. The product belongs to B, and B exchanges it for money.
The money that B obtains, over and above the amount that he had to pay for other factors
of production, represents B's contribution to the product.
The amount that his capital received goes to B, its owner, etc.
Oliver also believes it a criticism when he states that men do not really make goods,
but add value to them by applying labor.
But no one denies this.
Man does not create matter just as he does not create land.
Rather, he takes this natural matter and transforms it in a series of processes to arrive at more
useful goods.
He hopes to add value by transforming matter.
To say this is to strengthen rather than weaken the earnings theory, since it should be clear
It is clear that how much value is added in producing goods for exchange can be determined
only by the purchases of customers, ultimately the consumers.
Oliver betrays his confusion by asserting that the earning theory assumes that the values
which we receive in exchange are equal in worth to those which we create in the production
process.
Certainly not.
There are no actual values created in the production process.
These values take on meaning only from the values we receive in exchange.
We cannot compare received and created values because created property becomes valuable
only to the extent that it is purchased in exchange.
Here we see some of the fruits of Oliver's fundamental confusion between creating income
and creating a product.
People do not create income, they create a product, which they hope can be exchanged
for income by being useful to consumers.
Oliver compounds his confusion by next taking up the laissez-faire theorem that everyone
One has the right to his own value scale and to act on that value scale.
Instead of stating this principle in these terms, Oliver introduces confusion by calling
it placing values on an equal footing for each man.
Consequently, he can then criticize this approach by asking how people's values can have an
Another of Oliver's critical objections to the earned income theory is that it assumes
that all values are gained through purchase and sale, that all goods are those of the
and the Marketplace.
This is nonsense, and no responsible economist ever assumed it.
In fact, no one denies that there are non-marketable, non-exchangeable goods, such as friendship, love and religion,
and that many men value these goods very highly.
They must constantly choose how to allocate their resources between exchangeable and non-exchangeable goods.
This causes not the slightest difficulty for the free market or for the earned income doctrine.
In fact, a man earns money in exchange for his exchangeable goods.
What could be more reasonable?
A man acquires his income by selling exchangeable goods at market.
So naturally, the money he acquires will be determined by the buyer's evaluations of
of These Goods, How Indeed Can He Ever Acquire Exchangeable Goods in Return for His Pursuit
or Offer of Non-Exchangeables, and Why Should He, Why and How Will Others Be Forced to Pay
Money for Nothing in Return, and How Will the Government Determine Who Has Produced
What Non-Exchangeable Goods, and What the Reward or Penalty Shall Be?
When Oliver states that market earnings are unsatisfactory because they do not cover non-market
production as well, he fails to indicate why non-marketable goods should enter the picture
at all.
Why should not marketable goods pay for marketable goods?
Oliver's statement that non-market receipts are hardly distributed so as to solve the
The non-market part of the problem makes little sense.
What in the world are non-market receipts?
And if they are not inner satisfaction from inner pursuits by the individual, what in
the world are they?
If Oliver suggests taking money from A to pay B, then he is suggesting the seizure of
a marketable good, and the receipts are then quite marketable.
But if he is not suggesting this, then his remarks are quite irrelevant, and he can say
nothing against the earned-income principle.
Also, it should not be overlooked that all those on the market who wish to reward non-marketable
contributions with money are free to do so.
In fact, in the free society, such rewards will be affected to the maximum degree freely
We have seen that the marginal productivity theory is not necessary to an ethical solution.
A man's property is his product, and this will be sold at its estimated worth to consumers
on the market.
The market solves the problem of estimating worth, and better than any coercive agency
or economist could.
If Oliver disagrees with market verdicts on the marginal value productivity of any factor,
he is hereby invited to become an entrepreneur and to earn the profits that come from exposing
such maladjustments.
Oliver's problems are pseudo-problems.
Thus he asks, when white's cotton is exchanged for brown's wheat, what is the ethically
and Correct Ratio of Exchange, Simple Answers of the Free Market Doctrine, Whatever the
Two Freely Decide, When Jones and Smith Together Produce a Good, What Part of that Good is
Attributable to Jones' Actions and What Part to Smith's?
