Friday, December 21, 2012

Day 1: It's popular and successful, so it must be stopped! (response)

Day 0: The Libertarian catechism
Day 1: It's popular and successful, so it must be stopped! (summary) (response)
Day 2: Jackbooted thugs (summary) (response)

The Task Confronting Libertarians
Excerpt of chapter 24 of Man vs. the Welfare State [pdf], by Henry Hazlitt, 1969.
Available from the Ludwig von Mises Institute
Day 1 of Robert Wenzel's 30 Day Reading List on Libertarianism

I have to examine this reading in two lights: one in the context that Hazlitt was writing in 1969, and the other in the context of Wenzel offering this chapter in isolation as his "hook" to engage his readers and persuade them to read the rest of the series.

I cannot, of course, judge Hazlitt directly; I'm reading part of the second to last chapter of a 25 chapter book.* For all I know, Hazlitt could have made an airtight case in the preceding 23 chapters that supports the call to action in chapter 24. Even so, I do know something about its historical context. In 1969, the post World War II economic expansion was at its peak. The last recession, which was fairly mild, was 7 years ago, in 1961-1962. Real wages for all income levels had been rising steadily. The national debt had been falling slowly but steadily in nominal terms, and declining precipitously as a percentage of gross domestic product. There were still considerable social and economic problems, notably the Viet Nam war as well as institutionalized sexism and racism, in the decade preceding Hazlitt's book, economic conditions are as close to ideal as possible for a capitalist economy. Hazlitt notes the popularity of the Welfare State, and we can see its success in reality. Hence the title of these two posts: it is the very popularity and success of the emerging Welfare State that seems to motivate Hazlitt's alarm.

Man vs. the Welfare State is available for free in PDF format from the Ludwig von Mises Institute; if anyone wants to read and review the whole book, I would be happy, subject to ordinary editorial standards, to publish the review.)

Why then, does Wenzel use as his hook a diatribe more than four decades old, written under very different conditions than today? Even had Hazlitt made strong arguments in the chapter (and his few arguments there, taken out of context, are thin), they would be largely irrelevant today. Wenzel is clearly not writing to even the minimally skeptical reader. There were nearly 3,000,000 bureaucrats in 1969? So what? Big numbers by themselves don't mean anything. There were more than two hundred million people in the US then, and more than two million uniformed military personnel. (Furthermore, there are fewer bureaucrats today, 2,776,000, than in 1969, for a population that has increased from 202 million to more than 300 million.) The FCC forced AT&T to lower its long distance rates. And? As Hazlitt mentions, the decision is 144 pages long; all Hazlitt tells us is that long distance prices had already dropped, but doesn't tell us why the FCC still considered them too high. Hazlitt warns that the dollar might be devalued, like every other currency. Why should I care? The dollar is an arbitrary accounting unit, and if, as Hazlitt asserts, every other currency has devalued, then we're all back where we started. The facts and evidence that Hazlitt presents here, and that Wenzel considers a compelling introduction, are entirely unpersuasive.

What Hazlitt does extremely well in this chapter is lay down the core of Libertarian ideology:
  1. All government redistribution is always bad.
  2. All government regulation of business is always bad.
  3. All government control of money is always bad.
  4. Politicians and bureaucrats are, by professional necessity, dishonest, self-serving, short-sighted, and arrogant.
Indeed, Hazlitt has nothing at all good to say about government, even though some government seems necessary (a necessary evil?) for the conduct of business. So, by presenting this chapter as his hook, Wenzel seems to say, "If you believe, follow me; if not, you're better off looking elsewhere." As an academic, it's my job to investigate even where I don't believe, but for the average reader, this chapter seems to be nothing but a filter to include only those who already believe, albeit those whose beliefs are perhaps not yet precisely and coherently formed, or who lack an authoritative exposition of their beliefs. If you hate the government, keep reading; if not, you're already damned. But the true believers aside, a skeptical examination of Hazlitt's claims reveal not only that they lack argumentative support outside the context of his book, but they also seem profoundly counter-intuitive.

First, Hazlitt goes to great lengths to argue the obvious fact that redistribution is, well, redistributive, not productive. In neutral terms, it consists of taking money from people who have it and giving it to people who don't have it. It results, as Hazlitt describes, in a society where
nobody pays for the education of his own children, but everybody pays for the education of everybody else's children; by which nobody pays his own medical bills, but everybody pays everybody else's medical bills; by which nobody provides for his own old-age security, but everybody pays for everybody else's old-age security; and so on.
Well, duh. Ordinary non-Libertarians call this the essence of a community. If the concept, "Nobody pays for his own X, but everybody pays everybody else's X," is absolutely, intrinsically bad, then we have to rethink the foundations of modern government that go back to the founding of civilization. After all, nobody pays for his own law enforcement, but everybody pays everybody else's law enforcement; nobody pays for his own national defense, but everybody pays everybody else's national defense; nobody pays for his own automobile accidents, but, through insurance, everybody pays everybody else's automobile accidents; and so on. Hazlitt gives us no compelling reason we should consider education, medical bills, or old-age pensions to be different.

Hazlitt does give an uncompelling reason, though, "incentives." But "incentive" is just a euphemism for structural coercion. Of course, the largest source of structural coercion is nature itself: we have to eat, drink, wash, stay out of the cold, mate, have and raise children, etc. or we individually or as a species will suffer and die. In this fetishism of incentive, we see a classic case of what I call moral inversion: we must do X because of Y; therefore X is good, therefore we must preserve Y to justify X. We must work to live; therefore work is good; therefore we must ensure that we must work to live to justify the value of work, which is good. But in today's modern, technological society, the amount of work we have to do just to live has decreased tremendously. If it is more economically efficient to socialize education, medical care, automobile insurance, old-age pensions, law enforcement, national defense, or even food or housing, and nature ceases to create the incentive, it is monstrous to enforce a tyranny politically that nature no longer enforces.

Finally, Hazlitt's insistence on a full reserve gold standard* is so economically infeasible as to constitute the most appalling economic ignorance, outright delusion, or, more charitably, a hidden agenda. One of the "technical defects" Hazlitt obliquely refers to is that there wasn't anywhere close to enough actual gold to monetize the world economy even in 1969. Money, even electronic money, can change hands only so many times in an accounting period (in economics jargon, there are technological limitations on the velocity of money). If we were to restrict our money to actual gold (or even gold and silver), we would place an artificial limit on how much we could actually produce for trade. There's no way business would stand for such a limitation. Like God, fiat money is so useful that if the government didn't make it, business would invent it. (And they have. Many times. And without a central authority to manage it, it periodically collapses.) A 100% reserve gold standard is physically impossible, and there has never been a society in recorded history that successfully operated exclusively on a hard money standard, without at least some sort of back-door fiat credit.

*As opposed to fractional reserve gold standard private banking, a business model pioneered by private goldsmiths in Adam Smith's era. See Fractional Reserve Banking for more information.

More importantly though, the call for a full reserve gold standard, especially in conjunction with an absolute rejection of government regulation of business, philosophically rejects any economic role of the government. Remember, the government that Hazlitt so roundly condemns is not, as he implies, an entrenched oligarchy institutionally accountable to no one but itself, but rather a democratic republic, at least partially accountable to the people. I'm no fan of republics, but I seriously doubt that Hazlitt, or Libertarians in general, argue for more democracy, for more direct control of the government by the people themselves. No, they want to make economics independent of any government control, with the government acting only to protect the interests of the owners of property. In short, the sort of Libertarianism Hazlitt presents is nothing more than plutocracy, where the owners of property can impose their will without any interference from the people.

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