The Answer, Whatever They Have Mutually Contracted, Oliver gives several fallacious reasons for
For Rejecting the Marginal Productivity Theory, one is that income imputation does not imply
income creation because a laborer's marginal product can be altered merely by a change
in the quantity or quality of a complementary factor, or by a variation in the number of
competing laborers.
Once again, Oliver's confusion stems from talking about income creation instead of product
creation.
The laborer creates his labor service.
This is his property, his to sell at whatever market he wishes, or not to sell, if he so
desires.
The appraised worth of this service depends on his marginal value product, which, of course,
depends partly on competition and the number or quality of complementary factors.
This in fact does not confound, but rather is an integral part of, marginal productivity
theory.
If the supply of cooperating capital increases, a laborer's energy service becomes scarcer
in Relation to the Complementary Factors, Land, Capital, and His Marginal Value Product
and Income Increase.
Similarly, if there are more competing laborers, there may be a tendency for a laborer's DMVP
to decline, although it may increase because of the wider extent of the market.
It is beside the point to say that all this is not fair because his service output remains
the same.
The point is that, to the consumers, his worth in production varies in accordance with these
other factors, and he is paid accordingly.
Oliver also employs the popular but completely fallacious doctrine that any ethical sense
to the Marginal Productivity Theory must rely on the existence of pure competition.
But why should the marginal value product of a freely competitive economy be any less
ethical than the value of the marginal product of the never-never land of pure competition?
Oliver adopts Joan Robinson's doctrine that entrepreneurs exploit the factors and reap
a Special Exploitation Gain.
But on the contrary, as Professor Chamberlain has conceded, no one reaps any exploitation
in the world of free competition.
Oliver makes several other interesting criticisms.
One, he maintains that marginal productivity cannot apply within corporations because no
No market for a firm's capital exists after the initial establishment of the company.
Hence, the directors can rule the stockholders.
In rebuttal, we may ask how the directors can remain directors without representing
the wishes of the majority of stockholders.
The capital market is continuing because capital values are constantly shifting on
from the Stock Market, a sharp decline in stock values means grave losses for the owners
of the company. Furthermore, it means that there will be no further capital expansion
in that firm and that its capital may not even be maintained intact.
2. He maintains that the marginal productivity theory cannot account for the lumpy, fixed
Contribution to All Incomes of the Services Supplied by the State
In the first place, marginal productivity theory does not at all, in its proper form,
assume, as Oliver believes, that factors are infinitely divisible. Any lumps can be taken
care of. The problem of the state, therefore, has really nothing to do with lumpy factors.
and the
world.
Indeed all factors are more or less lumpy.
Furthermore, Oliver concedes that the services of the state are divisible.
In one of his rare flashes of insight, Oliver admits that there can be and are varying degrees
of police, military and monetary, for example, mint services.
But if that is the case, how do state services differ from any other?
The difference is indeed great, but it stems from a fact we have reiterated many times,
that the state is a compulsory monopoly in which payment is separated from receipt of service.
As long as this condition exists, there can indeed be no market measure of its marginal
Oliver's criticism here is not of the free market, but of the statist sphere of a mixed
statist market economy.
Oliver's attribution of income creation to organized society is very vague.
If by this he means society, he is using a meaningless phrase.
It is precisely the process of the market by which the array of free individuals constituting
society portions out income in accordance with productivity.
It is double counting to postulate a real entity, society, outside the array of individuals,
and possessing or not possessing its own deserved share.
If by organized society he means the state, then the state's contributions were compulsory,
and hence hardly deserved any pay.
Furthermore, since, as we have shown, total taxation is far greater than any alleged productive
contribution of the state, the rulers owe the rest of society money, rather than vice versa.
3. Oliver makes the curious assertion, also made repeatedly by Frank Knight,
that a man does not really deserve ethically to reap the earnings from his own unique ability.
I must confess that I cannot make any sense of this position. What is more inherent in an individual,
more uniquely his own, than his inherited ability? If he is not to reap the reward from this,
Conjoined with his own willed effort, what should he reap a reward from, and why then should someone
else reap a reward from his unique ability? Why, in short, should the able be consistently penalized
and the unable consistently subsidized? Oliver's attribution of such ability to some mystical
first cause will make sense only when someone is able to find the first cause and pay it
its deserved share.
Until then, any attempt to redistribute income from A to B would have to imply that B is
the first cause.
4.
Oliver confuses private voluntary charity and grants in aid with compulsory charity
or grants.
Thus, he misdefines the earned income free market doctrine as saying that a person should
support himself and his legitimate dependence without asking for special favors or calling
upon outside parties for aid.
While many individualists would accept this formulation, the true free market doctrine
is that no person may coerce others into giving him aid.
It makes all the difference in the world whether the aid is given voluntarily or is stolen
by force.
As a corollary, Oliver confuses the meaning of power and asserts that employers have power
Oliver is quite right when he says that the
slave master was responsible for his slave's subsistence, but he doesn't seem to realize
that only the re-establishment of slavery would fit his program for labor relations.
To say that the feeble-minded or orphans are wards, as Oliver does, leads to his confusion
between wards of society and wards of the state.
The two are completely different, because the two institutions are not the same.
The concept of ward of society reflects the libertarian principle that private individuals
Oliver's conclusion that every normal adult should have a fair chance to support himself
Self, and in the absence of this opportunity he should be supported by the state, is a
mélange of logical fallacies.
What is a fair chance, and how can it be defined?
Further, in contrast to Spencer's law of equal freedom, or to our suggested law of
total freedom, every cannot here be fulfilled, since there is no such real entity as the
Anyone supported by the state must, ipso facto, be supported by someone else in the society.
Therefore, not everyone can be supported.
Especially, of course, if we define fair chance as the absence of interference or coercive penalizing of a person's ability.
5.
Oliver realizes that some earned-income theorists combine their doctrines with a finder's-keeper's
theory.
But he can find no underlying principle here, and calls it merely an accepted rule of the
business game.
Yet finder's-keeper's is not only based on principle, it is just as much a corollary
The theory of the underlying postulates of a regime of liberty, as is the earned income
theory.
For an unowned resource should, according to basic property rights doctrine, become
owned by whoever, through his efforts, brings this resource into productive use.
This is the finder's keepers, or first user, first owner, principle.
It is the only theory consistent with the abolition of theft, including government ownership,
so that every useful resource is always owned by some non-thief.
Oliver often cites in his support the essay of Frank H. Knight, Freedom as Fact and Criterion.
There is no need to elaborate further on Knight's essay except to note his attack on Spencer
for Adopting Both Psychological Hedonism and Ethical Hedonism.
Without analyzing Spencer in detail, we can, by a proper interpretation, make very good
sense of combining both positions.
First, it is necessary to change hedonism, the pursuit of pleasure, to eudaemonism, the
pursuit of happiness.
Second, psychological eudaemonism, the view that every individual universally and necessarily
seeks his own maximum happiness, follows from the praxeological axiom of human action.
From the fact of purpose, this truth follows, but only when happiness is interpreted in
in a formal, categorical and ex ante sense, that is, happiness here means whatever the
individual chooses to rank highest on his value scale.
Ethical eudaemonism, that an individual should seek his maximum happiness, can also be held
by the same theorist, when happiness is here interpreted in a substantive and ex post sense,
That is, that each individual should pursue that course which will, as a consequence,
make him happier.
To illustrate, a man may be an alcoholic.
The eudaemonist may make these two pronouncements.
1.
A is pursuing that course which he most prefers.
Psychological eudaemonism.
And 2.
A is injuring his happiness.
This judgment being based on happiness rules derived from the study of the nature of man,
and therefore should reduce his alcohol intake to the point that his happiness is no longer
impaired.
Ethical eudaemonism.
The two are perfectly compatible positions.